Exhibit 99.1
The management and the Supervisory Board believe strongly in the
strategic rationale for the Transaction which will create a new
global telecom player with significant scale and an attractive
mix of developed and emerging market assets, well-positioned to
realize profitable growth.
Under the terms of the
Share Sale and Exchange Agreement, at
closing VimpelCom will purchase up to 100%, but not less than
98.04%, of the shares of Wind Telecom from Weather II and
the other Wind Telecom shareholders that become party to the
Share Sale and Exchange Agreement (the “
Wind Telecom
Shareholders”) in exchange for up to 325,639,827
VimpelCom common shares, 305,000,000 VimpelCom preferred shares
and up to US$1.495 billion in cash.
Closing of the Transaction is subject to VimpelCom shareholder
approval of the creation and issuance of VimpelCom common shares
and convertible preferred shares as described herein and
satisfaction or waiver of the other conditions specified in the
Share Sale and Exchange Agreement.
VimpelCom will hold a special general meeting of its
shareholders (the “Special General
Meeting”) on March 17, 2011 at 10 a.m.
Central European Time at Xxxxxx Xxxxxxxxxxx 00, 0000 XX
Xxxxxxxxx, Xxx Xxxxxxxxxxx for the following purposes:
(1) to approve, for the purposes of bye-law 55.4(f) of the
bye-laws of VimpelCom, the issuance by VimpelCom of up to
325,639,827 common shares of VimpelCom and of 305,000,000
convertible preferred shares of VimpelCom pursuant to the terms
of the
Share Sale and Exchange Agreement relating to the
acquisition by VimpelCom of Wind Telecom approved by the
Supervisory Board on January 16, 2011 (the
“
Share Issuance Proposal”); and
(2) to increase the authorized share capital of VimpelCom
to US$3,114,171.83 by the creation of 630,639,827 new common
shares of par value US$0.001 each in VimpelCom and of
305,000,000 new convertible preferred shares of par value
US$0.001 each in VimpelCom, the new shares having the rights and
being subject to the conditions set out in the VimpelCom
bye-laws (the “Authorized Share Capital Increase
Proposal”).
The formal notice of the Special General Meeting was issued by
VimpelCom on January 17, 2011.
AFTER CAREFUL CONSIDERATION OF THE TRANSACTION,
XXXXXXXXX’S SUPERVISORY BOARD RECOMMENDS THAT
SHAREHOLDERS VOTE IN FAVOR OF THE SHARE ISSUANCE
PROPOSAL AND THE AUTHORIZED SHARE CAPITAL INCREASE
PROPOSAL.
The affirmative vote of a majority of the votes cast at the
Special General Meeting at which a quorum is present will be
required to approve the Share Issuance Proposal and the
Authorized Share Capital Increase Proposal. Only the holders of
record of XxxxxxXxx shares at the close of business on
January 31, 2011, the record date for the Special General
Meeting, are entitled to vote at the Special General Meeting
under Bermuda law and the VimpelCom bye-laws.
VimpelCom shareholders are requested to complete and return the
proxy form, voting card or voting instruction form (as relevant
to how your shares are held) to ensure that their common shares
will be represented at the Special General Meeting. If you have
any questions, you may contact our proxy solicitors, X. X.
Xxxx & Co. Inc., by (i) telephone, toll-free
from North America at x0 000 000 0000, toll-free
from Continental Europe at
00 800 5464 5464, at
x0 000 000 0000 or
x00 000 000 0000; (ii) mail to 00 Xxxx
Xxxxxx,
00xx
Xxxxx, Xxx Xxxx XX 00000, XXX or 0 Xxxxxxxxx Xxxxxx,
00xx Xxxxx,
Xxxxxx XX0X 0XX; or (iii) email to
xxxxxxxxx@xxxxxx.xxx.
The enclosed proxy statement gives you information about the
Transaction, Wind Telecom and the proposals before the Special
General Meeting. We encourage you to read the entire proxy
statement carefully.
Once again, management and the Supervisory Board strongly
believe that the combination of VimpelCom and Wind Telecom will
expand our platform to create long-term shareholder value by
giving us the opportunity to capture future growth in emerging
markets, strengthen our ability to capture additional growth
following the paradigm shift from voice to data and secure
greater scale and scope ahead of further industry consolidation.
Consequently, we encourage you to vote in favor of the Share
Issuance Proposal and the Authorized Share Capital Increase
Proposal.
Thank you for your continuing support of VimpelCom.
Sincerely,
Xxxxxxxxx Xxxxxxxx
CEO
Dated: February 14, 2011
Xxxxxx
Xxxxxxxxxxx 00
0000 XX Xxxxxxxxx
Xxx Xxxxxxxxxxx
Victoria
Place
00 Xxxxxxxx Xxxxxx
Xxxxxxxx XX 00
Xxxxxxx
PROXY
STATEMENT
February 14, 2011
TABLE OF
CONTENTS
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iii
NOTICE TO
SHAREHOLDERS IN THE UNITED STATES
VimpelCom Ltd. (“
VimpelCom”) is a
company existing under the laws of Bermuda. This solicitation is
being conducted in accordance with the proxy solicitation rules
under applicable Bermuda laws. The proxy solicitation rules
under the U.S. Securities Exchange Act of 1934, as amended (the
“
Exchange Act”), are not applicable to
VimpelCom or this solicitation, and accordingly, this
solicitation is not being effected in accordance with such
rules. This proxy statement therefore may not contain all of the
disclosure required to be included in proxy statements prepared
in accordance with the proxy solicitation rules under the
Exchange Act. Shareholders should be aware that disclosure
requirements under Bermuda law may be different from
requirements under U.S. laws relating to U.S. companies.
iv
The following questions and answers highlight selected
information from this proxy statement and may not contain all
the information that is important to you. These questions and
answers are not meant to be a substitute for the information
contained in the remainder of this proxy statement, and this
information is qualified in its entirety by the more detailed
descriptions and explanations contained in this proxy statement
including, without limitation, any additional documents
incorporated by reference into this proxy statement.
Accordingly, we urge you to read this entire proxy statement and
any documents incorporated by reference into this proxy
statement carefully. Capitalized terms not defined in these
questions and answers are defined in “Glossary of Defined
Terms”.
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Q: |
|
What is this document? |
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A: |
|
This document is a proxy statement prepared by management of
VimpelCom in advance of the special general meeting of its
shareholders on March 17, 2011 (the “Special
General Meeting”). This proxy statement provides
additional information about the business of the Special General
Meeting, Wind Telecom and the Transaction. A proxy form, voting
card or voting instruction form (as relevant to how your shares
are held) accompanies this proxy statement. |
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Q: |
|
What is happening at the shareholder meeting? |
|
A: |
|
At the Special General Meeting, VimpelCom shareholders will be
asked to vote on the following proposals: |
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(1) to approve, for the purposes of bye-law 55.4(f) of the
bye-laws of VimpelCom, the issuance by VimpelCom of up to
325,639,827 common shares of VimpelCom and of 305,000,000
convertible preferred shares of VimpelCom pursuant to the terms
of the Share Sale and Exchange Agreement relating to the
acquisition by VimpelCom of Wind Telecom approved by the
Supervisory Board on January 16, 2011 (the
“ Share Issuance Proposal”); and
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(2) to increase the authorized share capital of VimpelCom
to US$3,114,171.83 by the creation of 630,639,827 new common
shares of par value US$0.001 each in VimpelCom and of
305,000,000 new convertible preferred shares of par value
US$0.001 each in VimpelCom, the new shares having the rights and
being subject to the conditions set out in the VimpelCom
bye-laws (the “Authorized Share Capital Increase
Proposal”).
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|
Q: |
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What will happen in the Transaction? |
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A: |
|
If VimpelCom shareholders adopt the resolutions and approve the
Share Issuance Proposal and Authorized Share Capital Increase
Proposal, and all other conditions to the Transaction have been
satisfied or waived, at Closing, VimpelCom will acquire all the
Wind Telecom shares held by Weather II and the Wind Telecom
Shareholders. Under the Share Sale and Exchange Agreement,
VimpelCom is not required to close unless it will acquire at
Closing shares representing at least 98.04% of Wind
Telecom’s share capital (excluding shares held by Wind
Telecom’s subsidiary, WAHF). VimpelCom will acquire these
shares in exchange for consideration consisting of (i) up
to 325,639,827 newly issued VimpelCom common shares,
(ii) 305,000,000 newly issued convertible preferred shares
and (iii) up to US$1.495 billion in cash. |
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At or after Closing, Wind Telecom’s interest in certain
assets, which principally comprise OTH’s investments in
Egypt and North Korea and certain non-core Wind Italy assets,
will be transferred to Weather II, or if such transfers cannot
be effected, VimpelCom will make certain payments to Weather
II. See “The Spin-Off Plan”, for more details. |
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Q: |
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Why is XxxxxxXxx proposing to enter in the Transaction? |
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A: |
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In evaluating the Share Sale and Exchange Agreement,
VimpelCom’s Supervisory Board consulted with
VimpelCom’s management and its legal and financial
advisors, and, in reaching its decision to approve the Share
Sale and Exchange Agreement and recommend that the shareholders
of VimpelCom vote in favor of the |
v
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Share Issuance Proposal and the Authorized Share Capital
Increase Proposal, the Supervisory Board considered a number of
factors, which it viewed as generally supporting its
determination, including, among others: |
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• the opportunity for VimpelCom to secure the
advantages of scale and scope in a rapidly evolving and
consolidating industry, by becoming a top-tier global telecoms
company with a global footprint and a broad product range;
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• the opportunity to position the company to take
maximum advantage of the anticipated paradigm shift in the
telecoms industry from voice to data;
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• the opportunity to drive profitable growth by
developing a balanced portfolio of high-quality assets with a
broad presence in both mature and emerging and developing
markets and by leveraging Wind Telecom’s experience in
highly-developed data markets such as Italy and in low-cost
under-penetrated mobile markets such as Pakistan and Bangladesh;
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• the opportunity to acquire these assets on
attractive financial terms which would allow the company to
optimize its capital structure, minimize dilution for its
shareholders and retain its dividend policy; and
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• other factors described in “VimpelCom’s
Reasons for the Transaction; Recommendation of VimpelCom’s
Supervisory Board”.
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Q: |
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Does VimpelCom’s Supervisory Board recommend approval of
the proposals? |
|
A: |
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Yes. The Supervisory Board recommends that you vote
“FOR” each resolution. At the meeting of the
Supervisory Board held on January 16, 2011, six of the nine
directors on the Supervisory Board voted in favor of the
Transaction and voted to recommend to shareholders approval of
the Share Issuance Proposal and Authorized Share Capital
Increase Proposal. These six directors included the three
directors nominated by our shareholder Xxxxxx and the three
independent directors. The three directors nominated by our
shareholder Telenor voted against the Transaction and against
recommending that the shareholders vote in favor of the Share
Issuance Proposal and Authorized Share Capital Increase Proposal. |
|
Q: |
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What will be the composition of XxxxxxXxx’s Supervisory
Board following the Closing of the Transaction? |
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A: |
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Upon the Closing, the composition of VimpelCom’s
Supervisory Board is not expected to change. |
|
Q: |
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When do the parties expect to close the Transaction? |
|
A: |
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The parties expect to close the Transaction in the first half of
2011, although there can be no assurance that the parties will
be able to do so. |
|
Q: |
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What other conditions must be satisfied to close the
Transaction? |
|
A: |
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Closing of the Transaction is subject to the approval by our
shareholders of the Share Issuance Proposal and the Authorized
Share Capital Increase Proposal, receipt of regulatory approvals
in Italy, Pakistan and Ukraine, the completion of actions and
transactions required to be completed before Closing and as of
Closing as set out in the Refinancing Plan, the execution and
delivery of the Ancillary Agreements at Closing, the completion
of the Wind Hellas Spin-Off from the Wind Telecom Group, the
absence of any order enacted by any governmental entity, court
or arbitration tribunal making the transfer of the Wind Telecom
Shares to VimpelCom, the issuance of the VimpelCom common shares
or VimpelCom convertible preferred shares or the completion of
the spin-off transactions pursuant to the Spin-off Plan illegal
or otherwise prohibiting such transfer or transactions, and
other conditions to Closing described in “The Share Sale
and Exchange Agreement — Conditions to
Closing”. |
|
Q: |
|
What percentage of VimpelCom’s common shares and total
voting shares will Weather II and the Wind Telecom
Shareholders own, in the aggregate, after the Transaction? |
|
A: |
|
Based on VimpelCom’s capitalization as of January 31,
2011, the record date for the Special General Meeting (the
“Record Date”), VimpelCom estimates
that, assuming VimpelCom acquires 100% of the shares of Wind
Telecom at Closing, following the Closing Weather II and
the Wind Telecom Shareholders would own, in the aggregate,
approximately 20.0% of the issued and outstanding VimpelCom
common shares and approximately |
vi
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30.6% of the issued and outstanding voting shares, and Telenor
and Altimo would own approximately 31.7% and 31.4%,
respectively, of the issued and outstanding VimpelCom common
shares and approximately 25.0% and 31.0%, respectively, of the
issued and outstanding voting shares. See “Risk
Factors — Risk Factors Relating to the
Transaction — Telenor opposes the Transaction and has
challenged it” and “Risk Factors — Risk
Factors Relating to the Transaction — If Telenor is
successful in the Arbitration Proceedings, it could lead to
significant dilution to VimpelCom’s minority
shareholders”, for a description of Telenor’s
challenge to the Transaction and possible further dilution if
Telenor prevails in its challenge. |
|
Q: |
|
What shareholder vote is required to approve the proposals at
the Special General Meeting and how many votes must be present
to hold the meetings? |
|
A: |
|
The affirmative vote of a majority of the votes cast at the
Special General Meeting, at which a quorum is present in
accordance with VimpelCom’s bye-laws, is required to
approve the Share Issuance Proposal and the Authorized Share
Capital Increase Proposal. The quorum required at the Special
General Meeting is two or more persons present in person at the
start of the meeting having the right to attend and vote at the
meeting and holding or representing in person or by proxy at
least 50% plus one voting share of the total issued voting
shares in VimpelCom. |
|
Q: |
|
Am I entitled to dissenter rights? |
|
A: |
|
No. VimpelCom shareholders are not entitled to dissenter rights
in connection with the actions to be taken at the Special
General Meeting. |
|
Q: |
|
How do I vote my shares? |
|
A: |
|
Registered holders of VimpelCom shares — If you
are a holder of record of VimpelCom shares, meaning that your
name appears in VimpelCom’s Register of Members at the
close of business on the Record Date, you will receive a proxy
form from VimpelCom. Please mark, date and sign the form and
return it in the envelope provided or vote your shares at the
meeting. Proxy forms must be received on or before the voting
deadline of March 16, 2011 at 10:00 a.m. Central
European Time. Registered holders of XxxxxxXxx shares can also
vote at the meeting by ballot. |
|
|
|
Registered holders of VimpelCom ADSs — If you
are a holder of record of VimpelCom American Depository Shares
(“VimpelCom ADSs”), meaning that your
VimpelCom ADSs are evidenced by physical certificated American
Depositary Receipts or book entries in your name so that you
appear as a VimpelCom ADS holder in the register maintained by
the Depositary at the close of business on the Record Date, you
will receive a voting card from the Depositary with instructions
on how to instruct the Depositary to vote the VimpelCom common
shares represented by your VimpelCom ADSs. Please mark, date
and sign the card and return it in the envelope provided.
Voting cards must be received on or before the voting deadline
fixed by the Depositary of March 11, 2011 at
5:00 p.m. New York Time. |
|
|
|
Street name holders of VimpelCom ADSs — If you
hold VimpelCom ADSs through a bank, broker or other nominee (in
“street name”), you should receive a voting
instruction form from your bank, broker or other nominee that
you may use to instruct them on how to vote your VimpelCom
ADSs. Your bank, broker or other nominee may allow for Internet
and/or telephone voting. Please consult the voting instruction
form received or your bank, broker or other nominee to determine
if you can give voting instructions by Internet or telephone.
If you cannot vote by Internet or telephone, please mark, date
and sign the voting instruction form and return it in the
envelope provided. Voting instruction forms must be received on
or before the voting deadline fixed by the Depositary of
March 11, 2011 at 5:00 p.m. New York Time. |
|
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See “The Special General Meeting”, for a
discussion of voting procedures. |
|
Q: |
|
Can I attend the Special General Meeting? |
|
A: |
|
Attendance at our Special General Meeting is limited to our
shareholders, holders of VimpelCom ADSs and their authorized
representatives. All shareholders and VimpelCom ADS holders
must bring an acceptable form of identification, such as a
driver’s license or passport, in order to attend our
Special General Meeting in person. In addition, if you hold
VimpelCom ADSs in “street name” and would like to
attend our Special General |
vii
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Meeting, you will need to bring an account statement or other
acceptable evidence of ownership of VimpelCom ADSs as of the
close of business on the Record Date. Any representative of a
shareholder who wishes to attend must present acceptable
documentation evidencing his or her authority, acceptable
evidence of ownership by the shareholder as described above and
an acceptable form of identification. We reserve the right to
limit the number of representatives for any shareholder who may
attend the meeting. |
|
Q: |
|
Can I vote my shares in person at the Special General
Meeting? |
|
A: |
|
Registered holders of VimpelCom shares can vote at the Special
General Meeting by ballot. If you are a VimpelCom ADS holder,
you may not vote your shares in person at the Special General
Meeting unless you obtain a “legal proxy” giving you
the right to vote the shares at the Special General Meeting.
Even if you plan to attend the Special General Meeting, we
recommend that you also submit your proxy form, voting card or
voting instructions as described in the proxy statement so that
your vote will be counted if you later decide not to attend the
meeting. See “The Special General Meeting”, for
a discussion of voting procedures. |
|
Q: |
|
How will my shares be voted if I give my voting
instruction? |
|
|
|
If you give a proxy form, voting card or voting instruction, the
shares represented by the proxy form, voting card or voting
instruction will be voted or withheld from voting, in accordance
with your instructions as indicated in the proxy form, voting
card or voting instruction on each resolution. In the absence
of instructions from you in the proxy form, voting card or
voting instruction as to how you wish your votes to be cast,
such share will be voted FOR all of the resolutions at the
Special General Meeting in accordance with the Supervisory
Board’s recommendation. |
|
Q: |
|
What effect do abstentions have on the proposals? |
|
A: |
|
Abstentions will be counted toward the presence of a quorum at,
but will not be considered votes cast on any proposal brought
before, the Special General Meeting. |
|
Q: |
|
What do I do if I want to change my vote? |
|
A: |
|
If you are a registered holder of VimpelCom shares, you can
revoke your proxy by signing, dating and returning a completed
proxy form with a later date or by attending the Special General
Meeting and voting in person. If you are a registered holder of
VimpelCom shares, your proxy forms must be received on or before
the voting deadline of March 16, 2011 at 10:00 a.m.
Central European Time. |
|
|
|
If you are a registered VimpelCom ADS holder, voting cards must
be received on or before the voting deadline fixed by the
Depositary of March 11, 2011 at 5:00 p.m. New York
Time. You may change your vote by following the instructions on
your voting card to vote again. Registered VimpelCom ADS holders
who need another copy of their voting card may call our proxy
solicitor X. X. Xxxx & Co., Inc. toll-free from North
America at x0 000 000 0000, toll-free from Continental Europe at
00800 5464 5464, or x0 000 000 0000 or x00 000 000 0000 (from
other locations). Please note that the last instructions
received by the Depositary by the voting deadline will be the
voting instructions followed by the Depositary. |
|
|
|
If you hold your VimpelCom ADSs in street name and wish to
change your vote, you should follow the instructions provided by
your bank, broker or other nominee. |
|
Q: |
|
What if amendments are made to these matters or other
business is brought before the Special General Meeting? |
|
A: |
|
The accompanying proxy form, voting card or voting instruction
confers discretionary authority on the proxy holders who will
vote your VimpelCom shares or the VimpelCom shares underlying
your VimpelCom ADSs with respect to any amendments or variations
to the matters identified in the notice of the Special General
Meeting distributed to shareholders or other matters that may
properly come before the Special General Meeting, and the named
proxies will vote on such matters in accordance with their
judgment. |
|
Q: |
|
What do I need to do now? |
|
A: |
|
You are urged to read carefully this proxy statement, including
its annexes and any documents incorporated by reference into
this proxy statement. You also may want to review the documents
referenced under “Where You Can Find More
Information” and consult with your accounting, legal
and tax advisors. Once you have |
viii
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considered all relevant information, you are encouraged to
follow the voting instructions on the proxy form (if you are a
registered holder of VimpleCom shares), or on the voting card
provided to you by the Depositary (if you are a holder of record
of VimpelCom ADSs) or the voting instruction form you receive
from your bank, broker or other nominee (if you hold your
VimpelCom ADSs in street name). |
|
Q: |
|
Whom can I contact with any additional questions? |
|
A: |
|
If you have additional questions about the proposals or the
Transaction, if you would like additional copies of this proxy
statement, or if you need assistance voting your VimpelCom
common shares or VimpelCom ADSs, you should contact X. X.
Xxxx & Co., Inc. by any of the following methods: |
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Mail |
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00 Xxxx Xxxxxx,
00xx
Xxxxx
Xxx Xxxx, XX 10005
0 Xxxxxxxxx Xxxxxx,
00xx
Xxxxx
Xxxxxx, XX0X 0XX |
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Email |
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xxxxxxxxx@xxxxxx.xxx |
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Phone |
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x0 000 000 0000 (toll-free from North America)
00800 5464 5464 (toll-free from Continental Europe)
x0 000 000 0000 (banks and brokers call collect)
x00 000 000 0000 (from other locations) |
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Q: |
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Who pays for the cost of proxy preparation and
solicitation? |
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A: |
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VimpelCom will bear the costs of this solicitation in connection
with the Special General Meeting. Solicitation will be made by
mail, telephone, facsimile, telegraph, the Internet,
e-mail,
newspapers and other publications of general distribution and in
person and may be made by XxxxxxXxx’s directors, officers
and employees, personally or by telephone or
e-mail.
Proxy forms, voting cards or voting instruction forms and
materials will be distributed to registered holders of
VimpelCom’s common shares by VimpelCom, to registered
holders of VimpelCom ADSs through the Depositary and to
beneficial owners of VimpelCom ADSs through brokers, custodians,
nominees and other parties. VimpelCom expects to reimburse such
parties for their charges and expenses. |
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VimpelCom has retained X. X. Xxxx & Co., Inc. to
assist with soliciting shareholder proxies, and X. X.
Xxxx & Co., Inc. will receive customary fees plus
reimbursement of expenses. |
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Q: |
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Where can I find more information about VimpelCom? |
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A: |
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You can find more information about VimpelCom in the documents
described under “Where You Can Find More
Information”. |
ix
SUMMARY
Unless the context otherwise requires, references to
“we,” “us”, “our”,
“VimpelCom” or the “Company”
refer to VimpelCom Ltd. This summary highlights selected
information from this proxy statement but may not contain all of
the information that may be important to you. Accordingly, we
encourage you to read carefully this entire proxy statement and
any documents incorporated by reference into this proxy
statement to understand the proposals and the terms of the Share
Sale and Exchange Agreement (the “Share Sale and
Exchange Agreement”), dated as of January 17,
2011, by and among VimpelCom, Wind Telecom S.p.A., which until
December 30, 2010 was known as Weather Investments S.p.A
(“Wind Telecom”), Weather Investments II
S.à x.x. (“Weather II”) and the other
shareholders of Wind Telecom that become party to the Share Sale
and Exchange Agreement (the “Wind Telecom
Shareholders”), pursuant to which at closing (the
“Closing”
) VimpelCom will acquire shares
in Wind Telecom held by Weather II and the Wind Telecom
Shareholders (the “Wind Telecom Shares”). In
this proxy statement we refer to the transactions under the
Share Sale and Exchange Agreement collectively as the
“Transaction”.
The
Parties to the Transaction
VimpelCom
The VimpelCom group consists of telecommunications operators
providing voice and data services through a range of wireless,
fixed and broadband technologies. We are headquartered in
Amsterdam and have operations in Russia, Ukraine, Kazakhstan,
Uzbekistan, Tajikstan, Georgia, Armenia, Kyrgyzstan, Vietnam and
Cambodia, covering territory with a total population of about
345 million. Our operating companies provide services
under the “Beeline” and “Kyivstar” brands.
VimpelCom American Depositary Shares (“
VimpelCom
ADSs”) are listed on the
New York Stock Exchange
under the symbol “VIP”. VimpelCom, through its
subsidiaries, had 92 million subscribers as of
September 30, 2010.
Telenor ASA indirectly through its wholly owned subsidiary
Telenor East Holdings II AS (collectively,
“Telenor”) presently owns a 39.6%
economic interest and 36.0% voting interest in VimpelCom, and
Altimo Holdings & Investments Limited indirectly
through its wholly owned subsidiary Altimo Cooperatief U.A.
(collectively, “Altimo”) presently owns
a 39.2% economic interest and 44.7% voting interest in VimpelCom.
The Wind Telecom group consists of telecommunications operators
providing mobile, fixed, Internet and international
communication services in Europe, North America, Africa, the
Middle East and Asia. Wind Telecom owns 100% of Wind
Telecomunicazioni S.p.A. (“Wind Italy”)
which operates GSM networks in Italy, and 51.7% of Orascom
Telecom Holding S.A.E. (“OTH”), which
in turn operates GSM networks in Algeria, Bangladesh, Egypt,
Pakistan, North Korea, Zimbabwe, Namibia, the Central African
Republic and Burundi, and in Canada through its indirect equity
ownership in Globalive Wireless. Wind Telecom, through its
subsidiaries, had 117 million subscribers worldwide as of
September 30, 2010 (excluding operations that have been
divested since such date).
Wind Telecom is owned 67.02% by Weather II, which is itself
owned by the members of the Sawiris family, 23.42% by certain
private equity investors (“Wind Telecom
Investors”), 1.81% by other Wind Telecom
shareholders (“Wind Telecom Minority
Shareholders”) and 7.76% by its
99.99% subsidiary Wind Acquisition Holdings Finance S.p.A.
(“WAHF”). Excluding the Wind Telecom
shares held by WAHF, Wind Telecom is owned 72.65% by
Weather II, 25.39% by the Wind Telecom Investors and 1.96%
by the Wind Telecom Minority Shareholders.
See “Description of the Business of Wind
Telecom”, for more information.
The
Transaction
On January 17, 2011, XxxxxxXxx entered into the Share Sale
and Exchange Agreement with Wind Telecom and Weather II.
Subject to the approval of the Share Issuance Proposal and the
Authorized Share Capital Increase Proposal and satisfaction or
waiver of the other conditions specified in the Share Sale and
Exchange Agreement, at Closing VimpelCom will acquire the Wind
Telecom Shares in exchange for a combination of cash, common
shares
1
See “The Transaction — General Background and
Description”, for more information.
In evaluating the Share Sale and Exchange Agreement,
VimpelCom’s Supervisory Board consulted with
VimpelCom’s management and its legal and financial
advisors, and, in reaching its decision to approve the Share
Sale and Exchange Agreement and recommend that the shareholders
of VimpelCom vote in favor of the Share Issuance Proposal and
the Authorized Share Capital Increase Proposal, the Supervisory
Board considered a number of factors, which it viewed as
generally supporting its determination, including, among others:
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the opportunity for VimpelCom to secure the advantages of scale
and scope in a rapidly evolving and consolidating industry, by
becoming a top-tier global telecoms company with a global
footprint and a broad product range;
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the opportunity to position the company to take maximum
advantage of the anticipated paradigm shift in the telecoms
industry from voice to data;
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the opportunity to drive profitable growth by developing a
balanced portfolio of high-quality assets with a broad presence
in both mature and emerging and developing markets and by
leveraging Wind Telecom’s experience in highly-developed
data markets such as Italy and in low-cost under-penetrated
mobile markets such as Pakistan and Bangladesh;
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the opportunity to acquire these assets on attractive financial
terms which would allow the company to optimize its capital
structure, minimize dilution for its shareholders and retain its
dividend policy; and
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other factors described in “VimpelCom’s Reasons for
the Transaction; Recommendation of VimpelCom’s Supervisory
Board”.
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In connection with the Transaction, XxxxxxXxx engaged UBS
Investment Bank (“UBS”) and Deutsche
Bank (“Deutsche Bank”) to act as its
financial advisors. Additionally, Citigroup Global Markets
(“Citi”) acted as financial advisor to
the Supervisory Board of VimpelCom.
We will hold a special general meeting of shareholders of
VimpelCom (the “Special General
Meeting”) on March 17, 2011 at 10 a.m.
Central European Time for the following purposes:
(1) to approve, for the purposes of bye-law 55.4(f) of the
bye-laws of VimpelCom, the issuance by VimpelCom of up to
325,639,827 common shares of VimpelCom and of 305,000,000
convertible preferred shares of VimpelCom pursuant to the terms
of the Share Sale and Exchange Agreement relating to the
acquisition by VimpelCom of Wind Telecom approved by the
Supervisory Board on January 16, 2011 (the
“Share Issuance Proposal”); and
(2) to increase the authorized share capital of VimpelCom
to US$3,114,171.83 by the creation of 630,639,827 new common
shares of par value US$0.001 each in VimpelCom and of
305,000,000 new convertible preferred shares of par value
US$0.001 each in VimpelCom, the new shares having the rights and
being subject to the conditions set out in the VimpelCom
bye-laws (the “Authorized Share Capital Increase
Proposal”).
2
The VimpelCom convertible preferred shares to be issued to
Weather II and the Wind Telecom Shareholders may be
converted into VimpelCom common shares any time between
2.5 years and 5 years after their issuance at a price
based on the NYSE price for VimpelCom ADSs. Pursuant to
VimpelCom’s bye-laws, VimpelCom must reserve and keep
available out of its authorized but unissued common shares not
less than the number of common shares issuable on conversion of
its convertible preferred shares outstanding. Accordingly, the
Authorized Share Capital Increase Proposal contemplates the
creation of not only the shares to be issued pursuant to the
Share Issuance Proposal, but also an additional 305,000,000
common shares issuable on conversion of the convertible
preferred shares being issued at Closing.
Registered holders of record of XxxxxxXxx shares will be
entitled to vote at the Special General Meeting or any
adjournement or postponement thereof. You are the registered
holder of record of VimpelCom shares if your VimpelCom shares
are registered in your name on VimpelCom’s Register of
Members at the close of business on January 31, 2011, the
record date for the Special General Meeting (the
“Record Date”). Holders of record of
VimpelCom shares will receive a proxy card from VimpelCom and
will be entitled to vote by mail or at the Special General
Meeting.
Holders of record of VimpelCom ADSs will be entitled to instruct
the Bank of
New York Mellon, the depositary for the VimpelCom
ADSs (the “
Depositary”), as to the
exercise of voting rights pertaining to the VimpelCom common
shares represented by such holder’s VimpelCom ADSs. You are
a holder of record of VimpelCom ADSs if your VimpelCom ADSs are
evidenced by physical certificated American Depositary Receipts
or book entries in your name so that you appear as a VimpelCom
ADS holder in the register maintained by the Depositary at the
close of business on the Record Date. Holders of record of
VimpelCom ADSs will receive a voting card from the Depositary
with instructions on how to instruct the Depositary to vote the
VimpelCom common shares represented by such holder’s
VimpelCom ADSs.
If you hold VimpelCom ADSs through a bank, broker or other
nominee in “street name”, you may receive from that
institution a voting instruction form that you may use to
instruct them on how to cause your VimpelCom ADSs to be voted.
See “The Special General Meeting”, for more
information.
The Share
Sale and Exchange Agreement
On January 17, 2011, XxxxxxXxx entered into the Share Sale
and Exchange Agreement with Wind Telecom and Weather II
pursuant to which the parties agreed to effect the Transaction
on and subject to the terms of the Share Sale and Exchange
Agreement. The following is a summary of certain provisions of
the Share Sale and Exchange Agreement and does not purport to be
complete. See “The Share Sale and Exchange
Agreement”.
Under the terms of the Share Sale and Exchange Agreement, at
Closing VimpelCom will acquire the Wind Telecom Shares for
consideration consisting of the following: (i) up to
325,639,827 VimpelCom common shares, (ii) 305,000,000
VimpelCom convertible preferred shares, and (iii) up to
$1.495 billion in cash. See “The Share Sale and
Exchange Agreement — The Transaction
Consideration”. As additional consideration, at or
after Closing, Wind Telecom’s interest in certain assets
will be transferred to Weather II, or if such transfers cannot
be effected, VimpelCom will make certain cash payments to
Weather II as described in “The Spin-Off Plan”.
Under the terms of the Share Sale and Exchange Agreement,
Weather II and the Wind Telecom Shareholders irrevocably
direct VimpelCom not to make payment to them of dividends
declared during or with respect to the 2010 financial year on
VimpelCom common shares. This direction only applies to the
first US$850 million declared and paid out with respect to
the 2010 financial year. Prior to entering into the Share Sale
and Exchange Agreement VimpelCom had already declared and paid
out US$600 million in interim dividends with respect to the
2010 financial year. The Share Sale and Exchange Agreement
further provides that VimpelCom will declare US$850 million
(hence a further $250 million) in interim dividends on
VimpelCom common shares in respect of the 2010 financial year,
but other than with respect to those dividends, VimpelCom is not
permitted to set as a record date for
3
any additional dividends to holders of VimpelCom common shares
any date occurring prior to June 1, 2011. See “The
Share Sale and Exchange Agreement —
Covenants — Dividends”.
Under the terms of the Share Sale and Exchange Agreement, from
the time the Share Issuance Proposal and the Authorized Share
Capital Increase Proposal approved by VimpelCom shareholders
(the “Obligation Date”) until Closing,
VimpelCom covenants not to, and to not permit any of its
officers, directors, affiliates, agents or representatives to,
solicit, initiate, encourage, conduct or engage in any
discussions, or enter into any agreement or understanding, with
any other person or entity relating to the merger, business
combinations, recapitalization or similar corporate event
involving VimpelCom or any of its subsidiaries or relating to
the sale of any of the shares or capital stock of VimpelCom or
any of its subsidiaries or any material portion of the assets of
VimpelCom or any of its subsidiaries. Wind Telecom and
Weather II make the same covenant. See “The Share
Sale and Exchange Agreement — Covenants —
Restrictions on Solicitation”.
The respective obligation of each party to close the
transactions contemplated by the Share Sale and Exchange
Agreement is subject to the satisfaction or waiver of the
following conditions:
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no governmental entity, court or arbitration tribunal will have
enacted, promulgated, enforced or entered any statute, rule,
regulation, injunction or other order that makes the transfer of
the Wind Telecom Shares to VimpelCom, the issuance of VimpelCom
common shares or VimpelCom convertible preferred shares or
payment of the cash consideration to Weather II and the
Wind Telecom Shareholders or the completion of the spin-off
transactions pursuant to the Spin-Off Plan illegal or otherwise
prohibiting such transfer and transactions;
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all consents required under the competition and antitrust laws
of Ukraine, Pakistan and Italy and the approval of the Pakistan
Telecommunications Authority will have been obtained (including
the termination of any applicable waiting periods) without
material conditions or restrictions;
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shareholder approval of the Share Issuance Proposal and the
Authorized Share Capital Increase Proposal will have been
obtained; and
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the actions and transactions that are required to be completed
before Closing and as of Closing as set out in the Refinancing
Plan will have been completed.
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Other conditions to Closing are described in “The Share
Sale and Exchange Agreement — Conditions to
Closing”.
The Share Sale and Exchange Agreement may be terminated, at any
time prior to the Closing date,
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by mutual written consent of the boards of directors, or
equivalent governing bodies, of Wind Telecom and VimpelCom;
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by either Wind Telecom or VimpelCom at any time on or prior to
the Obligation Date;
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by either Wind Telecom or VimpelCom if Closing shall not have
occurred on or prior to June 30, 2011; and
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by either Wind Telecom or VimpelCom if any governmental entity,
court or arbitration tribunal has enacted, issued, promulgated,
enforced, or entered any statute, rule, regulation, injunction
or other order which is in effect and has the effect of making
the transfer of the Wind Telecom Shares, the issuance of
VimpelCom shares or payment of cash consideration to
Weather II and the Wind Telecom Shareholders or completion
of the spin-off transactions pursuant to the Spin-Off Plan
illegal or otherwise prohibiting consummation of such transfers
and transaction and such statute, rule, regulation, injunction
or other order has become final and non-appealable.
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The Share Sale and Exchange Agreement does not impose any break
fee on the terminating party.
If either Wind Telecom or VimpelCom validly terminates the Share
Sale and Exchange Agreement, the Share Sale and Exchange
Agreement will terminate and have no further effect, except for
certain provisions that survive such termination. Except with
respect to termination by Wind or VimpelCom prior to the
Obligation Date, no party will be relieved or released from any
liabilities or damages incurred or suffered by a party, to the
extent such liabilities or damages were the result of fraud or
wilful and material breach.
The
Refinancing Plan
In connection with the Transaction, the parties have agreed a
refinancing plan (the “Refinancing
Plan”). The Refinancing Plan covers financings by
VimpelCom to fund the Transaction and refinancings by Wind
Telecom entities primarily to obtain consent for a change of
control on Closing and also to modify other covenants and
refinance debt either to obtain more favorable terms or to
extend its maturity. Under the terms of the Share Sale and
Exchange Agreement, Wind Telecom, Weather II and VimpelCom
must use their reasonable best efforts to do, or cause to be
done, all things necessary, proper or advisable to effect the
Refinancing Plan. See “The Refinancing Plan”.
The
Spin-Off Plan
As part of the Transaction, the parties have agreed a plan
pursuant to which Wind Telecom’s interest in certain assets
of the Wind Telecom group will be transferred to Weather II
at or following Closing (“Spin-Off
Plan”). The Spin-Off Plan also provides that if
such transfers cannot be effected, VimpelCom will make certain
cash payments to Weather II. Under the terms of the Share Sale
and Exchange Agreement, Wind Telecom, Weather II and
VimpelCom must use their reasonable best efforts to do, or cause
to be done, all things necessary, proper or advisable to effect
the Spin-Off Plan. See “The Spin-Off Plan”.
The
MobiNil/ECMS Plan
In connection with the Transaction, the parties have agreed a
plan relating to the exercise of control over OTH’s shares
in MobiNil Telecommunications S.A.E.
(“MobiNil”) and the Egyptian Company for
Mobile Services (“ECMS”), which plan is
referred to in this proxy statement as the
“MobiNil/ECMS Plan”. Under the terms of
the Share Sale and Exchange Agreement, Wind Telecom,
Weather II and VimpelCom must use their reasonable best
efforts to do, or cause to be done, all things necessary, proper
or advisable to effect the MobiNil/ECMS Plan. See “The
MobiNil/ECMS Plan”.
The
Ancillary Agreements
Pursuant to the Share Sale and Exchange Agreement, the parties
are to enter into the following agreements at Closing:
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an interim control agreement among OTH, Wind Telecom and
VimpelCom (the “Interim Control
Agreement”), which contains the MobiNil/ECMS Plan;
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a lock-up
agreement between Weather II and VimpelCom (the
“Lock-Up
Agreement”);
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a share escrow agreement between Weather II and VimpelCom
(the “Share Escrow Agreement”);
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a registration rights agreement between Weather II and
VimpelCom (the “Weather II Registration Rights
Agreement”);
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a framework agreement among Wind International Services S.p.A
(“WIS”), one of the entities being
transferred to Weather II pursuant to the Spin-Off Plan,
Weather II and VimpelCom (the “WIS Framework
Agreement”);
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a value sharing agreement between Weather II and VimpelCom
(the “Algerian Value Sharing Agreement”);
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a separation agreement with respect to OTH, among OTH, Wind
Telecom, Weather II and VimpelCom (the “OTH
Separation Agreement”); and
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a separation agreement with respect to Wind Italy among Wind
Italy, Wind Telecom, Weather II and VimpelCom (the
“Wind Separation Agreement”).
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The Interim Control Agreement, the
Lock-Up
Agreement, the Share Escrow Agreement, the Weather II
Registration Rights Agreement, the WIS Framework Agreement, the
Algerian Value Sharing Agreement, the OTH Separation Agreement
and the Wind Separation Agreement are referred to in this proxy
statement collectively as the “Ancillary
Agreements”. See “Ancillary
Agreements”.
The Closing of the Transaction is subject to consent from the
competition law authorities in the Ukraine, Italy and Pakistan.
The Closing of the Transaction is also subject to the approval
of the Pakistan Telecommunications Authority. See “The
Share Sale and Exchange Agreement — Conditions to
Closing” and “Regulatory Matters”.
In deciding whether to vote your shares in favor of the Share
Issuance Proposal and the Authorized Share Capital Increase
Proposal, you should consider the risks described under
“Risk Factors” and in Annex A and
Annex B.
6
This proxy statement is being provided to the VimpelCom
shareholders and holders of VimpelCom ADSs in connection with
the solicitation of proxies and voting instructions by
XxxxxxXxx’s Supervisory Board to be voted at the Special
General Meeting.
The Special General Meeting will be held on March 17, 2011
at 10 a.m. Central European Time at Xxxxxx Xxxxxxxxxxx 00,
0000 XX Xxxxxxxxx, Xxx Xxxxxxxxxxx. The Special General Meeting
was convened by a notice issued by XxxxxxXxx on January 17,
2011.
At the Special General Meeting, VimpelCom shareholders will be
asked to consider and vote on the following proposals:
(1) to approve, for the purposes of bye-law 55.4(f) of the
bye-laws of VimpelCom, the issuance by VimpelCom of up to
325,639,827 common shares of VimpelCom and of 305,000,000
convertible preferred shares of VimpelCom pursuant to the terms
of the Share Sale and Exchange Agreement relating to the
acquisition by VimpelCom of Wind Telecom approved by the
Supervisory Board on January 16, 2011 (the
“Share Issuance Proposal”); and
(2) to increase the authorized share capital of VimpelCom
to US$3,114,171.83 by the creation of 630,639,827 new common
shares of par value US$0.001 each in VimpelCom and of
305,000,000 new convertible preferred shares of par value
US$0.001 each in VimpelCom, the new shares having the rights and
being subject to the conditions set out in the VimpelCom bye
laws (the “Authorized Share Capital Increase
Proposal”).
The VimpelCom convertible preferred shares to be issued to
Weather II and the Wind Telecom Shareholders may be converted
into VimpelCom common shares any time between 2.5 years and 5
years after their issuance at a price based on the NYSE price
for VimpelCom ADSs. Pursuant to VimpelCom’s bye-laws,
VimpelCom must reserve and keep available out of its authorized
but unissued common shares not less than the number of common
shares issuable on conversion of its convertible preferred
shares outstanding. Accordingly, the Authorized Share Capital
Increase Proposal contemplates the creation of not only the
shares to be issued pursuant to the Share Issuance Proposal, but
also an additional 305,000,000 common shares issuable on
conversion of the convertible preferred shares being issued.
AFTER CAREFUL CONSIDERATION OF THE TRANSACTION, THE VIMPELCOM
SUPERVISORY BOARD RECOMMENDS THAT SHAREHOLDERS VOTE IN
FAVOR OF THE SHARE ISSUANCE PROPOSAL AND THE AUTHORIZED
SHARE CAPITAL INCREASE PROPOSAL.
Record
Date and Shares Entitled to Vote
Registered holders of record of XxxxxxXxx shares will be
entitled to vote at the Special General Meeting or any
adjournment or postponement thereof. You are the registered
holder of record of VimpelCom shares if your VimpelCom shares
are registered in your name on VimpelCom’s Register of
Members at the close of business on the Record Date. Holders of
record of VimpelCom shares will receive a proxy card from
VimpelCom and will be entitled to vote by mail or at the Special
General Meeting.
Holders of record of VimpelCom ADSs will be entitled to instruct
the Depositary as to the exercise of the voting rights
pertaining to the VimpelCom common shares represented by such
holder’s VimpelCom ADSs. You are a holder of record of
VimpelCom ADSs if your VimpelCom ADSs are evidenced by physical
certificated American Depositary Receipts or book entries in
your name so that you appear as a VimpelCom ADS holder in the
register maintained by the Depositary at the close of business
on the Record Date. If you are a holder of record of VimpelCom
ADSs, you will receive a voting card from the Depositary with
instructions on how to instruct the Depositary to vote the
VimpelCom common shares represented by your VimpelCom ADSs.
7
If you hold VimpelCom ADSs through a bank, broker or other
nominee (in “street name”), you may receive from that
institution a voting instruction form that you may use to
instruct them on how to cause your VimpelCom ADSs to be voted.
Registered holders of VimpelCom shares can vote at the Special
General Meeting by ballot. If you are a VimpelCom ADS holder,
you may not vote your shares in person at the Special General
Meeting unless you obtain a “legal proxy” giving you
the right to vote the shares at the Special General Meeting.
Even if you plan to attend the Special General Meeting, we
recommend that you also submit your proxy form, voting card or
voting instructions as described in the proxy statement so that
your vote will be counted if you later decide not to attend the
meeting.
A quorum for the transaction of business at the Special General
Meeting is the presence in person of two or more persons at the
start of the meeting having the right to attend and vote at the
meeting and holding or representing in person or by proxy at
least 50% plus one voting share of the total issued voting
shares in VimpelCom at the time.
Pursuant to the VimpelCom bye-laws, the approval of the Share
Issuance Proposal and the Authorized Share Capital Increase
Proposal are each subject to the affirmative vote of a simple
majority of the votes cast.
In the event a quorum is not present at the Special General
Meeting, then the Special General Meeting will stand adjourned
to the same day one week later, at the same time and place or to
such other day, time or place as the CEO may determine.
Abstentions will be counted toward the presence of a quorum at,
but will not be considered votes cast on any proposal brought
before, the Special General Meeting.
If you are a registered holder of VimpelCom shares, you may
change your vote by signing, dating and returning a completed
proxy form with a later date on or before the voting deadline of
March 16, 2011 at 10:00 a.m. Central European Time or
by attending the Special General Meeting and voting in person.
If you are a VimpelCom ADS holder, you may change your vote at
any time before the voting deadline of 5:00 p.m.
New York
Time on March 11, 2011. If you hold your VimpelCom ADSs in
street name and wish to change your vote, you should follow the
instructions provided by your bank, broker or other nominee.
Registered holders of VimpelCom shares or VimpelCom ADSs who
need another copy of their voting card or proxy form may contact
X. X. Xxxx & Co., Inc. by any of the following methods:
Mail
00 Xxxx Xxxxxx, 00xx Floor
0 Xxxxxxxxx Xxxxxx, 34th Floor
London, EC2Y 9HT
Email
xxxxxxxxx@xxxxxx.xxx
Phone
x0 000 000 0000 (toll-free from North America)
00 800 5464 5464 (toll-free from Continental Europe)
x0 000 000 0000 (banks and brokers call collect)
x00 000 000 0000 (from other locations)
8
THE
TRANSACTION
On October 4, 2010, following the unanimous approval of
VimpelCom’s Supervisory Board, VimpelCom entered into an
agreement (the “Original Agreement”)
with Wind Telecom and Weather II pursuant to which
VimpelCom would acquire the shares of Wind Telecom held by
Weather II and the shares of any minority investors in Wind
Telecom that become party to the Original Agreement in exchange
for consideration consisting of 325,639,827 newly issued
VimpelCom common shares, US$1.8 billion in cash and the
spin-off of certain assets. The Original Agreement remained
subject, among other things, to final board approval of certain
ancillary agreements, including an amended shareholders
agreement among Altimo, Telenor and VimpelCom, with
Weather II joining as a party. It was intended that the
amended shareholders agreement would provide for Weather II
to nominate two members to an enlarged VimpelCom Supervisory
Board of eleven members, while Telenor and Xxxxxx would each
continue to nominate three members, and with three members
continuing to be unaffiliated with any major shareholder.
Following the October 4, 2010 Supervisory Board meeting,
VimpelCom, Weather II, Wind Telecom, Telenor and Xxxxxx
continued the negotiation of the relevant ancillary agreements
in an effort to bring them to the Supervisory Board for final
approval at a scheduled December 20, 2010 board meeting.
On December 19, 2010, Telenor delivered a letter to
XxxxxxXxx’s Chairman of the Supervisory Board stating,
among other things, that, in its capacity as a shareholder of
VimpelCom, Telenor did not support the proposed transaction with
Weather II and Wind Telecom. On the morning of
December 20, 2010, Telenor publicly announced its position.
On December 20, 2010, with a vote of six of its nine
directors, the Supervisory Board approved the combination of
VimpelCom and Wind Telecom as contemplated by the Original
Agreement, including the non-shareholder related ancillary
agreements which had been negotiated following the
October 4, 2010 Supervisory Board meeting. The three
members of the Supervisory Board who were nominated by Telenor
voted against the combination, including the ancillary
agreements. At the December 20, 2010 meeting, the
Supervisory Board did not take a decision on the shareholder
related agreements, including the amended shareholders
agreement, due to Telenor’s publicly stated position that,
in its capacity as a shareholder of VimpelCom, it did not
support the transaction on the terms proposed. See
“Risk Factors — Risk Factors Relating
to the Transaction — Telenor opposes the
Transaction and has challenged it”.
In connection with its December 20, 2010 approval,
XxxxxxXxx’s Supervisory Board authorized XxxxxxXxx’s
CEO to review and take into account the rights and obligations
of the parties under the current VimpelCom Shareholders
Agreement and bye-laws, and to negotiate further with Wind
Telecom and Weather II the terms and conditions under which
they would be willing to enter into a revised transaction,
taking into account that the shareholder related agreements with
Telenor were unlikely to be signed and delivered. The
Supervisory Board further instructed XxxxxxXxx’s CEO to
bring such revised terms, if any, back to it for consideration
and approval.
On January 16, 2011, XxxxxxXxx’s Supervisory Board
considered the revised terms and conditions, which had been
negotiated following the December 20, 2010 Supervisory
Board approval. With a vote of six of its nine
directors — the three directors nominated by Telenor
voting against — the Supervisory Board approved the
Transaction. The revised terms and conditions were embodied in
the Share Sale and Exchange Agreement, which the parties entered
into on January 17, 2011. See “The Share Sale and
Exchange Agreement”.
Subject to the approval of the Share Issuance Proposal and the
Authorized Share Capital Increase Proposal and the satisfaction
or waiver of the other conditions specified in the Share Sale
and Exchange Agreement, at Closing VimpelCom will acquire up to
100% of the share capital of Wind Telecom. Under the Share Sale
and Exchange Agreement, VimpelCom is not required to close
unless it will acquire at Closing shares representing at least
98.04% of Wind Telecom’s share capital (excluding shares
held by Wind Telecom’s subsidiary, WAHF), which as of
October 4, 2010, the date of the Original Agreement, were
held by Weather II and certain private equity investors.
VimpelCom will acquire these shares in exchange for
consideration consisting of (i) up to 325,639,827 newly
issued VimpelCom common shares, (ii) 305,000,000 newly
issued convertible preferred shares and (iii) up to
US$1.495 billion in cash. No amended shareholders
agreement will be entered into and, as a consequence, it
9
is expected that the composition of VimpelCom’s Supervisory
Board will not change upon the Closing of the Transaction. See
“The Share Sale and Exchange Agreement — The
Transaction Consideration”.
At or after Closing, Wind Telecom’s interests in certain
assets, which principally comprise OTH’s investments in
Egypt and North Korea and certain non-core Wind Italy assets,
will be transferred to Weather II, or if such transfers cannot
be effected, VimpelCom will make certain cash payments to
Weather II as described in “The Spin-Off Plan”.
The Wind Hellas Group, which includes Wind Telecom’s Greek
operating subsidiary, is excluded from the Transaction.
VimpelCom’s
Reasons for the Transaction; Recommendation of VimpelCom’s
Supervisory Board
In reaching its decision to approve the Share Sale and Exchange
Agreement on January 16, 2011, and to recommend that
shareholders of VimpelCom vote in favor of the Share Issuance
Proposal and the Authorized Share Capital Increase Proposal,
VimpelCom’s Supervisory Board considered a number of
factors, including the ones discussed in the following
paragraphs, among others. In light of the number and wide
variety of factors considered in connection with its evaluation
of the Transaction, the Supervisory Board did not consider it
practicable to, and did not attempt to, quantify, rank or
otherwise assign relative weights to the specific factors it
considered in reaching its determination. Rather, the
Supervisory Board made its recommendation based on the totality
of information presented to, and the investigation conducted by
or at the direction of, the Supervisory Board. In addition,
individual directors may have given different weight to
different factors. This explanation of XxxxxxXxx’s reasons
for the Transaction and other information presented in this
section is forward-looking in nature and, therefore, should be
read in light of the factors discussed under “Cautionary
Statement Concerning Forward-Looking Statements”.
In evaluating the Share Sale and Exchange Agreement,
VimpelCom’s Supervisory Board consulted with
VimpelCom’s management and its legal and financial
advisors, and, in reaching its decision to approve the Share
Sale and Exchange Agreement and recommend that the shareholders
of VimpelCom vote in favor of the Share Issuance Proposal and
the Authorized Share Capital Increase Proposal, the Supervisory
Board considered a number of factors, which it viewed as
generally supporting its determination, including, among others:
|
|
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|
•
|
the opportunity for VimpelCom to secure the advantages of scale
and scope in a rapidly evolving and consolidating industry, by
becoming a top-tier global telecoms company with a global
footprint and a broad product range;
|
|
|
•
|
the opportunity to position the company to take maximum
advantage of the anticipated paradigm shift in the telecoms
industry from voice to data;
|
|
|
•
|
the opportunity to drive profitable growth by developing a
balanced portfolio of high-quality assets with a broad presence
in both mature and emerging and developing markets and by
leveraging Wind Telecom’s experience in highly-developed
data markets such as Italy and in low-cost under-penetrated
mobile markets such as Pakistan and Bangladesh;
|
|
|
•
|
the opportunity to acquire these assets on attractive financial
terms which would allow the company to optimize its capital
structure, minimize dilution for its shareholders and retain its
dividend policy;
|
|
|
•
|
the complementary nature of VimpelCom’s and Wind
Telecom’s businesses and potential cost saving and other
synergy opportunities, as well as the related potential positive
impact on the combined company’s financial results and
prospects;
|
|
|
•
|
its knowledge of VimpelCom’s business, operations,
financial condition, earnings and prospects and of its industry,
as well as its understanding of Wind Telecom’s business,
operations, financial condition, earnings and prospects, taking
into account the results of its due diligence review of Wind
Telecom;
|
|
|
•
|
its knowledge of the current environment in the mobile
telecommunications industry generally, including economic
conditions, competitive pressures, and the impact of these
factors on VimpelCom’s potential growth, development and
strategic options;
|
10
|
|
|
|
•
|
the risks posed by the Algerian Government’s tax claims
against Orascom Telecom Algeria (“OTA”)
and the possibility that it may unilaterally purchase OTA, and
the allocation of such risks in the Algerian Value Sharing
Agreement (see “The Transaction — Algerian
Value Sharing Arrangement”);
|
|
|
•
|
the risks associated with the fact that Wind Telecom is highly
leveraged and has significant debt servicing obligations, and
the likelihood of the refinancing arrangements set out in the
Share Sale and Exchange Agreement and the Refinancing Plan to
help mitigate these risks and provide a more attractive debt
profile for the combined company (See “The Refinancing
Plan”);
|
|
|
•
|
the risks associated with the outstanding tax claims from the
Italian taxing authority and provisions in the Share Sale and
Exchange Agreement that allocate liability for such claims among
the parties (see “The Share Sale and Exchange
Agreement — Indemnification”); and
|
|
|
•
|
the regulatory and other approvals required in connection with
the Transaction and the likelihood that such approvals would be
received in a timely manner and without unacceptable conditions
(see “Risk Factors — Risk Factors Relating to
the Transaction — The Transaction is subject to
satisfaction or waiver of several conditions.”).
|
In connection with the Transaction, XxxxxxXxx engaged UBS and
Deutsche Bank to act as its financial advisors. Additionally,
Citi acted as financial advisor to the Supervisory Board of
VimpelCom.
On the basis of the above and other factors, XxxxxxXxx’s
Supervisory Board recommends that VimpelCom shareholders vote
“FOR” the Share Issuance Proposal and the Authorized
Share Capital Increase Proposal.
Notwithstanding the Algerian Government’s ongoing measures
against OTA, OTA remains a strategically important asset for
VimpelCom. VimpelCom is therefore interested in exploring with
the Algerian Government a resolution which would allow VimpelCom
to retain OTA following completion of the Transaction.
In the event that such a resolution is not possible within a
reasonable time frame, VimpelCom has sought to lessen its
financial exposure to the situation surrounding OTA. Toward
that end, upon Closing of the Transaction, VimpelCom and
Weather II will enter into the Algerian Value Sharing
Agreement. The Algerian Value Sharing Agreement gives VimpelCom
the option, which can be exercised by VimpelCom at any time
within six months following the Closing of the Transaction, to
choose to apply the value sharing arrangement contained therein
with Weather II with respect to OTH’s shareholding in
OTA.
This value sharing arrangement would involve cash payments from
one party to the other based on certain formulae linked to an
agreed implied equity value of VimpelCom’s see through
ownership of OTA (Wind Telecom owns 51.7% of OTH which in turn
owns 96.8% of OTA) (the “Agreed OTA Equity
Value”) under various scenarios. In particular,
the arrangement provides for financial losses or gains, with
reference to the Agreed OTA Equity Value, arising from the sale
of all or part of OTA to the Algerian Government or from the
eventual settlement of the disputes between OTA and the Algerian
Government to be shared in certain proportions between VimpelCom
and Weather II. Weather II would be responsible for the
substantial majority of the financial loss below the Agreed OTA
Equity Value and would receive the substantial majority of the
financial gain above the Agreed OTA Equity Value.
Pursuant to a Share Sale and Purchase Agreement dated
January 4, 2010 as amended, our Chief Executive Officer,
Xxxxxxxxx Xxxxxxxx, is entitled to beneficially receive up to
600,000 common shares in VimpelCom as a result of the Closing of
the Transaction.
On January 10, 2011, Xxxxxx informed us that an affiliate
of Altimo owns an indirect equity interest with a market value
as of January 7, 2010 of approximately US$27.7 million
in OTH. See “Risk Factors — Risk Factors
Relating to the Transaction — Telenor opposes the
Transaction and has challenged it”.
11
The following unaudited pro forma condensed combined financial
information of VimpelCom is being provided to give a better
understanding of what VimpelCom’s results of operations and
financial position might have looked like had the pro forma
adjustment transactions occurred on an earlier date. The
unaudited pro forma condensed combined balance sheet and
unaudited pro forma condensed combined income statements
(“Unaudited Pro Forma Condensed Combined Financial
Information”) of VimpelCom are presented for
illustrative purposes only and does not necessarily indicate the
results of operations or the combined financial position that
would have resulted had these acquisitions been completed at the
beginning of the period presented, nor is it indicative of the
results of operations in future periods or the future financial
position of the combined businesses. The pro forma adjustments
are based upon available information and certain assumptions
that XxxxxxXxx believes to be reasonable. These adjustments
could materially change as both the determination of purchase
price and the allocation of the purchase price for Wind Telecom
has not been finalized. Accordingly, there can be no assurance
that the final allocation of purchase price will not differ from
the preliminary allocation reflected in the Unaudited Pro Forma
Condensed Combined Financial Information.
The Unaudited Pro Forma Condensed Combined Financial Information
gives effect to the following transactions as if they occurred
on January 1, 2009 for the pro forma condensed combined
statements of income and as if they occurred on
September 30, 2010 for the pro forma condensed combined
balance sheet:
|
|
|
|
•
|
Acquisition by VimpelCom of Wind Telecom, including 100% of Wind
Italy and 51.7% of OTH adjusted for certain assets and
liabilities not acquired; and
|
|
|
•
|
Financing the acquisition of Wind Telecom, along with the
refinancing of certain pre-existing debt due to requirements
included in the Share Sale and Exchange Agreement.
|
Further to the above, the Unaudited Pro Forma Condensed Combined
Financial Information reflects the following adjustments:
|
|
|
|
•
|
Acquisition by XxxxxxXxx, accounting successor of XXXX
XxxxxxXxx, of Kyivstar CJSC
(“Kyivstar”), as if it occurred on
January 1, 2009. The VimpelCom balance sheet and income
statement reflect this acquisition from April 21, 2010;
|
|
|
•
|
Consolidation of Sky Mobile for the year ending
December 31, 2009, which was already reflected in the
VimpelCom balance sheet and income statement since
January 1, 2010.
|
On April 21, 2010, following the successful completion of
VimpelCom’s exchange offer for common and American
depositary shares of OJSC VimpelCom, VimpelCom’s two
strategic shareholders completed the acquisition of Kyivstar by
VimpelCom. This transaction was accounted for under the
acquisition method of accounting in accordance with
ASC 805, Business Combinations (“ASC
805”). Therefore, the financial results of
Kyivstar have been included in the consolidated financial
results of the Company since April 21, 2010. The financial
results for the periods prior to April 21, 2010 represent
the historical financial results of OJSC VimpelCom.
Effective January 1, 2010, OJSC VimpelCom consolidated Sky
Mobile under the revised provisions of ASC 810, Consolidation.
Accordingly, the impact of consolidating this entity has been
reflected in the Unaudited Pro Forma Condensed Combined
Financial Information as if Sky Mobile was consolidated
effective January 1, 2009.
At the Closing of the Transaction, VimpelCom will own, through
Wind Telecom, 51.7% of OTH and 100% of Wind Italy. Under the
terms of the Share Sale and Exchange Agreement, Wind Telecom
Shareholders will contribute to VimpelCom their shares in Wind
Telecom in exchange for a consideration consisting of up to
325,639,827 newly issued VimpelCom common shares, 305,000,000
convertible preferred shares, up to US$1.495 billion in
cash and certain assets that will be demerged from OTH and from
Wind Italy. The Wind Telecom interests in these assets, which
principally comprise OTH’s investments in Egypt and North
Korea and certain non-core Wind Italy assets including WIS, will
be transferred to Weather II. The convertible preferred
shares do not have rights to dividends, but do have voting
rights. Each convertible preferred share may be converted into
a common share any time between 2.5 years and 5 years
after its issuance at a price based on the NYSE price for
VimpelCom ADSs. The Wind Hellas Group is entirely excluded from
the Transaction and the Unaudited Pro Forma
12
Condensed Combined Financial Information. Orascom Telecom
Tunisia, which was recently sold by Wind Telecom, is treated as
an asset held for sale in the unaudited pro forma combined
balance sheet and excluded from the unaudited pro forma combined
income statement. The Transaction will be accounted for using
the purchase method of accounting in accordance with
ASC 805, accordingly, the assets acquired and liabilities
assumed will be recorded at their fair values as of the Closing
date of the Transaction.
VimpelCom will finance the cash portion of the purchase
consideration through debt arrangements to be entered into.
Further, per the terms of the Share Sale and Exchange Agreement,
VimpelCom is required to refinance certain pre-existing debt of
Wind Telecom, due to change in control provisions triggered by
Transaction. See “The Refinancing Plan”.
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 VimpelCom’s strategy;
|
|
|
•
|
any synergies, operating efficiencies and cost savings that may
result from implementation of VimpelCom’s strategy;
|
|
|
•
|
any benefits that may be derived from VimpelCom’s growth
prospects; or
|
|
|
•
|
changes in rates for services or exchange rates subsequent to
the dates of the Unaudited Pro Forma Condensed Combined
Financial Information.
|
VimpelCom has not commenced or implemented any integration
initiatives or actions with respect to Wind Telecom.
Accordingly, additional liabilities may be incurred in
connection with the implementation of VimpelCom’s strategy
for the combined companies or the completion of the Transaction.
The Unaudited Pro Forma Condensed Combined Financial Information
should be read in conjunction with the notes thereto as well as
the historical annual consolidated financial statements of
VimpelCom and Wind Telecom. For historical annual consolidated
financial statements of VimpelCom, see “Where You Can
Find More Information”. The historical annual
consolidated financial statements of Wind Telecom are included
in F-pages
to this proxy statement.
The Unaudited Pro Forma Condensed Combined Financial Information
is prepared in accordance with U.S. GAAP and is presented
in U.S. dollars and has been derived from the OJSC
VimpelCom financial statements, prepared in accordance with
U.S. GAAP and the Kyivstar financial statements, prepared
in accordance with International Financial Reporting Standards,
as issued by the IASB (“IFRS”), and
presented in Ukrainian hryvnia. 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, and reconciled to
U.S. GAAP, as further discussed below in Note 2 to the
Unaudited Pro Forma Condensed Combined Financial Information.
The historical Wind Telecom combined financial statements
reflected in the Unaudited Pro Forma Condensed Combined
Financial Information have been derived from the Wind Telecom
combined financial statements prepared under IFRS, and
reconciled to U.S. GAAP, as further discussed below in
Note 2 to the Unaudited Pro Forma Condensed Combined
Financial Information.
13
VIMPELCOM
LTD.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of September 30, 2010
(in millions of U.S. Dollars, unless otherwise noted)
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GAAP Historical
|
|
|
Pro Forma adjustments
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
Wind Telecom’s
|
|
|
Acquisition of
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
Vimpelcom
|
|
|
Wind Telecom
|
|
|
Sale of
|
|
|
Wind
|
|
|
Financing
|
|
|
Other
|
|
|
VimpelCom
|
|
|
|
Ltd
|
|
|
Combined
|
|
|
Tunisia
|
|
|
Telecom
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Ltd.
|
|
|
|
(Note 2a)
|
|
|
(Note 2b)
|
|
|
(Note 3)
|
|
|
(Note 4)
|
|
|
(Note 5)
|
|
|
(Note 6)
|
|
|
|
|
(In millions of U.S. dollars)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
US$
|
2,467
|
|
|
US$
|
1,235
|
|
|
US$
|
542
|
a
|
|
US$
|
(1,495
|
)a
|
|
US$
|
1,795
|
a
|
|
US$
|
—
|
|
|
US$
|
4,544
|
|
Trade accounts receivable, net of allowance for doubtful accounts
|
|
|
526
|
|
|
|
1,873
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,399
|
|
Inventory
|
|
|
84
|
|
|
|
71
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
155
|
|
Deferred income taxes
|
|
|
99
|
|
|
|
—
|
|
|
|
—
|
|
|
|
190
|
b
|
|
|
—
|
|
|
|
—
|
|
|
|
289
|
|
Input value added tax
|
|
|
144
|
|
|
|
165
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
309
|
|
Due from related parties
|
|
|
113
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
113
|
|
Other current assets
|
|
|
349
|
|
|
|
1,134
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,782
|
|
|
|
4,478
|
|
|
|
542
|
|
|
|
(1,305
|
)
|
|
|
1,795
|
|
|
|
—
|
|
|
|
9,292
|
|
Property and equipment, net
|
|
|
6,480
|
|
|
|
7,891
|
|
|
|
—
|
|
|
|
(639
|
)c
|
|
|
—
|
|
|
|
—
|
|
|
|
13,732
|
|
Goodwill
|
|
|
6,943
|
|
|
|
5,181
|
|
|
|
—
|
|
|
|
3,125
|
e
|
|
|
—
|
|
|
|
—
|
|
|
|
15,249
|
|
Other intangible assets, net
|
|
|
2,212
|
|
|
|
5,901
|
|
|
|
—
|
|
|
|
3,370
|
d
|
|
|
—
|
|
|
|
—
|
|
|
|
11,483
|
|
Software, net
|
|
|
513
|
|
|
|
394
|
|
|
|
—
|
|
|
|
—
|
d
|
|
|
—
|
|
|
|
—
|
|
|
|
907
|
|
Investments in associates
|
|
|
441
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
441
|
|
Other assets
|
|
|
675
|
|
|
|
2,667
|
|
|
|
(219
|
)b
|
|
|
(101
|
)f
|
|
|
356
|
b
|
|
|
—
|
|
|
|
3,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
US$
|
21,046
|
|
|
US$
|
26,512
|
|
|
US$
|
323
|
|
|
US$
|
4,450
|
|
|
US$
|
2,151
|
|
|
US$
|
—
|
|
|
US$
|
54,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, redeemable noncontrolling interest and equity
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
US$
|
750
|
|
|
US$
|
2,524
|
|
|
US$
|
—
|
|
|
US$
|
—
|
|
|
US$
|
—
|
|
|
US$
|
—
|
|
|
US$
|
3,274
|
|
Due to employees
|
|
|
149
|
|
|
|
146
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
295
|
|
Due to related parties
|
|
|
3
|
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8
|
|
Accrued liabilities
|
|
|
394
|
|
|
|
1,222
|
|
|
|
210
|
c
|
|
|
(53
|
)g
|
|
|
—
|
|
|
|
—
|
|
|
|
1,773
|
|
Taxes payable
|
|
|
287
|
|
|
|
345
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
632
|
|
Customer advances, net of VAT
|
|
|
327
|
|
|
|
429
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
756
|
|
Customer deposits
|
|
|
28
|
|
|
|
35
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
63
|
|
Short-term debt
|
|
|
2,126
|
|
|
|
1,128
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,064
|
|
|
|
5,834
|
|
|
|
210
|
|
|
|
(53
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
10,055
|
|
Deferred income taxes
|
|
|
787
|
|
|
|
1,242
|
|
|
|
—
|
|
|
|
885
|
b
|
|
|
—
|
|
|
|
—
|
|
|
|
2,914
|
|
Long-term debt
|
|
|
4,367
|
|
|
|
17,189
|
|
|
|
(658
|
) d
|
|
|
—
|
|
|
|
2,151
|
c
|
|
|
—
|
|
|
|
23,048
|
|
Other non-current liabilities
|
|
|
171
|
|
|
|
773
|
|
|
|
—
|
|
|
|
867
|
h
|
|
|
—
|
|
|
|
—
|
|
|
|
1,811
|
|
Commitments, contingencies and uncertainties
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
9,389
|
|
|
|
25,038
|
|
|
|
(448
|
)
|
|
|
1,699
|
|
|
|
2,151
|
|
|
|
—
|
|
|
|
37,828
|
|
Redeemable noncontrolling interest
|
|
|
519
|
|
|
|
1,867
|
|
|
|
—
|
|
|
|
(1,867
|
)i
|
|
|
—
|
|
|
|
—
|
|
|
|
519
|
|
Equity
|
|
|
10,862
|
|
|
|
(783
|
)
|
|
|
771
|
|
|
|
3,303
|
j
|
|
|
—
|
|
|
|
—
|
|
|
|
14,153
|
|
Noncontrolling interest
|
|
|
276
|
|
|
|
390
|
|
|
|
—
|
|
|
|
1,315
|
j
|
|
|
—
|
|
|
|
—
|
|
|
|
1,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
11,138
|
|
|
|
(393
|
)
|
|
|
771
|
|
|
|
4,618
|
j
|
|
|
—
|
|
|
|
—
|
|
|
|
16,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable noncontrolling interest and
equity
|
|
US$
|
21,046
|
|
|
US$
|
26,512
|
|
|
US$
|
323
|
|
|
US$
|
4,450
|
|
|
US$
|
2,151
|
|
|
US$
|
—
|
|
|
US$
|
54,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to Unaudited Pro Forma Condensed Combined
Financial Information.
14
VIMPELCOM
LTD.
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME
STATEMENT
For the Nine Months Ended September 30,
2010
(In millions of U.S. Dollars, unless otherwise noted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
U.S. GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GAAP Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
Historical
|
|
|
Pro Forma Adjustments
|
|
|
|
|
|
|
VimpelCom
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OJSC
|
|
|
Kyivstar
|
|
|
|
|
|
VimpelCom
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
(VimpelCom
|
|
|
CJSC
|
|
|
|
|
|
Ltd. before
|
|
|
Wind
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
Ltd. Since
|
|
|
(from Jan 1 —
|
|
|
Acquisition of
|
|
|
Wind Telecom
|
|
|
Telecom
|
|
|
Acquisition of
|
|
|
Financing
|
|
|
Other
|
|
|
VimpelCom
|
|
|
|
April 21, 2010)
|
|
|
April 20, 2010)
|
|
|
Kyivstar
|
|
|
Acquisition
|
|
|
Combined
|
|
|
Wind Telecom
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Ltd.
|
|
|
|
(Note 2c)
|
|
|
(Note 2d)
|
|
|
(Note 7)
|
|
|
|
|
|
(Note 2e)
|
|
|
(Note 8)
|
|
|
(Note 9)
|
|
|
(Note 10)
|
|
|
|
|
(In millions of U.S. dollars, except per share data)
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
|
US$
|
7,568
|
|
|
US$
|
398
|
|
|
US$
|
(30
|
) a,b
|
|
US$
|
7,937
|
|
|
US$
|
7,960
|
|
|
US$
|
(14
|
) a
|
|
US$
|
—
|
|
|
US$
|
—
|
|
|
US$
|
15,883
|
|
Sales of equipment and accessories
|
|
|
106
|
|
|
|
2
|
|
|
|
—
|
|
|
|
108
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
108
|
|
Other revenues
|
|
|
22
|
|
|
|
8
|
|
|
|
—
|
|
|
|
31
|
|
|
|
—
|
|
|
|
(1
|
) a
|
|
|
—
|
|
|
|
—
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
7,697
|
|
|
|
408
|
|
|
|
(30
|
)
|
|
|
8,075
|
|
|
|
7,960
|
|
|
|
(16
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
16,021
|
|
Revenue based tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
|
7,697
|
|
|
|
408
|
|
|
|
(30
|
)
|
|
|
8,075
|
|
|
|
7,960
|
|
|
|
(16
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
16,020
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service costs
|
|
|
1,649
|
|
|
|
67
|
|
|
|
(23
|
) b
|
|
|
1,693
|
|
|
|
1,694
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,387
|
|
Cost of equipment and accessories
|
|
|
119
|
|
|
|
6
|
|
|
|
—
|
|
|
|
125
|
|
|
|
307
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
431
|
|
Selling, general and administrative expenses
|
|
|
2,209
|
|
|
|
115
|
|
|
|
—
|
|
|
|
2,324
|
|
|
|
2,846
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,170
|
|
Depreciation
|
|
|
1,137
|
|
|
|
54
|
|
|
|
14
|
c
|
|
|
1,205
|
|
|
|
1,066
|
|
|
|
(135
|
) b
|
|
|
—
|
|
|
|
—
|
|
|
|
2,136
|
|
Amortization
|
|
|
321
|
|
|
|
28
|
|
|
|
50
|
c
|
|
|
399
|
|
|
|
330
|
|
|
|
429
|
c
|
|
|
—
|
|
|
|
—
|
|
|
|
1,158
|
|
Impairment loss
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
|
|
23
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24
|
|
Provision for doubtful accounts
|
|
|
40
|
|
|
|
2
|
|
|
|
—
|
|
|
|
42
|
|
|
|
77
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
5,475
|
|
|
|
273
|
|
|
|
40
|
|
|
|
5,788
|
|
|
|
6,343
|
|
|
|
293
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
2,222
|
|
|
|
135
|
|
|
|
(70
|
)
|
|
|
2,287
|
|
|
|
1,617
|
|
|
|
(309
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
3,595
|
|
Other income and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
42
|
|
|
|
4
|
|
|
|
(6
|
)
|
|
|
41
|
|
|
|
75
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
115
|
|
Net foreign exchange (loss)/gain
|
|
|
6
|
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
1
|
|
|
|
(77
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(76
|
)
|
Interest expense
|
|
|
(399
|
)
|
|
|
(0
|
)
|
|
|
6
|
|
|
|
(394
|
)
|
|
|
(1,204
|
)
|
|
|
135
|
d
|
|
|
(93
|
) a
|
|
|
—
|
|
|
|
(1,556
|
)
|
Equity in net (loss)/gain of associates
|
|
|
27
|
|
|
|
—
|
|
|
|
—
|
|
|
|
27
|
|
|
|
(101
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(74
|
)
|
Other (expenses)/income, net
|
|
|
(85
|
)
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
(88
|
)
|
|
|
(218
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and expenses
|
|
|
(410
|
)
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
(414
|
)
|
|
|
(1,525
|
)
|
|
|
135
|
|
|
|
(93
|
)
|
|
|
—
|
|
|
|
(1,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,812
|
|
|
|
132
|
|
|
|
(70
|
)
|
|
|
1,873
|
|
|
|
92
|
|
|
|
(173
|
)
|
|
|
(93
|
)
|
|
|
—
|
|
|
|
1,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
561
|
|
|
|
35
|
|
|
|
(18
|
) a,c
|
|
|
578
|
|
|
|
247
|
|
|
|
(54
|
) e
|
|
|
(23
|
) b
|
|
|
—
|
|
|
|
749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,251
|
|
|
|
97
|
|
|
|
(53
|
)
|
|
|
1,294
|
|
|
|
(156
|
)
|
|
|
(120
|
)
|
|
|
(70
|
)
|
|
|
—
|
|
|
|
948
|
|
Net (loss)/income attributable to the noncontrolling interest
|
|
|
39
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39
|
|
|
|
(15
|
)
|
|
|
(1
|
)
|
|
|
(52
|
)
|
|
|
—
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Vimpelcom
|
|
US$
|
1,212
|
|
|
US$
|
97
|
|
|
US$
|
(53
|
)
|
|
US$
|
1,256
|
|
|
US$
|
(141
|
)
|
|
US$
|
(118
|
)
|
|
US$
|
(18
|
)
|
|
US$
|
—
|
|
|
US$
|
979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income attributable to VimpelCom per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
|
1.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
|
0.65
|
|
Weighted average common shares outstanding (thousand) as of
September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,178,629
|
|
|
|
|
|
|
|
325,640
|
|
|
|
|
|
|
|
|
|
|
|
1,504,269
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income attributable to VimpelCom per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
|
0.65
|
|
Weighted average diluted shares outstanding (thousand) as of
September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,179,141
|
|
|
|
|
|
|
|
325,640
|
|
|
|
|
|
|
|
|
|
|
|
1,504,781
|
|
See accompanying notes to Unaudited Pro Forma Condensed Combined
Financial Information.
15
VIMPELCOM
LTD.
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
For the Year Ended December 31, 2009
(in millions of U.S. Dollars, unless otherwise noted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
U.S. GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GAAP Historical
|
|
|
Pro Forma Adjustments
|
|
|
VimpelCom Ltd.
|
|
|
Historical
|
|
|
Pro Forma Adjustments
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before Wind
|
|
|
Wind
|
|
|
Acquisition
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
VimpelCom
|
|
|
Kyivstar
|
|
|
Consolidation
|
|
|
Acquisition of
|
|
|
Telecom
|
|
|
Telecom
|
|
|
of Wind
|
|
|
Financing
|
|
|
Other
|
|
|
VimpelCom
|
|
|
|
OJSC
|
|
|
CJSC
|
|
|
of Sky Mobile
|
|
|
Kyivstar
|
|
|
Acquisition
|
|
|
Combined
|
|
|
Telecom
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Ltd.
|
|
|
|
(Note 2f)
|
|
|
(Note 2g)
|
|
|
(Note 2h)
|
|
|
(Note 7)
|
|
|
|
|
|
(Note 2i)
|
|
|
(Note 8)
|
|
|
(Note 9)
|
|
|
(Note 10)
|
|
|
|
|
(In millions of U.S. dollars, except per share data)
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
|
US$
|
8,581
|
|
|
US$
|
1,461
|
|
|
US$
|
106
|
|
|
US$
|
(121
|
) a,b
|
|
US$
|
10,026
|
|
|
US$
|
11,109
|
|
|
US$
|
(9
|
) a
|
|
US$
|
—
|
|
|
US$
|
(4
|
)
|
|
US$
|
21,123
|
|
Sales of equipment and accessories
|
|
|
110
|
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
115
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
115
|
|
Other revenues
|
|
|
20
|
|
|
|
23
|
|
|
|
—
|
|
|
|
—
|
|
|
|
43
|
|
|
|
—
|
|
|
|
—
|
a
|
|
|
—
|
|
|
|
—
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
8,711
|
|
|
|
1,489
|
|
|
|
106
|
|
|
|
(121
|
)
|
|
|
10,185
|
|
|
|
11,109
|
|
|
|
(9
|
)
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
21,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue based tax
|
|
|
(8
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
|
8,703
|
|
|
|
1,489
|
|
|
|
106
|
|
|
|
(121
|
)
|
|
|
10,177
|
|
|
|
11,109
|
|
|
|
(9
|
)
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
21,274
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service costs
|
|
|
1,878
|
|
|
|
247
|
|
|
|
24
|
|
|
|
(87
|
) b
|
|
|
2,063
|
|
|
|
2,304
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
4,363
|
|
Cost of equipment and accessories
|
|
|
111
|
|
|
|
20
|
|
|
|
—
|
|
|
|
—
|
|
|
|
130
|
|
|
|
556
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
687
|
|
Selling, general and administrative expenses
|
|
|
2,390
|
|
|
|
382
|
|
|
|
18
|
|
|
|
—
|
|
|
|
2,790
|
|
|
|
3,909
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,699
|
|
Depreciation
|
|
|
1,393
|
|
|
|
172
|
|
|
|
14
|
|
|
|
56
|
c
|
|
|
1,635
|
|
|
|
1,536
|
|
|
|
(204
|
) b
|
|
|
—
|
|
|
|
—
|
|
|
|
2,966
|
|
Amortization
|
|
|
301
|
|
|
|
53
|
|
|
|
3
|
|
|
|
205
|
c
|
|
|
562
|
|
|
|
466
|
|
|
|
627
|
c
|
|
|
—
|
|
|
|
—
|
|
|
|
1,656
|
|
Impairment loss
|
|
|
—
|
|
|
|
34
|
|
|
|
—
|
|
|
|
—
|
|
|
|
34
|
|
|
|
36
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
70
|
|
Provision for doubtful accounts
|
|
|
51
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
54
|
|
|
|
114
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
6,125
|
|
|
|
911
|
|
|
|
59
|
|
|
|
174
|
|
|
|
7,269
|
|
|
|
8,921
|
|
|
|
423
|
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
16,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
2,578
|
|
|
|
578
|
|
|
|
47
|
|
|
|
(295
|
)
|
|
|
2,908
|
|
|
|
2,188
|
|
|
|
(432
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
4,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
52
|
|
|
|
69
|
|
|
|
—
|
|
|
|
—
|
|
|
|
120
|
|
|
|
235
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
356
|
|
Net foreign exchange (loss)/gain
|
|
|
(411
|
)
|
|
|
(6
|
)
|
|
|
2
|
|
|
|
—
|
|
|
|
(415
|
)
|
|
|
26
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(388
|
)
|
Interest expense
|
|
|
(599
|
)
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(604
|
)
|
|
|
(1,632
|
)
|
|
|
178
|
d
|
|
|
(124
|
) a
|
|
|
—
|
|
|
|
(2,182
|
)
|
Equity in net (loss)/gain of associates
|
|
|
(36
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(36
|
)
|
|
|
(47
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(83
|
)
|
Other (expenses)/income, net
|
|
|
(32
|
)
|
|
|
(17
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(49
|
)
|
|
|
(391
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and expenses
|
|
|
(1,026
|
)
|
|
|
41
|
|
|
|
2
|
|
|
|
—
|
|
|
|
(983
|
)
|
|
|
(1,808
|
)
|
|
|
178
|
|
|
|
(124
|
)
|
|
|
—
|
|
|
|
(2,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,552
|
|
|
|
619
|
|
|
|
49
|
|
|
|
(295
|
)
|
|
|
1,925
|
|
|
|
380
|
|
|
|
(254
|
)
|
|
|
(124
|
)
|
|
|
—
|
|
|
|
1,927
|
|
Income tax expense
|
|
|
435
|
|
|
|
155
|
|
|
|
5
|
|
|
|
(74
|
) a,c
|
|
|
521
|
|
|
|
569
|
|
|
|
(77
|
) e
|
|
|
(39
|
) b
|
|
|
—
|
|
|
|
974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,117
|
|
|
|
464
|
|
|
|
44
|
|
|
|
(221
|
)
|
|
|
1,404
|
|
|
|
(189
|
)
|
|
|
(177
|
)
|
|
|
(85
|
)
|
|
|
—
|
|
|
|
953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income attributable to the noncontrolling interest
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
44
|
|
|
|
—
|
|
|
|
40
|
|
|
|
92
|
|
|
|
1
|
|
|
|
(47
|
)
|
|
|
—
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Vimpelcom
|
|
US$
|
1,122
|
|
|
US$
|
464
|
|
|
US$
|
—
|
|
|
US$
|
(221
|
)
|
|
US$
|
1,364
|
|
|
US$
|
(281
|
)
|
|
US$
|
(178
|
)
|
|
US$
|
(38
|
)
|
|
US$
|
—
|
|
|
US$
|
867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income attributable to VimpelCom per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
|
0.58
|
|
Weighted average common shares outstanding (thousand) as of
September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,178,629
|
|
|
|
|
|
|
|
325,640
|
|
|
|
|
|
|
|
|
|
|
|
1,504,269
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income attributable to VimpelCom per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
|
0.58
|
|
Weighted average diluted shares outstanding (thousand) as of
September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,179,141
|
|
|
|
|
|
|
|
325,640
|
|
|
|
|
|
|
|
|
|
|
|
1,504,781
|
|
See accompanying notes to Unaudited Pro Forma Condensed Combined
Financial Information.
16
|
|
Note 1 —
|
Basis of
Pro Forma Presentation
|
The Unaudited Pro Forma Condensed Combined Income Statements for
the nine months ended September 30, 2010 and for the year
ended December 31, 2009, reflect adjustments as if the
acquisitions of Kyivstar and Wind Telecom, each accounted for
using the purchase method of accounting of ASC 805, had
each occurred on January 1, 2009.
The Unaudited Pro Forma Condensed Combined Balance Sheet
reflects adjustments as if the acquisition of Wind Telecom,
accounted for using the purchase method of accounting, had
occurred as of September 30, 2010.
On April 21, 2010, following the successful completion of
VimpelCom’s exchange offer for common and American
depositary shares of OJSC VimpelCom, VimpelCom’s two
strategic shareholders completed the acquisition of Kyivstar by
VimpelCom Ltd. This transaction was accounted for under the
acquisition method of accounting in accordance with ASC 805
as the acquisition of Kyivstar by VimpelCom, an accounting
successor of OJXX XxxxxxXxx. Therefore, the financial results
of Kyivstar have been included in the consolidated financial
results of the Company since April 21, 2010. The financial
results for the periods prior to April 21, 2010 represent
the historical financial results of OJSC VimpelCom.
At the Closing of the Transaction, VimpelCom will own, through
Wind Telecom, 51.7% of OTH and 100% of Wind Italy. Under the
terms of the Share Sale and Exchange Agreement, Wind Telecom
Shareholders will contribute to VimpelCom their shares in Wind
Telecom in exchange for a consideration consisting of up to
325,639,827 newly issued VimpelCom common shares, 305,000,000
convertible preferred shares, up to US$1.495 billion in
cash and certain assets that will be demerged from OTH and from
Wind Italy. The Wind Telecom interests in these assets, which
principally comprise OTH’s investments in Egypt and North
Korea and certain non-core Wind Italy assets, including WIS,
will be transferred to Weather II. The convertible preferred
shares do not have rights to dividends, but do have voting
rights. Each convertible preferred share may be converted into a
common any time between 2.5 years and 5 years after
its issuance at a price based on the NYSE price for VimpelCom
ADSs. The Wind Hellas Group is entirely excluded from the
Transaction and the Unaudited Pro Forma Condensed Combined
Financial Information. Orascom Telecom Tunisia, which was
recently sold by Wind Telecom, is treated as an asset held for
sale in the unaudited pro forma combined balance sheet and
excluded from the unaudited pro forma combined income
statement. The Transaction will be accounted for using the
purchase method of accounting in accordance with ASC 805,
accordingly, the assets acquired and liabilities assumed will be
recorded at their fair values as of the Closing date of the
Transaction.
In terms of the earnings per share impact of the share
issuances, the 325,639,827 common shares have been included in
the basic and diluted pro forma earnings per share
calculations. The impact of the 305,000,000 convertible
preferred shares has been considered in the diluted earnings per
share calculation under the Treasury Stock Method. Due to the
fact that the exercise price exceeded VimpelCom’s weighted
average share price for the nine month period ended
September 31, 2010, the impact of the convertible preferred
shares was anti-dilutive and therefore excluded from the diluted
pro forma earnings per share calculation.
Intercompany sales between the entities included in the
Unaudited Pro Forma Condensed Combined Financial Information
have been excluded from the Unaudited Pro Forma Condensed
Combined Financial Information.
No amounts have been included in the preliminary pro forma
purchase price allocation for estimated costs to be incurred to
achieve savings or other benefits of the Transaction.
Similarly, the Unaudited Pro Forma Condensed Combined Financial
Information does not reflect any cost savings or other benefits
that may be obtained through synergies among the operations of
VimpelCom, Kyivstar and Wind Telecom.
The Unaudited Pro Forma Condensed Combined Financial Information
is not necessarily indicative of the historical results that
would have occurred had the transactions taken place as of the
dates indicated. Likewise, the pro forma combined provision for
income taxes and the pro forma combined balances of deferred
taxes may not represent the amounts that would have resulted had
the entities filed consolidated income tax returns during the
periods presented. In addition, they do not reflect cost
savings or other synergies resulting from the acquisitions that
may be realized in future periods.
17
The Unaudited Pro Forma Condensed Combined Financial Information
has been prepared on the basis of assumptions described in these
notes. VimpelCom has not completed its purchase price allocation
for its acquisition of Wind Telecom, and the actual allocation
may materially differ from the preliminary allocation. The
receipt of the final valuation and the impact of ongoing
integration activities could cause material differences between
actual and pro forma results in the information presented. As
VimpelCom completes the purchase price allocation for Wind
Telecom, the preliminary allocation is subject to change.
Represents the historical financial statements of VixxxxXxx, as
an accounting successor to OJXX XxxxxxXxx, Kyivstar, and Wind
Telecom in accordance with U.S. GAAP.
|
|
|
|
(a)
|
Represents the historical unaudited condensed consolidated
balance sheet of VimpelCom as of September 30, 2010. This
unaudited condensed consolidated balance sheet includes the
estimated fair value of the assets acquired and liabilities
assumed of Kyivstar, which was acquired on April 21, 2010.
|
|
|
|
|
(b)
|
Represents the historical unaudited condensed combined balance
sheet of Wind Telecom as of September 30, 2010. The
historical unaudited condensed combined financial statements of
Wind Telecom are prepared in accordance with IFRS, and presented
in Euros. For the purpose of the Unaudited Pro Forma Condensed
Combined Financial Information, Wind Telecom’s unaudited
combined financial statements have been reconciled to U.S. GAAP
and a U.S. dollar presentation. This reconciliation has not been
audited. The differences between Wind Telecom’s historical
financial statements and the Wind Telecom combined financial
statements column in the Unaudited Pro Forma Condensed Combined
Financial Information relate to:
|
|
|
|
|
(1)
|
The change in reporting currency from the Euro to the U.S.
dollar at an exchange of 1.36 U.S. dollars per Euro as of
September 30, 2010;
|
|
|
(2)
|
The carve out of all assets and liabilities not acquired
relating to Wind Hellas Telecommunications S.A., the carve out
of certain assets and liabilities which are not being acquired
of Wind Italy and OTH, which are planned to be demerged or spun
off at or after the Closing of the Transaction, and the
classification of all assets and liabilities of Orascom Telecom
Tunisia as held for sale, as it has been recently sold by OTH;
|
|
|
(3)
|
Certain reclassifications to align the classification of assets
and liabilities with U.S. GAAP requirements; and
|
|
|
(4)
|
Differences between U.S. GAAP and IFRS including revenue
recognition, impairments, classification of contingently
redeemable shares, deferred revenue and intangible assets.
|
Refer to Note 13 for more details.
|
|
|
|
(c)
|
Represents the historical unaudited condensed consolidated
income statement of VimpelCom, accounting successor to OJXX
XxxxxxXxx, for the nine months ended September 30, 2010.
|
|
|
|
|
(d)
|
Represents the historical unaudited condensed consolidated
income statement of Kyivstar for the period January 1, 2010
to April 20, 2010. The historical financial statements of
Kyivstar are prepared in accordance with IFRS, and presented in
Ukrainian hryvnia. 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 Kyivstar’s historical
financial statements and the Kyivstar column in the Unaudited
Pro Forma Condensed Combined Financial Information relate to:
|
|
|
|
|
(1)
|
The change in reporting currency from the Ukrainian Hryvnia to
the U.S. dollar at an exchange of 7.92 for the period ended
April 21, 2010;
|
|
|
(2)
|
Certain reclassifications to align the classification of assets
and liabilities with U.S. GAAP requirements; and
|
18
|
|
|
|
(3)
|
Differences between U.S. GAAP and IFRS associated with the
reversal of impairment losses, the determination of discount
rates used for pensions, the treatment of certain costs, and the
tax effects of these adjustments.
|
|
|
|
|
(e)
|
Represents the historical unaudited condensed combined income
statement of Wind Telecom for the nine months ended
September 30, 2010. The historical unaudited combined
financial statements of Wind Telecom are prepared in accordance
with IFRS, and presented in Euros. For the purpose of the
Unaudited Pro Forma Condensed Combined Financial Information,
Wind Telecom’s combined financial statements have been
reconciled to U.S. GAAP and a U.S. dollar presentation. This
reconciliation has not been audited. The differences between
Wind Telecom’s historical financial statements and the Wind
Telecom combined financial statement column in the Unaudited Pro
Forma Condensed Combined Financial Information relate to:
|
|
|
|
|
(1)
|
The change in reporting currency from the Euro to the U.S.
dollar at an exchange of 1.29 U.S. dollars average per Euro for
the nine months ended September 30, 2010;
|
|
|
(2)
|
The carve out of all revenues and expenses relating to assets,
liabilities, businesses not acquired including Wind Hellas
Telecommunications S.A., the carve out of certain revenues and
expenses which are not being acquired pertaining to the Wind
Italy business, the carve out of the revenues and expenses
associated with the OTH businesses which are expected to be
demerged or spun off at or following the Closing of the
Transaction, and the exclusion of revenues and expenses relating
to assets, liabilities, businesses of the OTH Tunisia business,
which has been recently sold by OTH;
|
|
|
(3)
|
Certain reclassifications to align the classification of assets
and liabilities with U.S. GAAP requirements; and
|
|
|
(4)
|
Differences between U.S. GAAP and IFRS including revenue
recognition, impairments, classification of contingently
redeemable shares, and intangible assets.
|
Refer to Note 14 for more details.
|
|
|
|
(f)
|
Represents the historical consolidated income statement of OJXX
XxxxxxXxx, predecessor to VimpelCom Ltd., for the year ended
December 31, 2009.
|
|
|
|
|
(g)
|
Represents the historical consolidated income statement of
Kyivstar for the year ended December 31, 2009. The
historical financial statements of Kyivstar are prepared in
accordance with IFRS, and presented in Ukrainian Hryvnia. 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 Kyivstar’s historical financial statements and the
Kyivstar column in the Unaudited Pro Forma Condensed Combined
Financial Information relate to:
|
|
|
|
|
(1)
|
The change in reporting currency from the Ukrainian hryvnia to
the U.S. dollar at an exchange of 7.79 for the year ended
December 31, 2009 and a rate of 7.98 as of
December 31, 2009;
|
|
|
(2)
|
Certain reclassifications to align the classification of assets
and liabilities with U.S. GAAP requirements; and
|
|
|
(3)
|
Differences between U.S. GAAP and IFRS associated with the
reversal of impairment losses, the determination of discount
rates used for pensions, the treatment of certain costs, the
treatment of deferred revenues, and the tax effects of these
adjustments.
|
|
|
|
|
(h)
|
Represents the consolidation of Sky Mobile under the revised
provisions of ASC 810, Consolidation. Sky Mobile
was consolidated by OJSC VimpelCom effective January 1,
2010, the impact of consolidating this entity has been reflected
in the Unaudited Pro Forma Condensed Combined Financial
Information as if Sky Mobile was consolidated effective
January 1, 2009.
|
|
|
|
|
(i)
|
Represents the unaudited historical combined income statement of
Wind Telecom for the year ended December 31, 2009. The
historical unaudited financial statements of Wind Telecom are
prepared in
|
19
|
|
|
|
|
accordance with IFRS, and presented in Euros. For the purpose
of the Unaudited Pro Forma Condensed Combined Financial
Information, Wind Telecom’s combined financial statements
have been reconciled to U.S. GAAP and a U.S. dollar
presentation. This reconciliation has not been audited. The
differences between Wind Telecom’s historical financial
statements and the Wind Telecom column in the Unaudited Pro
Forma Condensed Combined Financial Information relate to:
|
|
|
|
|
(1)
|
The change in reporting currency from the Euro to the
U.S. dollar at an exchange of 1.39 U.S. dollars average per
Euro for the year ended December 31, 2009;
|
|
|
(2)
|
The carve out of all revenues and expenses relating to assets,
liabilities, businesses not acquired including Wind Hellas
Telecommunications S.A., the carve out of certain revenues and
expenses which are not being acquired pertaining to the Wind
Italy business, the carve out of the revenues and expenses
associated with the OTH business which are expected to be
demerged or spun off prior to or simultaneously with
Transaction, and the exclusion of revenues and expenses relating
to assets, liabilities, businesses not of the Orascom Telecom
Tunisia business, which has been recently sold by OTH;
|
|
|
(3)
|
Certain reclassifications to align the classification of assets
and liabilities with U.S. GAAP requirements; and
|
|
|
(4)
|
Differences between U.S. GAAP and IFRS including revenue
recognition, impairments, classification of contingently
redeemable shares, and intangible assets.
|
Refer to Note 15 for more details.
|
|
Note 3 —
|
Wind
Telecom’s sale of Tunisia (Balance Sheet)
|
In November 2010, OTH announced, after receiving consent from
VimpelCom, that it had entered into a share purchase agreement
with Qatar Telecom (“Qtel”) Q.S.C. by which OTH would
sell its entire 50% shareholding in Orascom Telecom Tunisia. In
January 2011, OTH announced that the sale was completed for
US$1.2 billion. Orascom Telecom Tunisia was included in the
U.S. GAAP historical Wind Telecom combined balance sheet as an
asset held for sale for US$219 million, and excluded from
the U.S. GAAP historical Wind Telecom combined income
statement. The sale has generated a profit after tax for Wind
Telecom of US$771 million.
|
|
|
|
a)
|
Reflects the US$1.2 billion of cash received for the sale
of Orascom Telecom Tunisia, less the cash used to pay down
US$658 million of existing OTH debt.
|
|
|
b)
|
Reflects the elimination of the Orascom Telecom Tunisia assets
which were classified as “assets held for sale’’
in the historical combined balance sheet.
|
|
|
c)
|
Reflects the accrued tax payable related to the sale of Orascom
Telecom Tunisia.
|
|
|
d)
|
Reflects the pay down of US$658 million of existing OTH
debt from the US$1.2 billion of proceeds received from the
sale of Orascom Telecom Tunisia.
|
|
|
e)
|
Reflects the net equity impact of the sale of Orascom Telecom
Tunisia, after considering the cash received, net of the
adjustment for the pay down of existing debt, the recording of
accrued taxes and the elimination of the “assets held for
sale’’.
|
|
|
Note 4 —
|
Preliminary
purchase price allocation for Wind Telecom (Balance
Sheet)
|
At the Closing of the Transaction, VimpelCom will own, through
Wind Telecom, 51.7% of OTH and 100% of Wind Italy. Under the
terms of the Share Sale and Exchange Agreement, Wind Telecom
Shareholders will contribute to VimpelCom their shares in Wind
Telecom in exchange for a consideration consisting of up to
325,639,827 newly issued VimpelCom common shares, 305,000,000
convertible preferred shares, up to US$1.495 billion in
cash and certain assets that will be demerged from OTH and from
Wind Italy. The Wind Telecom interests in these assets, which
principally comprise OTH’s investments in Egypt and North
Korea and certain non-core Wind Italy assets, including WIS,
will be transferred to the current Wind Telecom shareholders.
The convertible preferred shares do not have rights to
dividends, but do have voting rights. Each convertible
20
preferred share may be converted into a common share any time
between 2.5 years and 5 years after its issuance at a
price based on the NYSE price for VimpelCom ADSs. The Wind
Healls Group is entirely excluded from the Transaction and the
Unaudited Pro Forma Condensed Combined Financial Information.
Orascom Telecom Tunisia, which was recently sold by Wind
Telecom, is treated as an asset held for sale in the U.S. GAAP
historical Wind Telecom combined balance sheet and excluded from
the U.S. GAAP historical Wind Telecom combined income statement.
The Unaudited Pro Forma Condensed Combined Financial Information
gives effect to the Wind Telecom acquisition using the
acquisition method of accounting in accordance with
ASC 805. For accounting purposes, VimpelCom is deemed to
acquire Wind Telecom. 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. ASC 805 requires, among other things,
that most assets acquired and liabilities 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 acquisition
at the then-current market price. This particular requirement
may result in the final consideration valued differently from
the amount reflected in these unaudited pro forma condensed
combined financial statements.
Based on the above information, the purchase consideration
(based on the VimpelCom share price of 17 January
2011) for the Wind Telecom acquisition is determined as
follows:
|
|
|
|
|
Fair value of consideration transferred to Wind Telecom
shareholders
|
|
US$
|
6,490
|
|
Less indemnification asset
|
|
|
(450
|
)
|
|
|
|
|
|
Total purchase consideration transferred for Wind Telecom
|
|
US$
|
6,040
|
|
|
|
|
|
|
The fair value of the purchase consideration will fluctuate
until the Transaction closes, as a significant portion of the
consideration is based on the fair value of VimpelCom’s
share price.
Preliminary purchase accounting has been applied to the pro
forma condensed combined balance sheet as of September 30,
2010, as if the Transaction occurred at that date. The pro
forma adjustments represent preliminary fair value adjustments
to the assets and liabilities deemed acquired. The preliminary
fair value allocation has been performed based on assessments of
available information. The assessment of fair value adjustments
will be reassessed and updated as necessary, and recognized in
VimpelCom’s financial statements as of the Closing date in
accordance with ASC 805.
The following is a summary of the various methods used to value
the Wind Telecom assets purchased. Property and equipment and
software have been valued primarily by using the replacement
cost method. Mobile licenses have been valued using the
Greenfield approach, market methods, and residual value
methods. Customer relationships have been valued using the
multiperiod excess earnings method. Brands have been valued
primarily using the relief-from-royalty method.
21
The following table presents the preliminary fair value
adjustments to the net U.S. GAAP book value of the Wind Telecom
assets acquired based on their estimated fair values at
September 30, 2010:
|
|
|
|
|
|
|
|
|
Total pro forma purchase consideration for Wind Telecom
|
|
|
|
|
|
US$
|
6,490
|
|
Less, indemnification asset
|
|
|
|
|
|
|
(450
|
)
|
|
|
|
|
|
|
|
|
|
Adjusted pro forma purchase consideration
|
|
|
|
|
|
|
6,040
|
|
|
|
|
|
|
|
|
|
|
Less, net U.S. GAAP book value of Wind Telecom assets acquired,
including existing goodwill
|
|
|
|
|
|
|
(2,244
|
)
|
Elimination of existing Wind Telecom Goodwill
|
|
|
|
|
|
|
5,181
|
|
|
|
|
|
|
|
|
|
|
Excess pro forma purchase price, prior to preliminary fair value
adjustments
|
|
|
|
|
|
|
8,977
|
|
|
|
|
|
|
|
|
|
|
Preliminary fair value adjustments:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
US$
|
(639
|
)
|
|
|
|
|
Intangible assets
|
|
|
3,370
|
|
|
|
|
|
Elimination of Wind Telecom debt issuance cost
|
|
|
(494
|
)
|
|
|
|
|
Other preliminary PPA-adjustments
|
|
|
(870
|
)
|
|
|
|
|
Less, deferred tax adjustments on preliminary fair value
adjustments
|
|
|
(696
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total preliminary fair value adjustments, net of tax
|
|
|
|
|
|
|
672
|
|
|
|
|
|
|
|
|
|
|
Preliminary total goodwill
|
|
|
|
|
|
US$
|
8,306
|
|
|
|
|
|
|
|
|
|
|
The net U.S. GAAP book value of the Wind Telecom assets acquired
includes the equity impact of the sale of Orascom Telecom
Tunisia (see Note 3) and the Wind Telecom’s
contingently redeemable shares presented in the
“mezzanine” section of the balance sheet of
US$1,867 million.
The following items describe the acquisition of Wind Telecom pro
forma adjustments further:
|
|
|
|
(a)
|
Reflects the cash consideration proposed to be paid to the Wind
Telecom Shareholders as part of the Transaction totaling
US$1.495 billion.
|
|
|
|
|
(b)
|
Reflects the deferred tax adjustments on the fair value
adjustments, calculated at respective statutory tax rates.
|
|
|
|
|
(c)
|
Preliminary fair values of property, plant and equipment as of
September 30, 2010, and estimated remaining useful lives,
in years, are estimated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
Useful Life
|
|
|
Estimated fair value of property, plant and equipment
|
|
US$
|
7,251
|
|
|
|
6-10
|
|
Less, total book value of property, plant and equipment
|
|
|
7,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated fair value adjustment to property, plant and equipment
|
|
US$
|
(639
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated remaining useful lives for property, plant and
equipment are based on a preliminary evaluation of the assets
being acquired. As further evaluation of the property and
equipment acquired is performed, there could be changes in the
estimated remaining useful lives.
(d) Preliminary fair values for intangibles as of
September 30, 2010 are estimated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
Useful Life
|
|
|
Total estimated fair value of intangible assets
|
|
|
9,665
|
|
|
|
1-20
|
|
Less, total book value of intangible assets
|
|
|
6,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated fair value adjustment to intangible assets
|
|
US$
|
3,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated fair values and estimated remaining useful lives
for intangible assets are based on a preliminary evaluation of
the assets being acquired. As further evaluation of the
intangible assets acquired is performed, there could be changes
in the estimated fair values and estimated remaining useful
lives.
22
|
|
|
|
(e)
|
The pro forma adjustment to goodwill was calculated based on the
estimated fair values of the purchase consideration paid and the
estimated fair values of the assets acquired and liabilities
assumed, as calculated above, totaling approximately
US$8.3 billion.
|
|
|
|
|
|
Preliminary goodwill
|
|
US$
|
8,306
|
|
Less, existing Wind Telecom goodwill
|
|
|
5,181
|
|
|
|
|
|
|
Estimated pro forma adjustment to goodwill
|
|
US$
|
3,125
|
|
|
|
|
|
|
|
|
|
|
|
As VimpelCom completes the purchase price allocation, this
excess may be allocated to other identified tangible or
intangible assets, which could be depreciable or amortizable.
|
|
|
|
|
(f)
|
Reflects the recognition of the US$450 million
indemnification asset provided to VimpelCom from Wind Telecom,
less the elimination of US$494 million of deferred finance
costs relating to costs capitalized in conjunction with Wind
Telecom’s historical debt issuances at OTH and Wind Italy
and the elimination of US$57 million of capitalized hedging
costs included on the Wind Telecom balance sheet as of
September 30, 2010.
|
|
|
|
|
(g)
|
Reflects the elimination of certain deferred revenue amounts on
the acquired Wind Telecom balance sheet. These amounts relate
primarily to a deferred gain on a sale-leaseback transaction and
deferred customer connection fees.
|
|
|
(h)
|
Reflects the recognition of potential acquired contingencies as
well as other purchase price accounting adjustments.
|
|
|
|
|
(i)
|
Reflects the elimination of the US$1,867 million
contingently redeemable shares of Wind Telecom acquired in
conjunction with the Transaction. These shares have been
included in the net assets acquired, as included in the goodwill
calculation above.
|
|
|
(j)
|
Reflects the net impact on the pro forma equity due to the
estimated fair value of the VimpelCom common shares issued to
Wind Telecom shareholders as part of the consideration for the
Transaction, offset by the elimination of Wind Telecom’s
historical combined equity balance and the equity impact related
to the sale of Orascom Telecom Tunisia.
|
|
|
|
|
|
Estimated fair value of the VimpelCom shares issued to Wind
Telecom shareholders
|
|
US$
|
4,995
|
|
Less, net U.S. GAAP book value of Wind Telecom equity and equity
impact of sale of Tunisia
|
|
|
377
|
|
|
|
|
|
|
Estimated pro forma adjustment to shareholders’ equity
|
|
US$
|
4,618
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of the purchase consideration will fluctuate
until the Transaction closes, as a significant portion of the
consideration is based on the fair value of VimpelCom’s
share price.
|
|
|
|
As the purchase price allocation is finalized, the fair value
adjustments may be further allocated to the minority interest.
|
In order to fund the Transaction, VimpelCom has arrangements in
place to borrow additional amounts of up to US$6.5 billion
from Russian and international banks. VimpelCom will utilize a
portion of these arrangements to finance the cash portion of the
Transaction and to refinance existing debt of OTH and related
entities, which have become due upon Closing of the
Transaction. The sources and uses of the overall financings are
presented below.
23
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources
|
|
|
|
|
Uses
|
|
|
Bridge loan
|
|
US$
|
1,300
|
|
|
Orascom Telecom Xxxxx X.X. (Luxembourg)
|
|
US$
|
243
|
|
Loan participation notes
|
|
|
1,500
|
|
|
Orascom Telecom Holding S.A.E. (Egypt)
|
|
|
1,750
|
|
Term loan
|
|
|
2,500
|
|
|
Weather Capital Special Purpose I S.A. (Luxembourg)
|
|
|
607
|
|
|
|
|
|
|
|
Orascom Telcom Finance S.C.A. (Luxembourg)
|
|
|
780
|
|
|
|
|
|
|
|
Acquisition of Wind Telecom S.p.A.
|
|
|
1,495
|
|
|
|
|
|
|
|
Financing of spin-off assets
|
|
|
300
|
|
|
|
|
|
|
|
Transaction costs
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
|
5,300
|
|
|
|
|
US$
|
5,300
|
|
|
|
|
|
|
|
|
|
|
|
|
VimpelCom plans to raise the funds for the financing of the
planned Transaction through currently projected borrowings of
US$1.3 billion under a US$4.0 billion bridge loan,
US$1.5 billion in proceeds from loan participation notes
loaned to a Russian subsidiary and a US$2.5 billion term
loan. Total expected funds approximate US$5.3 billion.
The funds will be mainly used to repay/refinance existing debt
per the Share Sale and Exchange Agreement, which totals
approximately US$3.4 billion, to pay the
US$1.495 billion cash portion of the purchase consideration
for the Wind Telecom acquisition, to finance the spin-off assets
of approximately US$300 million, and pay approximately
US$125 million in debt issue costs, which have been assumed
to be capitalized on the balance sheet.
Further to the above, US$658 million from the proceeds from
the sale of Orascom Telecom Tunisia were used to pay down
existing OTH debt.
In addition to the above financing and refinancing of the
Transaction, Wind Telecom and OTH, certain debt at Wind was
refinanced in November 2010, as presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources
|
|
|
|
|
Uses
|
|
|
Senior term loan A
|
|
US$
|
2,060
|
|
|
Senior term loan A
|
|
US$
|
1,122
|
|
Senior term loan B
|
|
|
2,740
|
|
|
Senior term loan B
|
|
|
2,070
|
|
2018 High yield
|
|
|
3,688
|
|
|
Senior term loan C
|
|
|
2,070
|
|
|
|
|
|
|
|
Second lien
|
|
|
936
|
|
|
|
|
|
|
|
2015 high yield
|
|
|
2,059
|
|
|
|
|
|
|
|
Transaction costs
|
|
|
231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
|
8,488
|
|
|
|
|
US$
|
8,488
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain of the existing Wind debt was refinanced through
approximately US$4.8 billion of senior facilities and
approximately US$3.7 billion from high yield bonds. Total
new sources of funds approximated US$8.5 billion.
The funds described above were used to repay existing debt per
the Share Sale and Exchange Agreement and the Refinancing Plan,
which totals approximately US$8.3 billion and pay
approximately US$230 million in debt issue costs, which
have been assumed to be capitalized on the balance sheet.
The following items describe the Financing pro forma adjustments
further:
|
|
|
|
(a)
|
Reflects the net cash generated from the financings described
above.
|
|
|
|
|
(b)
|
Reflects the capitalization of the estimated debt issue costs of
US$125 million, estimated to be incurred by XxxxxxXxx,
amongst others, for the OTH financing and US$231 million
for the Wind refinancing.
|
|
|
|
|
(c)
|
Reflects the increase in the debt position considering the
estimated proceeds from the financing, less the planned
refinancing of the existing debt.
|
The intercompany balance sheet positions as of
September 30, 2010 between VimpelCom and Wind Telecom were
not material.
24
|
|
Note 7 —
|
Kyivstar
purchase accounting adjustments (Income Statement)
|
VimpelCom acquired control of Kyivstar on April 21, 2010.
See Note 1 for a description of the transaction.
|
|
|
|
(a)
|
The adjustment to operating revenue reflects the reversal of
deferred revenue recognized by Kyivstar for which VimpelCom has
no further contractual performance obligation as of
January 1, 2009. These deferred amounts had been
recognized in Kyivstar’s historical statements of income
for the nine months ended September 30, 2010 and 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%:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
Year Ended
|
|
|
September 30, 2010
|
|
December 31, 2009
|
|
Operating revenues
|
|
|
(7
|
)
|
|
|
(34
|
)
|
Income tax benefit
|
|
|
2
|
|
|
|
9
|
|
|
|
|
|
(b)
|
The pro forma adjustment reflects elimination of intercompany
transactions between Kyivstar and OJSC VimpelCom:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
Year Ended
|
|
|
September 30, 2010
|
|
December 31, 2009
|
|
Operating revenues
|
|
|
(23
|
)
|
|
|
(87
|
)
|
Service costs
|
|
|
(23
|
)
|
|
|
(87
|
)
|
|
|
|
|
(c)
|
Preliminary purchase accounting has been applied to the
unaudited pro forma condensed combined statement of income for
the nine months ended September 30, 2010 and the year ended
December 31, 2009, as if the Kyivstar acquisition had
occurred at January 1, 2009. Kyivstar financial
information in Ukrainian hryvnia has been translated to U.S.
dollars applying an average exchange rate of 7.92 and UAH 7.79
per U.S. dollar for the nine months ended September 30,
2010 and the year ended December 31, 2009, respectively.
As required by ASC 805 related to the purchase accounting
in connection with the Kyivstar acquisition, pro forma
adjustments have been made to reflect additional depreciation
and amortization as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
Year Ended
|
|
|
September 30, 2010
|
|
December 31, 2009
|
|
Depreciation
|
|
|
(14
|
)
|
|
|
(56
|
)
|
Amortization
|
|
|
(50
|
)
|
|
|
(205
|
)
|
Income tax benefit
|
|
|
16
|
|
|
|
65
|
|
The statutory income tax rate of 25.0% has been applied to the
pro forma adjustments noted above. VimpelCom did not identify
intangibles with indefinite useful life except for goodwill.
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:
|
|
|
|
|
Year
|
|
Amount
|
|
|
(in thousands)
|
|
2010
|
|
US$
|
135,387
|
|
2011
|
|
|
100,049
|
|
2012
|
|
|
74,030
|
|
2013
|
|
|
54,847
|
|
2014
|
|
|
40,687
|
|
|
|
Note 8 —
|
Preliminary
purchase price allocation for Wind Telecom (Income
Statement)
|
VimpelCom has proposed to acquire 100% of Wind Telecom. See
Note 4 for a description of the proposed Transaction.
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 the Transaction had
occurred at January 1, 2009. As required by ASC 805
related to the purchase accounting in connection with the
Transaction, pro forma adjustments have been made to reflect
estimated impacts of the following preliminary purchase
accounting adjustments.
|
|
|
|
(a)
|
Reflects the elimination of revenues due to the reversal of
acquired deferred revenues on the balance sheet. Assuming the
Transaction occurred on January 1, 2009, such amounts would
have not been recognized.
|
25
|
|
|
|
(b)
|
Depreciation has been calculated on the estimated fair value
adjustments taking into account the estimated remaining useful
life of the acquired property, plant and equipment. The
estimated remaining useful lives for the property, plant and
equipment are based on a preliminary evaluation of the assets
being acquired. As further evaluation of the property and
equipment acquired is performed, there could be changes in the
estimated remaining useful lives.
|
|
|
|
|
(c)
|
Amortization has been calculated on the estimated fair value
adjustments taking into account the estimated remaining useful
life of the acquired intangible assets. The estimated remaining
useful lives for intangible assets are based on a preliminary
evaluation of the assets being acquired. As further evaluation
of the intangible assets acquired is performed, there could be
changes in the estimated remaining useful lives.
|
|
|
|
|
(d)
|
Assuming the Transaction closed January 1, 2009, the
interest expense incurred on the redeemable shares would not
have been incurred. Accordingly, US$178 million and
US$135 million of interest expense associated with these
instruments have been eliminated for the year ended
December 31, 2009 and the nine months ended
September 30, 2010, respectively.
|
|
|
|
|
(e)
|
Income taxes have been estimated based on the above adjustments
taking into consideration the local jurisdictions and estimated
income tax rates.
|
As discussed in Note 4, a portion of the excess purchase
price has been allocated to goodwill, based on a preliminary
assessment of the fair values of assets acquired and liabilities
assumed. As VimpelCom finalizes the purchase price allocation,
this excess may be allocated to other identified tangible or
intangible assets, which could be depreciable or amortizable,
and other assets acquired and liabilities assumed.
VimpelCom will finance the Transaction with debt and refinance
certain existing debt per the Share Sale and Exchange Agreement,
as further described in Note 5.
|
|
|
|
(a)
|
Represents an estimate of the incremental interest expense
related to the borrowings expected to be incurred as described
in Note 5. Therefore the US$93 million and the
US$124 million estimated pro forma adjustment represents
the estimated incremental interest expense for the nine months
ended September 30, 2010 and the year ended
December 31, 2009, respectively, of the assumed newly
issued debt versus the refinanced, historical debt.
|
No further financing adjustments have been made to the unaudited
pro forma condensed combined income statement for the
elimination of existing Wind Telecom debt issue costs and the
recognition of pro forma debt issue costs for the refinanced
debt, as the amounts offset each other and would not result in a
significant adjustment.
|
|
|
|
(b)
|
Represents the tax impacts of the above adjustments assuming a
blended statutory rate.
|
|
|
Note 10 —
|
Other
adjustments (Income Statement)
|
Intercompany transactions during the nine months ended
September 30, 2010 and the year ended December 31,
2009 were nil and US$3.5 million, respectively, between
VimpelCom and Wind Telecom, and have been eliminated.
No significant “one time” transaction costs related to
the Transaction were incurred by either VimpelCom or Wind
Telecom during the nine months ended September 30, 2010 or
the year ended December 31, 2009, which should be
considered for adjustment in the unaudited pro forma condensed
combined income statement.
|
|
Note 11 —
|
Pro forma
earnings per share (EPS)
|
The pro forma basic earnings per share of VimpelCom were
calculated as the sum of the VimpelCom weighted average basic
shares outstanding as of September 30, 2010, plus the
approximate 326 million VimpelCom common shares to be
issued to the Wind Telecom Shareholders as part of the
Transaction consideration.
The pro forma diluted earnings per share of VimpelCom were
calculated based on the VimpelCom weighted average diluted
shares outstanding as of September 30, 2010, plus the
approximate 326 million VimpelCom common shares and any
dilutive impact of the 305 million convertible preferred
shares issued as part of the Transaction consideration.
VimpelCom applies the treasury stock method when calculating the
dilutive impact of the convertible preferred shares, as provided
in ASC 260. Because the average market price during the
periods was
26
lower than the exercise price of the convertible preferred
shares, the preferred convertible shares are anti-dilutive, and
have therefore been excluded from pro forma diluted earnings per
share calculation.
The tables below include the calculation of the pro forma basic
and diluted earnings per share, as discussed above:
|
|
|
|
|
|
|
(Thousands of shares)
|
|
|
Pro Forma basic EPS
|
|
|
|
|
VimpelCom Ltd. basic shares outstanding as of September 30,
2010
|
|
|
1,178,629
|
|
Number of VimpelCom Ltd. common shares issued to Wind Telecom
shareholders
|
|
|
325,640
|
|
|
|
|
|
|
Pro Forma basic shares outstanding as of September 30, 2010
|
|
|
1,504,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of shares)
|
|
|
Pro forma diluted EPS
|
|
|
|
|
VimpelCom Ltd. diluted shares outstanding as of
September 30, 2010
|
|
|
1,179,141
|
|
Number of VimpelCom Ltd. common shares issued to Wind Telecom
shareholders
|
|
|
325,640
|
|
Number of dilutive shares associated with convertible preferred
shares issued
|
|
|
—
|
|
|
|
|
|
|
Pro Forma diluted shares outstanding as of September 30,
2010
|
|
|
1,504,781
|
|
|
|
|
|
|
|
|
Note 12 —
|
Other
Information
|
Described below are various events which have not been
considered in the pro forma adjustments described above:
|
|
|
|
(a)
|
The Unaudited Pro Forma Condensed Combined Financial Information
includes the assets, liabilities and results of operations of
OTH’s Algerian subsidiary OTA. There is currently an
ongoing dispute between OTH and the Algerian Government
regarding OTA. VimpelCom is interested in exploring with the
Algerian Government a resolution which would allow VimpelCom to
retain OTA following Closing of the Transaction. In the event
that such a resolution is not possible within a reasonable time
frame, VimpelCom has reached a value sharing arrangement with
Weather II which provides for any financial losses or gains
arising from the sale of all or part of OTA to the Algerian
Government or from the eventual settlement of the disputes
between OTA and the Algerian Government to be shared in certain
pre-agreed proportions between VimpelCom and Weather II. See
“The Transaction — Algerian Value Sharing
Arrangement” for more detail.
|
|
|
|
|
(b)
|
In connection with the planned spinoff of certain assets and
liabilities currently excluded from the Transaction,
transitional service agreements
(“TSAs’’) have been entered into
between parties. No adjustments have been reflected in the
Unaudited Pro Forma Condensed Combined Financial Information for
TSAs.
|
|
|
|
|
(c)
|
For purposes of the Unaudited Pro Forma Condensed Combined
Financial Information, the intercompany balances between the
spin-off entities and Wind Telecom have been included within
equity.
|
|
|
|
|
(d)
|
On November 15, 2010 VimpelCom announced that its
Supervisory Board declared the payment of an interim dividend of
US$0.46 per American depositary share, which amounted to a total
interim dividend payment of approximately US$600 million.
The interim dividend was paid in December 2010 and was in
accordance with VimpelCom’s dividend policy. No
adjustments have been reflected in the Unaudited Pro Forma
Condensed Combined Financial Information for this dividend
payment.
|
|
|
|
|
(e)
|
The unaudited pro forma condensed combined balance sheet as of
September 30, 2010 has been translated using the historical
exchange rate of 1.36 U.S. dollars per Euro as of
September 30, 2010. As of February 7, 2011, this
exchange rate also approximates 1.36 U.S. dollars per Euro.
Fluctuations in exchange rates will result in material
adjustments to the final combined balance, including any
preliminary purchase accounting adjustments.
|
27
|
|
Note 13 —
|
Pro Forma
combined balance sheet of Wind Telecom as of September 30,
2010
|
The following shows the balance sheet of Wind Telecom, adjusted
for the carve outs and U.S. GAAP adjustments, as of
September 30, 2010 (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
Wind Telecom
|
|
|
Carve Out
|
|
|
Carve Out
|
|
|
Carve Out
|
|
|
U.S. GAAP
|
|
|
Wind Telecom
|
|
|
|
IFRS
|
|
|
Hellas
|
|
|
Wind Spin
|
|
|
OTH Spin
|
|
|
Adjustments
|
|
|
Combined Pro
|
|
|
|
Consolidated
|
|
|
Business
|
|
|
Off Assets
|
|
|
Off Assets
|
|
|
and Reclasses
|
|
|
Forma U.S. GAAP
|
|
USD millions
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
US$
|
1,492
|
|
|
US$
|
(34
|
)
|
|
US$
|
(34
|
)
|
|
US$
|
(189
|
)
|
|
US$
|
—
|
|
|
US$
|
1,235
|
|
Trade accounts receivable, net of allowance for doubtful accounts
|
|
|
2,426
|
|
|
|
(223
|
)
|
|
|
(229
|
)
|
|
|
(103
|
)
|
|
|
2
|
|
|
|
1,873
|
|
Inventory
|
|
|
82
|
|
|
|
(10
|
)
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
71
|
|
Deferred income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Input value added tax
|
|
|
192
|
|
|
|
(22
|
)
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
165
|
|
Due from related parties
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other current assets
|
|
|
1,217
|
|
|
|
(60
|
)
|
|
|
—
|
|
|
|
(19
|
)
|
|
|
(4
|
)
|
|
|
1,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
5,409
|
|
|
|
(349
|
)
|
|
|
(267
|
)
|
|
|
(313
|
)
|
|
|
(2
|
)
|
|
|
4,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
9,252
|
|
|
|
(813
|
)
|
|
|
(37
|
)
|
|
|
(507
|
)
|
|
|
(4
|
)
|
|
|
7,891
|
|
Goodwill
|
|
|
5,224
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
(42
|
)
|
|
|
—
|
|
|
|
5,181
|
|
Other intangible assets, net
|
|
|
6,915
|
|
|
|
(528
|
)
|
|
|
(213
|
)
|
|
|
(165
|
)
|
|
|
(108
|
)
|
|
|
5,901
|
|
Software, net
|
|
|
492
|
|
|
|
(88
|
)
|
|
|
(7
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
394
|
|
Investments in associates
|
|
|
1,042
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,042
|
)
|
|
|
—
|
|
|
|
—
|
|
Other assets
|
|
|
2,014
|
|
|
|
(49
|
)
|
|
|
(1
|
)
|
|
|
205
|
|
|
|
498
|
|
|
|
2,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
US$
|
30,348
|
|
|
US$
|
(1,827
|
)
|
|
US$
|
(526
|
)
|
|
US$
|
(1,866
|
)
|
|
US$
|
383
|
|
|
US$
|
26,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, redeemable noncontrolling interest and equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
US$
|
3,163
|
|
|
US$
|
(257
|
)
|
|
US$
|
(281
|
)
|
|
US$
|
(91
|
)
|
|
US$
|
(10
|
)
|
|
US$
|
2,524
|
|
Due to employees
|
|
|
159
|
|
|
|
(7
|
)
|
|
|
—
|
|
|
|
(6
|
)
|
|
|
—
|
|
|
|
146
|
|
Due to related parties
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
|
|
5
|
|
Accrued liabilities
|
|
|
1,529
|
|
|
|
(163
|
)
|
|
|
(42
|
)
|
|
|
(125
|
)
|
|
|
23
|
|
|
|
1,222
|
|
Taxes payable
|
|
|
345
|
|
|
|
(3
|
)
|
|
|
7
|
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
345
|
|
Customer advances, net of VAT
|
|
|
465
|
|
|
|
(21
|
)
|
|
|
—
|
|
|
|
(15
|
)
|
|
|
—
|
|
|
|
429
|
|
Customer deposits
|
|
|
37
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
35
|
|
Short-term debt
|
|
|
4,115
|
|
|
|
(2,928
|
)
|
|
|
16
|
|
|
|
(59
|
)
|
|
|
(16
|
)
|
|
|
1,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
9,813
|
|
|
|
(3,379
|
)
|
|
|
(300
|
)
|
|
|
(302
|
)
|
|
|
2
|
|
|
|
5,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
1,476
|
|
|
|
(165
|
)
|
|
|
(69
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,242
|
|
Long-term debt
|
|
|
18,606
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8
|
)
|
|
|
(1,409
|
)
|
|
|
17,189
|
|
Other non-current liabilities
|
|
|
845
|
|
|
|
(50
|
)
|
|
|
(5
|
)
|
|
|
(3
|
)
|
|
|
(14
|
)
|
|
|
773
|
|
Commitments, contingencies and uncertainties
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
30,740
|
|
|
|
(3,594
|
)
|
|
|
(374
|
)
|
|
|
(313
|
)
|
|
|
(1,421
|
)
|
|
|
25,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,867
|
|
|
|
1,867
|
|
Equity
|
|
|
(1,559
|
)
|
|
|
1,681
|
|
|
|
(152
|
)
|
|
|
(1,530
|
)
|
|
|
777
|
|
|
|
(783
|
)
|
Noncontrolling interest
|
|
|
1,167
|
|
|
|
86
|
|
|
|
—
|
|
|
|
(23
|
)
|
|
|
(840
|
)
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
(392
|
)
|
|
|
1,767
|
|
|
|
(152
|
)
|
|
|
(1,553
|
)
|
|
|
(63
|
)
|
|
|
(393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable noncontrolling interest and
equity
|
|
US$
|
30,348
|
|
|
US$
|
(1,827
|
)
|
|
US$
|
(526
|
)
|
|
US$
|
(1,866
|
)
|
|
US$
|
383
|
|
|
US$
|
26,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
Note 14 —
|
Pro Forma
combined income statement of Wind Telecom for the nine months
ended September 30, 2010
|
The following shows the income statement of Wind Telecom,
adjusted for the carve outs and U.S. GAAP adjustments, for the
nine months ended September 30, 2010 (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
Wind Telecom
|
|
|
Carve out
|
|
|
Carve out
|
|
|
Carve out
|
|
|
U.S. GAAP
|
|
|
Wind Telecom
|
|
|
|
IFRS
|
|
|
Hellas
|
|
|
Wind Italy Spin-
|
|
|
OTH Spin-Off
|
|
|
adjustments
|
|
|
Combined Pro
|
|
USD in millions
|
|
Consolidated
|
|
|
business
|
|
|
Off assets
|
|
|
Assets
|
|
|
and reclasses
|
|
|
Forma U.S. GAAP
|
|
|
Net operating revenues
|
|
US$
|
9,391
|
|
|
US$
|
(790
|
)
|
|
US$
|
(267
|
)
|
|
US$
|
(406
|
)
|
|
US$
|
32
|
|
|
US$
|
7,960
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service costs
|
|
|
2,726
|
|
|
|
(247
|
)
|
|
|
(168
|
)
|
|
|
(110
|
)
|
|
|
(507
|
)
|
|
|
1,694
|
|
Cost of equipment and accessories
|
|
|
410
|
|
|
|
(68
|
)
|
|
|
(13
|
)
|
|
|
(22
|
)
|
|
|
—
|
|
|
|
307
|
|
Selling, general and administrative expenses
|
|
|
2,533
|
|
|
|
(286
|
)
|
|
|
(14
|
)
|
|
|
(37
|
)
|
|
|
651
|
|
|
|
2,846
|
|
Depreciation
|
|
|
1,221
|
|
|
|
(108
|
)
|
|
|
(1
|
)
|
|
|
(40
|
)
|
|
|
(5
|
)
|
|
|
1,066
|
|
Amortization
|
|
|
563
|
|
|
|
(130
|
)
|
|
|
(1
|
)
|
|
|
(15
|
)
|
|
|
(86
|
)
|
|
|
330
|
|
Impairment loss
|
|
|
1,041
|
|
|
|
(995
|
)
|
|
|
—
|
|
|
|
(24
|
)
|
|
|
1
|
|
|
|
23
|
|
Provision for doubtfull accounts
|
|
|
119
|
|
|
|
(28
|
)
|
|
|
(1
|
)
|
|
|
(12
|
)
|
|
|
—
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
8,612
|
|
|
|
(1,864
|
)
|
|
|
(199
|
)
|
|
|
(260
|
)
|
|
|
54
|
|
|
|
6,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
778
|
|
|
|
1,074
|
|
|
|
(68
|
)
|
|
|
(146
|
)
|
|
|
(22
|
)
|
|
|
1,617
|
|
Other income and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
165
|
|
|
|
(17
|
)
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
(71
|
)
|
|
|
75
|
|
Net foreign exchange (loss)/gain
|
|
|
(81
|
)
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
4
|
|
|
|
—
|
|
|
|
(77
|
)
|
Interest expense
|
|
|
(1,725
|
)
|
|
|
198
|
|
|
|
—
|
|
|
|
8
|
|
|
|
314
|
|
|
|
(1,204
|
)
|
Equity in net (loss)/gain of associates
|
|
|
(81
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(19
|
)
|
|
|
—
|
|
|
|
(101
|
)
|
Other (expenses)/income, net
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(218
|
)
|
|
|
(218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and expenses
|
|
|
(1,722
|
)
|
|
|
183
|
|
|
|
(1
|
)
|
|
|
(10
|
)
|
|
|
26
|
|
|
|
(1,525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
(943
|
)
|
|
|
1,257
|
|
|
|
(70
|
)
|
|
|
(156
|
)
|
|
|
3
|
|
|
|
92
|
|
Income tax expense
|
|
|
325
|
|
|
|
(18
|
)
|
|
|
(14
|
)
|
|
|
(41
|
)
|
|
|
(4
|
)
|
|
|
247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
(1,268
|
)
|
|
|
1,275
|
|
|
|
(56
|
)
|
|
|
(115
|
)
|
|
|
7
|
|
|
|
(156
|
)
|
Net (loss)/income attributable to the noncontrolling interest
|
|
|
468
|
|
|
|
—
|
|
|
|
6
|
|
|
|
(499
|
)
|
|
|
10
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Vimpelcom
|
|
US$
|
(1,736
|
)
|
|
US$
|
1,275
|
|
|
US$
|
(61
|
)
|
|
US$
|
384
|
|
|
US$
|
(3
|
)
|
|
US$
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
Note 15 —
|
Pro Forma
combined income statement of Wind Telecom for the year ended
December 31, 2009
|
The following shows the income statement of Wind Telecom,
adjusted for the carve outs and U.S. GAAP adjustments, for the
year ended December 31, 2009 (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
Wind Telecom
|
|
|
Carve out
|
|
|
Carve out
|
|
|
Carve out
|
|
|
U.S. GAAP
|
|
|
Wind Telecom
|
|
|
|
IFRS
|
|
|
Hellas
|
|
|
Wind Italy Spin-
|
|
|
OTH Spin-
|
|
|
adjustments
|
|
|
Combined Pro
|
|
USD in millions
|
|
Consolidated
|
|
|
business
|
|
|
Off Assets
|
|
|
Off Assets
|
|
|
and reclasses
|
|
|
Forma U.S. GAAP
|
|
|
Net operating revenues
|
|
US$
|
14,378
|
|
|
US$
|
(1,473
|
)
|
|
US$
|
(388
|
)
|
|
US$
|
(1,413
|
)
|
|
US$
|
6
|
|
|
US$
|
11,109
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service costs
|
|
|
4,155
|
|
|
|
(455
|
)
|
|
|
(236
|
)
|
|
|
15
|
|
|
|
(1,176
|
)
|
|
|
2,304
|
|
Cost of equipment and accessories
|
|
|
751
|
|
|
|
(141
|
)
|
|
|
(13
|
)
|
|
|
—
|
|
|
|
(42
|
)
|
|
|
556
|
|
Selling, general and administrative expenses
|
|
|
3,931
|
|
|
|
(462
|
)
|
|
|
(18
|
)
|
|
|
—
|
|
|
|
456
|
|
|
|
3,909
|
|
Depreciation
|
|
|
1,903
|
|
|
|
(153
|
)
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(213
|
)
|
|
|
1,536
|
|
Amortization
|
|
|
701
|
|
|
|
(188
|
)
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(46
|
)
|
|
|
466
|
|
Impairment loss
|
|
|
2,202
|
|
|
|
(2,163
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
36
|
|
Provision for doubtfull accounts
|
|
|
159
|
|
|
|
(29
|
)
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
(11
|
)
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
13,802
|
|
|
|
(3,590
|
)
|
|
|
(274
|
)
|
|
|
15
|
|
|
|
(1,034
|
)
|
|
|
8,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
576
|
|
|
|
2,117
|
|
|
|
(114
|
)
|
|
|
(1,429
|
)
|
|
|
1,039
|
|
|
|
2,188
|
|
Other income and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
2,076
|
|
|
|
(1,733
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(107
|
)
|
|
|
235
|
|
Net foreign exchange (loss)/gain
|
|
|
25
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26
|
|
Interest expense
|
|
|
(2,651
|
)
|
|
|
465
|
|
|
|
—
|
|
|
|
—
|
|
|
|
555
|
|
|
|
(1,632
|
)
|
Equity in net (loss)/gain of associates
|
|
|
(47
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(47
|
)
|
Other (expenses)/income, net
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(391
|
)
|
|
|
(391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and expenses
|
|
|
(598
|
)
|
|
|
(1,269
|
)
|
|
|
1
|
|
|
|
—
|
|
|
|
57
|
|
|
|
(1,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
(22
|
)
|
|
|
849
|
|
|
|
(113
|
)
|
|
|
(1,429
|
)
|
|
|
1,096
|
|
|
|
380
|
|
Income tax expense
|
|
|
689
|
|
|
|
3
|
|
|
|
(18
|
)
|
|
|
—
|
|
|
|
(104
|
)
|
|
|
569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
(711
|
)
|
|
|
846
|
|
|
|
(95
|
)
|
|
|
(1,429
|
)
|
|
|
1,201
|
|
|
|
(189
|
)
|
Net (loss)/income attributable to the noncontrolling interest
|
|
|
216
|
|
|
|
—
|
|
|
|
15
|
|
|
|
(149
|
)
|
|
|
9
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Vimpelcom
|
|
US$
|
(926
|
)
|
|
US$
|
846
|
|
|
US$
|
(110
|
)
|
|
US$
|
(1,280
|
)
|
|
US$
|
1,191
|
|
|
US$
|
(281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
RISK
FACTORS
In addition to the risk factors set forth below, you should
read and consider other risk factors specific to VimpelCom and
Wind Telecom businesses that will also affect VimpelCom after
completion of the Transaction which are set out in Annex A
and Annex B to this proxy statement. If any of the risks
described below or in Annex A or Annex B actually
occurs, the respective businesses, financial results, financial
conditions, operating results of VimpelCom or the share price of
VimpelCom common shares or VimpelCom ADSs could be materially
adversely affected.
Risk
Factors Relating to the Transaction
The
integration of Wind Telecom into the VimpelCom group may not
occur as planned.
With the acquisition of Wind Telecom, the VimpelCom group will
have a significantly diversified revenue base, an attractive mix
of developed and emerging market assets in Eastern Europe, Asia
and Africa and a more balanced growth profile between increasing
market penetration and growing usage. To take advantage of this
diversification, our management is required to devote a
significant amount of time and resources to the process of
integrating the operations of Wind Telecom with VimpelCom’s
operations, which may decrease the time management has to manage
the combined company’s business, service existing clients,
attract new clients, develop new services or strategies and
respond to increasing forms of competition. If we are unable to
manage the combined business effectively or to integrate the
businesses successfully, it could have a material adverse effect
on our business, financial condition and results of operations.
Our rationale behind the Transaction is based on certain beliefs
and assumptions, among others, that the assets of VimpelCom and
Wind Telecom are complementary, that demand for mobile data
services in our markets is set to grow significantly and that
the combination will result in synergies with a net present
value of approximately US$2.5 billion, primarily derived
from procurement, operational expenses and capital
expenditures. If any of our fundamental beliefs or assumptions
proves to be incorrect or if we are unable to effectively
execute our strategy, the return on our substantial investment
in Wind Telecom may not materialize and our business, financial
condition and results of operations could be materially
adversely affected.
In a letter dated January 9, 2011, Xxxxxx wrote to
VimpelCom that an affiliate of Altimo owns shares in OTH
sufficient in value for the Transaction to be treated as a
“Related M&A Transaction” under the VimpelCom
shareholders agreement among VimpelCom and certain Telenor and
Altimo entities (the “VimpelCom Shareholders
Agreement”). The VimpelCom Shareholders Agreement
provides that the issuance of VimpelCom shares in a Related
M&A Transaction is not subject to any pre-emptive rights
for Altimo or Telenor. At its meeting on January 16, 2011,
XxxxxxXxx’s Supervisory Board concluded that the
Transaction should be regarded as a Related M&A Transaction
and therefore is not subject to any pre-emptive rights for
either Altimo or Telenor under the VimpelCom Shareholders
Agreement. The Supervisory Board approved the Transaction by a
vote of six to three. The three Telenor nominees on the
Supervisory Board voted against the Transaction. The three
Altimo nominees on the Supervisory Board and the three
independent members of the Supervisory Board voted for the
Transaction.
On January 28, 2011, Telenor commenced arbitration
proceedings against each of Xxxxxx and XxxxxxXxx (the
“Arbitration Proceedings”) for the
stated purpose of “enforcing its alleged pre-emptive rights
under the VimpelCom Shareholders Agreement” with respect to
VimpelCom shares to be issued in the Transaction. On
February 7, 2011, Telenor commenced proceedings in the
Commercial Court in London seeking an injunction (the
“Injunction Request”) which, if granted,
would prevent VimpelCom from proceeding with the Special General
Meeting until after the arbitration tribunal has reached a final
decision in the Arbitration Proceedings, unless XxxxxxXxx
authorizes and issues to Telenor its alleged pre-emptive shares
on the basis that the Transaction is not a “Related
M&A Transaction” under the VimpelCom Shareholders
Agreement. A hearing on the Injunction Request is scheduled for
February 25, 2011.
In the Arbitration Proceedings, Telenor specifically seeks an
award declaring that Altimo affiliates breached the VimpelCom
Shareholders Agreement by violating an obligation of good faith
and fair dealing under
New York
31
law and alleged similar obligations under the VimpelCom
Shareholders Agreement, that VimpelCom breached the VimpelCom
Shareholder Agreement by declaring the Transaction to be a
Related M&A Transaction, and that the Transaction is not a
Related M&A Transaction. Telenor is also seeking to compel
XxxxxxXxx and Altimo to permit Telenor to exercise pre-emptive
rights in connection with the Transaction, and requests interim
relief during the Arbitration Proceedings to protect
Telenor’s rights as a shareholder in VimpelCom and as party
to the VimpelCom Shareholders Agreement. Telenor is also seeking
damages for the alleged violations by Altimo affiliates and
VimpelCom in an amount to be determined in the Arbitration
Proceedings and its costs and expenses in the Arbitration
Proceedings. Telenor has also asked for any other relief that
the arbitral tribunal deems just and proper, which may subject
us to other legal or equitable remedies under the Arbitration
Proceedings or in any other court, tribunal or forum. If an
injunction is granted pursuant to the Injunction Request or
otherwise pursuant to the Arbitration Proceedings, it could
result in the Transaction failing to close, which could
adversely affect our future prospects and growth.
In addition, the resumption of legal proceedings between Xxxxxx
and Telenor, and Telenor’s opposition to the Transaction,
could cause the relationship between Xxxxxx and Telenor to
deteriorate. As a result of the disputes among our largest
shareholders and claims made against us, we could suffer
material adverse effects on our business, financial condition,
results of operations and prospects.
If Telenor prevails in the Arbitration Proceedings and the
arbitration tribunal determines that pre-emptive rights do apply
to the issuance of the VimpelCom shares in the Transaction, then
VimpelCom ADS holders (the “VimpelCom Minority
Shareholders”) could suffer significant economic
and voting dilution. Currently the VimpelCom Minority
Shareholders hold approximately 20.4% of the VimpelCom common
shares and approximately 18.6% of the VimpelCom voting shares.
Following the Closing of the Transaction and assuming no
pre-emptive rights apply, the VimpelCom Minority Shareholders
will hold approximately 16.3% of the VimpelCom common shares and
approximately 12.9% of the VimpelCom voting shares. Following
the Closing of the Transaction, and assuming that an arbitration
tribunal were to determine that pre-emptive rights do apply and
assuming further that each of Telenor and Altimo exercise its
respective pre-emptive rights in full, then the VimpelCom
Minority Shareholders would hold approximately 9.4% of the
VimpelCom common shares and approximately 5.7% of the VimpelCom
voting shares. In each case, the above percentages are
calculated assuming that VimpelCom acquires 100% of Wind Telecom
shares at Closing and excluding VimpelCom shares held by its
subsidiaries.
We may
not realize the anticipated benefits from the Transaction and we
may assume unexpected or unforeseen liabilities and obligations
or incur greater than expected liabilities in connection with
the Transaction.
The actual outcome of the Transaction and its effect on
VimpelCom and the results of our operations may differ
materially from our expectations as a result of the following
factors, among others:
|
|
|
|
•
|
past and future compliance with the terms of the
telecommunications licenses and permissions of the Wind Telecom
group, its ability to renew licenses and frequency permissions
and get additional frequencies and its past and future
compliance with applicable laws, rules and regulations
(including, without limitation, tax and customs legislation);
|
|
|
•
|
unexpected or unforeseen liabilities or obligations or greater
than expected liabilities incurred prior to or after the
Transaction, including tax, customs, indebtedness and other
liabilities;
|
|
|
•
|
the Wind Telecom group’s inability to comply with the terms
of its debt and other contractual obligations;
|
|
|
•
|
the Wind Telecom group’s ability to obtain or maintain
favorable interconnect terms;
|
|
|
•
|
our inability to extract anticipated synergies from the
Transaction or to integrate the Wind Telecom group’s
business into our group in a timely and cost-effective manner;
|
|
|
•
|
changes to the management structure as a result of the
Transaction or the possible deterioration of relationships with
employees and customers as a result of integration;
|
32
|
|
|
|
•
|
exposure to foreign exchange risks that are difficult or
expensive to hedge;
|
|
|
•
|
the Wind Telecom group’s inability to protect its
trademarks and intellectual property and to register trademarks
and other intellectual property used by it in the past;
|
|
|
•
|
developments in competition within each jurisdiction of Wind
Telecom’s operations, including the entry of new
competitors or an increase in aggressive competitive measures by
competitors;
|
|
|
•
|
governmental regulation of the relevant industry in each
jurisdiction, ambiguity in regulation and changing treatment of
certain license conditions;
|
|
|
•
|
political, economic, social, legal and regulatory developments
and uncertainties in each jurisdiction; and
|
|
|
•
|
claims by third parties challenging the Wind Telecom
group’s ownership of its assets or otherwise.
|
In addition, there are inherent risks in assessing the value,
strengths and weaknesses of any transaction, and our assessment
of the Transaction has been made on the basis of certain
assumptions that are subject to significant uncertainty.
The
Algerian Government has made substantial tax and other claims
against OTA which have harmed OTA’s business and the
Algerian Government has announced its intention to unilaterally
acquire OTA from OTH.
Furthermore, the Algerian Government has announced its intention
to unilaterally purchase OTA, alleging that it has the right to
do so under the pre-emption right contained in the 2009 Finance
Act and the 2010 Supplemental Finance Act. The value of OTA is
to be determined by a valuation advisor retained by the Algerian
Government. As discussed in this proxy statement under
“
The Transaction — Algerian Value Sharing
Arrangement”, we have reached a value sharing
arrangement with Weather II which provides for any
financial losses or gains arising from the sale of all or part
of OTA to the Algerian Government or from the eventual
settlement of disputes between OTA and the Algerian Government
to be shared in certain pre-agreed proportions between us and
Weather II. Although this arrangement provides for significant
downside protection for us with respect to the forced sale of
OTA, OTA remains a strategically important asset for us and,
therefore, we are interested in exploring with the Algerian
Government a resolution which would allow us to retain OTA
following completion of the Transaction. The loss of OTA could
have an adverse effect on the value, and future prospects, of
Wind Telecom. See “
Risks Relating to Wind Telecom’s
Business — Risks Relating to OTH’s
Business — OTH’s investments in Algeria are
subject to ongoing disputes and may be affected by changes in
the law” in Annex B.
The
Transaction is subject to satisfaction or waiver of several
conditions.
Completion of the Transaction is subject to a number of
conditions precedent, including approval of the Share Issuance
Proposal and the Authorized Share Capital Increase Proposal,
receipt of consent required under competition and anti-trust
laws in certain jurisdictions, completion of actions and
transactions required to be completed
33
before Closing pursuant to the Refinancing Plan and absence of
injunctions prohibiting the transfers of the Wind Telecom Shares
to VimpelCom and the issuance of VimpelCom common shares and
convertible preferred shares to Weather II and the
Wind Telecom Shareholders. Each of VimpelCom and Wind
Telecom has the right to terminate the Transaction at any time
prior to the Obligation Date. There can be no assurance that
all of the conditions will be satisfied or waived in a timely
manner or at all. A substantial delay in the satisfaction or
waiver of all conditions precedent or completion could
jeopardize the ultimate completion of the Transaction. A delay
in completion of the Transaction or a failure to complete the
Transaction could have a material adverse effect our business,
financial condition and results of operations. For more
information about the conditions to Closing, see “The
Share Sale and Exchange Agreement — Conditions to
Closing”.
Our
current leverage will substantially increase as a result of the
Transaction.
On completion of the Transaction, our indebtedness for the
combined group of companies will be greater than our current
outstanding indebtedness. As of September 30, 2010, our
total debt for equipment financing, capital leases, bank and
other loans was approximately US$6.5 billion on an actual
basis and approximately US$8.0 billion on a pro forma basis
after giving effect to the US$1.5 billion loan made to OJSC
VimpelCom on February 2, 2011, from VIP Finance Ireland
Limited with the proceeds of its loan participation notes issued
on February 2, 2011. On a combined basis, assuming
completion of the Transaction, the pro forma gross debt and net
debt of the combined entity as of September 30, 2010 was
US$24.8 billion and US$21.1 billion, respectively.
After completion of the Transaction, the gross debt will
increase to approximately US$26.3 billion, and the net debt
will increase to approximately US$21.8 billion. This
increase is based on the impact of the Transaction
Consideration, the refinancing in November 2010 of debt
associated with Wind Italy, receipt and application of proceeds
of the sale of the OTH interest in its Tunisian business, and
various other costs. For more information see Note 5 to
our Unaudited Pro Forma Condensed Combined Financial Information.
We have arrangements in place to borrow additional amounts up to
US$6.5 billion to finance the Transaction, although we
currently expect borrowing to be less than the total of these
arrangements. These arrangements are described in “The
Refinancing Plan — Financings by VimpelCom”.
We anticipate that our additional borrowing will be
approximately US$5.3 billion, but additional amounts may be
needed to fund required payments in the event the transfer of
certain Wind Telecom assets under the Spin-Off Plan cannot be
effected. For more information about the Spin-Off Plan, see
“The Spin-Off Plan”.
Our substantial leverage and the limits imposed by our debt
obligations could have significant negative consequences, such
as requiring us to dedicate a substantial portion of our cash
flow from operations to payments on our debt, thereby reducing
funds available for working capital, capital expenditures,
acquisitions, joint ventures, dividends and other purposes;
increasing our vulnerability to, and reducing our flexibility to
respond to, general adverse economic and industry conditions;
limiting our ability to obtain additional financing and
increasing the cost of such financing; and placing us at a
possible competitive disadvantage relative to less leveraged
competitors which have greater access to capital resources.
Our operating subsidiaries must generate sufficient net cash
flow in order to meet our group’s debt service obligations,
and we cannot assure you that we will be able to meet such
obligations. If we are unable to generate sufficient cash flow
or otherwise obtain funds necessary to make required payments,
we would be in default under the terms of our indebtedness and
the holders of our indebtedness would be able to accelerate the
maturity of such indebtedness and could cause defaults under our
other indebtedness.
If our group does not generate sufficient cash flow from
operations in order to meet our debt service obligations, we may
have to undertake alternative financing plans to alleviate
liquidity constraints, such as refinancing or restructuring our
debt, selling assets, reducing or delaying capital expenditures
or seeking additional capital. We cannot assure you that any
refinancing or additional financing would be available on
acceptable terms, or that assets could be sold, or if sold, the
timing of the sales, whether such sales would be on satisfactory
terms and whether the proceeds realized from those sales would
be sufficient to meet our debt service obligations. Our
inability to generate sufficient cash flow to satisfy our debt
service obligations, or to refinance debt on commercially
reasonable terms, could materially adversely affect our
business, financial condition, results of operations and
business prospects.
34
In addition, we intend to loan a substantial part of the
proceeds of VimpelCom’s financings for the Transaction to
Wind Telecom entities through intercompany loans primarily in
order to refinance their existing debt. The Wind Telecom
entities that will borrow under these intercompany loans to
refinance their existing debt might not have sufficient cash
flow to make payments to us that would cover our debt service
obligations on our borrowings to fund those loans. As a result,
we might have to meet those debt service obligations without
assistance from the Wind Telecom entities.
Wind
Telecom’s operations are in jurisdictions new to
VimpelCom.
Following the Transaction, we will operate in 19 countries
around the world, covering a population of approximately
838 million people, with over 173 million mobile
subscribers. Management of the growth from the Transaction will
require significant managerial and operational resources. We
will rely on the existing Wind Telecom management team and
employees to help us successfully manage our growth and operate
in jurisdictions that are new to our group. However, there can
be no assurance that we will be able to retain key employees of
Wind Telecom, and if we are unable to successfully manage our
growth, our further development could be hampered and our
business, financial condition and results of operations could
suffer.
In addition, the Wind Telecom group operates in jurisdictions
which are subject to political, social and economic risk. For
example, OTH is an Egyptian company listed on the Egyptian Stock
Exchange. In January and February 2011 there have been
widespread protests against the government, which had a negative
impact on the share prices of companies listed on the Egyptian
Stock Exchange and resulted in extensive disruption and damage
throughout the country to public and private property and
infrastructure. Mobile networks and services were also
temporarily suspended by government order. Continued disorder
in Egypt could adversely affect the Egyptian assets that will be
part of the combined company following Closing. These events
and similar events in other jurisdictions where Wind Telecom
operates could adversely affect the business, prospects,
financial condition and results of operations of the combined
company following Closing.
If the VimpelCom shareholders approve the proposals contained in
this proxy statement and the Transaction is completed, we will
issue 325,639,827 new common shares and 305,000,000 convertible
preferred shares to Weather II and the Wind Telecom
Shareholders. This will result in the total number of common
shares increasing by 25% and the total number of preferred
shares increasing by approximately 330%. Although
Weather II is generally not permitted to transfer any of
the VimpelCom common shares it receives at Closing for a period
of six months pursuant to the
Lock-Up
Agreement, the newly issued common shares issued to the Wind
Telecom Shareholders will not be subject to any contractual
transfer restrictions. Accordingly, the Wind Telecom
Shareholders may, and following the six month
lock-up
period Weather II may, convert such common shares into our
ADSs for sale on the NYSE, subject to certain limitations under
U.S. securities laws. The VimpelCom convertible preferred
shares to be issued to Weather II and the Wind Telecom
Shareholders may be converted into VimpelCom common shares at
the option of the shareholder any time between 2.5 years
and 5 years after their issuance at a price based on the
NYSE price of VimpelCom ADSs. If the convertible preferred
shares are converted into our common shares they will also
become available for trading in the public market. The sale of
any of the VimpelCom shares on the public markets or the
perception that such sales may occur (commonly referred to as
“market overhang”), may adversely affect the market
for, and the market price of, VimpelCom’s ADSs.
A
disposition by one or both of VimpelCom’s strategic
shareholders of their respective stakes in VimpelCom or a change
in control of VimpelCom could harm our business.
Our debt agreements have had, and in the future may have,
“change of control” provisions that may require us to
make a prepayment if certain parties acquire beneficial or legal
ownership of or control over more than 50.0% of our shares,
which could occur if certain parties acquired more than 50.0% of
VimpelCom. If a change of control is triggered and we fail to
make any required prepayment, this could lead to an event of
default, and could trigger cross default/cross acceleration
provisions under certain of our other debt agreements. In such
event, our obligations
35
under one or more of these agreements could become immediately
due and payable, which would have a material adverse effect on
our business, financial condition and results of operations.
It is not contemplated that the VimpelCom Shareholders Agreement
will be amended in connection with the Transaction. The
VimpelCom Shareholders Agreement will remain in effect following
the Transaction, provided neither Telenor nor Altimo fall below
a 25% voting stake in our company as a result of a transfer of
any of their respective shares. If the VimpelCom Shareholders
Agreement were to terminate, it could lead to further
deterioration of the relationship between Telenor and Altimo
which could harm our business.
We derive benefits and resources from the participation of
Telenor and Altimo in the VimpelCom group. If either Telenor or
Altimo were to dispose of its stake in VimpelCom, either
voluntarily or involuntarily, our company may be deprived of the
benefits and resources that it derives from Telenor and Altimo,
respectively, which could have a material adverse effect on our
business, financial condition and results of operations.
You should read and consider other risk factors specific to
VimpelCom’s businesses set out in Annex A to this
proxy statement, as well as documents that have been filed by
VimpelCom with the U.S. Securities and Exchange Commission (the
“SEC”). See the section entitled
“Where You Can Find More Information”.
You should read and consider other risk factors specific to Wind
Telecom’s businesses, which will also affect VimpelCom
after Closing of the Transaction, set out in Annex B to
this proxy statement
The following is a summary of the material provisions of the
Share Sale and Exchange Agreement. This summary has been
included with this proxy statement to provide you with
information regarding the terms of the Share Sale and Exchange
Agreement and is not intended to provide any other factual
information about us or Wind Telecom. You can find more
information about us and Wind Telecom elsewhere in this proxy
statement. Information about VimpelCom is also available in our
other public reports filed with the SEC, which are available at
xxx.xxx.xxx. This summary is not intended to
modify or supplement any factual disclosures about VimpelCom in
our public reports filed with the SEC.
The representations and warranties of the parties in the
Share Sale and Exchange Agreement are subject to modification,
qualification and limitation by the disclosure schedules to the
Share Sale and Exchange Agreement. You should not rely on the
representations and warranties as characterizations of the
actual state of facts with respect to any information may
contain material qualifications or exceptions thereto.
We entered into the Share Sale and Exchange Agreement with Wind
Telecom and Weather II on January 17, 2010. Under the
terms of the Share Sale and Exchange Agreement, VimpelCom will
acquire the Wind Telecom Shares from Weather II and the
Wind Telecom Shareholders in exchange for a combination of cash
and VimpelCom common and convertible preferred shares, which
consideration is described in more detail in “The Share
Sale and Exchange Agreement — The Transaction
Consideration”.
Closing is expect to occur promptly following the satisfaction
or waiver of all the Closing conditions, which are summarized in
“The Share Sale and Exchange Agreement —
Conditions to Closing”, or at such other time, date or
place agreed to by the parties.
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The
Transaction Consideration
Under the terms of the Share Sale and Exchange Agreement, at
Closing VimpelCom will acquire the Wind Telecom Shares in
exchange for the following:
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$1.495 billion in cash multiplied by the percentage of the
total Wind Telecom share capital (excluding shares held by Wind
Telecom’s subsidiary, WAHF) represented by the Wind Telecom
Shares being transferred to VimpelCom at Closing (the
“Wind Share Percentage”);
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325,639,827 VimpelCom common shares multiplied by the Wind Share
Percentage and 305,000,000 VimpelCom convertible preferred
shares; and
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consideration resulting from the spin-off transactions pursuant
to the Spin-Off Plan. See “The Spin-Off Plan”.
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Under the terms of the Share Sale and Exchange Agreement,
VimpelCom is not required to close unless it will acquire at
Closing shares representing at least 98.04% of Wind
Telecom’s share capital (excluding shares held by Wind
Telecom’s subsidiary, WAHF).
Under the terms of the Share Sale and Exchange Agreement,
Weather II and the Wind Telecom Shareholders irrevocably
direct VimpelCom not to make payment to them of dividends
declared during or with respect to the 2010 financial year on
VimpelCom common shares. This direction only applies to the
first US$850 million declared and paid out with respect to
the 2010 financial year. XxxxxxXxx declared and paid out
US$600 million in interim dividends with respect to the
2010 financial year prior to entering into the Share Sale and
Exchange Agreement. The Share Sale and Exchange Agreement
further provides that VimpelCom will declare US$850 million
(hence a further $250 million) in interim dividend on
VimpelCom common shares in respect of the 2010 financial year,
but other than with respect to those dividends, VimpelCom is not
permitted to set as a record date for additional dividends to
holders of VimpelCom common shares any date occurring prior to
June 1, 2011.
Representations
and Warranties of the Parties
Representations
and Warranties of Wind Telecom and Weather II Relating to
the Wind Telecom Group; Representations and Warranties of
VimpelCom
The Share Sale and Exchange Agreement contains various customary
representations and warranties of Wind Telecom and
Weather II relating to the Wind Telecom group and of
VimpelCom.
The representations and warranties of Wind Telecom and
Weather II relating to the Wind Telecom group, which are
made to VimpelCom jointly and severally by Wind Telecom and
Weather II, are qualified by the following:
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information contained in Wind Telecom’s disclosure
schedules delivered in connection with the Share Sale and
Exchange Agreement;
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the knowledge of certain key individuals and information in the
international press with respect to the representations and
warranties relating to OTH’s Algerian subsidiaries,
operations, assets, or any direct or indirect benefits or
liabilities derived from Algeria, including any action by a
governmental entity;
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information contained in certain financial statements disclosed
on Wind Italy’s and OTH’s websites and certain
offering memoranda of the Wind Telecom group.
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In addition, the representations and warranties of Wind Telecom
and Weather II relating to the Wind Telecom group do not
cover the following matters:
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matters arising between October 4, 2010 and Closing
relating to OTH’s Algerian subsidiaries, operations,
assets, or any direct or indirect benefits or liabilities
derived from the Algerian subsidiaries, including any action by
a governmental and other specified matters; and
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any of the assets being transferred to Weather II pursuant
to the Spin-Off Plan that are described under in “The
Spin-Off Plan”, other than OTH’s holdings in
MobiNil and ECMS.
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All of the representations and warranties of VimpelCom are made
to Wind Telecom and Weather II, and certain representations and
warranties of VimpelCom, including with respect to the newly
issued shares are made to the Wind Telecom Shareholders. All of
the representations and warranties of VimpelCom are qualified by
the following:
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information contained in VimpelCom’s disclosure schedules
delivered in connection with the Share Sale and Exchange
Agreement; and
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information disclosed in reports filed with or furnished to the
SEC.
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Some of the representations and warranties of VimpelCom and of
Wind Telecom and Weather II relating to the Wind Telecom
group in the Share Sale and Exchange Agreement are qualified by
knowledge, materiality thresholds, or a “material adverse
effect” qualifier. For purposes of the Share Sale and
Exchange Agreement, the “material adverse effect”
qualifier and its related definition contemplate any change,
state of facts, circumstance, event or effect that is materially
adverse to (A) the financial condition, businesses or
results of operations of a party and its subsidiaries, taken as
a whole (subject to certain exclusions outlined below);
and/or
(B) the ability of a party to perform its obligations under
the Share Sale and Exchange Agreement or to consummate the
transactions contemplated thereby. For the purposes of clause
(A), an event will be considered to have a “material
adverse effect” if, and only if, it results in a decrease
of US$625 million or more in the shareholders equity
(calculated as shareholders equity or equivalent line item on
the consolidated balance sheets of the affected group in
accordance with U.S. GAAP, in the case of the VimpelCom group,
or IFRS, in the case of the Wind Telecom group) and amounts due
pursuant to specified notifications from Italian tax authorities
to Wind Italy and Wind Acquisition Financing S.p.A will not be
considered a “material adverse effect”. See the
section entitled “
Risk Factors Relating to Wind
Telecom’s Business — Risks Relating to Wind
Italy’s Business — Wind Italy is subject to an
audit by the Italian Tax Authority regarding withholding taxes
on certain interest payments” in Annex B.
In addition, for purposes of clause (A) in the preceding
paragraph, the term “material adverse effect” does not
include any change, state of facts, circumstance, event or
effect to the extent caused by or resulting from:
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changes in economic, market, business, regulatory or political
conditions generally in jurisdiction of organization or any
other jurisdiction in which such party operates, or in the
global financial markets generally or in the financial markets
of any such jurisdiction, except to the extent that such
changes, state of facts, circumstances, events, or effects have
a materially disproportionate effect on such party and its
subsidiaries taken as a whole relative to other for profit
industry participants operating in the same or similar
businesses and markets;
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changes, circumstances or events generally affecting the
industry in which such party operates, except to the extent that
such changes, state of facts, circumstances, events, or effects
have a materially disproportionate effect on such party and its
subsidiaries taken as a whole relative to other for profit
industry participants operating in the same or similar
businesses and markets;
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changes in any law, except to the extent that such changes,
state of facts, circumstances, events, or effects have a
materially disproportionate effect on such party and its
subsidiaries taken as a whole relative to other for profit
industry participants operating in the same or similar
businesses and markets;
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changes in generally accepted accounting principles (or local
equivalents in the applicable jurisdiction), including
accounting and financial reporting pronouncements by the SEC or
the Financial Accounting Standards Board, as the case may be,
except to the extent that such changes, state of facts,
circumstances, events, or effects have a materially
disproportionate effect on such party and its subsidiaries taken
as a whole relative to other for profit industry participants
operating in the same or similar businesses and markets;
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the commencement, occurrence or continuation of any hostilities,
act of war, sabotage, terrorism or military actions, or any
natural disasters or any escalation or worsening of any of the
foregoing, except to the extent that such changes, state of
facts, circumstances, events, or effects have a materially
disproportionate effect on such party and its subsidiaries taken
as a whole relative to other for profit industry participants
operating in the same or similar businesses and markets;
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the execution, delivery and announcement of the Share Sale and
Exchange Agreement and the transactions contemplated
thereby; or
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any action required to be taken or failure to act by and member
of the Wind Telecom group or its affiliates (other than a
specified matter) or VimpelCom or its affiliates pursuant to the
terms of the Share Sale and Exchange Agreement.
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In most instances, the representations and warranties of
VimpelCom and of Wind Telecom and Weather II relating to
the Wind Telecom group in the Share Sale and Exchange Agreement
that are qualified by “material adverse effect” are
qualified only to the extent the failure of such representations
or warranties to be true and correct would not reasonably be
expected to have, individually or in the aggregate, a material
adverse effect on the VimpelCom group or the Wind Telecom group,
as the case may be.
The Share Sale and Exchange Agreement contains various customary
representations and warranties of Weather II and the Wind
Telecom Shareholders, including, among other things, title to
its Wind Telecom Shares and absence of material pending or
threatened legal and arbitration proceedings and investigations
regarding the Transaction.
All of the representations and warranties of Weather II and
the Wind Telecom Shareholders are made severally and not jointly
to VimpelCom and are subject to Wind Telecom’s disclosure
schedules delivered in connection with the Share Sale and
Exchange Agreement.
Covenants
VimpelCom has undertaken customary covenants to Wind Telecom and
Weather II that place restrictions on it and its
subsidiaries until the Closing under the Share Sale and Exchange
Agreement. VimpelCom has agreed to, and to cause each of its
subsidiaries to, with certain exceptions, conduct their business
in the usual, regular and ordinary course consistent with past
practice and use commercially reasonable efforts to
(i) preserve intact their present business organization and
(ii) maintain in effect their material permits.
VimpelCom has further agreed that, with certain exceptions, it
will not, and will not permit any of its subsidiaries to, among
other things, undertake certain customary corporate actions
without written consent (not to be unreasonably withheld or
delayed) of Wind Telecom and Weather II.
Under the terms of the Share Sale and Exchange Agreement, Wind
Telecom and Weather II make substantially the same
pre-closing covenants as to the conduct of business of the Wind
Telecom group prior to Closing as VimpelCom makes with respect
to the VimpelCom group (as summarized above). However, Wind
Telecom’s conduct of business covenants do not apply to
assets and liabilities associated with Wind Hellas and the
assets that are being transferred to Weather II as part of
the Spin-Off Plan.
Pursuant to the Share Sale and Exchange Agreement, from the
Obligation Date until Closing VimpelCom covenants not to, and to
not permit any of its officers, directors, affiliates, agents or
representatives to, solicit, initiate, encourage, conduct or
engage in any discussions, or enter into any agreement or
understanding, with any other person or entity relating to the
merger, business combinations, recapitalization or similar
corporate event involving VimpelCom or any of its subsidiaries
or relating to the sale of any of the shares or capital stock of
VimpelCom or any of its subsidiaries or any material portion of
the assets of VimpelCom or any of its subsidiaries. The same
non-solicitation restrictions apply to Wind Telecom and
Weather II with respect to the Wind Telecom group.
Pursuant to the Share Sale and Exchange Agreement,
VimpelCom’s Supervisory Board is required to call a
shareholders’ meeting to present to its shareholders the
shareholder resolutions necessary under VimpelCom’s bye-
39
laws and Bermuda law to approve the matters contemplated by the
Share Sale and Exchange Agreement and recommend to VimpelCom
shareholders that they vote in favour of those resolutions.
Subject to the terms and conditions of the Share Sale and
Exchange Agreement, the Share Sale and Exchange Agreement
requires that each party cooperate and use its reasonable best
efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary or advisable under the
Share Sale and Exchange Agreement and applicable laws to
consummate the transactions contemplated by the Share Sale and
Exchange Agreement as promptly as practicable after the date of
the Share Sale and Exchange Agreement.
Under the Share Sale and Exchange Agreement, as promptly as
reasonably practicably after Closing, VimpelCom must use its
commercially reasonable efforts to change the names of
businesses that are identified as retained names and marks under
the Share Sale and Exchange Agreement, including “Orascom
Telecom” and “Orcap”, or remove those names from
the businesses conducted by Wind Telecom, subject to certain
exceptions and rights to use such names for a specified period.
VimpelCom covenants to use its reasonable best efforts to cause
its ADSs to remain listed on the NYSE or cause its common shares
or other instruments representing its common shares to remain
listed for a period of time on certain other exchanges, with
certain exceptions.
Pursuant to the Share Sale and Exchange Agreement, from
October 4, 2010 until the Obligation Date, Weather II
is required to use its reasonable best efforts to cause the Wind
Telecom Investors to either sell their shares to Weather II
so that Weather II can sell them to VimpelCom pursuant to
the Share Sale and Exchange Agreement or enter into joinder
letters to become parties to the Share Sale and Exchange
Agreement. Weather II is also required to use its
commercially reasonable efforts to encourage the Wind Telecom
Minority Shareholders to undertake the same actions as the Wind
Telecom Investors.
The Share Sale and Exchange Agreement requires Wind Telecom and
Weather II to use their reasonable best efforts to effect
the Wind Hellas Spin-Off and the related termination of all
intercompany agreements between the Wind Telecom group and Wind
Hellas and its related companies. Completion of the Wind Hellas
Spin-Off is also a condition to VimpelCom’s obligation to
close the Transaction. See “The Share Sale and Exchange
Agreement — Conditions to Closing”.
Whether or not the transactions contemplated by the Share Sale
and Exchange Agreement are consummated, all costs and expenses
incurred in connection with the Transaction will be paid by the
party incurring such expense.
Conditions
to Closing
The respective obligation of each party to close the
transactions contemplated by the Share Sale and Exchange
Agreement is subject to the satisfaction or waiver of the
following conditions:
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no governmental entity, court or arbitral tribunal will have
enacted, promulgated, enforced or entered any statute, rule,
regulation, injunction or other order that makes the transfer of
the Wind Telecom Shares to VimpelCom, the issuance of VimpelCom
common shares or VimpelCom convertible preferred shares or
payment of the cash consideration to Weather II and the
Wind Telecom Shareholders or the completion of the spin-off
transactions pursuant to the Spin-Off Plan illegal or otherwise
prohibiting such transfer and transactions;
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all consents required under the competition and antitrust laws
of Ukraine, Pakistan and Italy and the approval of the Pakistan
Telecommunications Authority will have been obtained (including
the termination of any applicable waiting periods) without
material conditions or restrictions; and
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shareholder approval of the Share Issuance Proposal and the
Authorized Share Capital Increase Proposal will have been
obtained.
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VimpelCom’s and Wind Telecom and Weather II’s
respective obligations to close the transactions contemplated by
the Share Sale and Exchange Agreement are also separately
subject to the satisfaction or waiver of the following
conditions:
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the actions and transactions to be completed before Closing as
set out in the Refinancing Plan will have been completed and the
actions required to be taken as of Closing for post-closing
transactions will have been taken;
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the Ancillary Agreements that are to enter into effect at
Closing will have been executed and delivered by each of the
parties thereto.
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VimpelCom’s respective obligation to close the transactions
contemplated by the Share Sale and Exchange Agreement is also
separately subject to the satisfaction or waiver of the
following conditions, among others:
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the Wind Hellas Spin-Off will have been completed;
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at Closing, VimpelCom will receive (x) all of the Wind
Telecom Shares held by Weather II and the Wind Telecom
Shareholders and (y) all of the shares in Wind
Telecom’s share capital held by Wind Telecom Investors as
of October 4, 2010 and (ii) at or prior to Closing,
each agreement between Wind Telecom or any of its subsidiaries
and any of Weather II or any Wind Telecom Shareholder will
have been terminated and settled;
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each Wind Telecom Investor that has not executed a joinder
letter to become party to the Share Sale and Exchange Agreement
will have granted the relevant waivers under any agreement
between it and Wind Telecom or Weather II, and will have
carried out such other actions as may reasonably be necessary to
permit the consummation of the transactions contemplated by the
Share Sale and Exchange Agreement to proceed without triggering
or exercising any additional rights under such agreements.
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Wind Telecom and Weather II’s obligation to close the
transactions contemplated by the Share Sale and Exchange
Agreement is also separately subject to the satisfaction or
waiver of certain conditions, including, among others, that:
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•
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each Wind Telecom Investor that has not executed a joinder
letter to become part to the Share Sale and Exchange Agreement
will have granted the relevant waivers under any agreement
between it and Wind Telecom or Weather II, and will have
carried out such other actions as may reasonably be necessary to
permit the consummation of the transactions contemplated by the
Share Sale and Exchange Agreement to proceed without triggering
or exercising any additional rights under such agreements.
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Indemnification
Pursuant to the Share Sale and Exchange Agreement, following
Closing Weather II will indemnify VimpelCom and its
officers, directors, employees, agents, subsidiaries and
affiliates from and against all losses arising out of or
resulting from:
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•
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any breach of any representation, warranty, covenant or
obligation of Wind Telecom or Weather II, subject to certain
exceptions;
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•
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claims or residual liabilities related to Wind Telecom’s
ownership of Wind Hellas prior to the completion of the Wind
Hellas Spin-Off, the Wind Hellas Spin-Off, or claims relating to
Wind Hellas after the Wind Hellas Spin-Off (the “Wind
Hellas Indemnity”);
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•
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the Spin-Off Assets to the extent such loss arises out of a
situation existing, or an act or failure to act by
Weather II or any member of the Wind Telecom group, prior
to Closing, subject to certain limitations (the
“Spin-Off Indemnity”);
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41
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•
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any assessment of any deficiency in, or claim for, Italian
withholding taxes made by the Italian taxing authority other
than claims arising from specific notifications previously
received from the Italian taxing authority (the
“Italian Withholding Tax Indemnity”);
See “Risk Factors Relating to Wind Telecom’s
Business — Risks Relating to Wind Italy’s
Business — Wind Italy is subject to an audit by the
Italian Tax Authority regarding withholding taxes on certain
interest payments” on Annex B.
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•
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any guarantee VimpelCom is required to provide to any entity
pursuant to the MobiNil Shareholders Agreement (the
“MobiNil Indemnity”);
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•
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claims brought by Qatar Telecom (Qtel) Q.S.C., any governmental
entity or any third-party resulting from the sale of the
OTH’s Tunisian assets, but only to the extent that such
losses result from claims arising under any agreements not
previously disclosed to VimpelCom prior to November 21,
2010, and together with the Wind Hellas Indemnity, the Spin-Off
Indemnity, the Italian Withholding Tax Indemnity and the MobiNil
Indemnity, the “Wind Telecom Specific
Indemnities”).
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Weather II will only be liable to pay an indemnity equal to
72.65% of the amount of any loss to be indemnified, such
percentage being equal to its ownership interest in Wind Telecom.
Pursuant to the Share Sale and Exchange Agreement, following
Closing each of the Wind Telecom Shareholders will severally,
but not jointly, indemnify VimpelCom and its officers,
directors, employees, agents, subsidiaries and affiliates from
and against all losses arising out of or resulting from any
breach of any representation, warranty, covenant or obligation
by it, subject to certain exceptions.
Pursuant to the Share Sale and Exchange Agreement, following
Closing VimpelCom will indemnify Weather II and its
officers, directors, employees, agents, subsidiaries and
affiliates from and against all losses arising out of or
resulting from:
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•
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any breach of any representation, warranty, covenant or
obligation of VimpelCom, subject to certain exceptions; and
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•
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any decision by the Antimonopoly Committee of Ukraine having the
effect or revoking, rescinding, cancelling or nullifying its
March 2010 approval of the transaction through which Kyivstar
became a subsidiary of VimpelCom and certain related matters
(the “VimpelCom Specific Indemnity”);
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Following Closing, VimpelCom will also indemnify each of the
Wind Telecom Shareholders and its officers, directors,
employees, agents, subsidiaries and affiliates from and against
all losses arising out of or resulting from any breach of a
representation or warranty made to the Wind Telecom Shareholders
or any covenant or obligation of it to deliver validly issued
VimpelCom common shares or convertible preferred shares pursuant
to the Share Sale and Exchange Agreement.
Under the terms of the Share Sale and Exchange Agreement, a
party will not be under an obligation to indemnify another until
losses incurred by such party exceed a US$50 million threshold.
The US$50 million threshold does not apply to the following:
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•
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claims for indemnification against Weather II or any Wind
Telecom Shareholders for (i) breach of the title to shares
representation, (ii) breaches of any covenant or obligation
of Weather II or any Wind Telecom Shareholders or
(iii) the Wind Telecom Specific Indemnities (the
“Wind Indemnity Exclusions”);
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•
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claims for indemnification against VimpelCom for
(i) breaches of the share issuance representation,
(ii) any covenant or obligation of VimpelCom or
(iii) the VimpelCom Specific Indemnity (the
“VimpelCom Exclusions”).
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42
None of Weather II or the Wind Telecom Shareholders will be
required to indemnify VimpelCom for any losses in excess of 20%
of the value of the consideration received by Weather II or
such Wind Telecom Shareholders, other than with respect to the
Wind Indemnity Exclusions, in which case indemnification is
capped at 100% of the value of the consideration received by
Weather II or such Wind Telecom Shareholder.
VimpelCom will not be required to indemnify Weather II or
any Wind Telecom Shareholder for any losses in excess of 20% of
the value of the consideration received by Weather II or
such Wind Telecom Shareholders, other than with respect to the
VimpelCom Indemnity Exclusions, in which case indemnification is
capped at 100% of the value of the consideration received by
Weather II or such Wind Telecom Shareholder. Any
indemnifiable losses due to Weather or any Wind Telecom
Shareholder will be multiplied by the quotient of 1/(1-X%),
where X% is equal to Weather II’s or such Wind Telecom
Shareholder’s share in the share capital of VimpelCom
expressed as a percentage at the time the loss is incurred and
only in relation to VimpelCom common shares received by
Weather II or such Wind Telecom Shareholder at closing.
The Share Sale and Exchange Agreement may be terminated, at any
time prior to the Closing date,
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•
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by mutual written consent of the boards of directors, or
equivalent governing bodies, of Wind Telecom and VimpelCom;
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•
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by either Wind Telecom or VimpelCom at any time on or prior to
the date on which the proposals described in this proxy
statement are approved by the VimpelCom shareholders;
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•
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by either Wind Telecom or VimpelCom if Closing shall not have
occurred on or prior to June 30, 2011; and
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•
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by either Wind Telecom or VimpelCom if any governmental entity,
court or arbitration tribunal has enacted, issued, promulgated,
enforced, or entered any statute, rule, regulation, injunction
or other order which is in effect and has the effect of making
the transfer of the Wind Telecom Shares, the issuance of
VimpelCom shares or payment of cash consideration to
Weather II and the Wind Telecom Shareholders or completion
of the spin-off transactions pursuant to the Spin-Off Plan
illegal or otherwise prohibiting consummation of such transfers
and transaction and such statute, rule, regulation, injunction
or other order has become final and non-appealable.
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The Share Sale and Exchange Agreement does not impose any break
fees on the terminating party.
If either Wind Telecom or VimpelCom validly terminates the Share
Sale and Exchange Agreement, the Share Sale and Exchange
Agreement will terminate and have no further effect, except for
certain provisions that survive such termination. Except with
respect to termination by Wind Telecom or VimpelCom prior to the
Obligation Date, no party shall be relieved or released from any
liabilities or damages incurred or suffered by a party, to the
extent such liabilities or damages were the result of fraud or
wilful and material breach.
Any term of the Share Sale and Exchange Agreement may be amended
only by an instrument in writing signed by the party against
whom such amendment or waiver is sought to be enforced.
The Share Sale and Exchange Agreement is governed in all
respects by the laws of the State of
New York.
Arbitration
Any dispute arising under the Share Sale and Exchange Agreement
will be settled by arbitration in London under the LCIA Rules.
Each party submits to the non-exclusive jurisdiction of the
Commercial Court in London,
43
England in connection with any proceedings for confirmation or
enforcement of an arbitration award and the exclusive
jurisdiction of the Commercial Court in London, England in
connection with any application for interim, provisional or
conservatory measures in connection with arbitration or an
action to compel arbitration.
Original
Agreement
As of January 17, 2011, the date of the Share Sale and
Exchange Agreement, the Original Agreement is terminated and
replaced in its entirety by the Share Sale and Exchange
Agreement.
The Refinancing Plan agreed pursuant to the Share Sale and
Exchange Agreement provides for the financings necessary to
complete the Transaction. The Refinancing Plan provides for
(1) financings by VimpelCom entities to fund the cash
consideration for the Transaction, refinance indebtedness of
entities associated with OTH and pay costs of the Transaction
and related financings, (2) financings by Wind Telecom
entities to refinance indebtedness which would otherwise have
been subject to repayment due to a change of control when the
Transaction is completed and, at the same time, to extend the
maturity profile and reduce average financing costs, and
(3) consents and waivers to be obtained by Wind Telecom
entities to address the change of control and other covenant
issues.
Financings
by XxxxxxXxx
VimpelCom expects to raise the funds necessary to finance the
Transaction pursuant to the Refinancing Plan.
We estimate that the total amount of funds necessary to complete
the Transaction and the related transactions and financings,
including the payment of related fees and expenses, will be
approximately US$5.3 billion, which includes approximately
US$1.495 billion to pay the cash portion of the purchase
consideration, approximately US$300 million to be paid to
Wind Italy under the Spin-Off Plan in connection with the
transfer of certain Wind Italy assets (the “Wind
Italy Spin-Off”), approximately US$125 million
in transaction costs and approximately US$3.38 billion
necessary to complete the refinancing of indebtedness of
entities associated with OTH after taking into account the
application of US$658 million from the proceeds of
OTH’s sale of Orascom Telecom Tunisia to repay a portion of
that indebtedness. If the transfer under the Spin-Off Plan of
certain assets associated with OTH (the “OTH
Spin-Off”) cannot be effected, we would be required
to pay an additional amount of up to US$770 million (the
“Additional OTH Spin-Off Payment”),
which we expect would be paid with proceeds from current funding
arrangements. The Additional OTH Spin-Off Payment, if required,
consists of an initial payment of US$600 million and a
possible second, subsequent payment of US$170 million. If
the Wind Italy Spin-Off cannot be effected, we would pay
US$100 million instead of the approximately
US$300 million, which would reduce our funding needs by
US$200 million. The US$300 million for the Wind Italy
Spin-Off will be paid to Wind Italy and retained by it in the
Wind Italy business. The US$100 million to be paid if the
Wind Italy
Spin-Off
cannot be effected will be paid to Weather II and therefore will
not remain in the Wind Italy business, since the assets subject
to the Wind Italy
Spin-Off
will in that case remain in the business. For more information
about the
Spin-Off
Plan, see the section of this proxy statement entitled
“The
Spin-Off
Plan”.
We currently have funding arrangements in place for borrowing up
to US$6.5 billion through a bridge loan facility and a term
loan, although we currently expect borrowing to be approximately
US$5.3 billion, which is US$1.2 billion less than the
total of these two borrowing arrangements. In addition, our
wholly owned subsidiary, OJSC VimpelCom, recently borrowed from
VIP Finance Ireland Limited the US$1.5 billion proceeds
from its offering of loan participation notes. These proceeds
are for the general corporate purposes of OJSC VimpelCom or for
it to lend all or part to VimpelCom or one of its wholly owned
subsidiaries to be used for its general corporate purposes,
including refinancing of debt associated with OTH. The bridge
facility, term loan and loan participation note issuance are
each discussed below under “— VimpelCom
Financing Sources”.
44
The expected sources and uses of funds to be used in connection
with the Transaction and related financings are as follows:
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Sources
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In millions
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Uses
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In millions
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Bridge loan to a VimpelCom entity
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US$
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1,300
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1
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Cash consideration
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US$
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1,495
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Sberbank term loan to OJSC VimpelCom
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US$
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2,500
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2
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Wind Italy Spin-Off
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US$
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300
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Proceeds from loan participation notes loaned to OJSC VimpelCom
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US$
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1,500
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Refinancing the indebtedness of Weather Capital Special Purpose
1 S.A.
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US$
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607
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3
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Refinancing the indebtedness from OTH bank loan and redeem high
yield notes and equity linked notes
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US$
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2,773
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Banking and transaction costs
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US$
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125
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US$
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5,300
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US$
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5,300
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The sources and uses information set forth above assumes, among
other things, that (1) the Spin-Off Plan will be carried
out, (2) we therefore will not be required to pay
shareholders of Wind Telecom the Additional OTH Spin-Off
Payment, which becomes due if the OTH Spin-Off cannot be
effected, and (3) we will redeem, at Closing of the
Transaction, the US$750 million aggregate principal amount
of senior unsecured notes issued by Orascom Telecom Finance S.A.
(the “Orascom High Yield Notes”) at the
voluntary redemption premium of 104% for a redemption cost of
US$780 million. If the OTH Spin-Off is not carried out, we
have funding arrangements in place that are sufficient for us to
pay the Additional OTH Spin-Off Payment plus all other amounts
included under “Uses” above. In that event, however,
we would only be required to redeem the Orascom High Yield Notes
if their rating is downgraded within ninety days after
completion of the Transaction. If such a ratings downgrade
occurs, we would be required to redeem the Orascom High Yield
Notes at a lower mandatory redemption premium of 101% for a
redemption cost of US$758 million. If such a ratings
downgrade does not occur, we would not be required to redeem the
Orascom High Yield Notes and therefore the required
“Uses” would be reduced by the assumed
US$780 million redemption of those notes. As noted above,
in the event the Wind Italy Spin-Off cannot be effected, we
would pay US$100 million to Weather II instead of the
US$300 million to Wind Italy that is set out in the
“Uses” above. This would reduce our funding needs by
US$200 million.
The funds raised by VimpelCom pursuant to the Refinancing Plan
are expected to come from the proceeds of a bridge loan facility
from a group of international banks, the proceeds of the loan
participation notes loaned to OJSC VimpelCom and a term loan
facility from OAO Sberbank of Russia
(“Sberbank”). The proceeds of amounts
borrowed through these arrangements will be made available to
the appropriate entities for the uses described above through
intercompany loans. These financings are described below.
Bridge Loan. On December 3, 2010,
VimpelCom entered into a mandate letter agreement with six
international banks pursuant to which the banks agreed to,
subject to certain conditions, loan VimpelCom or one of its
affiliates up to US$4.0 billion upon the execution of a
bridge loan agreement (the
“Bridge
Loan”). The six banks, which XxxxxxXxx appointed
as mandated lead arrangers for the Bridge Loan, are Barclays
Capital, BNP Paribas, Citibank N.A., London Branch, The Royal
Bank of Scotland N.V., ING Bank N.V., and HSBC Bank plc.
1 The
current funding arrangement under the bridge loan is for up to
US$4.0 billion. For more information about the bridge
loan, see “— VimpelCom Financing
Sources — Bridge Loan” below.
2 The
current funding arrangement under the Sberbank term loan is for
up to US$2.5 billion. The amounts shown as borrowed under
the bridge loan and the Sberbank term loan are illustrative.
The actual allocation between the bridge loan and the Sberbank
term loan will be made at the completion of the Transaction
based upon market conditions and considerations of overall cost,
as determined then by VimpelCom. For more information about the
Sberbank term loan, see “— VimpelCom Financing
Sources — Sberbank Term Loan” below.
3 This
represents the US$ equivalent to the amount expected to be
required to repay the financing to be entered into by Weather
Capital Special Purpose 1 S.A. to refinance the WCSP1 Margin
Loan, as described in “VimpelCom Financing
Sources — Intercompany Loans”. The US$
equivalent is calculated at the US$/Euro exchange rate as of
September 30, 2010, which is assumed to be US$1.36 to
€1.00, consistent with Note 2 to our Unaudited Pro
Forma Condensed Combined Financial Information.
45
The Bridge Loan may be repaid with proceeds from the issuance of
bonds (or loan participation notes) with the mandated lead
arrangers acting as joint lead managers or through other means.
Under the terms of the Bridge Loan, VimpelCom’s wholly
owned subsidiary, OJSC VimpelCom, must either be the borrower or
must guarantee the obligations of the borrower. We expect that
the borrower will be either VimpelCom or its subsidiary
VimpelCom Amsterdam B.V. Key terms of the Bridge Loan will
include the following:
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Maturity:
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12 months with 6-month extension option
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Interest rate:
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Escalating from 0.85% over LIBOR for the first 3 months to
3% over LIBOR from 12-18 months
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The amount of the Bridge Loan is a maximum of
US$4.0 billion. The actual drawdown will be determined
based on the precise funding requirements for the Transaction,
including funding requirements if we are required to pay the
Additional OTH Spin-Off Payment.
Loan Participation Notes. On February 2,
2011, VIP Finance Ireland Limited issued loan participation
notes in two tranches totalling US$1.5 billion, consisting
of “A Notes” in the amount of US$500 million and
“B Notes” in the amount of US$1.0 billion. Each
series of notes has a different maturity and interest rate. VIP
Finance Ireland Limited loaned the proceeds of the loan
participation notes to OJSC VimpelCom, which has agreed to repay
the loan in amounts sufficient to repay the notes. OJSC
VimpelCom expects to distribute the proceeds of the loan to
VimpelCom through intercompany loans. For more information
about expected intercompany loans, see
“—
Intercompany Loans” below. Key
terms of the A Notes and the B Notes include the following:
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Maturity for A Notes:
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February 2, 2016
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Interest rate for A Notes:
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6.493%
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Maturity for B Notes:
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February 2, 2021
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Interest rate for B Notes:
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7.748%
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Sberbank Term Loan. OJSC VimpelCom has
arranged with Sberbank for a term loan up to US$2.5 billion
to be advanced in RUB at the RUB/US$ exchange rate of the
Central Bank of Russia on the date the loan is advanced (the
“Sberbank Loan”). The borrower under
the Sberbank Loan will be OJSC VimpelCom. Key terms are
expected to include the following:
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Repayment/maturity:
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Repayments in 8 equal semiannual installments starting
3 years after closing and continuing through
7th anniversary of closing
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Interest rate:
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9.0% or 9.5% depending on level of OJSC VimpelCom deposit
account activity
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Intercompany Loans. To effect the financing
required for the Transaction, OJSC VimpelCom intends to provide
funds to VimpelCom or its subsidiaries through intercompany
loans of the proceeds from the Sberbank Loan and the proceeds it
received from the February 2, 2011 issuance of loan
participation notes by VIP Finance Ireland Limited. The
proceeds from the Bridge Loan will be loaned to VimpelCom or
another VimpelCom entity, as required, through an intercompany
loan from the VimpelCom entity that is the borrower under the
Bridge Loan. VimpelCom, in turn, intends to make or cause its
affiliates to make intercompany loans to entities acquired in
the Transaction to refinance indebtedness which will become due
as a result of the change of control of such entities upon
completion of the Transaction. The total amount of indebtedness
expected to be refinanced with intercompany loans is
approximately US$3.38 billion, which is the estimated
amount required after taking into account the application of
US$658 million of the proceeds from OTH’s sale of
Orascom Telecom Tunisia to pay down approximately
US$600 million of OTH’s senior bank indebtedness and
US$58 million of equity-linked notes of Orascom Telecom
Oscar S.A. The debt to be paid with intercompany loans is
described as follows:
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•
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€446 million to repay and refinance the outstanding
balance of the new financing to be put in place by Wind Telecom
before completion of the Transaction to refinance the original
€1.2 billion aggregate principal amount of guaranteed
collateralized notes due April 4, 2011, issued by Weather
Capital Special Purpose 1 S.A. (as described below).
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•
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US$1.75 billion to repay and refinance the outstanding
balance of the original US$2.5 billion credit facility of
OTH.
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46
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•
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US$780 million to redeem and refinance the Orascom Telecom
High Yield Notes.
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•
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US$243 million to redeem and refinance the original
US$230 million aggregate principal amount of secured equity
linked notes due 2013 issued by Orascom Telecom Xxxxx X.X.
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The Wind Telecom entity financings described above have maturity
dates that permit them to be refinanced with the intercompany
loans to be funded by VimpelCom upon Closing of the Transaction,
except for the Weather Capital Special Purpose 1 S.A. financing
(secured by global depositary securities of OTH) (the
“WCSP1 Margin Loan”), which matures on
April 4, 2011. We and Wind Telecom anticipate that the
Transaction will be completed after the WCSP1 Margin Loan
matures. Accordingly, on February 4, 2011, certain Wind
Telecom entities entered into a letter agreement with four banks
pursuant to which the banks agreed to enter into a bridge loan
facility to refinance the WCSP1 Margin Loan. The new bridge
loan facility would mature on December 15, 2011, although
the lenders have the right to demand that the borrower issue or
cause to be issued securities prior to that date for the purpose
of taking out the bridge loan. VimpelCom intends to refinance
this bridge loan facility by an intercompany loan, made at the
time the Transaction is completed and before the new bridge loan
matures on December 15, 2011. VimpelCom may not be able to
refinance the bridge loan and may incur additional costs because
of securities issued to take out the bridge loan (1) if the
VimpelCom shareholders do not approve the Share Issuance
Proposal or the Authorized Share Capital Increase Proposal prior
to April 28, 2011, or (2) if the VimpelCom
Shareholders do approve the Share Issuance Proposal or the
Authorized Share Capital Increase Proposal but the Transaction
is not then completed by June 15, 2011.
The terms and structures for the intercompany loans which will
be made to effect the refinancings in connection with the
Transaction will be determined by VimpelCom based on factors
which will include, among other things, tax considerations,
covenants in financings which will remain outstanding and funds
available for repayment. The Refinancing Plan requires that
shareholders of OTH approve the terms for the intercompany loans
to refinance the debt of OTH, Orascom Telecom Finance S.C.A. and
Orascom Telecom Oscar S.A. Under the OTH Spin-Off Plan,
shareholders of OTH will be required to vote on, among other
things, (1) these intercompany loans as related party
transactions, in an Ordinary General Meeting, and (2) an
increase in authorized capital and other matters associated with
the OTH Spin-Off, in an Extraordinary General Meeting. These
meetings are to be held on the same day and approval by
shareholders of OTH at both is required for making the
intercompany loans.
Financings
by Wind Telecom
Pursuant to the Refinancing Plan, in November 2010 Wind Telecom
refinanced and modified indebtedness of Wind Telecom entities
associated with Wind Italy. The refinancing was implemented to
extend the debt maturity profile for the Wind Italy entities,
reduce the overall running average cost of indebtedness for the
Wind Italy entities and achieve more favorable and less
restrictive covenants.
Prior to the refinancing effected pursuant to the Refinancing
Plan, the outstanding indebtedness of the Wind Italy companies
(the “Wind Italy Group Indebtedness”)
primarily consisted of indebtedness under the following:
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Bank financings represented by the following facilities:
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€825 million term loan facility maturing in May 2012
(the “2012 Term Loan”);
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•
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€1.466 billion term loan facility and a
US$56 million term loan facility maturing in May 2013 (the
“2013 Term Loan”);
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•
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€1.466 billion term loan facility and a
US$56 million term loan facility maturing in May 2014 (the
“2014 Term Loan”); and
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•
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€400 million revolving credit facility.
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•
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€552 million aggregate principal amount of variable
interest second lien notes due November 2014 and
US$180 million aggregate principal amount of variable
interest second lien notes due November 2014 (the
“Second Lien Notes”);
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47
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•
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€950 million aggregate principal amount of
11% senior notes due December 2015 and US$650 million
aggregate principal amount of 12% senior notes due December
2015 (the “2015 Notes”);
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•
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€1.25 billion aggregate principal amount of
113/4% senior
notes due July 2017 and US$2.0 billion aggregate principal
amount of
113/4% senior
notes due July 2017 (the “2017
Notes”); and
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•
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€325 million aggregate principal amount of
121/4%
PIK notes due July 2017 and US$625 million aggregate
principal amount of
121/4%
PIK notes due July 2017 (the “PIK
Notes”), issued by WAHF, the parent company of Wind
Italy.
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In November 2010 Wind Italy restructured and refinanced the Wind
Italy Group Indebtedness, other than the 2017 Notes and the PIK
Notes. To achieve this, Wind Italy and associated companies
entered into two new term loan facilities and a revolving credit
facility and issued two series of senior secured notes. The
Wind Italy Group Indebtedness is paid from cash flow generated
by Wind Italy businesses, and VimpelCom has no obligations for
any payments on any Wind Italy Group Indebtedness. The
restructured and refinanced Wind Italy Group Indebtedness is
described in more detail as follows:
New Senior Secured Credit Facilities. On
November 24, 2010, Wind Italy entered into two senior
secured term loan facilities (the “
New Senior Secured
Credit Facilities”) consisting of a
€1.515 billion term loan facility maturing November
2016 and a €2.015 billion term loan facility maturing
November 2017. Wind Telecom also entered into a
€400 million revolving credit facility maturing
November 2016 which remained undrawn as of December 31,
2010 (the “
New Revolving Credit
Facility”).
The New Senior Secured Credit Facilities contain covenant
packages which allow, among other things, dividend payments
under more favorable terms and a specified reduction in interest
if an investment grade rating is achieved by the borrower
independently or in connection with a guarantee by VimpelCom.
New Senior Secured Notes. On November 26, 2010, Wind
Acquisition Finance S.A. issued senior secured notes due
February 2018 (the “
New Senior Secured
Notes”). The New Senior Secured Notes were issued
in two tranches consisting of a
7
3/
8%
€1.75 billion tranche and a
7
1/
4%
US$1.3 billion tranche.
Refinancing Prior Debt. Wind Italy companies used the net
proceeds from the New Senior Secured Credit Facilities and the
New Senior Secured Notes to repay outstanding amounts under the
2012 Term Loan, the 2013 Term Loan and the 2014 Term Loan and
prepay aggregate principal outstanding amounts of the Second
Lien Notes and the 2015 Notes. The 2017 Notes and the PIK Notes
remain outstanding. Accordingly, following the completion of its
plan to refinance certain indebtedness pursuant to the
Refinancing Plan, the indebtedness of Wind Telecom primarily
consists of indebtedness under the New Senior Secured Credit
Facilities, the New Senior Secured Notes, the 2017 Notes and the
PIK Notes. As of December 31, 2010, Wind Telecom had
undrawn availability under the New Revolving Credit Facility.
For more information about the refinancing of the Wind Italy
Group Indebtedness, see Note 5 to our Unaudited Pro Forma
Condensed Combined Financial Information.
Consents
and Waivers Obtained by Wind Telecom Entities and OTH
Entities associated with WAHF and Wind Italy have obtained
consents and waivers from holders of outstanding indebtedness to
the change of control to be effected by the Transaction and for
other purposes, and OTH has obtained consents and waivers from
holders of outstanding indebtedness to payment of debt and to
address potential events of default.
Covenants contained in the instruments governing the 2015 Notes,
the 2017 Notes and the PIK Notes required the issuer of the
notes to make an offer to repurchase such notes at a purchase
price of 101% upon the occurrence of a change of control (a
“Repurchase Offer”). On
November 4, 2010, pursuant to the Refinancing Plan, the
issuers of notes guaranteed by Wind Italy and WAHF (Wind
Acquisition Finance S.A. as issuer of the 2015 Notes and the
2017 Notes and Wind Acquisition Holdings Finance S.A. as issuer
of the PIK Notes) requested that the holders of
48
the 2015 Notes, the 2017 Notes and the PIK Notes consent to,
among other things, consummation of the Transaction without
receiving a Repurchase Offer. In November 2010, Wind
Acquisition Finance S.A. received the requested consent from the
holders of the 2015 Notes and the 2017 Notes, and Wind
Acquisition Holdings Finance S.A. received the requested consent
from the holders of the PIK Notes. As noted above, the 2015
Notes have been repaid, but the 2017 Notes and the PIK Notes
remain outstanding.
By waiver request letter dated November 15, 2010, as
supplemented by waiver request letter dated November 26,
2010, XXX requested consents and waivers under its senior bank
credit agreement dated February 27, 2006, as amended, for
loans in the original aggregate principal amount of
US$2.5 billion (the “OTH Bank Credit
Agreement”), which will be refinanced through
intercompany loans funded by VimpelCom at Closing of the
Transaction. These consents and waivers were obtained and became
effective in January 2011. They primarily relate to the OTH
business in Algeria and the application of proceeds of the sale
of the OTH business in Tunisia, and included, among other
things, the following terms:
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Lenders under the OTH Bank Credit Agreement waived certain
representations and warranties, breaches of covenants and other
defaults under the OTH Bank Credit Agreement resulting from
litigation, expropriation or other events relating to OTA and
involving the Government of the Republic of Algeria or any
governmental body thereof.
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OTH agreed to modifications to certain financial covenants in
the event OTH ceases to hold more than 50% of the outstanding
share capital of OTA.
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OTH agreed to deposit, and has deposited, US$730 million in
proceeds from the sale of its Tunisian subsidiary into a blocked
account (the “OTA Blocked Account”) with
US$600 million applied to reduce the debt under the OTH
Bank Credit Agreement, and the remaining US$130 million to
be used to pay interest amounts due under the OTH Bank Credit
Agreement as they come due.
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OTH agreed to apply, and has applied, US$58 million in
proceeds from the sale of its Tunisian subsidiary to repay a
portion of the US$230 million aggregate principal amount of
secured equity linked notes due 2013 issued by Orascom Telecom
Oscar SA.
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OTH agreed to deposit into the OTA Blocked Account for the
payment of indebtedness under the OTH Bank Credit Agreement 100%
of the net proceeds from any sale of shares in OTA, ECMS or
MobiNil, and 75% of the net proceeds from the sale of any other
material subsidiary.
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OTH is limited to US$25 million annually for dividend
payments and other restricted payments.
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The indebtedness of subsidiaries of OTH does not contain change
of control covenants that would be triggered upon completion of
the Transaction. Accordingly, we expect that all such
indebtedness will remain in place without modification after
completion of the Transaction.
The WCSP1 Margin Loan has been modified and supplemented from
time to time, most recently as of January 28, 2011. The
January 28, 2011 amendment extended the deadline for the
issuer to take certain actions toward refinancing the WCSP1
Margin Loan to the final maturity date of April 4, 2011,
from January 31, 2011. For more information on the WCSP1
Margin Loan, see “— VimpelCom Financing
Sources — Intercompany Loans”.
THE
SPIN-OFF PLAN
As part of the Transaction consideration and as summarized in
more detail below, VimpelCom and Weather II have agreed to
the Spin-Off Plan which provides that shortly after Closing of
the Transaction certain assets held under OTH and certain assets
held under Wind Italy will be demerged from the Wind Telecom
group and transferred back to Weather II. VimpelCom views these
assets as having limited or no strategic value for the VimpelCom
group. The assets are listed in detail below and generally
include Wind Telecom group’s direct and indirect
49
minority interest in ECMS, the group’s operations in North
Korea, the Italian wholesale business, various Internet portals
in Italy and Egypt and a number of under-sea cable companies.
The Spin-Off Plan also provides for alternative cash payments
from VimpelCom to Weather II in lieu of the demergers in
the event the demergers cannot be completed. The Spin-Off Plan
consists of the OTH Spin-Off Plan (with respect to the assets
held under OTH) and the Wind Italy Spin-Off Plan (with respect
to the assets held under Wind Italy).
OTH
Spin-Off Plan
References in this proxy statement to “OTH Spin-Off
Assets” are to each of the following assets of OTH:
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28.755% ownership stake in MobiNil;
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20.00% ownership stake in ECMS;
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95% ownership stake in Orabank NK (North Korea);
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75% ownership stake in CHEO Technology Joint Venture company
(Koryolink) (DPRK), together with all other assets and
businesses located in North Korea;
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100% direct and indirectly held ownership stake in Middle East
and North Africa for Sea Cables (Free Zone II);
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51% ownership stake in Trans World Associate (Private) Limited
(Pakistan);
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100% ownership stake in Med Cable Limited (UK);
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99.99% ownership stake in Intouch Communication Services S.A.E.
(Egypt) (“Intouch”) (a/k/a the OT
Ventures Internet portals and other ventures in Egypt including
Link Development, ARPU+ Telecommunications Services S.A.E.
(“ARPU+”) and XXXXxxXXXX); and
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1% ownership stake in ARPU for Telecommunication Services
S.A.E. (Egypt).
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The OTH Spin-Off Assets will be first transferred to the
existing shareholders of OTH by way of a legal demerger under
Egyptian law whereby OTH is essentially split into two companies
with the exact same shareholders. One company will hold the
core assets to be retained by the Wind Telecom group and one
company will hold the OTH Spin-Off Assets. Following this
demerger, the shares held by the Wind Telecom group in the
company holding the OTH Spin-Off Assets will be transferred to a
subsidiary of Weather II. The demerger and transfer are both
expected to occur the business day immediately following the
Closing of the Transaction and are subject to the following
conditions: (i) approval by the shareholders of OTH and
(ii) approval by the Egyptian
50
Financial Supervisory Authority
(“EFSA”). EFSA is expected to
pre-approve the demerger soon after the OTH shareholders meeting
required to implement the demerger.
If the OTH shareholders’ meeting required to implement the
demerger of the OTH Spin-Off Assets has failed to approve, or
EFSA has failed to pre-approve, the demerger with respect to the
OTH Spin-Off Assets on or prior to Closing of the Transaction,
then the following will occur:
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all OTH Spin-Off Assets will be retained by VimpelCom;
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on the Closing date of the Transaction, VimpelCom will make a
cash payment to Weather II of US$600 million as
additional consideration; and
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if France Telecom’s call option contained in the amended
and restated shareholders agreement among OTH, France Telecom,
Wirefree Services Belgium, Atlas Services Belgium and MobiNil
(the “MobiNil Shareholders Agreement”)
has not been exercised within the first 120 “business
days” (as defined in the MobiNil Shareholders Agreement)
following the Closing date of the Transaction, VimpelCom will
make an additional cash payment of US$170 million as
further additional consideration on the
121st “business day” (as defined in the MobiNil
Shareholders Agreement) following the Closing date of the
Transaction.
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However, if the OTH shareholders’ meeting required to
implement the demerger has approved, and EFSA has pre-approved,
the demerger with respect to the OTH Spin-Off Assets on or prior
to Closing of the Transaction, but the demerger with respect to
the OTH Spin-Off Assets cannot be completed on or prior to
December 31, 2011 or such earlier date as agreed by
XxxxxxXxx and Weather II (the “Spin-Off Plan
Outside Date”), then the following will occur:
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all OTH Spin-Off Assets shall be retained by VimpelCom;
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on the Spin-Off Plan Outside Date, VimpelCom will make a cash
payment to Weather II of US$600 million as additional
consideration; and,
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if France Telecom’s call option under the MobiNil
Shareholders Agreement has been not exercised within the first
120 “business days” (as defined in the MobiNil
Shareholders Agreement) following the Closing date of the
Transaction, VimpelCom shall make a further additional cash
payment of US$170 million as further additional
consideration on the later to occur of (A) the
121st “business day” (as defined in the MobiNil
Shareholders Agreement) following the Closing date of the
Transaction and (B) the Spin-Off Plan Outside Date.
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51
Wind
Italy Spin-Off Plan
References in this proxy statement to “Wind Italy
Spin-Off Assets” are to each of the following
assets of Wind Italy:
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100% ownership stake in WIS;
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100% ownership stake in ITNET S.r.l.;
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100% of the business formerly owned by Italia Online S.r.l.
before its merger into Wind Italy, together with all other
assets (including intellectual property) and personnel
(including the dedicated sales forces) owned or employed by Wind
associated with the Libero portal business; and
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The Italy-Greece Medcable submarine cable located between
Otranto, Italy and Aethos, Greece, asset owned by Wind Italy.
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On the same day as, but immediately after, the Closing of the
Transaction, the Wind Italy Spin-Off Assets are contemplated to
be spun-off to a newly established entity
(“NewCo”) initially controlled by Wind
Italy. Immediately thereafter and on the same day as of the
Closing of the Transaction, Wind Italy will transfer its
ownership in NewCo to VimpelCom in exchange for a cash payment
to Wind Italy based on the fair market value of NewCo, which the
parties expect will not exceed US$300 million. Immediately
thereafter and on the same day as the Closing of the
Transaction, VimpelCom will transfer its ownership in NewCo to
Weather II.
If the spin-off of the Wind Italy Spin-Off Assets cannot be
completed on or prior to the Spin-Off Plan Outside Date, then,
all Wind Italy Spin-Off Assets will be retained by VimpelCom
following the Closing of the Transaction, and VimpelCom will
make a cash payment of US$100 million as additional
consideration on the Spin-Off Plan Outside Date.
MOBINIL/ECMS
PLAN
In connection with the Transaction, VimpelCom and each of Wind
Telecom, Weather II and OTH have agreed a plan setting
forth the actions that the parties have agreed to take relating
to OTH’s interests in MobiNil and ECMS under the MobiNil
Shareholders Agreement (the “MobiNil/ECMS
Plan”). Under the MobiNil Shareholders Agreement,
France Telecom has a call option over OTH’s shares in
MobiNil in the event of a “change of control” with
respect to OTH as defined in the MobiNil Shareholders Agreement
(the “FT Call Option”). The purpose of
the MobiNil/ECMS plan is to cause OTH’s interests in
MobiNil and ECMS to remain at all times under the control of
Weather II (and hence the Sawiris Family), throughout the
spin-off of OTH’s interests in MobiNil and ECMS pursuant to
the Spin-Off Plan, and, therefore,
52
that the Closing of the Transaction shall not represent a
“change of control” with respect to OTH within the
meaning of the MobiNil Shareholders Agreement. Under the Share
Sale and Exchange Agreement, Wind Telecom, Weather II and
VimpelCom must use their reasonable best efforts to effect at or
prior to Closing the actions required to be effected at or prior
to Closing, and after Closing the actions required to be
effected after Closing, under MobiNil/ECMS Plan.
ANCILLARY
AGREEMENTS
At Closing, the parties will enter into each of the Ancillary
Agreements which are summarized below.
Interim
Control Agreement
OTH, Weather II, Wind Telecom and VimpelCom will enter into the
Interim Control Agreement, which contains the MobiNil/ECMS Plan
and will govern the parties’ rights and obligations
relating to OTH’s interests in MobiNil and ECMS. The
purpose of the Interim Control Agreement is to ensure that
Weather II remains in control of the OTH Spin-Off Assets at
all times prior to completion of the OTH Spin-Off pursuant to
the Spin-Off Plan. See “The Spin-Off Plan”.
Lock-Up
Agreement
Weather II and VimpelCom will enter into the
Lock-Up
Agreement, pursuant to which Weather II will agree not to
transfer any of the VimpelCom common shares it receives at
Closing for a period of six months following Closing. These
restrictions are subject to certain exceptions, including, among
others, transfers to controlled affiliates of Weather II
and related entities, pledges and other customary exceptions.
Weather II also agrees that for 18 months and such
additional period of time as claims remain outstanding under the
Share Sale and Exchange Agreement, the Interim Control Agreement
or the Algerian Value Sharing Agreement, Weather II will
not transfer or pledge any of the shares that are required to be
placed in an escrow account pursuant to the Share Escrow
Agreement, subject to Weather II’s ability to substitute
such shares with certain other assets.
Share
Escrow Agreement
Weather II and VimpelCom will enter into the Share Escrow
Agreement, pursuant to which Weather II will agree to
deposit 20% of the VimpelCom common shares being delivered to
Weather II at Closing under the Share Sale and Exchange
Agreement in an escrow account maintained by Citibank N.A. as
escrow agent. The VimpelCom common shares, or such assets that
Weather substitutes for the VimpelCom common shares, subject to
VimpelCom’s consent in the case of certain proposed
substitute assets, will remain in the escrow account until the
escrowed property may be released in accordance with the terms
of the Share Escrow Agreement.
WIS
Framework Agreement
Weather II, Wind Telecom, WIS and VimpelCom will enter into the
WIS Framework Agreement, which contains the terms and conditions
under which certain service agreements between WIS, which is
being transferred to Weather II as part of the Spin-Off
Plan, and subsidiaries of Wind Telecom will continue in effect
for the
18-month
term following Closing under the Share Sale and Exchange
Agreement, subject to termination on 60 days notice by the
relevant Wind Telecom client if certain price and quality
standards are not met.
53
Algerian
Value Sharing Agreement
Weather II and VimpelCom will enter into the Algerian Value
Sharing Agreement, which is described under “The
Transaction — Algerian Value Sharing
Arrangement”.
OTH
Separation Agreement
OTH, Weather II, Wind Telecom and VimpelCom will enter into the
OTH Separation Agreement, pursuant to which the parties will
agree to the allocation of certain assets and for the
continuation or separation of certain commercial and operational
interdependencies between OTH and the new entity demerged from
OTH following the demerger pursuant to the OTH Spin-Off Plan.
Wind
Separation Agreement
Wind Italy, Weather II, Wind Telecom and VimpelCom will enter
into the Wind Separation Agreement, pursuant to which the
parties will agree to the allocation of certain assets and for
the continuation or separation of certain commercial and
operational interdependencies between Wind Italy and the new
entity into which the Wind Italy Spin-Off Assets will be
contributed pursuant to the Wind Italy Spin-Off Plan.
Subject to the terms and conditions of the Share Sale and
Exchange Agreement, each party has agreed to use its reasonable
best efforts to take, or cause to be taken, all actions and to
do, or cause to be done, all things necessary, proper or
advisable under the Share Sale and Exchange Agreement and
applicable laws to complete the transactions contemplated by the
Share Sale and Exchange Agreement, including obtaining the
requisite regulatory approvals, as promptly as practicable after
the date of the Share Sale and Exchange Agreement as discussed
in
“The Share Sale and Exchange Agreement —
Agreements to Use Reasonable Best Efforts”.
As a condition to Closing under the Share Sale and Exchange
Agreement, the parties are required to obtain all consents
required under the competition and antitrust laws of Ukraine,
Italy and Pakistan and under the telecommunication laws of
Pakistan.
Ukraine
In Ukraine, the Transaction is subject to the approval of the
Antimonopoly Committee of Ukraine
(“AMC”). On January 28, 2011, an
application for approval of the AMC was filed.
Italy
In Italy, the Transaction is subject to the approval of the
Italian Antitrust Authority (“IAA”). On
January 27, 2011, an application for approval of the IAA
was filed. Although not a condition to Closing, the approvals
of the Italian Ministry of Communications
(“IMC”) and the Italian National
Regulatory Authority (“INRA”) are also
required. On January 27, 2011, applications for approval
of the IMC and the INRA were filed.
Pakistan
In Pakistan, the Transaction is subject to the approval of the
Competition Commission of Pakistan
(“CCP”) and the Pakistan
Telecommunications Authority (“PTA”).
On January 28, 2011, an application for approval of the CCP
was filed. On February 2, 2011, an application for approval
of the PTA was filed.
Wind Telecom is an international provider of mobile and
fixed-line telecommunications and Internet services with
operations in Europe (primarily, Italy), North America, Africa,
the Middle East and Asia. As of September 30, 2010, Wind
Telecom’s wholly owned or jointly controlled businesses had
in the aggregate approximately 117 million subscribers
(excluding operations in Tunisia and Greece, which have been
divested since such date),
54
of which approximately 28.7 million were associated with
the Wind Italy Spin-Off Assets or the OTH Spin-Off Assets.
The Wind Telecom group operates in the telecommunications sector
through two main operating
sub-groups:
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WAHF and its subsidiaries (the “Wind Italy
Group”); and
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OTH and its subsidiaries (the “OTH
Group”).
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At or after Closing, Wind Telecom’s interests in the Wind
Italy Spin-Off Assets and the OTH Spin-Off Assets will be
transferred to Weather II and will therefore no longer be
part of the combined company following their transfer. If such
transfers cannot be effected, Wind Telecom will retain those
assets, and VimpelCom will make certain cash payments to
Weather II as described in “The Spin-Off
Plan”.
The charts below set out the structure of the Wind Telecom group
and its two main operating
sub-groups
as of December 31, 2010.
55
The following chart shows the structure of the Wind Italy Group
as of December 31, 2010 and identifies entities that are
Wind Italy Spin-Off Assets.
The following charts show the structure of the OTH Group as of
December 31, 2010. The first chart shows the OTH
Group’s GSM assets and their holding companies, and the
second chart shows the non-GSM assets. In each case, entities
that are OTH Spin-Off Assets are identified. The chart below
does not include Orascom Telecom Tunisia which has been divested.
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(1)
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Zimbabwe has been deconsolidated as
of December 21, 2003.
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(2)
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Telecel International: OT
Netherlands BV holds 999 ordinary shares and OT Eurasia 1
deferred share.
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(3)
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OT Ventures: OT holds 50,000
ordinary shares and OT Eurasia 1 deferred share.
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(4)
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TMGL: IWCPL holds 1,999 shares
and OT Eurasia 1 deferred share.
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(5)
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IWCPL: OTH holds 86,641,308
redeemable preference shares and 5,869 ordinary shares and OT
Eurasia 1 additional redeemable preference share.
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(6)
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Oratel: 166,500,000 ordinary shares
and OT Eurasia has 1 deferred share.
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(7)
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Moga Holding: 50,000,000 ordinary
shares and OT Eurasia has 1 deferred share.
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(8)
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OIH: OTH holds 50,000 ordinary
shares and Orascom Luxembourg SARL has 1 deferred share.
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(9)
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OTI: OIH holds 50,000 ordinary
shares and OT Eurasia has 1 deferred share.
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(10)
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Telecel Globe: OTH owns 1,999
ordinary shares and Orascom Luxembourg S.à x.x owns 1
deferred share.
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(11)
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OT Lebanon: remaining shares held
by individuals in their capacity as founding directors of the
entity.
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(12)
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OTH Canada (Malta) Ltd.: OTH holds
1,999 ordinary shares and OT Sàrl Eurasia 1 deferred share.
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(13)
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GIHC: OTH (Canada) Ltd. holds a
65.08% economic interest and 32.02% voting right.
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(1)
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Minimax: OTH holds
2,000 shares and OT Eurasia 1 deferred share —
formerly called OT Asia.
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(2)
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OT ESOP: Financial Power Plan Ltd
holds 1,999 ordinary shares and OT Eurasia 1 deferred share.
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(3)
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Financial Power Plan Ltd: OTH holds
50,000 ordinary shares and Orascom Luxembourg Sàrl holds 1
deferred share.
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(4)
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OT CS: OTH holds
500,000 shares and Orascom Luxembourg Sàrl 1 deferred
share.
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(5)
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MLink: OTH holds 34,999 shares
and OT Eurasia 1 deferred share. M-Link is in dissolution.
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(6)
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DMSL (Database management Services
Limited): OTH holds 2,000 shares and OT Eurasia 1 deferred
share.
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(7)
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Smart Village: Link Egypt owns
0.18%.
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(8)
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MENA: OTH owns 95%, Intouch 1% and
Link Development 4%.
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(9)
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Xxxxxx Limited: OTH holds
2,000 shares and OIH Ltd 1 deferred share.
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(10)
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OT Eurasia: Xxxxxx Ltd and OTH hold
950,000 and 49,999 ordinary shares, respectively and OIH 1
deferred share.
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(11)
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Egyptian Space Company in
liquidation. Investment 0.1% from OTCS.
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(12)
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Contra (Egypt): Liquidation in
process (98% held by Orasinvest and 0.1% held by OTCS).
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(13)
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Oracap Far East Ltd: Oracap Holding
holds 1,999 shares and OIH 1 deferred share.
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(14)
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DMSA: Liquidation in process.
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(15)
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CTC (Malta) Liquidiation in
process. OTH owns 1 deferred share through OT Eurasia.
Orasinvest Holding Inc. is shareholder of all other shares.
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(16)
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OTWL: Liquidation in process.
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(17)
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CAT: Bankruptcy filed; hearing
ongoing.
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(18)
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ARPU+: remaining 98.5% shareholding
held directly by Xxxxxxx and 0.5% owned by Link Development.
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*
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Remaining shareholding held by
individuals in their capacity as a representative of OTH and/or
affiliate of OTH.
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Wind Telecom currently provides mobile telecommunications
services, either directly or through joint ventures with its
partners, in Italy (marketed under the “WIND” brand),
and in the following emerging markets: Algeria (marketed under
the “Djezzy” brand), Pakistan (marketed under the
“Mobilink” brand), Egypt (marketed under the
“Mobinil” brand), Bangladesh (marketed under the
“banglalink” brand), Canada (marketed under the
“WIND Mobile” brand), Zimbabwe (marketed under the
“Telecel” brand), North Korea (marketed under the
“koryolink” brand), Central Africa Republic (marketed
under “Telecel” brand) and Burundi and Namibia
(marketed under the “xxx” brand).
Wind Telecom also provides fixed-line telecommunications and
Internet services either directly or through joint ventures with
its partners, to corporate and retail customers in Italy
(marketed under the “WIND”, “Infostrada” and
“Libero” brands). In addition, Wind Telecom owns and
operates a number of telecommunications businesses that support
its mobile and fixed-line businesses, including retail
distribution of mobile SIM cards and scratch cards, distribution
of handsets, handset procurement, content development and
aggregation, logistical support, network construction and
maintenance, international communications services and undersea
fiber optic cables.
The Wind
Italy Group
The Wind Italy Group offers mobile, Internet, fixed-line voice
and data products and services to consumer and corporate
subscribers. As of September 30, 2010, the Wind Italy
group’s mobile business had approximately 19.6 million
subscribers. The Wind Italy group’s fixed-line business,
which includes Internet (broadband and dial-up), voice and data
services, had approximately 2.0 million Internet
subscribers (1.8 million broadband subscribers), and
approximately 2.9 million voice subscribers.
As discussed in “The Spin-off Plan”,
immediately after Closing the Wind Italy Spin-Off Assets will be
transferred to Weather II. These assets are described below:
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The Italy- Greece Cable is an asset owned by Wind Italy. It is a
169 kilometer submarine cable consisting of 24 pairs of fiber
optic that links to two technological sites located in Otranto,
Italy and Aethos, Greece for the purpose of transporting and
providing international traffic services.
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Libero portal business, including all assets and personnel owned
or employed by Wind Italy associated with the Libero portal
business. Libero generates revenues mainly through advertising
and offers a range of content and other services, including a
search engine, news, and “vertical” channels
organized in groups such as finance, automotive, women and
travel.
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ITNET S.r.l, an Internet service provider, which is a fully
owned subsidiary of Wind Italy.
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•
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100% ownership interest in WIS and its subsidiaries. WIS manages
a long distance international telecommunications network, which
provides voice and data services by satellite, electrical and
optical cable and new generation technologies together with the
related support services. WIS provides interconnection services
for OTH Group operations in Algeria, Pakistan, Egypt, Bangladesh
and several
sub-Saharan
operations. Pursuant to the terms of the Share Sale and Exchange
Agreement, Weather II, WIS and VimpelCom will enter into an
agreement at Closing to govern WIS services to Wind Telecom
entities following Closing. See “Ancillary
Agreements — WIS Framework Agreement” for
more information.
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Wind Italy’s license to provide mobile telephone services
in Italy using digital GSM 1800 and GSM 900 technology was
issued in 1998 and expires in 2018. Wind Italy acquired its UMTS
license in 2001, which is expected to expire in 2029. The UMTS
license covers all Italian regional capitals.
Wind Italy’s fixed line services are provided pursuant to a
20 year license obtained from the Italian Ministry of
Economic Development in 1998 that expires in 2018.
58
The OTH
Group
The OTH Group is a mobile telecommunications company operating
mobile telecommunications networks in markets in the Middle
East, Africa and Asia, and as of September 30, 2010 had
approximately 97 million subscribers (excluding operations
in Tunisia, which have been divested since such date). The OTH
Group’s four main GSM operations, held either directly or
indirectly via joint ventures, are located in Algeria (OTA),
Pakistan (Mobilink), Egypt (Mobinil) and Bangladesh
(banglalink). The OTH Group also owns GSM networks in Africa, a
majority interest in a 3G network in North Korea and an interest
in a new entrant 3G operator in Canada.
With respect to the OTH Group’s non-GSM businesses, Ring
Distribution S.A.E. (“Ring”) provides a
range of services, including retail distribution, handset
procurement and assembly, logistical support and customer care
and service centers, and ARPU+ provides consumer and business
internet services and mobile value-added services.
OTA operates a GSM network in Algeria and provides a range of
prepaid, postpaid and hybrid postpaid-prepaid products
encompassing voice, data and multimedia, using the corporate
brand “Orascom Telecom Algérie” and the
two commercial brands of “Djezzy” and
“Allo.” OTA launched its operations in February
2002. XXX commenced operations under the brand
“Djezzy” and introduced the prepaid brand
“Allo” in September 2004.
As of September 30, 2010, the OTH Group directly or indirectly
owned 96.81% of OTA, the remaining economic interest held by
Cevital, a major Algerian manufacturer of food products and a
non-OTH related entity, with a 3.19% direct shareholding of
OTA. Under the terms of OTA’s license, the OTH Group is
required to own more than 50% of the share capital and voting
rights of OTA at all times. For information regarding the risks
associated with XXX’s operations in Algeria, see
“Risk Factors — Risk Factors Relating to the
Transaction — The Algerian Government has made
substantial tax and other claims against OTA which have harmed
OTA’s business and the Algerian Government has announced
its intention to unilaterally acquire OTA from OTH”.
Pakistan
Mobile Communications Limited
Pakistan Mobile Communications Limited
(“Mobilink” or
“PMCL”) operates a GSM network in
Pakistan and provides a range of prepaid and postpaid voice and
data telecommunications services to both retail and corporate
subscribers, using the brand name “Mobilink”.
Mobilink launched its operations in August 1994 after it was
founded in 1990 as a joint venture between Motorola and the Saif
Group.
The OTH Group has a 100% economic interest in Mobilink.
Orascom
Telecom Bangladesh Limited
Orascom Telecom Bangladesh Limited
(“OTBL”) (formerly known as Sheba)
operates a GSM telecommunications business in Bangladesh and
provides a range of prepaid and postpaid voice and data
telecommunications services, using the brand name
“banglalink”.
OTH owns 100% of Orascom Telecom Ventures, which owns 100% of
the shares of OTBL (the percentage ownership includes a de
minimis number of directors and other qualifying shares).
Under a technical assistance agreement, OTH provides services to
OTBL in exchange for a fee. If OTBL’s GSM license is
renewed, the management services will be automatically extended
for the period of renewal.
Telecel Globe launched its operations in February 2008. It is
an international telecommunications company that manages GSM
operators in small and medium sized developing countries with
high growth potential. Telecel Globe currently owns GSM
networks in the Central African Republic (through Telecel
Centrafrique), Burundi (through its subsidiary U-COM) and
Namibia (through its subsidiary PowerCom).
59
In addition, Telecel Globe manages a GSM network in Zimbabwe
(Telecel Zimbabwe). Telecel Zimbabwe is 60% indirectly owned by
OTH. The remaining 40% stake in Telecel Zimbabwe is held by the
Empowerment Corporation of Zimbabwe, a consortium of local
Zimbabwean investors.
WIND
Mobile — Canada
OTH holds its interest in Globalive Wireless Management Corp.
(“Wind Mobile”), a spectrum license
holder in Canada, and other Canadian telecommunications
companies through Globalive Investment Holdings Corp.
(“Globalive Holdings”). OTH indirectly
holds approximately 65% of the outstanding shares of Globalive
Holdings and approximately 32% of voting rights. For information
regarding challenges to the legality of WIND Mobile’s
ownership structure, see “Risk Factors Relating to Wind
Italy’s Business — Risks Relating to OTH’s
Business — The legality of OTH’s ownership
structure for operations in Canada is being challenged”
in Annex B.
OTH
Group’s Licenses
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License
Holder(i)
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License Type
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Territorial Coverage
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Expiration Date
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OTA
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GSM 900/1800 (mobile)
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Algeria
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April 18, 2016
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OTA
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VSAT data-voice license (mobile)
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Algeria
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February 28, 2014
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Mobilink
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Mobile communications services and mobile virtual networks
operator (“MVNO”)
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Pakistan (excluding Azad Jammu & Kashmir)
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July 5, 2022
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Mobilink
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MVNO services (radio spectrum of 4.8, 4.8MHz and 8.8, 8.8MHz)
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Azad Jammu & Kashmir, and Gilgit Baltistan
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June 25, 2021
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OTBL
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GSM 2.6MHz (mobile)
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Bangladesh
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November 29, 2026
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Telecel Globe
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GSM 900/1800 (mobile and Internet)
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Zimbabwe
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June 1, 2013
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Telecel Globe
(Telecel-CAR)
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GSM 900/1800
(mobile)(2)
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Central African Republic
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July 30, 2038
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Telecel Globe (U-COM Burundi) SA
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GSM 900/1800 (mobile)
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Burundi
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April 29, 2014
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Telecel Globe (U-COM Burundi) SA
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CDMA
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Burundi
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August 3, 2021
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Telecel Globe (PowerCom) Pty
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GSM 900/1800; 35 (mobile)
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Namibia
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July 28, 2021
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WIND
Mobile(3)
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International Telecommunications Services
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Telecommunications between Canada and other countries
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June 30, 2019
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(1)
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Licenses belonging to the OTH
Spin-Off Assets are not included.
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(2)
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Under the terms of the license,
Telecel Zimbabwe was required to have a maximum foreign
ownership of 49% by June 2007. Due to the economic and
political circumstances, Telecel International was not able to
dispose of the 11% it owns in excess of 49% and on
August 9, 2007, the Zimbabwean Regulatory authority issued
a licence cancellation order notice to Telecel Zimbabwe, which
was suspended on August 15, 2007, pending a decision by the
Minister of Transport and Communication.
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(3)
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For information regarding
challenges to the legality of WIND Mobile’s ownership
structure, see “Risk Factors Relating to Wind
Italy’s Business — Risks Relating to OTH’s
Business — The legality of OTH’s ownership
structure for operations in Canada is being challenged”
in Annex B.
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60
The
OTH Spin-off Assets
As discussed in “The Spin-off Plan”, the OTH
Spin-off Assets will be transferred to Weather II shortly
after Closing. The OTH Spin-off Assets are described below.
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MobiNil/ECMS. Orascom holds, directly and
indirectly through MobiNil, a 34.6% interest in ECMS. ECMS
operates GSM network in Egypt and provides a range of prepaid
and postpaid voice and data telecommunications services, using
the brand name “Mobinil”.
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•
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Koryolink. OTH has a 75% interest in a North
Korean joint venture (CHEO Technology Joint Venture Company)
with the Korean Post and Telecommunications Company (which holds
25%) which operates in the Democratic People’s Republic of
Korea. The joint venture operates under the brand name
“koryolink”.
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Medcable/TWA. OTH holds a 100% stake in
Medcable UK (“Medcable”) and a 51% stake
in Trans World Associate (Private) Limited
(“TWA”), which build and operate
undersea fiber optic cables to carry international voice and
data traffic between Algeria and Pakistan and international
telecommunications hubs in Europe and the Middle East.
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•
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MENA. OTH holds, directly and indirectly, a
100% interest in Middle East and North Africa for Sea Cables
(Free Zone II) (“MENA”), which builds,
operates and rents sea cables, networks and infrastructure for
international telecommunications.
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•
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Intouch. Intouch owns Egyptian Internet
portals and other ventures in Egypt including Link Development,
ARPU+ and LINKonLINE.
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This proxy statement contains or incorporates by reference
“forward-looking statements”. Forward-looking
statements provide VimpelCom’s current expectations or
forecasts of future events. Forward-looking statements include
statements about XxxxxxXxx’s expectations, beliefs, plans,
objectives, intentions, assumptions and other statements that
are not historical facts. Any statement in this proxy statement
that expresses or implies XxxxxxXxx’s intentions, beliefs,
expectations or predictions (and the assumptions underlying
them) is a forward-looking statement. Words or phrases such as
“anticipate,” “believe,”
“continue,” “estimate,” “expect,”
“intend,” “may,” “ongoing,”
“plan,” “potential,” “predict,”
“project,” “will” or similar words or
phrases, or the negatives of those words or phrases, may
identify forward-looking statements, but the absence of these
words does not necessarily mean that a statement is not
forward-looking. Forward-looking statements are subject to
known and unknown risks and uncertainties and are based on
potentially inaccurate assumptions that could cause actual
results to differ materially from those expected or implied by
the forward-looking statements. The risks and uncertainties
include, but are not limited to, the following:
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•
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the integration of Wind Telecom into the VimpelCom group may not
occur as planned;
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•
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Telenor opposes the Transaction and has challenged it;
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•
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if Telenor is successful in the Arbitration Proceedings, it
could lead to significant dilution to the VimpelCom Minority
Shareholders;
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•
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VimpelCom may not realize the anticipated benefits from the
Transaction and may assume unexpected or unforeseen liabilities
and obligations or incur greater than expected liabilities in
connection with the Transaction;
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•
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the Transaction remains subject to satisfaction or waiver of
several conditions; and
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•
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other factors discussed in “Risk Factors” and
in Xxxxx A and Xxxxx B.
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61
Our actual results could differ materially from those
anticipated in forward-looking statements for many reasons.
Accordingly, you should not unduly rely on these forward-looking
statements, which speak only as of the date of this proxy
statement. We undertake no obligation to revise any
forward-looking statement to reflect circumstances or events
after the date of this proxy statement or to reflect the
occurrence of unanticipated events. You should, however, review
the factors and risks we describe in the reports we file from
time to time with the SEC after the date of this proxy statement.
ENFORCEABILITY
OF CIVIL LIABILITIES UNDER THE UNITED STATES SECURITIES
LAWS
We are organized under the laws of Bermuda and headquartered in
the Netherlands. Most of our directors, officers and experts
named in this proxy statement are not residents of the United
States, and all or a substantial portion of their assets and
almost all of our assets are located outside of the United
States. As a result, it may be difficult for you to effect
service of process within the United States upon us or our
directors, officers and experts who are not residents of the
United States or to enforce in the United States judgments of
U.S. courts based upon civil liability under the federal
securities laws of the United States. Further, no claim may be
brought in Bermuda against us or our directors and officers in
the first instance for violations of U.S. federal securities
laws because these laws have no extraterritorial jurisdiction
under Bermuda law and do not have the force of law in Bermuda.
A Bermuda court may, however, impose civil liability on us or
our directors and officers if the facts alleged in a complaint
constitute or give rise to a cause of action under Bermuda law.
We have been advised by Xxxxxxxxx Xxxx Limited, our Bermuda
counsel, that there is doubt as to whether the courts of Bermuda
would enforce judgments of U.S. courts obtained in actions
against us or our directors and officers, as well as the experts
named in this proxy statement, predicated upon the civil
liability provisions of the U.S. federal securities laws or
would hear original actions brought in Bermuda against us or
such persons predicated solely upon U.S. federal securities laws.
Further, we have been advised by Xxxxxxxxx Xxxx Limited that
there is no treaty in effect between the United States and
Bermuda providing for the enforcement of judgments of U.S.
courts. While a judgment of the U.S. courts may be the subject
of enforcement proceedings in Bermuda, there are grounds upon
which Bermuda courts may decline to enforce judgments of U.S.
courts and the judgement would not be automatically
enforceable. Some remedies available under U.S. law, including
some remedies available under the U.S. federal securities laws,
may not be enforced by Bermuda courts because they are contrary
to Bermuda’s public policy. Because judgments of U.S.
courts are not automatically enforceable in Bermuda, it may be
difficult for you to recover against us based upon such
judgments.
Our process agent in the United States is CT Corporation System,
located at 000 Xxxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx
Xxxx, 00000.
62
VimpelCom will bear the costs of this solicitation of proxies in
connection with the Special General Meeting. Solicitation will
be made by mail, telephone, facsimile, telegraph, the Internet,
e-mail,
newspapers and other publications of general distribution and in
person and may be made by directors, officers and employees,
personally or by telephone or
e-mail.
Proxy forms, voting cards, voting instructions and materials
will be distributed to registered holders of VimpelCom shares by
VimpelCom, to registered holders of VimpelCom ADSs through the
Depositary and to owners in street name of VimpelCom ADSs
through brokers, custodians, nominees and other parties, and
VimpelCom expects to reimburse such parties for their charges
and expenses.
VimpelCom has retained X. X. Xxxx & Co., Inc. to
assist with soliciting shareholder proxies, and X. X.
Xxxx & Co., Inc. will receive customary fees plus
reimbursement of expenses.
If you have any questions concerning this proxy statement or the
procedures to be followed to execute and deliver a proxy, please
contact X. X. Xxxx & Co., Inc. by any of the following
methods:
Mail
00 Xxxx Xxxxxx, 00xx Floor
0 Xxxxxxxxx Xxxxxx, 34th Floor
London, EC2Y 9HT
Email
xxxxxxxxx@xxxxxx.xxx
Phone
x0 000 000 0000 (toll-free from the U.S. and Canada)
00800 5464 5464 (toll-free from Continental Europe)
x0 000 000 0000 (banks and brokers call collect)
x00 000 000 0000 (from other locations)
Information in this proxy statement regarding the businesses and
financial condition of Wind Telecom, including information about
its subscribers, licenses and the nature and scope of its
operations, which is primarily located in “Risk
Factors — Risk Factors Relating to the
Transaction”, “Description of the Business of
Wind Telecom”, Annex B and the consolidated
financial statements of Wind Telecom included herein, is derived
from materials provided to us by Wind Telecom. We express no
opinion and make no representation as to the accuracy or
completeness of such information.
Furthermore, this proxy statement includes the consolidated
financial statements of Weather Investments S.p.A., the
predecessor of Wind Telecom, as at and for the year ended
December 31, 2009, together with the Weather Investments
Group Report on Operations at December 31, 2009 and the
auditor’s report of KPMG S.p.A (collectively, the
“Year-End Financial Information”), and
the consolidated interim financial statements for the nine-month
period ended September 30, 2010 (the “Interim
Financial Information”). The Year-End Financial
Information and the Interim Financial Information correspond to
those filed with the registered office of Wind Telecom. After
the date of the auditor’s report on the Year-End Financial
Information, KPMG S.p.A. has not performed any procedures to
update the contents of such auditor’s report on the
Year-End Financial Information.
The Year-End Financial Information and the Interim Financial
Information contain information that speaks only as of the date
specified therein and should not be read as a current
description of the Wind Telecom group, its operations or
financial condition. We note in particular that the Year-End
Financial Information and the Interim Financial Information
include information on the Wind Hellas Group, which is excluded
from the Transaction, and on the OTH Spin-Off Assets and Wind
Italy Spin-Off Assets, which are intended to be demerged from
the Wind Telecom group following Closing, and do not reflect
recent changes to the Wind Telecom group, such as the sale of
Orascom Telecom Tunisia.
63
WHERE YOU
CAN FIND MORE INFORMATION
VimpelCom is subject to the information reporting requirements
of the Exchange Act applicable to foreign private issuers. As a
“foreign private issuer,” VimpelCom is exempt from the
rules under the Exchange Act prescribing certain disclosure and
procedural requirements for proxy solicitations. VimpelCom
files reports and other information with the SEC. This
information includes financial information presented in
Amendment No. 4 to VimpelCom’s Registration Statement
on
Form F-4
filed by VimpelCom with the SEC on March 25, 2010, which
includes the audited consolidated financial statements of
Kyivstar as at December 31, 2009, 2008 and 2007 and for
each of the years in the three-year period ended
December 31, 2009 and the financial information presented
in OJSC’s Annual Report on
Form 20-F
for the year ended December 31, 2009, which includes the
audited consolidated financial statements of XXXX XxxxxxXxx as
at December 31, 2009, 2008 and 2007 and for each of the
years in the three-year period ended December 31, 2009.
The reports and other information filed with the SEC can be
inspected and copied at the public reference facilities
maintained by the SEC located at Room 0000,
000 X Xxxxxx, X.X., Xxxxxxxxxx X.X. 00000. Copies of
such materials can be obtained from the SEC’s public
reference facilities at its principal office in
Washington, D.C. 20549, at prescribed rates. You can call
the SEC at
0-000-XXX-0000
to obtain information on the operation of the public reference
facilities. Such materials may also be accessed electronically
by means of the SEC’s home page on the Internet
(xxxx://xxx.xxx.xxx),
free of charge.
This proxy statement incorporates by reference each of the
following documents that VimpelCom files with, or furnishes to,
the SEC from the date of this proxy statement until the Special
General Meeting or any adjournment thereof:
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any annual reports filed pursuant to Section 13 or 15(d) of
the Exchange Act; and
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any current reports furnished on Form 6-K that indicate
that they are incorporated by reference into this proxy
statement.
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64
GLOSSARY
OF DEFINED TERMS
“2015 Notes” is defined in “The Refinancing
Plan — Financings by Wind Telecom — Wind
Italy Indebtedness Before Refinancing”.
“2017 Notes” is defined in “The Refinancing
Plan — Financings by Wind Telecom — Wind
Italy Indebtedness Before Refinancing”.
“2012 Term Loan” is defined in “The
Refinancing Plan — Financings by Wind
Telecom — Wind Italy Indebtedness Before
Refinancing”.
“2013 Term Loan” is defined in “The
Refinancing Plan — Financings by Wind
Telecom — Wind Italy Indebtedness Before
Refinancing”.
“2014 Term Loan” is defined in “The
Refinancing Plan — Financings by Wind
Telecom — Wind Italy Indebtedness Before
Refinancing”.
“Additional OTH Spin-Off Payment” is defined in
“The Refinancing Plan — Financings by
XxxxxxXxx — Sources and Uses of Funds”.
“Algerian Value Sharing Agreement” is defined in
“Summary — The Ancillary Agreements”.
“Altimo” is defined in “Summary —
The Parties to the Transaction — VimpelCom”.
“AMC” is defined in “Regulatory
Matters — Ukraine”.
“Ancillary Agreements” is defined in
“Summary — The Ancillary Agreements”.
“Arbitration Proceedings” is defined in “Risk
Factors — Risk Factors Relating to the
Transaction — Telenor opposes the Transaction and has
challenged it”.
“ARPU+” is defined in “The Spin-Off
Plan — OTH Spin-Off Plan”.
“ASC 805” is defined in “Unaudited Pro Forma
Condensed Combined Financial Information”.
“Authorized Share Capital Increase Proposal” is
defined in “Summary — The Special General
Meeting”.
“Bridge Loan” is defined in “The Refinancing
Plan — Financings by XxxxxxXxx — VimpelCom
Financing Sources”.
“CCP” is defined in “Regulatory
Matters — Pakistan”.
“Citi” is defined in “Summary — The
Transaction — Reasons for the Transaction;
Recommendation of the VimpelCom Supervisory Board”.
“Closing” is defined in “Summary”.
“Depositary” is defined in
“Summary — The Special General
Meeting”.
“Deutsche Bank” is defined in
“Summary — The Transaction — Reasons
for the Transaction; Recommendation of the VimpelCom Supervisory
Board”.
“ECMS” is defined in “Summary — The
MobiNil/ECMS Plan”.
“EFSA” is defined in “The Spin-Off
Plan — OTH Spin-Off Plan”.
“Exchange Act” is defined in “Notice to
Shareholders in the United States”.
“FT Call Option” is defined in “The
MobiNil/ECMS Plan”.
“IAA” is defined in “Regulatory
Matters — Italy”.
“IFRS” is defined in “Unaudited Pro Forma
Condensed Combined Financial Information”.
“IMC” is defined in “Regulatory
Matters — Italy”
“INRA” is defined in “Regulatory
Matters — Italy”
“Interim Control Agreement” is defined in
“Summary — The Ancillary Agreements”.
“Intouch” is defined in “The Spin-Off
Plan — OTH Spin-Off Plan”.
“Italian Withholding Tax Indemnity” is defined in
“The Share Sale and Exchange Agreement —
Indemnification — Indemnification by Weather
II”.
“Kyivstar” is defined in “Unaudited Pro Forma
Condensed Combined Financial Information”.
65
“Lock-Up
Agreement” is defined in “Summary — The
Ancillary Agreements”.
“MENA” is defined in “Description of the
Business of Wind Telecom — The OTH Group —
The OTH Spin-Off Assets”.
“Mobilink” is defined in “Description of the
Business of Wind Telecom — The OTH Group —
The OTH Group’s Business — Pakistan Mobile
Communications Limited”.
“MobiNil” is defined in “Summary —
The MobiNil/ECMS Plan”.
“MobiNil Indemnity” is defined in “The Share
Sale and Exchange Agreement —
Indemnification — Indemnification by Weather
II”.
“MobiNil Shareholders Agreement” is defined in
“The Share Sale and Exchange Agreement —
Indemnification — Indemnification by Weather
II”.
“MobilNil/ECMS Plan” is defined in
“Summary — The MobilNil/ECMS Plan”.
“MVNO” is defined in “Description of the
Business or Wind Telecom — The OTH Group —
OTH Group’s Licenses”.
“New Revolving Credit Facility” is defined in
“The Refinancing Plan — Financings by Wind
Telecom — Wind Telecom Group Indebtedness Pursuant to
the Refinancing Plan”.
“New Senior Secured Credit Facilities” is defined in
“The Refinancing Plan — Financings by Wind
Telecom — Wind Telecom Group Indebtedness Pursuant to
the Refinancing Plan”.
“New Senior Secured Notes” is defined in “The
Refinancing Plan — Financings by Wind
Telecom — Wind Telecom Indebtedness Group Pursuant to
the Refinancing Plan”.
“Obligation Date” is defined in
“Summary — The Share Sale and Exchange
Agreement — Restrictions on Solicitation”.
“Oracom High Yield Notes” is defined in “The
Refinancing Plan — Financings by XxxxxxXxx —
Sources and Uses of Funds”.
“Original Agreement” is defined in “The
Transaction — General Background and
Description”.
“OTA” is defined in “The
Transaction — VimpleCom’s Reasons for the
Transaction; Recommendation of VimpelCom’s Supervisory
Board”.
“OTBL” is defined in “Description of the
Business of Wind Telecom — The OTH Group —
The OTH Group’s Business — Orascom Telecom
Bangladesh Limited”.
“OTA Blocked Account” is defined in “The
Refinancing Plan — Consents and Waivers Obtained by
Wind Telecom Entities and OTH — Consents of Holders of
OTH Debt”.
“OTH” is defined in “Summary — The
Parties to the Transaction — Wind Telecom”.
“OTH Bank Credit Agreement” is defined in “The
Refinancing Plan — Consents and Waivers Obtained by
Wind Telecom Entities and OTH — Consents of Holders of
OTH Debt”.
“OTH Group” is defined in “Description of the
Business of Wind Telecom”.
“OTH Separation Agreement” is defined in
“Summary — The Ancillary Agreements”.
“OTH Spin-Off” is defined in “The Refinancing
Plan — Financings by VimpelCom — Sources and
Uses of Funds”.
“OTH Spin-Off Assets” is defined in “The
Spin-Off Plan — OTH Spin-Off Plan”.
“PIK Notes” is defined in “The Refinancing
Plan — Financings by Wind Telecom — Wind
Italy Group Indebtedness Before Refinancing”.
“PMCL” is defined in “Description of the
Business of Wind Telecom — The OTH Group —
The OTH Group’s Business — Pakistan Mobile
Communications Limited”.
“PTA” is defined in “Regulatory
Matters — Pakistan”.
“Refinancing Plan” is defined in
“Summary — The Refinancing Plan”.
“Repurchase Offer” is defined in “The
Refinancing Plan — Consents and Waivers Obtained by
Wind Telecom Entities and OTH — Consents of Holders
Notes of Wind Italy Entities”.
66
“Ring” is defined in “Description of the
Business of Wind Telecom — The OTH Group —
The OTH Group’s Business”.
“Sberbank” is defined in “The Refinancing
Plan — Financings by VimpelCom — VimpelCom
Financing Sources”.
“Sberbank Loan” is defined in “The Refinancing
Plan — Financings by VimpelCom — VimpelCom
Financing Sources — Sberbank Loan”.
“Second Lien Notes” is defined in “The
Refinancing Plan — Financings by Wind
Telecom — Wind Italy Group Indebtedness Before
Refinancing”.
“Share Escrow Agreement” is defined in
“Summary — The Ancillary Agreements”.
“Share Issuance Proposal” is defined in
“Summary — The Special General
Meeting”.
“Special General Meeting” is defined in
“Summary — The Special General
Meeting”.
“Share Sale and Exchange Agreement” is defined in
“Summary”.
“Spin-Off Indemnity” is defined in “The Share
Sale and Exchange Agreement —
Indemnification — Indemnification by Weather
II”.
“Spin-Off Plan” is defined in
“Summary — The Spin-Off Plan”.
“Spin-Off Plan Outside Date” is defined in
“The Spin-Off Plan — OTH Spin-Off
Plan”.
“Telenor” is defined in “Summary —
The Parties to the Transaction — VimpelCom”.
“Transaction” is defined in “Summary”.
“TWA” is defined in “Description of the
Business of Wind Telecom — The OTH Group —
The OTH Spin-Off Assets”.
“UBS” is defined in “Summary — The
Transaction — Reasons for the Transaction;
Recommendation of the VimpelCom Supervisory Board”.
“VimpelCom” is defined in “Notice to
Shareholders in the United States”.
“VimpelCom ADS” is defined in
“Summary — The Parties to the
Transaction — VimpelCom”.
“VimpelCom Exclusions” is defined in “The
Share Sale and Exchange Agreement —
Indemnification — Limitation on
Indemnification”.
“VimpelCom Minority Shareholders” is defined in
“Risk Factors — Risk Factors Relating to the
Transaction — If Telenor is successful in the
Arbitration Proceedings, it could lead to a significant dilution
to VimpelCom’s minority shareholders”.
“VimpelCom Shareholders Agreement” is defined in
“Risk Factors — Risk Factors Relating to the
Transaction — Telenor opposes the Transaction and has
challenged it”.
“VimpelCom Specific Indemnity” is defined in
“The Share Sale and Exchange Agreement —
Indemnification — Indemnification by
VimpelCom”.
“WAHF” is defined in “Summary — The
Parties to the Transaction — Wind Telecom”.
“WCSP1 Margin Loan” is defined in “The
Refinancing Plan — Financings by VimpelCom —
VimpelCom Financing Sources — Intercompany
Loans”.
“Weather II” is defined in “Summary”.
“Weather II Registration Rights Agreement” is
defined in “Summary — The Ancillary
Agreements”.
“Wind Hellas” is defined in
“Summary — The Transaction — General
Description”.
“Wind Hellas Group” is defined in
“Summary — The Transaction — General
Description”.
“Wind Hellas Indemnity” is defined in “The
Share Sale and Exchange Agreement —
Indemnification — Indemnification by Weather
II”.
“Wind Hellas Spin-Off” is defined in
“Summary — The Transaction — General
Description”.
“Wind Indemnity Exclusions” is defined in “The
Share Sale and Exchange Agreement —
Indemnification — Limitation on
Indemnification”.
“Wind Italy” is defined in
“Summary — The Parties to the
Transaction — Wind Telecom”.
67
“Wind Italy Group” is defined in “Description
of the Business of Wind Telecom”.
“Wind Italy Spin-Off” is defined in the “The
Refinancing Plan — Financings by XxxxxxXxx —
Sources and Uses of Funds”.
“Wind Mobile” is defined in “Description of
the Business of Wind Telecom — The OTH
Group — The OTH Group’s Business — Wind
Mobile — Canada”.
“Wind Italy Spin-Off Assets” is defined in
“The Spin-Off Plan — “Wind Italy Spin-Off
Plan”.
“Wind Separation Agreement” is defined in
“Summary — The Ancillary Agreements”.
“Wind Share Percentage” is defined in “The
Share Sale and Exchange Agreement — The Transaction
Consideration”.
“Wind Telecom” is defined in
“Summary”.
“Wind Telecom Investors” is defined in
“Summary — The Parties to the
Transaction — Wind Telecom”.
“Wind Telecom Minority Shareholders” is defined in
“Summary — The Parties to the
Transaction — Wind Telecom”.
“Wind Telecom Shareholders” is defined in
“Summary”.
“Wind Telecom Shares” is defined in
“Summary”.
“Wind Telecom Specific Indemnities” is defined in
“The Share Sale and Exchange Agreement —
Indemnification — Indemnification by Weather
II”.
“WIS” is defined in “Summary — The
Ancillary Agreements”.
“WIS Framework Agreement” is defined in
“Summary — The Ancillary Agreements”.
68
ANNEX A —
RISK FACTORS RELATING TO VIMPELCOM’S BUSINESS
In addition to information included in “Risk
Factors” and “Annex B — Risk Factors
Relating to the Wind Telecom Business” and the other
information included in this proxy statement, you should
carefully consider the following risks before making your voting
decision. The risks and uncertainties below are not the only
ones we face, but represent the risks that we believe are
material. However, there may be additional risks that we
currently consider not to be material or of which we are not
currently aware and these risks could materially adversely
affect our business, financial condition, results of operations
and business prospects.
For purposes of describing the risks to OJSC VimpelCom and
Kyivstar and the risks to the combined VimpelCom group, in this
section only, unless the context otherwise requires,
“we” and “our” refer collectively to
VimpelCom, OJSC VimpelCom, Kyivstar and each of their respective
subsidiaries.
Risks
Related to Our Business
Covenants
in our debt agreements could impair our liquidity and our
ability to expand or finance our future
operations.
Agreements under which we borrow funds contain a number of
different covenants that impose on us certain operating and
financial restrictions. Some of these covenants relate to the
financial performance of our company, such as the level of
earnings, debt, assets and shareholders’ equity. Other
covenants limit the ability of, and in some cases prohibit,
among other things, our company and certain of our subsidiaries
from incurring additional indebtedness, creating liens on
assets, entering into business combinations or engaging in
certain activities with companies within our group. A failure
to comply with these covenants would constitute a default under
these relevant agreements and could trigger cross payment
default/cross acceleration provisions under some or all of these
agreements discussed above. In the event of such a default, the
debtor’s obligations under one or more of these agreements
could, under certain circumstances, become immediately due and
payable, which could have a material adverse effect on our
business, our liquidity and our shareholders’ equity.
We may
not be able to raise additional capital.
The actual amount of debt financing that we will need to raise
will be influenced by the actual pace of subscriber growth and
growth in usage over the period, capital expenditures, our
acquisition plans and our ability to continue to generate
sufficient amounts of revenue and ARPU (average revenue per
user) growth. If we incur additional indebtedness, the related
risks that we now face could increase. Specifically, we may not
be able to generate enough cash to pay the principal, interest
and other amounts due under our indebtedness. Due to a variety
of factors, including a significant tightening in credit
standards, deterioration in the availability of financing, or
significant rise in interest rates in Russia, the United States
or the European Union, we may not be able to borrow money within
the local or international capital markets on acceptable terms
or at all. As a result, we may be unable to make desired
capital expenditures, take advantage of investment
opportunities, refinance existing indebtedness or meet
unexpected financial requirements, and our growth strategy and
liquidity may be negatively affected. This could cause us to be
unable to repay indebtedness as it comes due, to delay or
abandon anticipated expenditures and investments or otherwise
limit operations, which could materially adversely affect our
business, financial condition, results of operations and
business prospects.
Our
debts denominated in foreign currencies expose us to foreign
exchange loss and convertibility risks.
We have introduced Russian xxxxx denominated mobile and
fixed-line tariff plans throughout our license areas in Russia
and we denominate tariffs in local currencies in most of our
geographic areas of operation. As we continue to have U.S.
dollar-and Euro-denominated debts and continue to buy our
telecommunications equipment in foreign currencies, we are
exposed to higher foreign exchange loss risks related to the
varying exchange rate of the Russian xxxxx and local currencies
against the U.S. dollar or Euro. Unless properly hedged, these
risks could have a material adverse effect on our business,
financial condition and results of operations. There can be no
assurance that we will be able to effectively hedge currency
fluctuations due to the cost or availability of hedging
instruments. Also, the imposition of exchange controls or other
similar restrictions on currency convertibility in our
A-1
geographic areas of operation could limit our ability to convert
currencies in a timely manner or at all, which could have a
material adverse effect on our business, financial condition and
results of operations.
Fluctuations
in the value of the Russian xxxxx, the Ukrainian hryvnia and CIS
currencies against the U.S. dollar, as well as our ability to
convert our revenues, could materially adversely affect our
business, financial condition and results of
operations.
A significant amount of our costs, expenditures and liabilities
are denominated in U.S. dollars, including capital expenditures
and borrowings. In Russia, we are required to collect revenues
from our subscribers and from other Russian telecommunications
operators for interconnect charges in Russian rubles, and there
may be limits on our ability to convert these Russian rubles
into foreign currency. We hold part of our readily available
cash in U.S. dollars and Euros in order to manage against
the risk of Russian xxxxx and Ukrainian hryvnia devaluation.
Even though we have entered into forward and option agreements
to hedge some of our financial obligations, if the
U.S. dollar value of the Russian xxxxx or the Ukranian
hryvnia were to dramatically decline, we could have difficulty
repaying or refinancing our foreign currency denominated
indebtedness. Significant changes in the Russian xxxxx or the
Ukranian hryvnia to the value of the U.S. dollar or the
Euro, unless effectively hedged, could result in significant
variability in our earnings and cash flows. There can be no
assurance that we will be able to effectively hedge currency
fluctuations due to the cost or availability of hedging
instruments. An increase in the Russian xxxxx value or the
Ukranian hryvnia value of the U.S. dollar could, unless
effectively hedged, result in a net foreign exchange loss due to
an increase in the Russian xxxxx or the Ukranian hryvnia value
of our U.S. dollar denominated liabilities. In turn, our
net income could decrease. Accordingly, fluctuations in the
value of the Russian xxxxx or the Ukranian hryvnia against the
U.S. dollar could materially adversely affect our business,
financial condition and results of operations.
In Kazakhstan, our costs, expenditures and current liabilities
are denominated in the Kazakh tenge. Although our tariffs are
also denominated in the Kazakh tenge, our subsidiary KaR-Tel has
long-term financial liabilities denominated in the
U.S. dollar. If the U.S. dollar value of the Kazakh
tenge declines, we could have difficulty repaying or refinancing
our foreign currency denominated indebtedness, which could have
a material adverse effect on our business, financial condition
and results of operations. Also, the imposition of exchange
controls or other similar restrictions on currency
convertibility in Kazakhstan, Ukraine, Uzbekistan and other CIS
countries could limit our ability to convert currencies in a
timely and profitable manner, which could adversely affect our
business, financial condition and results of operations.
The
international economic environment could have a material adverse
affect on our business.
In late 2008, the economies of Russia and all other markets in
which we operate were adversely affected by the international
economic crisis. Among other things, the crisis led to a
slowdown in gross domestic product growth, devaluations of the
currencies in Russia and the other markets in which we operate
and a decrease in commodity prices. Although economic
conditions have improved, the timing of a return to sustained
economic growth and consistently positive economic trends is
difficult to predict. In addition, because Russia and
Kazakhstan, currently our two largest markets, produce and
export large amounts of oil, their economies are particularly
vulnerable to fluctuations in the price of oil on the world
market and those fluctuations can adversely affect such
economies. The current difficult economic environment and any
future downturns in the economies of Russia and the other
markets in which we operate or may operate in the future could
diminish demand for our services, constrain our ability to
retain existing subscribers and collect payments from them and
prevent us from executing our growth strategy. Adverse economic
conditions could also hurt our liquidity and prevent us from
obtaining financing needed to fund our development strategy,
which could have a material adverse effect on our business,
financial condition and results of operations.
The
interests of our two largest shareholders may conflict with our
commercial interests and the interests of our ADS
holders.
Our two largest shareholders, Telenor and Altimo, and their
respective affiliates, beneficially own, in the aggregate, more
than 75.0% of VimpelCom’s outstanding voting shares. As a
result, these shareholders, if acting together, may have the
ability to determine the outcome of matters submitted to
VimpelCom’s shareholders for
A-2
approval, including the acquisition of assets by us. In
addition, these shareholders have entered into the VimpelCom
Shareholders Agreement, which gives them the ability to
influence our management and affairs by giving each of them the
right to nominate one candidate to our five-person board of
directors. The VimpelCom Shareholders Agreement also includes a
voting arrangement that determines the composition of
XxxxxxXxx’s supervisory board and grants each of Telenor
and Xxxxxx the right to appoint three of the nine members of the
VimpelCom supervisory board and to jointly appoint the remaining
three members of the VimpelCom supervisory board. Under the
VimpelCom group’s corporate governance structure,
significant corporate action requires the prior approval of the
VimpelCom supervisory board. Acting jointly, the nominees of
Telenor and Xxxxxx to the VimpelCom supervisory board could,
cause VimpelCom to take corporate actions or block corporate
decisions by VimpelCom, including with respect to its capital
structure, financings and acquisitions, which may not be in the
best interest of minority shareholders of VimpelCom.
If the Wind Transaction were to close, it is intended that
shares issued to shareholders of Wind Telecom would represent a
20.0% economic interest and a 30.6% voting interest in the
enlarged VimpelCom group. These additional shareholders may
have interests that are different from and conflict with our
commercial interests, the interests of our existing strategic
shareholders or minority shareholders of VimpelCom.
Our
strategic shareholders may pursue different development
strategies from us and from one another in Russia, Ukraine, the
CIS or other regions, which may hinder our company’s
ability to expand and/or compete in such regions and may lead to
a deterioration in the relationship between our two strategic
shareholders.
In 2003, Alfa Group, one of our strategic shareholders, acquired
a stake in Open Joint Stock Company “MegaFon”
(“Megafon”) one of our main
competitors. At the time, Alfa Group confirmed that following
its acquisition of a stake in MegaFon, our company continues to
be its primary investment vehicle in the Russian
telecommunications industry. If Alfa Group’s investment
focus shifts in favor of MegaFon, our company may be deprived of
the important benefits and resources that it derives from Alfa
Group’s current telecommunications investment policy.
Additionally, a shift in Alfa Group’s focus in favor of
MegaFon may hinder our activities and operations and may prevent
our further expansion.
In the past, Telenor and Alfa Group have had different
strategies from us and from one another in pursuing development
in the CIS or other regions outside of the CIS. For example,
prior to the VimpelCom Transaction, an affiliate of Telenor and
a member of the Alfa Group of companies reportedly owned 56.5%
and 43.5%, respectively, of Kyivstar. According to XxxxxxXxx
and public reports, companies in the Telenor group and the Alfa
Group historically were involved in various disputes and
litigations regarding their ownership of and control over
Kyivstar. We cannot assure you that we, the Telenor group and
the Alfa Group will not choose to pursue different strategies,
including in markets or countries where the Telenor group
and/or the
Alfa Group have a presence. Furthermore, if and to the extent
that VimpelCom’s strategic shareholders have different
expansion strategies, it could lead to a deterioration in their
relationship which could have a material adverse effect on our
business, financial condition, results of operations and
business prospects. The VimpelCom Shareholders Agreement limits
our ability to enter a market or country in which either the
Telenor group or the Alfa Group already has an interest or an
investment. As a result, we may be prevented from expanding our
operations into new countries where one or both of
VimpelCom’s strategic shareholders have existing operations
or investments on favorable terms or at all.
We may
not realize the anticipated benefits from acquisitions and we
may assume unexpected or unforeseen liabilities and obligations
or incur greater than expected liabilities in connection with
acquisitions.
The actual outcome of our acquisitions and their effect on our
company and the results of our operations may differ materially
from our expectations as a result of the following factors,
among others:
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past and future compliance with the terms of the
telecommunications license and permissions of the acquired
companies, their ability to get additional frequencies and their
past and future compliance with applicable laws, rules and
regulations (including, without limitation, tax and customs
legislation);
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A-3
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unexpected or unforeseen liabilities or obligations or greater
than expected liabilities incurred prior to or after the
acquisition, including tax, customs, indebtedness and other
liabilities;
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the acquired company’s inability to comply with the terms
of its debt and other contractual obligations;
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the acquired company’s ability to obtain or maintain
favorable interconnect terms;
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our inability to extract anticipated synergies or to integrate
an acquired business into our group in a timely and
cost-effective manner;
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changes to the incumbent management personnel of our acquired
companies or the possible deterioration of relationships with
employees and customers as a result of integration;
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exposure to foreign exchange risks that are difficult or
expensive to hedge;
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the acquired company’s inability to protect its trademarks
and intellectual property and to register trademarks and other
intellectual property used by such company in the past;
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developments in competition within each jurisdiction, including
the entry of new competitors or an increase in aggressive
competitive measures by our competitors;
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governmental regulation of the relevant industry in each
jurisdiction, ambiguity in regulation and changing treatment of
certain license conditions;
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political economic, social, legal and regulatory developments
and uncertainties in each jurisdiction; and
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claims by third parties challenging our ownership or otherwise.
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Our company may still pursue a strategy that includes additional
expansion. Any future acquisitions or investments could be
significant and in any case could involve risks inherent in
assessing the value, strengths and weaknesses of such
opportunities, particularly if we are unable to conduct thorough
due diligence prior to the acquisition. Such acquisitions or
investments may divert our resources and management time. We
cannot assure you that any acquisition or investment could be
made in a timely manner or on terms and conditions acceptable to
us.
On September 16, 2009, we signed an agreement for the
acquisition of a 78.0% stake in Millicom Lao Co., Ltd., a mobile
telecommunications operator with operations in the Lao PDR, from
Millicom Holding B.V. (Netherlands)
(“Millicom”) and Cameroon Holdings B.V.
(Netherlands). The transaction has not yet been closed by us
due to the absence of an endorsement from the Lao government.
On March 31, 2010, Xxxxxxxx notified us that we had not
completed the agreement to acquire Xxxxxxxx’s 74.1% holding
in Millicom Lao Co. Ltd. despite all conditions precedent having
been met. On April 16, 2010, we responded to this letter
explaining that we are attempting to resolve outstanding matters
with the Lao government. On May 11, 2010, Xxxxxxxx sent us
another letter saying that although they are prepared to
continue discussions, they reserve their rights under the terms
of the agreement, including the right to commence legal
proceedings in relation to our breaches of obligations under the
agreement. We continue to seek the endorsement of the Lao
government, however, there is no assurance that we will receive
the endorsement and complete the transaction. If we do not
complete the transaction, Millicom may bring an action against
us.
A
deterioration in macroeconomic conditions could require us to
write down goodwill on certain of our reporting
units.
When we purchase a company, we record the difference between the
fair value of the assets and the purchase price as goodwill.
This goodwill is subject to impairment tests on an ongoing
basis. OJSC VimpelCom had goodwill impairment charges of
US$315.0 million in our fixed operations in Russia and
US$53.8 million in our Ukrainian mobile operations in
2008. A deterioration in macroeconomic conditions in the
countries in which we operate
and/or a
significant difference between the performance of an acquired
company and the business case assumed at the time of acquisition
could require us to further write down the value of the
goodwill. A write down in goodwill could impact the covenants
under our debt agreements and could lead to a material adverse
effect on our business, financial condition and results of
operations.
A-4
Our
revenues are often unpredictable and our revenue sources are
short-term in nature.
Future revenues from our prepaid mobile subscribers, our primary
source of revenues, and our contract mobile subscribers are
unpredictable. We do not require our prepaid mobile subscribers
to enter into long-term service contracts and cannot be certain
that they will continue to use our services in the future. We
require our contract mobile subscribers to enter into service
contracts; however, many of these service contracts can be
cancelled by the subscriber with limited advance notice and
without significant penalty. Our churn rate fluctuates
significantly and is difficult to predict. Our churn rate
(based on active subscribers) was 36.6% for the nine months
ended September 30, 2010 and 45.8% and 38.2% in 2009 and
2008, respectively. Consumption of mobile telephone services is
driven by the level of consumer discretionary income.
Deterioration in the economic situation could cause subscribers
to have less discretionary income, thus affecting their spending
on our services. The loss of a larger number of subscribers
than anticipated could result in a loss of a significant amount
of expected revenues. Because we incur costs based on our
expectations of future revenues, our failure to accurately
predict revenues could adversely affect our business, financial
condition, results of operations and business prospects.
We
could be subject to tax claims that could have a material
adverse effect on our business.
Tax audits in Russia, Ukraine and in the other countries in
which we operate are conducted regularly. We have been subject
to substantial claims by the Russian and Ukrainian tax
inspectorates with respect to other tax years for which we have
been audited in the past. These claims have resulted in
additional payments, including fines and penalties, by our
company to the tax authorities. We have challenged and are
currently challenging certain claims by the Russian tax
inspectorate in court. A tax audit is currently being conducted
with respect to OJSC VimpelCom’s 2007 and 2008 Russian tax
filings. On December 9, 2010 Kazakh tax authorities
completed a tax audit of KaR-Tel for its tax filings from 2005
to 2009 and ordered OJSC VimpelCom to pay a penalty of
US$7.3 million. OJSC VimpelCom did not challenge the order
and paid the penalty in its entirety.
Although we are permitted to challenge in court the decisions of
tax inspectorates, there can be no assurance that we will
prevail in our litigation with tax inspectorates. In addition,
there can be no assurance that the tax authorities will not
claim on the basis of the same asserted tax principles they have
claimed against us for prior tax years or different tax
principles that additional taxes are owed by our company for
prior or future tax years or that the relevant governmental
authorities will not decide to initiate a criminal investigation
in connection with claims by tax inspectorates for prior tax
years. The adverse resolution of these or other tax matters
that may arise could have a material adverse effect on our
business, financial condition and results of operations.
Our
competitors may receive preferential treatment from the
regulatory authorities and benefit from the resources of their
shareholders, potentially giving them a substantial competitive
advantage over us.
Our competitors, including Mobile TeleSystems OJSC, or MTS,
MegaFon, Telecommunication Investment Joint Stock Company
Svyazinvest (“Svyazinvest”), Ukrtelecom,
Astelit, GSM Kazakhstan and others, may receive preferential
treatment from the regulatory authorities and benefit from the
resources of their shareholders, potentially giving them a
substantial competitive advantage over us. Additionally,
current or future relationships among our competitors and third
parties may restrict our access to critical systems and
resources. New competitors or alliances among competitors could
rapidly acquire significant market share. We cannot assure you
that we will be able to forge similar relationships or
successfully compete against them.
Recent press reports indicate that the Russian government is
planning to reorganize Svyazinvest, the state-controlled
telecommunications company, and create a fourth federal mobile
communications operator. If this plan is successfully realized,
the newly organized company may receive preferential treatment
from the regulatory authorities in licensing, frequency
allocation, tariff regulation, access to existing
infrastructure, and the regulatory regime, among others, and may
receive favorable pricing terms for interconnection from
state-controlled regional fixed line operators.
Increased
competition and a more diverse subscriber base in our mobile
business may have a material adverse effect on our results of
operations, including revenues.
We cannot assure you that our revenue will grow in the future,
as mobile subscriber growth rates slow and competition puts
pressure on prices. Nevertheless, our business strategy
contemplates revenue growth and we are
A-5
expending significant resources to increase our revenues,
particularly by building a 3G networks and by marketing new
products and value added services to both our existing
subscribers and new corporate and business subscribers. If we
are unsuccessful in our marketing campaigns or the services we
introduce are not well received by consumers, or in the event of
any delays in developing our 3G networks, we will not generate
the revenue anticipated and our ARPU may decline, which may
materially adversely affect our business, financial condition
and results of operations.
In addition, as the subscriber penetration rates increase and
the markets in which we operate mature, mobile services
providers, including our company, may be forced to utilize more
aggressive marketing schemes to retain existing subscribers and
attract new ones. If this were to occur, our company may choose
to adopt lower tariffs, offer handset subsidies or increase
dealer commissions, any or all of which could materially
adversely affect our business, financial condition and results
of operations.
If we
are unable to maintain our favorable brand image, we may be
unable to attract new subscribers and retain existing
subscribers, leading to loss of market share and
revenues.
We have expended significant time and resources building our
“Beeline” brand image. Our ability to attract new
subscribers and retain existing subscribers depends in part on
our ability to maintain what we believe to be our favorable
brand image. Negative rumors or various claims by Russian or
foreign governmental authorities, individual subscribers and
third parties against our company could materially adversely
affect this brand image. In addition, consumer preferences
change and our failure to anticipate, identify or react to these
changes by providing attractive services at competitive prices
could negatively affect our market share. We cannot assure you
that we will continue to maintain a favorable brand image in the
future. Any loss of market share resulting from any or all of
these factors could negatively affect our business, financial
condition and results of operations.
If we
cannot attract, train, retain and motivate qualified personnel,
then we may be unable to successfully manage our business or
otherwise compete effectively in the telecommunications
industry, which could have a material adverse effect on our
business.
To successfully manage our business, we depend in large part
upon our ability to attract, train, retain and motivate highly
skilled employees and management. There is significant
competition for such employees, particularly during economic
downturns such as the one we recently experienced. We may lose
some of our most talented personnel to our competitors. If we
cannot attract, train, retain and motivate qualified personnel,
then we may be unable to successfully manage our business or
otherwise compete effectively in the telecommunications
industry, which could have a material adverse effect on our
business, financial condition, results of operations and
business prospects.
We may
not be able to recover, or realize the value of, the debt
investments that we make in our subsidiaries.
We lend funds to, and make further debt investments in, one or
more of our subsidiaries under intercompany loan agreements and
other types of contractual agreements. Certain of our
subsidiaries are also parties to third-party financing
arrangements that restrict our ability to recover our
investments in these subsidiaries through the repayment of loans
or dividends. The restrictions on our subsidiaries to repay
debt may make it difficult for us to meet our debt service
obligations, which may adversely affect our business, financial
condition, results of operations and business prospects.
On January 10, 2005, KaR-Tel received an “order to
pay” issued by the Savings Deposit Insurance Fund (the
“Fund”), a Turkish state agency
responsible for collecting state claims arising from bank
insolvencies, in the amount of approximately US$5.0 billion
(stated as approximately Turkish Lira 7.6 quadrillion and issued
prior to
A-6
the introduction of the New Turkish Lira, which became effective
as of January 1, 2005). Our company believes that the
order to pay is without merit. We challenged it in the
Administrative Court of Istanbul, which, on October 25,
2010, ruled in our favor and cancelled the order to pay.
However, the Fund has appealed the ruling and there can be no
assurance that the ruling will not be overturned, that KaR-Tel
will ultimately prevail in its petition for the cancellation of
the order to pay or that we will not be subject to protracted
litigation with the Fund or others. The adverse resolution of
this matter and any other matter that may arise in connection
with the order to pay issued by the Fund or any other claims
made by the Fund or the former shareholders of KaR-Tel, could
have a material adverse effect on our business, financial
condition and results of operations, including an event of
default under some or all of our outstanding indebtedness.
We may
be subject to claims in connection with Sky
Mobile.
On February 13, 2008, we advanced to Xxxxxxx Investments
Limited, or Xxxxxxx, a loan in the principal amount of
US$350.0 million. Xxxxxxx owns 25.0% of KaR-Tel’s
parent company, Limnotex Developments Limited
(“Limnotex”), while VimpelCom owns the
remaining 75.0%. The loan agreement was entered into after
Xxxxxxx acquired the entire issued share capital of the parent
company of Limited Liability Company Sky Mobile (“Sky
Mobile”), a mobile operator in Kyrgyzstan. In
connection with the loan, Xxxxxxx granted our company two call
options over the entire issued share capital of Sky
Mobile’s parent company. In March 2008, KaR-Tel and Sky
Mobile entered into a management agreement pursuant to which
KaR-Tel agreed to assist in operation and management of Sky
Mobile’s mobile network and, on an exclusive basis, with
provision of products and services in Kyrgyzstan. On
May 15, 2009, VimpelCom and Sky Mobile also entered into a
trademark license agreement for the non-exclusive use of the
“Beeline” brand by Sky Mobile. In October 2010, our
company acquired 50.0% plus one share of the share capital of
Menacrest Limited, the parent company of Sky Mobile, from
Xxxxxxx in exchange for a set-off of a portion of our loan to
Xxxxxxx. At the same time, the KaR-Tel management agreement
with Sky Mobile was terminated.
Since November 2006, Xxxxxxxxx Xxxxxxxx, OJSC VimpelCom’s
Chief Executive Officer at the time, and directors of our
company have received several letters from MTS and its
representatives asserting that Sky Mobile’s business and
its assets were misappropriated from Bitel, an MTS affiliate,
and demanding that we not purchase Sky Mobile, directly or
indirectly, or participate or assist in the sale of Sky Mobile
to any other entities. These letters have suggested that MTS
will take any and all legal action necessary against our company
in order to protect MTS’s interest in Bitel and
Bitel’s assets, including Bitel’s alleged interests in
certain of Sky Mobile’s assets. There can be no assurance
that MTS or any other party will not bring an action against our
company and KaR-Tel in connection with Sky Mobile or, if so
brought, that we will prevail in any such lawsuit. The adverse
resolution of any matter that may arise in connection with Sky
Mobile could have a material adverse effect on our company, its
business, its expansion strategy and its financial results. Sky
Mobile is also a defendant in litigation in the Isle of Man.
Our
licenses may be suspended or revoked and we may be fined or
penalized for alleged violations of law or
regulations.
We are required to meet certain terms and conditions under our
licenses, including meeting certain conditions established by
the legislation regulating the communications industry. If we
fail to comply with the conditions of our licenses or with the
requirements established by the legislation regulating the
communications industry, or if we do not obtain permits for the
operation of our equipment, use of frequencies or additional
licenses for broadcasting directly or through agreements with
broadcasting companies, we anticipate that we would have an
opportunity to cure any non-compliance. However, we cannot
assure you that we will receive a grace period, and we cannot
assure you that any grace afforded to us would be sufficient to
allow us to cure any remaining non-compliance. In the event
that we do not cure any remaining non-compliance, the applicable
regulator could decide to suspend and seek termination of the
license. The occurrence of any of these events could materially
adversely affect our ability to build out our networks in
accordance with our plans and could harm our reputation.
If we fail to fulfill the specific terms of any of our licenses,
frequency permissions or other governmental permissions or if we
provide services in a manner that violates applicable
legislation, government regulators may levy fines, suspend or
terminate our licenses, frequency permissions, or other
governmental permissions or refuse to renew licenses that are up
for renewal. A suspension and the subsequent termination of GSM
licenses, 3G license,
A-7
long distance and international services license or refusal to
renew our licenses could materially adversely affect our
business, financial condition and results of operations.
If the
licenses, frequencies and permissions previously held by
companies merged into OJSC VimpelCom are not re-issued to OJSC
VimpelCom, or are not re-issued to VimpelCom in a timely and
complete manner, our business may be materially adversely
affected.
On November 24, 2010, we completed the mergers of eleven of
our subsidiaries, including EDN Sovintel
(“Sovintel”) and Closed Joint Stock
Company Cortec (“Corbina Telecom”) into
OJSC VimpelCom. Following the completion of the mergers of
these companies (the “Merged
Companies”), on December 21, 2010, we filed
applications with the relevant authorities within the time
period established by the relevant authorities to re-issue to us
the licenses, frequencies, numbering resources and permissions
that were previously held by the Merged Companies. We expect to
receive decisions on our applications in the first quarter of
2011. There can be no assurance that the licenses previously
held by the Merged Companies will be re-issued to us in a timely
manner or on the same terms and conditions as the existing
licenses or at all, or that our right to continue to provide
service to subscribers in the Merged Companies’ licensed
areas prior to the re-issuance of the licenses will not be
challenged or revoked or that others will not assert that the
Merged Companies’ licenses have ceased to be effective.
There is also a risk that the frequencies, numbering resources
and permissions previously held by the Merged Companies will not
be re-issued to us on the same terms as the existing
frequencies, numbering resources and permissions or at all. If
any of these situations occur, they could have a material
adverse effect on our business and results of operations,
including causing us to cease providing the services covered by
the licenses previously held by the Merged Companies or causing
us not to be able to provide all of the same services currently
provided under these licenses or on the same terms and
conditions
and/or
resulting in an event of default under the majority of our
outstanding indebtedness since a number of our loan agreements
require us to maintain material mobile licenses necessary to
carry on our business.
Our
licenses are granted for specified periods and they may not be
extended or replaced upon expiration.
Most of our licenses are granted for specified terms, and we can
give you no assurance that any license will be renewed upon
expiration. Our super-regional GSM licenses in Russia will
expire in 2012 and 2013, our territorial GSM licenses in Russia
will expire in various years from 2011 to 2015, Kyivstar’s
main GSM 900/1800 license will expire in 2011 and our mobile
licenses in the CIS will expire in various years from 2013 to
2021. Our 3G license in Russia will expire in 2017. Most of
our fixed telecommunications licenses expire in various years
from 2011 to 2015. If renewed, our licenses may contain
additional obligations, including payment obligations, or may
cover reduced service areas or scope of service.
As a rule, the expiration date of frequency permissions for most
of our mobile communications and radio-relay line base stations
exceeds the validity period of communications service licenses.
We cannot predict whether we will be able to obtain extensions
of our frequency permissions and whether these extensions will
be formalized and granted by the regulatory agency in a timely
manner and without any significant additional costs. It is
possible that upon expiration of frequency permissions the
frequency bands currently in use by us will be wholly or partly
re-allocated in favor of other communications technologies
and/or other
communications operators, requiring that we coordinate the use
of our frequencies with the other license holders
and/or
experience a loss of quality in our network. If our licenses
for provision of telecommunications services or frequency
allocations are not renewed, our business could be materially
adversely affected.
We
face uncertainty regarding payments for frequency allocations
under the terms of some of our licenses.
The terms of our licenses require that we make payments for
frequency spectrum usage. Any significant increase in the fees
payable for the frequencies that we use or for additional
frequencies that we need could have a negative effect on our
financial results.
At present we make payments for radio-frequency spectrum use
under decrees of the Russian federal government. As a whole,
the fees for all available frequency assignments have been
significant. At the same
A-8
time, today’s system of payment for radio-frequency
spectrum use is not in line with the Russian federal
telecommunications law and we expect that this payment system
will be changed eventually. As a result, we cannot assure you
that the fees we pay for radio-frequency spectrum use will not
increase, and such an increase could negatively affect our
financial results.
Our
ability to provide telecommunications services would be severely
hampered if our access to local and long distance line capacity
was limited or if the commercial terms of our interconnect
agreements were significantly altered.
Our ability to secure and maintain interconnect agreements with
other wireless and local, domestic and international fixed-line
operators on cost-effective terms is critical to the economic
viability of our operations. Interconnection is required to
complete calls that originate on our respective networks but
terminate outside of our respective networks, or that originate
from outside our networks and terminate on our respective
networks. A significant increase in our interconnect costs as a
result of new regulations or commercial decisions by other
fixed-line operators or a lack of available line capacity for
interconnection could have a material adverse effect on our
ability to provide services. We also cannot exclude the
possibility of further increase of interconnect costs in case of
increase of the inflation rate in our countries of operation.
We have experienced difficulties with maintaining efficient
interconnection relationships with other telecommunications
operators. For example, as a result of a dispute over the
interconnection fee arrangement between Kyivstar and OJSC
Ukrtelecom, a Ukrainian fixed-line operator controlled by the
Ukrainian government, Kyivstar’s interconnection agreement
with Ukrtelecom was terminated by a court order with effect from
January 1, 2009. However, despite the court’s order,
Kyivstar and Ukrtelecom’s networks were not disconnected,
enabling their customers to continue using interconnection
services. On December 2, 2009, Kyivstar and Ukrtelecom
settled the dispute by entering into a new interconnection
agreement, pursuant to which the parties agreed to a new
interconnection arrangement for 2009 and 2010.
We
face uncertainty regarding our frequency allocations, equipment
permits and network registration, and we may experience limited
spectrum capacity for providing wireless services.
To establish and commercially launch a mobile telecommunications
network, we are required to receive, among other things,
frequency allocations for bandwidths within the frequency
spectrums in the regions in which we operate. There are a
limited number of frequencies available for mobile operators in
each of the regions in which we operate or hold licenses to
operate. We are dependent on access to adequate frequency
allocation in each such market in order to maintain and expand
our subscriber base. If frequencies are not allocated to us in
the future in the quantities, with the geographic span and for
time periods that would allow us to provide mobile services on a
commercially feasible basis throughout all of our license areas,
our business, financial condition, results of operations and
prospects may be materially adversely affected. In addition, a
failure to make payments for frequency allocations could result
in the suspension of our frequency allocations. A loss of
allocated frequency that is not replaced by other adequate
allocations also could have a substantial adverse impact on our
network capacity and our ability to provide mobile services. In
addition, frequency allocations may be issued for periods that
are shorter than the terms of our licenses, and such allocations
may not be renewed in a timely manner or at all. If our
frequencies are revoked or we are unable to renew our frequency
allocations, our network capacity and our ability to provide
mobile services would be constrained and our ability to expand
would be limited, which could have a material adverse effect on
our business, financial conditions and results of operations.
We have in the past been unable to obtain frequency allocations
necessary to test or expand our networks in Russia. For
example, our applications for GSM-900 frequencies in five
regions within the Urals super-region and eight regions in the
Northwest super-region were denied. Further, we were denied a
grant of GSM-900, GSM-1800 frequencies in the Far East
super-region and
E-GSM
frequencies throughout all of Russia by Russia’s State
Radio Frequency Commission, or the SRFC. Although our company
received frequencies in three regions within the Far East
super-region through tenders conducted in 2007, our company was
denied frequencies for eight other regions within the Far East
super-region. The Russian Federal Antimonopoly Service, or FAS,
has declared that the terms of these tenders violated Russian
anti-monopoly law and, together with our company, filed a
lawsuit challenging the results of the tenders. In the fall of
2009, the Russian courts decided to cancel certain licenses
granted in the Far East
A-9
super-region which had been obtained through the tenders
conducted in 2007, including the licenses granted to us in three
regions.
In addition, we may encounter difficulties in building our
networks or we may face other factors beyond our control that
could affect our ability to begin operating our networks,
decrease the quality of our services, increase the cost of
construction or operation of our networks or delay the
introduction of services. As a result, we could experience
difficulty in increasing our subscriber base or could fail to
meet license requirements, either of which may have a material
adverse effect on our business.
The laws of Russia, Ukraine and the CIS prohibit the operation
of telecommunications equipment without a relevant permit from
the appropriate regulatory body. It is frequently not possible
for us to procure all of the permissions and registrations for
each of our base stations, including registration of our title
to land plots underlying our base stations and constructions
permits, or other aspects of our network before we put the base
stations into operation or to amend or maintain all of the
permissions when it is necessary to change the location or
technical specifications of our base stations. At times, there
can be a number of base stations or other communications
facilities and other aspects of our networks for which we do not
have final permission to operate. This problem may be
exacerbated if there are delays in issuing necessary permits.
We also regularly receive notices from Russian, Ukrainian and
CIS regulatory authorities warning us that we are not in
compliance with aspects of our licenses and permits and
requiring us to cure the violations within a certain time
period. We have closed base stations on several occasions in
order to comply with regulations and notices from regulatory
authorities. Any failure by our company to cure such violations
could result in the applicable license being suspended and
subsequently revoked through court action. Although we
generally take all necessary steps to comply with any license
violations within the stated time periods by switching off base
stations that do not have all necessary permits until such
permits are obtained, we cannot assure you that our licenses
will not be suspended and subsequently revoked in the future.
If we are found to operate telecommunications equipment without
an applicable permit, we could experience a significant
disruption in our service or network operation and this would
have a material adverse effect on our business, financial
condition and results of operations.
It may
be more difficult for us to attract new mobile subscribers than
it is for our competitors that established a local presence
prior to the time that our company did.
We do not possess a “first mover advantage” in most of
the geographic areas where we operate. In many cases, we have
been the second, third, or fourth mobile operator to enter a
particular market. As a result, it may be more difficult for
our company to attract new subscribers than it is for our
competitors (including MTS and MegaFon and their respective
affiliates in Russia, Ukraine and the CIS) that entered markets
and established a local presence in some cases years before we
did. The mobile markets outside Russia are significant to our
company, as the rate of subscriber growth in Russia has
significantly slowed as a result of oversaturation. In many of
these markets outside of Russia we entered the market when other
mobile operators were already well established. If we are not
successful in penetrating markets where we operate, our business
may be materially adversely affected.
We are
in competitive industries and we may face greater competition as
a result of market and regulatory developments.
The markets in which we operate are competitive in nature, and
we expect that competition, especially in the least developed
markets, will continue to increase. As we expand the scope of
our services, such as fixed-line residential and commercial
broadband services, we anticipate that we will encounter a
greater number of competitors who provide similar services.
Unfavorable competitive developments could have a material
adverse effect on our business. For example, during 2009,
Kyivstar experienced a reduction in revenue and lost
approximately 6.4% of its subscribers to lower cost, mass market
operators. While Kyivstar has been attempting to address these
issues with new tariff plans, such as the ‘djuice
Unlim’ and ‘djuice Unlim + Music’ plans, we
cannot assure you that such efforts will have a positive
result. In the event we fail to successfully address these
issues, our business, financial condition and results of
operations could be materially and adversely affected.
The issuance of additional telecommunications licenses or the
implementation of new technology in any of the license areas in
which we operate could greatly increase competition and threaten
our business. For example, in
A-10
2006, 2007 and 2008, our competitors, Tele2 and Sky Link, were
awarded GSM licenses in parts of Russia and the CIS. In
addition, in 2008 a third GSM license was issued in Kazakhstan,
and it was reported that Tele2 purchased an interest in the
company holding this license. This acquisition will result in
increased competition in the Kazakh market. An additional GSM
license has been issued in Armenia and France Telecom has
reportedly purchased an interest in the company holding this
license. Furthermore, the government of Armenia has recently
liberalized the fixed line market in Armenia, which will result
in increased competition. If competitors are able to operate
telecommunications networks that are more cost effective than
ours, then they may have competitive advantages over us, which
could harm our business.
Providers of traditional fixed-line telephone services and
mobile operators that have obtained fixed-line licenses may
compete more effectively with us. The fixed-line market has
historically been dominated by Svyazinvest in Russia,
Kazakhtelecom in Kazakhstan, Ukrtelecom in Ukraine, Uzbektelecom
in Uzbekistan and Tajiktelecom in Tajikistan, all former state
monopoly telecommunications services providers. These companies
and other established competitors, such as Rostelecom, have some
competitive advantages over our fixed-line operations, including:
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significant resources and greater market presence and network
coverage;
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brand name recognition, customer loyalty and xxxxxxxx;
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control over domestic transmission lines and over access to
these lines by other participants; and
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close ties to national and local regulatory authorities who may
be reluctant to adopt policies that would result in increased
competition for Svyazinvest, Uzbektelecom, Kazakhtelecom or
Ukrtelecom and other historically state-owned companies.
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On December 29, 2008, the Russian Ministry of
Communications and Mass Media adopted an order establishing the
requirements for Mobile Virtual Network Operators, or MVNOs, in
Russia. MVNOs are companies that provide mobile communications
services but do not own the radio frequencies and, often,
network infrastructure required to do so. According to the
order, MVNOs in Russia must be licensed, and their use of
frequencies and infrastructure and rendering of services will be
done pursuant to agreements entered into between MVNOs and
existing frequency holders. Competition from MVNOs may reduce
our subscriber market share and revenues and could have a
material adverse effect on our business, financial condition and
results of operations.
Our
failure to keep pace with technological changes and evolving
industry standards could harm our competitive position and, in
turn, materially adversely affect our business.
The telecommunications industry is characterized by rapidly
changing technology and evolving industry standards. We
experience new customer demand for more sophisticated
telecommunications and Internet services in Russia, Ukraine and
the CIS as well as for other new technologies such as Internet
Protocol (“IP”), telephony and Worldwide
Interoperability for Microwave Access. Accordingly, our future
success will depend, in part, on the adoption of a favorable
policy and regulation of standards utilizing these
technologies. Our success will also depend on our ability to
adapt to the changing technological landscape. However, the
rapid technological advances in the telecommunications industry
make it difficult to predict the extent of future competition.
It is possible that the technologies we utilize today will
become obsolete or subject to competition from new technologies
in the future for which we may be unable to obtain the
appropriate license.
We may not be able to meet all of these challenges in a timely
and cost-effective manner. In addition, we may not be able to
acquire licenses, which we may deem necessary to compete or we
may not be able to acquire such licenses on reasonable terms and
we may not be able to develop a strategy compatible with this or
any other new technology.
On April 20, 2007, the Russian Federal Communications
Agency announced the results of three tenders for awarding 3G
licenses and our company was awarded a license for the provision
of IMT-2000/UMTS 3G mobile radiotelephony communications
services for the entire territory of the Russian Federation.
The 3G license was granted subject to certain capital
commitments. The major conditions are that VimpelCom will have
to build a certain number of base stations that support 3G
standards and will have to start services provision by certain
dates in
A-11
each subject of the Russian Federation, and also will have to
build a certain number of base stations by the end of the third,
fourth and fifth years from the date of granting the license.
Part of the frequency spectra related to the 3G license are
currently used by other commercial and governmental entities and
our 3G network development will require those entities to vacate
those frequency spectra. Additionally, 3G network development
requires significant financial investments and there can be no
assurance that our company will be able to develop a 3G network
on commercially reasonable terms; that we will not experience
delays in developing our 3G network or that we will be able to
meet all of the license terms and conditions. If we experience
substantial problems with our 3G services, or if we fail to
introduce new services on a timely basis relative to our
competitors, it may impair the success of our 3G services,
delay or decrease revenues and profits and therefore may hinder
recovery of our significant capital investments in 3G services
as well as our growth.
We also expect to face future competition from networks that
provide faster, higher quality data transfer and streaming
capability than 2G and 3G networks. The Russian government
recently issued licenses for broadband wireless mobile access
services for 40 regions throughout Russia. Xxxxxxxxxxx won the
tender for 38 out of the 40 licenses. Increased competition
from the new networks could have a material adverse effect on
our business, financial condition and results of operations.
Failure
to obtain, or delay in obtaining a 3G telecommunications license
in Ukraine could place us at a competitive
disadvantage.
We have in the past been unable to obtain necessary frequency
allocations in order to launch telecommunications services in
Ukraine using 3G technologies. For example, Kyivstar’s
application for a radio frequency license within the
1.9-2.2 billion cycles per second (referred to as GHz)
frequency band, which it submitted together with an application
for a telecommunications license to provide 3G services in
Ukraine, was refused by the Ukrainian National Commission on
Regulation of Communication (the “NCRC”)
in 2006. Although Kyivstar challenged this refusal, the
Ukrainian courts considering the case dismissed all claims
brought by Kyivstar against the NCRC.
In September 2009, the NCRC made a decision to issue four 3G
licenses to Ukrainian telecommunications operators, in addition
to the 3G license awarded to Ukrtelecom in 2005. On
September 22, 2009, the NCRC announced its decision to hold
an auction for the first of these 3G licenses and, on
September 29, 2009, approved the auction conditions.
According to the auction conditions, these 3G licenses will be
auctioned one at a time. The winner of the first auction is
likely to have a time advantage of several months as compared to
its competitors. On November 27, 2009, the NCRC suspended
its plans to hold a tender to auction one 3G license.
Kyivstar’s failure to obtain a 3G license, as well as the
award of a 3G license to one of Kyivstar’s competitors
would increase the competition Kyivstar faces in the provision
of mobile services in Ukraine. If Kyivstar acquires a 3G
license later than its competitors or pays a significantly
higher price to obtain a 3G license than its competitors pay, it
could be subject to significant time delays to market and
increased costs in implementing its 3G network rollout. The
timing and terms of future 3G license auctions in Ukraine are
currently unclear.
Our
strategic partnerships and relationships to develop our business
are accompanied by inherent business risks.
We may enter into strategic partnerships and joint ventures with
other companies to develop our business and expand our
operations. For example, in July 2008, we entered into a joint
venture to provide mobile services in Vietnam. In October 2008,
we acquired a minority stake in Euroset, a mobile handset
retailer and dealer for major mobile network operators in
Russia. Euroset is an important sales partner and a
deterioration of our relationship with Euroset or its majority
shareholder or our inability to leverage our investment in
Euroset could have an adverse effect on our sales.
Emerging market strategic partnerships and joint ventures are
often accompanied by risks, including in relation to:
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partners will default in connection with their obligations;
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the possibility that a strategic or joint venture partner will
hinder development by blocking capital increases and other
decisions if that partner runs out of money, disagrees with our
views on developing the business, or loses interest in pursuing
the partnership or joint projects;
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risk inherent in the business of the partnership or joint
venture itself, such as funding and liquidity;
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diversion of resources and management time;
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potential joint and several or secondary liability for
transactions and liabilities of the partnership or joint venture
entity;
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the difficulty of maintaining uniform standards, controls,
procedures and policies; and
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the loss of a strategic or joint venture partner and the
associated benefits, such as insight into operating a business
in an economic, social and political environment that is
unfamiliar to us.
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We
cannot assure you that a market for our future services will
develop or that we can satisfy subscriber expectations, which
could result in a significant loss of our subscriber
base.
We currently offer our subscribers a number of value added
services, including voice mail, SMS, call forwarding, wireless
Internet access, IP telephony, known as VoIP, entertainment and
information services, music and data transmission services.
Despite investing significant resources in marketing, we may not
be successful in creating or competing in a market for these
value added services. We cannot assure you that subscribers
will continue to utilize the services we offer. If we fail to
obtain widespread commercial and public acceptance of our new
services, our visibility in the telecommunications markets in
Russia, Ukraine and the CIS could be jeopardized, which could
result in a significant loss of our subscriber base and have a
material adverse affect on our business, financial condition,
results of operations and business prospects.
Sustained
periods of high inflation may materially adversely affect our
business.
The countries in which we operate have experienced periods of
high levels of inflation since the early 1990s. In Russia,
inflation increased dramatically following the August 1998
financial crisis, reaching a rate of 84.4% in 1998. Inflationary
volatility and pressure on the Russian xxxxx remains
significant, as evidenced by the increase in the inflation rate
in 2007 to 11.9% and in 2008 to 13.3%. Although the inflation
rate decreased to 8.8% in 2009 and 6.2% in the first nine months
of 2010, it may increase again in the near future as a result of
challenging worldwide economic conditions. For 2009, 2008 and
2007, inflation rates in Ukraine were 12.3%, 22.3% and 16.6%,
respectively, in Kazakhstan were 6.2%, 9.5% and 18.8%,
respectively, in Uzbekistan were 7.4%, 7.8% and 6.8%,
respectively, in Armenia were 3.4%, 5.5% and 6.6%, respectively,
in Tajikistan were 5.0%, 11.8% and 19.7%, respectively, in
Georgia were 3.0%, 5.5% and 11.0%, respectively, and in Cambodia
were 5.3%, 19.7% and 4.7%, respectively.
Our profit margins could be adversely affected if we are unable
to sufficiently increase our prices to offset any significant
future increase in the inflation rate, which may become more
difficult as we attract more mass market subscribers and our
subscriber base becomes more price sensitive. Inflationary
pressure in Russia and the other CIS countries where we have
operations could materially adversely affect our business,
financial condition and results of operations.
We
could experience subscriber database piracy, which may
materially adversely affect our reputation, lead to subscriber
lawsuits, loss of subscribers or hinder our ability to gain new
subscribers and thereby materially adversely affect our
business.
We may be exposed to database piracy which could result in the
unauthorized dissemination of information about our subscribers,
including their names, addresses, home phone numbers, passport
details and individual tax numbers. The breach of security of
our database and illegal sale of our subscribers’ personal
information could materially adversely impact our reputation,
prompt lawsuits against us by individual and corporate
subscribers, lead to a loss in subscribers and hinder our
ability to attract new subscribers. In case of detection of
severe customer data security breaches, the regulatory authority
can sanction our company, and such sanction can include
suspension of
A-13
operations for some time period. These factors, individually or
in the aggregate, could have a material adverse affect on our
business, financial condition, results of operations and
business prospects.
We are
subject to anti-monopoly and consumer protection regulation in
Russia, Ukraine and the CIS, which could restrict our
business.
Anti-monopoly and consumer protection regulators in Russia,
Ukraine and the CIS have oversight over consumer affairs and
advertising. Some of our subsidiaries in the CIS have been
recognized as dominant entities on their respective national
markets. Regulatory measures taken in response to competition
violations may include inter alia the requirement to discontinue
certain activities, the imposition of fines, confiscation of
revenue derived from monopolistic activities, restrictions on
increase of tariffs, on acquisitions or on other activities,
such as contractual obligations.
We have been receiving notices from the Russian, Ukrainian and
other CIS anti-monopoly regulators and the consumer protection
regulators alleging violations of competition, dominant
position, consumer rights and advertising regulations. In
December 2009 and March 2010, the FAS commenced proceedings
against OJSC VimpelCom, MTS and MegaFon alleging violations of
the Russian Federal Law “On Protection of Competition”
relating to our pricing for interconnection and roaming
services. On November 23, 2010, the FAS issued its
decision that OJSC VimpelCom, MTS and MegaFon violated the
Russian Federal Law “On Protection of Competition”
with respect to pricing of roaming services and ordered that
OJSC VimpelCom to stop such violations. In addition,
OJSC VimpelCom may face fines of up to 15.0% of its roaming
revenues in 2009 and half of 2010. As a result, OJSC VimpelCom
has accrued a loss contingency in the Russian xxxxx equivalent
of approximately US$2.3 million (at the September 30,
2010 exchange rate). In May 2010, the FAS concluded that OJSC
VimpelCom’s traffic agreements in Moscow violated
anti-monopoly legislation. A hearing in the case was set for
January 19, 2011, but was postponed and as of the date of
this filing no date has been set. Although we believe that we
have not violated Russian law and have appealed the FAS
decision, if we are ultimately found to be in violation of law,
we could face fines of up to 15.0% of OJSC VimpelCom’s
revenues from the related services. If the fines do not exceed
1.0% of OJSC VimpelCom’s revenues from the related
services, it will lose the right to appeal.
The Kazakhstan Antimonopoly Agency (the
“KAA”) has recently initiated a number
of proceedings against KaR-Tel, our subsidiary in Kazakhstan,
and its competitors in relation to pricing and roaming
policies. In connection with one such proceeding, in November
2010 the KAA concluded that KaR-Tel and the other two Kazakhstan
GSM operators are liable for abuse of their dominant position on
the market by way of establishing monopolistically high roaming
tariffs. As required under Kazakh law, the KAA has submitted
its finding to a Kazakh administrative court and the court will
issue a decision on the merits and on applicable fines. KaR-Tel
does not agree with the KAA’s conclusion and has challenged
it, however there can be no assurance that KaR-Tel will prevail.
Anti-monopoly regulators in Russia, Ukraine and the CIS are also
authorized to regulate companies deemed to be a dominant force
in, or a monopolist of, a market. Because the law does not
always clearly define “market” in terms of either
services provided or geographic area of activity, it is
difficult to determine under what circumstances we could be
subject to these or similar measures. However, in 2002, OJSC
VimpelCom was entered into the register of business entities for
having a market share in the telecommunications market in the
Moscow license area of over 35.0%. On April 8, 2009, the
anti-monopoly body by its order had excluded OJSC VimpelCom from
the regional section of the Register for Moscow region in
connection with entering OJSC VimpelCom into the Federal
register in accordance with the anti-monopoly body order of the
same date as set out below in more detail. In October 2006, a
new law “On Protection of Competition” became
effective, which introduced new criteria pursuant to which the
Russian anti-monopoly regulators may determine that a company
has a dominant position in a particular market of goods or
services if such company has a market share between 35.0-50.0%
or over 50.0%. However, in accordance with certain provisions
of the Russian Communications Law and for purposes of
application of the Russian Law on Foreign Investment in
Strategic Enterprises, which came into force on May 7,
2008, which we refer to as the Foreign Investment Law, a mobile
telecommunications operator is deemed to have a dominant
position if its share of the Russian mobile telecommunications
market exceeds 25.0%. XXXX XxxxxxXxx received an order dated
April 8, 2009 from the FAS which we refer to as the
FAS Order, stating that a group of persons consisting of
OJSC VimpelCom and
A-14
two of our Russian subsidiaries, one of which has been merged
with and into OJSC VimpelCom, has a dominant position in the
Russian mobile telecommunications market as its share in this
market exceeds 25.0%. Because of the inconsistencies in the
laws referenced above and ambiguity in the text of the
FAS Order, it is not clear whether OJSC VimpelCom company
may now be deemed to have a dominant position for purposes of
the law “On Protection of Competition”. If we or any
of our operating subsidiaries is deemed to have a dominant
position in the telecommunications market, we could be
prohibited from taking certain actions that could be viewed by
the anti-monopoly regulators as abusive of our dominant
position. As a result, our ability to set tariff prices may be
restricted or we may be required to include provisions into our
subscriber agreements that would be detrimental to our company,
which could adversely affect our business and our growth
strategy.
In the recent past, the Antimonopoly Committee of Ukraine (the
“UAMC”) determined that all mobile
network operators in Ukraine, including Kyivstar, hold a
dominant position with regard to providing access to their
respective networks. This decision requires operators holding a
dominant position on their respective networks to comply with
the NCRC regulations governing the pricing regime for
interconnection services. In addition, if the UAMC were to
establish that a company holding a dominant position had abused
its dominance, it could impose fines in an amount of up to 10.0%
of revenues for the last financial year of the group of which
such company is a member, as well as in the amount of up to
300.0% of such company’s profits received from its
activities carried out in abuse of such dominant position. In
addition, a third party could bring an action for damages
suffered as a result of such abuse, which could amount to up to
200.0% of the damages suffered by such third party.
KaR-Tel is subject to governmental control over tariffs because
it is recognized as an entity having a dominant position on the
Kazakhstan mobile market. KaR-Tel is required by law to notify
the Kazakh state anti-monopoly body of any increase of its
tariffs and to justify such increase. The anti-monopoly body is
required to carry out an examination of proposed tariff increase
and has the right to prohibit it.
ArmenTel has also been recognized as an entity having a dominant
position on the fixed-line telecommunication services market in
Armenia. It generally requires regulatory approval to increase
tariffs at the retail and wholesale level.
In connection with the FAS approval of our acquisition of a
49.9% stake in Euroset, the FAS issued an order that prohibits
Euroset from setting discriminatory terms in its sale of
services of mobile telecommunications operators for a period of
three years. Our company does not control Euroset, and we
cannot assure you that Euroset will comply with the FAS order.
If Euroset fails to comply with the FAS order, the FAS may fine
us and Euroset and it may apply to a court to invalidate the
acquisition of our 49.9% stake in Euroset.
The concepts of “affiliated persons” and “group
of persons” that are fundamental to the anti-monopoly laws
and to the laws on joint stock companies in Russia, Ukraine and
the CIS are not clearly defined and are subject to different
interpretations. Consequently, anti-monopoly regulators or
other competent authorities may challenge the positions we or
certain of our officers, directors, or shareholders have taken
in this respect despite our best efforts at compliance. Any
successful challenge by an anti-monopoly regulator or other
competent authority may expose us or certain of our officers,
directors, or shareholders to fines or penalties and may result
in the invalidation of certain agreements or arrangements. This
may adversely affect the manner in which we manage and operate
certain aspects of our business.
Anti-monopoly regulations in Russia and in countries in which we
are interested in expanding our business may require us to
obtain anti-monopoly approvals for certain acquisitions,
reorganization or some other transactions as may be provided for
in applicable law. The applicable rules are subject to
different interpretations and the competent authorities may
challenge the positions that we take. We may also be unable to
comply with anti-monopoly approvals due to administrative delays
in the review process or for other reasons. Failure to obtain
such approval or the activity of the relevant anti-monopoly
bodies may impede or adversely affect our business and ability
to expand our operations.
A-15
Our
equipment supply arrangements may be terminated or interrupted
and our existing equipment and systems may be subject to
disruption and failure, which could cause us to lose customers,
limit our growth and violate our licenses.
The successful build-out and operation of our networks depends
heavily on obtaining adequate supplies of switching equipment,
base stations and other equipment on a timely basis. We
currently purchase our equipment from a small number of
suppliers, principally Alcatel-Lucent, Cisco Systems, Comverse,
Ericsson, Huawei and Siemens Networks, although some of the
equipment that we use is available from other suppliers. From
time to time, we have experienced delays receiving equipment.
Our business could be materially adversely affected if we are
unable to obtain adequate supplies or equipment from our
suppliers in a timely manner and on reasonable terms.
Our business depends on providing customers with reliability,
capacity and security. As telecommunications increases in
technological capacity, it may become increasingly subject to
computer viruses and other disruptions. We cannot be sure that
our network system will not be the target of a virus or, if it
is, that we will be able to maintain the integrity of the data
of our corporate customers or of that in individual handsets of
our mobile subscribers or that a virus will not overload our
network, causing significant harm to our operations. In
addition to computer viruses, the services we provide may be
subject to disruptions resulting from numerous other factors,
including human error, security breaches, equipment defects, and
natural disasters, which could have a material adverse effect on
our business.
Problems with our backbone, switches, controllers, fiber optic
network or network nodes at one or more of our base stations,
whether or not within our control, could result in service
interruptions or significant damage to our networks. All of our
equipment for provision of mobile services in Moscow is located
primarily in two buildings in Moscow. Disruption to the
operation of these buildings such as from electricity outages or
damage to these buildings could result in disruption of our
mobile services in Moscow.
We store our data center and fixed-line network equipment at
state-owned premises in Moscow pursuant to an agreement with the
Russian authorities. The State Property Committee has filed two
lawsuits seeking to evict us from the premises, alleging that
the lease agreement was entered into without the consent of the
State Property Committee. One of these lawsuits has been
dismissed, but may be appealed. Management believes that the
risk of an adverse outcome of these lawsuits is probable. As a
result of these lawsuits, we may lose our right to continue
occupying the premises, and this could result in network
disruption which could have a materially adverse affect on our
business, financial condition and results of operations.
Although we have
back-up
capacity for our network management operations and maintenance
systems, automatic transfer to our
back-up
capacity is not seamless, and may cause network service
interruptions. In recent years, we have experienced network
service interruptions, which occur from time to time during
installations of new software. Interruptions of services could
harm our business reputation and reduce the confidence of our
subscribers and consequently impair our ability to obtain and
retain subscribers and could lead to a violation of the terms of
our licenses, each of which could materially adversely affect
our business. We do not carry business interruption insurance
to prevent against network disruptions.
Our ability to manage our business successfully is contingent
upon our ability to implement sufficient operational resources
systems and processes to support our rapid growth. We may face
risks in connection with the correct use of the newly introduced
systems and processes in the regions where our group operates or
integrating new technologies into existing systems. For example,
if our billing systems develops unexpected limitations or
problems, subscriber bills may not be generated promptly
and/or
correctly. This could materially adversely impact our business
since we would not be able to collect promptly on subscriber
balances.
The introduction of zero
on-net
tariffs and mobile Internet services in Ukraine has increased
the amount of traffic on Kyivstar’s and its
competitors’ networks. If we fail to invest sufficiently
in our networks, we may be unable to maintain the level of
reliability and capacity we currently provide, which could
adversely affect our ability to retain subscribers. The
resulting loss of revenue could materially adversely affect our
business, financial condition and results of operations.
Our operations in the CIS and the operations of Golden Telecom
employ billing and management information systems which may not
provide our management with information that is sufficient in
amount or accuracy. Golden
A-16
Telecom is in the process of consolidating its local and
regional billing and management information systems, which will
allow it to bill its customers and to manage other
administrative tasks through a small number of centralized
systems. If Golden Telecom is unable to consolidate and upgrade
its billing and management information systems to support its
integrated operations, its billing may be insufficient, which
could have a material adverse effect on our revenues.
Furthermore, Golden Telecom relies on agent billing and
information systems to provide information necessary to generate
invoices in certain areas of its operations. Golden Telecom may
encounter risks associated with verification and calculation of
volumes of long-distance services provided to end users,
invoicing and revenue recognition.
Sale
of handsets and other devices and our inability to maintain
relationships with handset providers could have a negative
impact on our Company.
Historically the vast majority of our operating
subsidiaries’ revenue has come from providing
telecommunications services, with relatively little of our
revenue coming from sales of handsets and other devices. In
2008, OJSC VimpelCom significantly increased our sale of devices
by beginning to sell broadband Internet modems and entering into
an agreement with Apple Sales International to sell iPhones in
Russia. Sales of devices tend to yield lower profit margins
than sale of services and the need to maintain devices in
inventory can have a negative impact on our working capital. In
addition, sales of handsets are sensitive to changes in economic
conditions and there can be no assurance that we will be able to
make the purchase installments contemplated by the agreement
with Apple Sales International. At the same time, we expect
that the sales of handsets, including iPhones, will contribute
to our subscriber growth, and such sales are therefore critical
for our overall growth strategy. In the event we are unable to
extend our existing agreements with, or fail to agree on
acceptable terms or lose exclusivity in our agreements with
handset providers, we could experience a negative impact on our
ARPU and our churn rate, which could have a material adverse
effect on our business, financial condition and results of
operation.
Allegations
of health risks related to the use of mobile telephones could
have a material adverse effect on us.
There have been allegations that the use of certain portable
mobile devices may cause serious health risks. The actual or
perceived health risks of mobile devices could diminish
subscriber growth, reduce network usage per subscriber, spark
product liability lawsuits or limit available financing. Each
of these possibilities has the potential to cause material
adverse consequences for us and for the entire mobile industry.
Our
intellectual property rights are costly and difficult to
protect, and we cannot guarantee that the steps we have taken to
protect our property rights will be adequate.
We regard our copyrights, trademarks, trade dress, trade secrets
and similar intellectual property, including our rights to
certain domain names, as important to our continued success. We
rely upon trademark and copyright law, trade secret protection
and confidentiality or license agreements with our employees,
customers, partners and others to protect our proprietary
rights. However, intellectual property rights are especially
difficult to protect in the markets where we operate. In these
markets, the regulatory agencies charged to protect intellectual
property rights are inadequately funded, legislation is
underdeveloped, piracy is commonplace and enforcement of court
decisions is difficult.
In addition, litigation may be necessary to enforce our
intellectual property rights, to determine the validity and
scope of the proprietary rights of others, or to defend against
claims of infringement. Any such litigation may result in
substantial costs and diversion of resources, and, if decided
unfavorably to us, could have a material adverse effect on our
business, financial condition or results of operations. We also
may incur substantial acquisition or settlement costs where
doing so would strengthen or expand our intellectual property
rights or limit our exposure to intellectual property claims of
third parties. While we have successfully enforced our
intellectual property rights in courts in the past, we cannot
assure you that we will be able to successfully protect our
property rights in the future.
A-17
Russian
companies may be required to adopt a decision on liquidation
when their net assets are negative.
Under Russian law, if a company’s net asset value at the
end of its second or any subsequent financial year, as
determined under Russian accounting standards, is less than the
minimum charter capital required by law, such company must adopt
a decision to liquidate (if the company is registered as a
limited liability company) or perform a number of actions
provided by the law (if the company is registered as a
joint-stock company). If it fails to do so within a
“reasonable period,” the company’s creditors are
entitled to request early termination and acceleration of the
company’s obligations to them and to demand compensation of
damages, and governmental agencies may seek involuntary
liquidation of such company. Limited Liability Company
Kolangon-Optim and certain of our other Russian subsidiaries had
negative net assets as of December 31, 2009. We believe
that these subsidiaries are solvent and continue to meet all of
their obligations to creditors, however, if an involuntary
liquidation of our subsidiaries were to occur, our business,
financial condition and results of operations could be
materially adversely affected.
Risks
Related to Our Operations in Russia, Ukraine and the
CIS
Investors
in emerging markets, such as Russia, Ukraine and the CIS, are
subject to greater risks than investors in more developed
markets, including significant political, legal and economic
risks and risks related to fluctuations in the global
economy.
Investors in emerging markets should be aware that these markets
are subject to greater risks than more developed markets,
including in some cases significant political, legal and
economic risks. Emerging market governments and judiciaries
often exercise broad, unchecked discretion and are susceptible
to abuse and corruption. Emerging economies are subject to
rapid change and the information set out herein may become
outdated relatively quickly. The economies of Russia, Ukraine
and the CIS, like other emerging economies, are vulnerable to
market downturns and economic slowdowns elsewhere in the world.
As has happened in the past, financial problems or an increase
in the perceived risks associated with investing in emerging
economies could dampen foreign investment in these markets and
materially adversely affect their economies. These developments
could severely limit our access to capital and could materially
adversely affect the purchasing power of our subscribers and,
consequently, our business. Generally, investment in emerging
markets is only suitable for sophisticated investors who fully
appreciate the significance of the risks involved and investors
are urged to consult with their own legal, financial and tax
advisors.
We
face a number of economic, political, social and regulatory
risks relating to conducting business outside of
Russia.
Although a significant number of our risk factors relate to the
risks associated with conducting business in Russia and Ukraine,
where a majority of our assets and operations are located,
similar risks in each instance also apply to the conduct of our
business and operations in Kazakhstan, Ukraine, Uzbekistan,
Tajikistan, Georgia, Armenia, Kyrgyzstan, Cambodia and Vietnam.
In some instances, the risks inherent in transacting business in
these countries may be more acute than those in Russia and
Ukraine. Prior to our investments in Kazakhstan, Ukraine,
Uzbekistan, Tajikistan, Georgia, Armenia, Kyrgyzstan, Cambodia
and Vietnam, our company did not have any experience operating
in these countries. Regulatory risks present in these countries
and in any other countries where we may acquire additional
operations may not be similar to those we face in Russia and may
increase our vulnerability to such risks. If any of these risks
materialize, our business could be materially adversely affected.
The
limited history of mobile telecommunications services in the CIS
and our limited operating history in the CIS create additional
business risks.
Mobile telecommunications services are relatively new in the
CIS, which have generally experienced slower economic growth
over the past decade than Russia and Ukraine. As the mobile
telecommunications services industry develops in these areas,
changes in market conditions could make our development of
services less attractive or no longer commercially feasible. A
reduction in our viable development opportunities could have a
material adverse effect on our business. In addition, we have a
limited operating history providing mobile telecommunications
services in the CIS. Consequently, we are subject to the risks
associated with entering into any new product line. Our failure
to properly manage those risks could have a material adverse
effect on our business.
A-18
Risks
Related to the Political Environment in Russia, Ukraine and the
CIS
If
political and economic relations between Russia, Ukraine and the
other countries of the CIS deteriorate, our operations could be
materially adversely affected.
Political and economic relations between Russia, Ukraine and the
other countries of the CIS are complex and recent conflicts have
arisen between the government of Russia and the governments of
Ukraine and some of the countries of the CIS. For example, the
relationship between Russia and Ukraine has been historically
strained due to, among other things, Ukraine’s failure to
pay arrears relating to the supply of energy resources,
Russia’s introduction of an 18.0% value added tax on
Ukrainian imports and provocative statements by some
politicians. The relationship between Russia and Georgia has
also been strained due to several ongoing disputes which
resulted in military conflict in August 2008 and may lead to
military
and/or
economic conflict in the future. Although our company operates
in Ukraine and the CIS through local subsidiaries, governmental
officials and consumers may associate our group and our brand
with Russia. Any deterioration in political and economic
relations between Russia, Ukraine and the other countries of the
CIS could have a material adverse effect on our business,
financial condition and results of operations.
If
reform policies in Russia, Ukraine and the CIS are reversed, our
business could be harmed and it could restrict our ability to
obtain financing.
Our business, in part, depends on the political and economic
policies set by the governments of the countries where we
operate. For example, in recent years, the political and
economic situation in Russia has been stable, which has allowed
for continued economic growth. However, there is a persistent
sentiment in Russia against certain private enterprises that is
being encouraged by a number of prominent Duma deputies,
political analysts and members of the media. In addition,
reforms may be hindered if conflicts of interest are permitted
to exist when officials are also engaged in private business,
particularly when the business interests are in the industry
which the officials regulate. Notwithstanding initiatives to
combat corruption, Russia, Ukraine and the CIS, like many other
markets, continue to experience corruption and conflicts of
interests of officials, which add to the uncertainties we face,
and may increase our costs. Any deterioration of the investment
climate could restrict our ability to obtain financing in
international capital markets in the future and our business
could be harmed if governmental instability recurs or if reform
policies are reversed.
Political
and governmental instability could adversely affect the value of
investments in Ukraine.
Since obtaining independence in 1991, Ukraine has undergone a
substantial political transformation from a constituent republic
of the former Union of Soviet Socialist Republics to an
independent sovereign democratic state. Governmental
instability has been a feature of the Ukrainian political scene
and, as a result, Ukraine has experienced fifteen changes of
Prime Minister during this period, with various actions and
decisions being taken based primarily on political
considerations. Historically, a lack of political consensus in
the Verkhovna Rada (the “Ukrainian Parliament”) has
consistently made it difficult for the Ukrainian government to
secure the necessary parliamentary support to implement a
variety of policies intended to xxxxxx economic reform and
financial stability.
The Ukrainian government’s policies, and the political
leaders who formulate and implement them, are subject to rapid
change. In recent years, struggles among Ukraine’s major
political leaders have resulted in several major disruptions.
The 2004 presidential elections were accompanied by mass
demonstrations throughout the country in protest of the election
process and results, which were subsequently invalidated by the
Ukrainian Supreme Court, necessitating a special repeat runoff
election. In 2008, following several unsuccessful attempts to
form a new majority in the Ukrainian Parliament, the Ukrainian
President issued a decree dissolving the Ukrainian Parliament.
However, this decree was not implemented because no funds had
been allocated in the national budget for early parliamentary
elections, and the requisite majority was established on
December 16, 2008.
Following presidential elections on February 7, 2010, which
were won by Xxxxxx Xxxxxxxxxx, the opposition leader and former
Prime Minister, the Ukrainian Parliament passed a vote of no
confidence in the Prime Minister, Xxxxx Xxxxxxxxxx, forcing her
and her government to resign. On March 10, 2010, the
Ukrainian Parliament passed legislative amendments allowing
parliamentary coalitions to be based on individual deputies
rather than party groups, which allowed President Xxxxxxxxxx to
quickly form a new parliamentary coalition that included members
A-19
of Xx. Xxxxxxxxxx’x and other political parties.
President Xxxxxxxxxx has formed a new government and has
appointed Xxxxxx Xxxxxx, a former deputy prime minister and
finance minister, as Prime Minister. A return to political
instability and the ongoing reluctance of Ukrainian political
leaders to implement unpopular economic decisions may hinder the
reforms necessary to address the deterioration of the social and
economic situation in Ukraine. These and any other adverse
political developments may have negative effects on the economy
as a whole and, as a result, on our business, financial
condition, results of operations and prospects.
If
political and economic relations between Russia and Ukraine
deteriorate, our operations in Ukraine could be materially
adversely affected.
Ukraine’s economy depends heavily on its trade flows with
Russia and the CIS largely because Ukraine imports a large
proportion of its energy requirements, especially from Russia.
In addition, a large share of Ukraine’s services receipts
comprise transit charges for oil, gas and ammonia from Russia.
As a result, Ukraine considers its relations with Russia to be
of strategic importance. However, relations between Ukraine and
Russia have cooled due to disagreements over the prices and
methods of payment for gas delivered by the Russian gas monopoly
OJSC Gazprom to, or for transportation through, Ukraine,
over the stationing of the Russian Black Sea Fleet
(Chernomorskii Flot) on the territory of Ukraine, and as a
result of Ukraine’s official support for the government of
Georgia following the conflict over the Georgian province of
South Ossetia, which led to a straining of the relationship
between Russia and Georgia. Most recently, in January 2009, a
dispute between OJSC Gazprom and National Joint Stock Company
“Naftogas of Ukraine,” the Ukrainian state-owned oil
and gas company, resulted in disruptions to the supply of
Russian gas to Ukraine, as well as to the Balkans and Central
Europe.
If bilateral trade relations were to deteriorate, including if
Russia were to stop transiting a large portion of its oil and
gas through Ukraine or if Russia halted supplies of gas to
Ukraine, Ukraine’s balance of payments and foreign currency
reserves could be materially and adversely affected. Any major
changes in Ukraine’s relations with Russia, in particular,
any such changes adversely affecting supplies of energy
resources from Russia to Ukraine or Ukraine’s revenues
derived from transit charges for Russian oil and gas, may have
negative effects on sectors of the Ukrainian economy which, in
turn, could have a material adverse effect on our business,
financial condition and results of operations.
Risks
Related to the Economic Situation in Russia, Ukraine and the
CIS
The
physical infrastructure in Russia, Ukraine and the CIS is in
poor condition and further deterioration in the physical
infrastructure could have a material adverse effect on our
business.
The physical infrastructure in Russia, Ukraine and the CIS
largely dates back to Soviet times and has not been adequately
funded and maintained in recent years. Particularly affected
are the rail and road networks, power generation and
transmission, communications systems and building stock. The
public switched telephone networks have reached capacity limits
and need modernization, which may inconvenience our subscribers
and will require us to make additional capital expenditures.
Additional investment is required to increase line capacity. In
addition, continued growth in local, long-distance and
international traffic, including that generated by our
subscribers, and development in the types of services provided
may require substantial investment in public switched telephone
networks. Any efforts to modernize infrastructure may result in
increased charges and tariffs, potentially adding costs to our
business. The deterioration of the physical infrastructure
xxxxx the economies of these countries, disrupts the
transportation of goods and supplies, adds costs to doing
business and can interrupt business operations. These
difficulties can impact us directly; for example, we have needed
to keep portable electrical generators available to help us
maintain base station operations in the event of power
failures. Further deterioration in the physical infrastructure
could have a material adverse effect on our business.
The
banking systems in Russia, Ukraine and the CIS remain
underdeveloped and there are a limited number of creditworthy
banks in these countries with which our company can conduct
business.
The banking and other financial systems in Russia, Ukraine and
the CIS are not well developed or regulated, and laws relating
to banks and bank accounts are subject to varying
interpretations and inconsistent applications. For example, in
Russia, there are a limited number of banks that meet
international banking standards and the
A-20
transparency of the Russian banking sector in some respects lags
behind internationally accepted norms. Most creditworthy
Russian banks are located in Moscow and there are fewer
creditworthy Russian banks in the regions outside of Moscow.
Recently, there has been an increase in lending by Russian
banks, which many believe has been accompanied by a
deterioration in the credit quality of the borrowers. The
deficiencies in the Russian banking system, coupled with a
decline in the quality of the credit portfolios of Russian
banks, may result in the banking sector being more susceptible
to the current worldwide credit market downturn and economic
slowdown. The credit crisis that began in the United States in
the autumn of 2008 has resulted in decreased liquidity in the
Russian credit market and weakened the Russian financial
system. Efforts by the Russian government to increase liquidity
have been stymied by an unwillingness in the banking sector to
lend to other banks and to the real economy. The lack of
liquidity and economic slowdown have raised the possibility of
Russian corporate defaults and led to bank failures and
downgrades of Russian banks by credit rating agencies. More
bank failures and credit downgrades may result in a crisis
throughout the Russian banking sector. Starting from the fourth
quarter of 2008, a majority of the Russian banks experienced
difficulties with funding on domestic and international markets
and interest rates increased significantly. Some of the banks
were unable to service their obligations and were sold to larger
banks. Credit ratings of several banks have been lowered and
some banks have lost their Central Bank of Russia licenses. The
Russian Government has provided liquidity to the banking system
and interest rates have been decreasing since the second half of
2009, but major banks are still unwilling or unable to transfer
money to the economy in the form of long-term loans. A
prolonged or serious banking crisis or the bankruptcy of a
number of banks, including banks in which we receive or hold our
funds, could materially adversely affect our business and our
ability to complete banking transactions in Russia.
The banking and financial systems in Ukraine and the CIS are
even less developed than in Russia and may be more susceptible
to the current economic downturn. Few international banks have
subsidiaries in Kazakhstan, Uzbekistan, Ukraine and Armenia, and
no international banks operate subsidiaries in Tajikistan and
Georgia. We have attempted to mitigate our banking risk by
receiving and holding funds with the most creditworthy banks
available in each country. However, in the event of a banking
crisis in any of these countries or the bankruptcy or insolvency
of the banks from which we receive, or with which we hold, our
funds could result in the loss of our deposits or negatively
affect our ability to complete banking transactions in these
countries, which could have a material adverse effect on our
business, financial conditions and results of operations.
Risks
Related to the Social Environment in Russia, Ukraine and the
CIS
Social
instability in Russia, Ukraine and the CIS could lead to
increased support for centralized authority and a rise in
nationalism, which could harm our business.
Social instability in Russia, Ukraine and the CIS, coupled with
difficult economic conditions, could lead to increased support
for centralized authority and a rise in nationalism. These
sentiments could lead to restrictions on foreign ownership of
companies in the telecommunications industry or large-scale
nationalization or expropriation of foreign-owned assets or
businesses. There is relatively little experience in enforcing
legislation enacted to protect private property against
nationalization or expropriation. As a result, we may not be
able to obtain proper redress in the courts, and we may not
receive adequate compensation if in the future the Russian,
Ukrainian, Kazakh, Tajik, Uzbek, Georgian, Kyrgyz or Armenian
governments decide to nationalize or expropriate some or all of
our assets. If this occurs, our business could be harmed.
In addition, ethnic, religious, historical and other divisions
have, on occasion, given rise to tensions and, in certain cases,
military conflict. The spread of violence, or its
intensification, could have significant political consequences,
including the imposition of a state of emergency in some parts
or throughout Russia, Ukraine and the CIS. These events could
materially adversely affect the investment environment in
Russia, Ukraine and the CIS.
A-21
Risks
Related to the Legal and Regulatory Environment in Russia,
Ukraine and the CIS
We
operate in an uncertain regulatory environment, which could
cause compliance to become more complicated, burdensome and
expensive and could result in our operating without all of the
required permissions.
The application of the laws of any particular country is not
always clear or consistent. This is particularly true in
Russia, Ukraine and the other emerging market countries in which
we operate where the legislative drafting has not always kept
pace with the demands of the marketplace. As a result, it is
often difficult to ensure that we are in compliance with
changing legal requirements. For example, although the Russian
Communications Law regarding license renewals in Russia has been
clarified, the licensing procedures (including the re-issuance
of licenses, frequencies and other permissions in connection
with mergers and the issuance of local and zonal licenses)
appear to differ from the procedures under prior law and do not
always clearly state the steps that must be followed to obtain
new licenses, frequencies, numbering capacity or other
permissions needed to operate our business, and do not clearly
specify the consequences for violations of the foregoing. If we
are found to be involved in practices that do not comply with
local laws or regulations, we may be exposed, among other
things, to significant fines, the risk of prosecution or the
suspension or loss of our licenses, frequency allocations,
authorizations or various permissions, any of which could have a
material adverse effect on our business, financial condition and
results of operations.
The regulators responsible for the control and supervision of
communications services in each country in which we operate
frequently check our compliance with the requirements of the
applicable legislation and our telecommunications licenses. We
intend to use our best efforts to comply with all such
requirements. However, we cannot assure you that in the course
of future inspections, we will not be found to be in violation
of the applicable legislation. Any such finding could have a
material adverse effect on our operations.
In addition, it may be difficult and prohibitively expensive for
us to comply with applicable Russian telecommunications
regulations related to state surveillance of communications
traffic. Currently, Ukrainian authorities are also in the
process of implementing additional state surveillance of
communications traffic. Full compliance with regulations that
allow the state to monitor voice and data traffic may be overly
burdensome, expensive and lead to a drop in quality of service.
Noncompliance with such regulations once they are implemented
may lead to the imposition of fines or penalties on us, or the
revocation of our operating licenses. Further, some subscribers
may refuse to utilize the services of a telecommunications
operator whose networks facilitate state surveillance of
communications traffic.
As a result of the uncertainty in the regulatory environment in
Russia, Ukraine and the CIS we have experienced and could
experience in the future:
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restrictions or delays in obtaining additional numbering
capacity, receiving new licenses and frequencies, receiving
regulatory approvals for rolling out our networks in the regions
for which we have licenses, receiving regulatory approvals for
changing our frequency plans and importing and certifying our
equipment;
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difficulty in complying with applicable legislation and the
terms of any notices or warnings received from the regulatory
authorities in a timely manner;
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significant additional costs;
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delays in implementing our operating or business plans; and
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a more competitive operating environment.
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Telecommunications
operators in Russia, Ukraine and the CIS are subject to
regulatory levies and fees and may become subject to pricing
regulation.
Telecommunications operators in Russia, Ukraine and our other
markets of operation are obligated to pay levies and fees
pursuant to law and regulation. For example, in Russia every
telecommunications operator is required to make compulsory
payments to a “universal services fund” in the amount
of 1.2% of its revenues (excluding revenues from traffic
transmissions). Additionally, the Russian Communications Law
provides for
A-22
payments for numbering capacity allocation, including through
auctions in instances where numbering capacity is scarce.
Because telecommunications operators apply for numbering
allocation on a regular basis, this payment requirement may have
a material adverse effect on the financial condition of
operators.
Telecommunications regulators in Russia, Ukraine and the CIS may
impose additional levies and fees on our operations from time to
time. Such payment obligations create financial burdens and we
may not be able to pass related costs on to subscribers, which,
in turn could have a material adverse affect on our business,
financial condition and results of operations. It has been
reported that Kazakh and Ukrainian authorities are each
considering implementing new compulsory payments to their
respective universal telecommunications services funds and that
the Tajik authorities are considering implementing a significant
increase in license fees for mobile telecommunications
operations.
In the recent past, amendments to the Russian Communications Law
have been proposed which would have resulted in the regulation
of tariffs set by mobile operators for interconnection and
transfer of traffic. According to the proposed amendments, an
operator will be subject to such regulation if it, together with
its affiliated persons, owns at least 25.0% of the installed
capacity of the operational networks that are part of the public
communications network and relate to the same type of
communications services technology, such as communications
networks using DEF codes, within a subject territory of the
Russian Federation or throughout the Russian Federation.
Although the proposed amendments were not adopted, these or
similar amendments may be adopted in the future and would
restrict our ability to set tariffs. Such restrictions could
have a material adverse affect on our business, financial
condition and results of operations.
Under the Ukrainian Communications Law, the NCRC is authorized
to regulate local tariffs for public telecommunications services
rendered by fixed-line operators within one geographical
numbering zone. In February 2009, the NCRC adopted a decision
to analyze certain telecommunication services markets to
determine whether the tariffs charged by telecommunications
companies operating on such markets should be subject to the
NCRC regulation. Among the markets to be reviewed are the
market for accessing mobile networks and the market for
terminating calls on mobile networks. This review by the NCRC
may lead to additional regulation of our interconnection rates.
Any such regulation could result in the establishment of lower
interconnection fees than Kyivstar currently receives from other
telecommunications operators in Ukraine, resulting in lower
overall revenues for Kyivstar, which would have a material
adverse effect on our business, financial condition and results
of operations.
Arbitrary
action by the authorities may have a material adverse effect on
our business.
In our areas of operations, governmental, regulatory and tax
authorities have a high degree of discretion and at times
exercise their discretion arbitrarily, without a hearing or
prior notice, and sometimes in a manner that is contrary to
law. In Russia, governmental actions have included unscheduled
inspections by regulators, suspension or withdrawal of licenses
and permissions, unexpected tax audits, criminal prosecutions
and civil actions. Russian federal and local government
entities have also used common defects in matters surrounding
share-issuances and registration as pretexts for court claims
and other demands to invalidate such issuances and registrations
and void transactions. Authorities also have the power in
certain circumstances, by regulation or government act, to
interfere with the performance of, nullify or possibly terminate
contracts. Although such actions have been condemned at the
highest government levels, they continue to take place according
to press reports.
Recent amendments to the Russian Federal Law “On
Enforcement Proceedings” and the Russian Federal Law
“On Court Bailiffs” have given bailiffs the right to
obtain from mobile services providers personal data on
subscribers for law enforcement purposes. We could lose
subscribers as a result of these amendments, which could have a
material adverse effect on our business, financial condition and
results of operations.
If we
are found not to be in compliance with applicable
telecommunications laws or regulations, we could be exposed to
additional costs or suspension or termination of our licenses,
which may materially adversely affect our
business.
Our operations and properties are subject to considerable
regulation by various governmental entities in connection with
obtaining and renewing various licenses, frequencies and
permissions, as well as ongoing
A-23
compliance with existing laws, decrees and regulations. We
cannot assure you that regulators, judicial authorities or third
parties will not challenge our compliance with such laws,
decrees and regulations. Governmental agencies exercise
considerable discretion in matters of enforcement and
interpretation of applicable laws, decrees and regulations, the
issuance and renewal of licenses, frequencies and permissions
and in monitoring licensees’ compliance therewith.
Communications regulators conduct periodic inspections and have
the right to conduct additional unscheduled inspections during
the year. We have been able to cure violations found by the
regulators within the applicable grace period but were
nevertheless required to pay fines. We cannot assure you that
in the course of future inspections conducted by regulatory
authorities, we will not be found to have violated any laws,
decrees or regulations, that we will be able to cure such
violations within any grace periods permitted by such notices,
or that the regulatory authorities will be satisfied by the
remedial actions we have taken or will take.
In Russia, as in our other areas of operations, we routinely
receive notices with respect to violations of our licenses. To
the extent possible, we take measures to comply with the
requirements of the notices. Nonetheless, at any given time,
there may be outstanding notices with which we have not complied
within the cure periods specified in the notices, primarily due
to delays in the issuance of frequency permits,
sanitation-epidemiological permissions, and permissions for the
operation of our equipment and communication facilities in
connection with the rollout of our networks (including our
transportation network) by responsible regulatory authorities.
Accordingly, at any given time a certain percentage of our base
stations and equipment may not have all permissions required
causing us to be in violation of the terms of our licenses.
Failure to comply with the provisions of a notice due to a delay
in the issuance of such permits or permissions by the regulatory
bodies at times has not been, and in the future may not be, an
acceptable explanation to the authorities issuing the notices.
In 2006, 2007, 2008, 2009 and 2010, in order to comply with
notices from the regulator, we switched off a number of base
stations that were operating without the necessary permissions.
If we switch off additional base stations, the quality of
service of our networks in those areas may deteriorate. We are
also potentially responsible for violations of legislation by
our dealers and
sub-dealers
in failing to obtain personal data such as name, address and
passport number when selling SIM-cards. We cannot assure you
that we will be able to cure such violations within the grace
periods permitted by such notices or that the regulator will be
satisfied by the remedial actions we have taken or will take.
In addition, we cannot assure you that our requests for
extensions of time periods in order to enable us to comply with
the terms of the notices will be granted. Accordingly, we
cannot assure you that such findings by the regulator or any
other authority will not result in the imposition of fines or
penalties or more severe sanctions, including the suspension and
subsequent termination of our licenses, frequency allocations,
authorizations, registrations, or other permissions, any of
which could increase our estimated costs and materially
adversely affect our business.
Developing
legal systems in the countries in which we operate create a
number of uncertainties for our business.
Many aspects of the legal systems in our countries of operation
create uncertainties with respect to many of the legal and
business decisions that we make, many of which do not exist in
countries with more developed legal systems. The uncertainties
we face include, among others, potential for negative changes in
laws, gaps and inconsistencies between the laws and regulatory
structure, and difficulties in enforcement due to an
under-developed judicial system.
The nature of much of the legislation in Russia, Ukraine and the
CIS, the lack of consensus about the scope, content and pace of
economic and political reform and the rapid evolution of the
legal systems in Russia, Ukraine and the CIS in ways that may
not always coincide with market developments, place the
enforceability and, possibly, the constitutionality of laws and
regulations in doubt and result in ambiguities, inconsistencies
and anomalies. The legislation often contemplates implementing
regulations that have not yet been promulgated, leaving
substantial gaps in the regulatory infrastructure. All of these
weaknesses could affect our ability to enforce our rights under
our licenses and under our contracts, or to defend ourselves
against claims by others.
A-24
Lack
of independence and experience of the judiciary, difficulty of
enforcing court decisions, the unpredictable acknowledgement and
enforcement of foreign court judgments or arbitral awards in
Russia, Ukraine and the CIS and governmental discretion in
enforcing claims give rise to significant
uncertainties.
The independence of the judicial system and its immunity from
political, economic and nationalistic influences in Russia,
Ukraine and the CIS remains largely untested. Judicial
precedents have no formal binding effect on subsequent
decisions. Not all legislation and court decisions are readily
available to the public or organized in a manner that
facilitates understanding. The judicial systems can be slow.
Enforcement of court orders can in practice be very difficult.
All of these factors make judicial decisions in Russia, Ukraine
and the CIS difficult to predict and make effective redress
uncertain. Additionally, court claims are often used in
furtherance of political aims. We may be subject to such claims
and may not be able to receive a fair hearing. Additionally,
court orders are not always enforced or followed by law
enforcement agencies.
None of the countries where we operate, including Russia and
Ukraine, are parties to any multilateral or bilateral treaties
with most Western jurisdictions, including the United States,
for the mutual enforcement of judgments of state courts.
Consequently, should a judgment be obtained from a court in any
of such jurisdictions, it is highly unlikely to be given direct
effect in the courts of Russia, Ukraine and the CIS. There is
also a risk that Russian and Ukrainian procedural legislation
will be changed by way of introducing further grounds preventing
foreign court judgments and arbitral awards from being
recognized and enforced in Russia and Ukraine. In practice,
reliance upon international treaties may meet with resistance or
a lack of understanding on the part of Russian and Ukrainian
courts or other officials, thereby introducing delays and
unpredictability into the process of enforcing any foreign
judgment or any foreign arbitral award in Russia and Ukraine.
Unpredictable
tax systems give rise to significant uncertainties and risks
that could complicate our tax planning and business
decisions.
The tax systems in Russia, Ukraine and other emerging markets in
which we operate are unpredictable and give rise to significant
uncertainties, which could complicate our tax planning and
business decisions. Tax laws in Russia, Ukraine and other
emerging markets in which we operate have been in force for a
relatively short period of time as compared to tax laws in more
developed market economies. Tax authorities in Russia, Ukraine
and other emerging markets in which we operate are often
arbitrary in their interpretation of tax laws, as well as in
their enforcement and tax collection activities.
Many companies are often forced to negotiate their tax bills
with tax inspectors who may assess additional taxes. Any
additional tax liability, as well as any unforeseen changes in
applicable tax laws or changes in the Russian or Ukrainian tax
authorities’ interpretations of the respective double tax
treaties in effect with the Netherlands, could have a material
adverse effect on our future results of operations, cash flows
or the amounts of dividends available for distribution to
shareholders in a particular period. We may be required to
accrue substantial amounts for contingent tax liabilities and
the amounts accrued for tax contingencies may not be sufficient
to meet any liability we may ultimately face. From time to
time, we may also identify tax contingencies for which we have
not provided an accrual. Such unaccrued tax contingencies could
materialize and require us to recognize additional amounts of
tax.
Russian
tax laws, regulations and court practice are subject to frequent
change, varying interpretations and inconsistent and selective
enforcement.
Generally, taxes payable by Russian companies are relatively
substantial and include, inter alia, corporate profits tax, VAT,
excise, property tax, payroll-related taxes and other taxes.
Russian tax laws, regulations and court practice are subject to
frequent change, varying interpretation and inconsistent and
selective enforcement. The law and legal practice in Russia are
not as clearly established as those of mature markets and there
are a number of uncertainties with respect to the application of
tax legislation. In some instances, although it may be viewed
as contrary to Russian constitutional law, the Russian tax
authorities have applied certain new tax laws retroactively,
issued tax claims for periods for which the statute of
limitations had expired and reviewed the same tax period
multiple times.
A-25
Despite the Russian government’s steps to reduce the
overall tax burden in recent years, Russia’s largely
ineffective tax collection system and continuing budgetary
funding requirements may increase the likelihood that the
Russian Federation will impose arbitrary or onerous taxes and
penalties in the future, which could have a material impact on
our business and financial performance. Additionally, taxation
has been used as a tool for significant state intervention in
certain key industries.
Since Russian federal, regional and local tax laws and
regulations are subject to frequent change and some of the
sections of the Tax Code of the Russian Federation (the
“Tax Code”) are comparatively new, interpretation of
these laws and regulations is often unclear or non-existent.
Taxpayers and the Russian tax authorities often interpret tax
laws differently. Differing interpretations of tax regulations
exist both among and within government ministries and
organizations at the federal, regional and local levels,
creating uncertainties and inconsistent enforcement.
Furthermore, in the absence of binding precedent, court rulings
on tax or other related matters by different courts relating to
the same or similar circumstances may also be inconsistent or
contradictory. Taxpayers often have to resort to court
proceedings to defend their position against the tax
authorities. Recent events within the Russian Federation
suggest that the tax authorities may be taking a more assertive
position in their assessments and their interpretation of
legislation and it is possible that transactions and activities
that have not been challenged in the past may now be challenged.
In addition to the usual tax burden imposed on Russian
taxpayers, these conditions complicate tax planning and related
business decisions, potentially exposing us to significant fines
and penalties as well as potentially severe enforcement measures
despite its best efforts to comply. This could have a
significant adverse effect on our business, prospects, financial
condition and results of operations.
On October 12, 2006, the Plenum of the High Arbitration
Court of the Russian Federation issued Resolution No. 53
formulating the concept of “unjustified tax benefit,”
which is described in the Resolution by reference to
circumstances, such as absence of business purpose or
transactions where the form does not match the substance, and
which could lead to the disallowance of tax benefits resulting
from the transaction or the recharacterization of the
transaction. There has been very little further guidance on the
interpretation of this concept by the tax authorities or courts,
but it is likely that the tax authorities will actively seek to
apply this concept when challenging tax positions taken by
taxpayers in Russian courts. While the intention of this
Resolution might have been to combat abuse of tax laws, in
practice, there is no assurance that the tax authorities will
not seek to apply this concept in a broader sense.
Generally, tax declarations of Russian companies remain open and
subject to inspection by tax
and/or
customs authorities for three calendar years immediately
preceding the year in which the decision to conduct an audit is
taken. However, the fact that a particular year has been
reviewed by tax authorities does not preclude that year from
further review or audit during the eligible three-year
limitation period by a superior tax authority. On 14 July
2005 the Russian Constitutional Court issued a decision allowing
the statute of limitations for tax liabilities to be extended
beyond the three-year term set forth in the tax laws if a court
determines that the taxpayer has obstructed or hindered a tax
inspection. Moreover, recent amendments to the first part of
the Tax Code, effective 1 January 2007, provide for the
extension of the three-year statute of limitations if the
actions of the taxpayer created insurmountable obstacles for the
tax audit. Because none of the relevant terms is defined, tax
authorities may have broad discretion to argue that a taxpayer
has “obstructed”, “hindered” or
“created insurmountable obstacles” in respect of an
inspection and to ultimately seek review and possibly apply
penalties beyond the three-year term, and there is no guarantee
that the tax authorities will not review our compliance with
applicable tax law beyond the three-year limitation period.
Russian law does not provide for the possibility of group relief
or fiscal unity. Consequently, financial results of each of
Russian company belonging to the group are not consolidated for
tax purposes, i.e. no offset of profit of one entity against
losses of another entity in the group is possible. The Russian
Government, in its “Major Trends in Russian Tax Policy for
2009-2011”,
has proposed the introduction of consolidated tax reporting to
enable the consolidation of the financial results of Russian
taxpayers which are part of one group for corporate income tax
purposes. We are aware that the draft law on consolidated tax
reporting has already been drafted, however, at this stage, it
is impossible to predict whether, when or how consolidated tax
reporting principles will be enacted.
A-26
In addition, intercompany dividends are subject to a withholding
tax of 0.0% or 9.0% (depending on whether the recipient of
dividends qualifies for Russian participation exemption rules),
if being distributed to Russian companies, and 15.0% (or lower,
subject to benefits provided by relevant double tax treaties),
if being distributed to foreign companies. If the receiving
company itself pays a dividend, it may offset tax withheld
against its own withholding liability of the onward dividend
although not against any withholding made on a distribution to a
foreign company. These tax requirements impose additional
burdens and costs on our operations, including management
resources.
Moreover, Russian tax legislation currently in effect does not
contain a concept of corporate tax residency (rather, the
Russian domestic legislation recognizes the concept of a
taxpayer). Russian legal entities and organizations are taxed
on their worldwide income while foreign legal entities and
organizations are taxed in Russia on income attributable to
their permanent establishment and on Russian source income,
received by these foreign legal entities and organizations.
Some of our foreign companies may be treated by the tax
authorities as having permanent establishment in Russia.
Nevertheless, the Russian Government, in its “Major Trends
in Russian Tax Policy for
2008-2010”,
has proposed the introduction into the domestic tax law of a
concept of tax residency for legal entities. According to the
proposals, a non-Russian entity would be deemed a Russian tax
resident based on the place of its effective management and
control
and/or based
on the residence of its shareholders. No assurance can be given
as to whether and when these amendments will be enacted, their
exact nature, and their interpretation by the tax authorities
and possible impact on us. We cannot rule out that, as a result
of the introduction of these changes to the Russian tax
legislation, our certain foreign companies might be deemed to be
Russian tax residents, subject to all applicable Russian taxes.
It should also be noted, that on September 2, 2010, Russian
Federal Law No 229-FZ entered into force introducing changes to
the interest deductibility limits capping the amount of interest
expenses deductible for corporate profits tax purposes.
Starting from January 1, 2011 the limits are set up as 1.8
times the Russian Central Bank refinancing rate for loans
denominated in Russian rubles, and 0.8 times the Russian Central
Bank refinancing rate for loans denominated in foreign currency
(compared to the prior limit of 15.0% for foreign currency
denominated loans). Very likely these changes will result in a
disallowance of a certain portion of interest expenses incurred
on foreign currency denominated loans, which could have an
adverse effect on our business, financial condition or results
of operations or prospects.
Moreover, the Russian Government in its “Major Trends in
Russian Tax Policy for
2011-2013”,
has proposed to reconsider existing thin capitalization rules
with the view of newly drafted list of related parties. It is
planned that new thin capitalization rules would affect
relationships between not only domestic and foreign
counterparts, but also between domestic parties as well. It is
also planned to reconsider methods of calculation of
deductibility limits for interest expenses (which are currently
based on the Russian Central Bank refinancing rate). No
assurance can be given as to whether and when these amendments
will be enacted, their exact nature, and their interpretation by
the tax authorities and possible impact on us. We cannot rule
out that, as a result of the introduction of these changes to
the Russian tax legislation our business, prospects, financial
condition and results of operations may be adversely affected.
Current Russian tax legislation is, in general, based upon the
formal manner in which transactions are documented, looking to
form rather than substance. However, the Russian tax
authorities, in some cases, are increasingly taking a
“substance and form” approach, which may cause
additional tax exposures to arise in the future. There can be
no assurance that the Tax Code or its interpretation will not be
changed in the future in a manner adverse to the stability and
predictability of the tax system (including in relation to thin
capitalization and transfer pricing rules and other rules
governing the deductibility of interest or other expenses and
the timing thereof). It is expected that Russian tax
legislation will become more sophisticated, which, coupled with
the state budget deficits, may result in the introduction of
additional revenue raising mechanisms. Although it is unclear
how these measures would operate, the introduction of such
measures could affect our overall tax efficiency and result in
significant additional tax liabilities. Additional tax exposure
could have a significant adverse effect on our business,
prospects, financial condition and results of operations.
A-27
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drafted Russian transfer pricing rules and lack of reliable
pricing information may impact our business, financial condition
and results of operations.
Transfer pricing legislation became effective in the Russian
Federation on January 1, 1999. This legislation allows the
tax authorities to make transfer pricing adjustments and impose
additional tax liabilities in respect of all
“controlled” transactions, provided that the
transaction price differs from the market price by more than
20.0%. “Controlled” transactions include transactions
with related parties, barter transactions, foreign trade
transactions and transactions with unrelated parties with
“significant price fluctuations” (i.e., if the price
with respect to such transactions differs from the prices on
similar transactions conducted within a short period of time by
more than 20.0%). Special transfer pricing adjustments are also
applicable to operations with securities and derivatives.
Russian transfer pricing rules are vaguely drafted, generally
leaving wide scope for interpretation by Russian tax authorities
and courts and their use in politically motivated investigations
and prosecutions. There has been very little guidance (although
some court practice is available) as to how these rules are to
be applied.
If the tax authorities were to impose significant additional tax
liabilities as a result of transfer pricing adjustments, it
could have a material adverse impact on our business, financial
condition and results of operations. Additionally, in the event
that a transfer pricing adjustment is assessed by the Russian
tax authorities, the Russian transfer pricing rules do not
provide for a correlative adjustment to the related counterparty
in the transaction that is subject to adjustment. Although a
possibility for such an adjustment in relation to cross-border
transactions generally exists through a mutual agreement
procedure allowed by most of the double taxation agreements
signed by Russia with other countries, this procedure has not
been seen working in practice. In addition to the usual tax
burden imposed on Russian taxpayers, these conditions complicate
tax planning and related business decisions.
Due to the uncertainties in the interpretation of transfer
pricing legislation, there is a risk that the tax authorities
may challenge the prices of some of our transactions and propose
adjustments and, to the extent that any such challenge is upheld
by the Russian arbitration courts and implemented, our business,
revenues, financial condition, results of operations and
prospects could be materially adversely affected.
Currently new Russian transfer pricing rules are in the process
of being adopted by the State Duma of the Russian Federation.
The new Russian transfer pricing rules may be adopted and come
into force some time during 2011. The implementation of these
amendments should help align domestic rules more with OECD
principles. At the same time, the amendments are expected to
considerably toughen the existing law, as the proposed changes
are expected, among other things, to effectively shift the
burden of proving market prices from the tax authorities to the
taxpayer, obliging the taxpayer to keep specific documentation.
Besides that, the new rules introduce certain other significant
amendments:
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introduction of the arm’s length principle as a fundamental
principle of the Russian transfer pricing rules;
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the new list of controlled transactions (which would cover
cross-border transactions with certain commodities, cross-border
transactions with related parties and tax haven residents, and
certain intra-Russian transactions with related parties);
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the extended list of related parties;
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the extended list of transfer pricing methods (including the
Transactional Net Margin Method and the Profit Split method)
with the choice of method depending on the allocation of
functions performed, risks assumed and assets employed by the
parties to a transaction (instead of a rigid priority of methods
under current legislation);
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replacement of the existing permitted deviation threshold by the
arm’s length range of market prices (profitability);
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the correlative adjustments in relation to domestic
transactions; and
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special transfer pricing audits by federal tax authorities and
specific transfer pricing penalties (more severe that in case of
other, non-transfer pricing related, tax assessments).
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A-28
Introduction of the new transfer pricing rules may increase the
risk of transfer pricing adjustments by the tax authorities and
have a material impact on our business and the results of
operations. It will also require us to ensure compliance with
the new transfer pricing documentation requirements proposed by
these rules.
Laws
restricting foreign investment could materially adversely affect
our business.
We could be materially adversely affected by the adoption of new
laws or regulations restricting foreign participation in the
telecommunications industry in Russia, Ukraine or other emerging
markets in which we operate. The Russian Foreign Investment Law
limits foreign investment in companies that are deemed to be
strategic. Under the Russian Foreign Investment Law, a company
operating in the telecommunications sector may be deemed
strategic if it holds a dominant position in the Russian
communications market (except for the Internet services market)
or, in the case of fixed-line telecommunications, if the
particular company’s market covers five or more Russian
regions or covers Russian cities of federal importance. In
connection with the adoption of the Russian Foreign Investment
Law, amendments were adopted to certain provisions of the
Russian Communications Law which provide that with respect to
mobile telecommunications, a company will be deemed to have a
dominant position for purposes of application of the Russian
Foreign Investment Law if its share of the Russian mobile
telecommunications market exceeds 25.0%. As discussed above,
under “— Risks Related to Our
Business — We are subject to anti-monopoly and
consumer protection regulations in Russia, Ukraine and the CIS,
which could restrict our business,” the Russian FAS
previously determined that a group of persons consisting of OJSC
VimpelCom and two of its Russian subsidiaries, one of which
subsequently merged with and into OJSC VimpelCom, has a dominant
position, because their share of the Russian mobile
telecommunications market exceeds 25.0%. As a result, OJSC
VimpelCom is deemed to be a strategic enterprise and, among
other things, any acquisition by a foreign investor of direct or
indirect control over more than 50.0% of its voting shares
requires the prior approval of the Russian authorities pursuant
to the Russian Foreign Investment Law. In the event any future
transactions with our shares result in the acquisition by a
foreign investor of direct or indirect control over OJSC
VimpelCom, such a transaction will require prior approval in
accordance with the Russian Foreign Investment Law. As a
result, our ability to obtain financing from foreign investors
through such transactions may be limited, should prior approval
be refused, delayed or require foreign investors to comply with
certain conditions imposed by the Government Commission on
Control of Foreign Investments in the Russian Federation or the
Russian FAS, which could materially and adversely affect our
business, financial condition and results of operations.
The Ukrainian economy is to a certain extent dependent on
foreign investment. Despite improvements in the economy from
2005 to 2008, Ukraine experienced a severe contraction of
cumulative foreign direct investment, as well as a considerable
foreign capital outflow due to the economic downturn and
political instability in Ukraine in the fourth quarter of 2008.
As the volume of foreign direct investment into emerging markets
is expected to contract globally, Ukraine may face further
deterioration in the amounts of foreign direct investment.
Although the Ukrainian government has repeatedly emphasized that
the plans announced in early 2005 to review the privatization of
a number of major companies are no longer under consideration,
any future attempts to nationalize or expropriate and
reprivatize private enterprises could adversely affect the
climate for foreign direct investment in Ukraine. Any further
deterioration in the climate for foreign direct investment in
Ukraine could have a material adverse effect on the economy and
thus negatively impact Kyivstar’s growth potential,
business, financial condition and results of operations.
In Kazakhstan, an amendment to the law “On National
Security” was adopted in July 2004 which specifically
limits investments to less than 49.0% by foreign legal entities
or individuals in domestic and long distance operators who own
certain communications lines (including fiber optic and
microwave links). The law “On Investments,” adopted
in January 2003, consolidated past Kazakh legislation governing
foreign investment. While these laws guarantee the stability of
existing contracts, all contracts are subject to amendments in
domestic legislation, certain provisions of international
treaties, and domestic laws dealing with “national and
ecological security, health and ethics”.
Our growth strategy may also be limited by laws in jurisdictions
outside of Russia, Ukraine and the CIS restricting foreign
ownership. For example, the laws of Vietnam currently restrict
foreign ownership of a majority stake in certain types of
telecommunications companies.
A-29
The
developing securities laws and regulations of Russia, Ukraine
and the CIS may limit our ability to attract future investment
and could subject us to fines or other enforcement measures
despite our best efforts at compliance, which could cause our
financial results to suffer and harm our business.
The regulation and supervision of the securities market,
financial intermediaries and issuers are considerably less
developed in Russia, Ukraine and the CIS than in the United
States and Western Europe. Disclosure and reporting
requirements, anti-fraud safeguards, xxxxxxx xxxxxxx
restrictions and fiduciary duties are relatively new to Russia,
Ukraine and the CIS and are unfamiliar to most companies and
managers. In addition, securities rules and regulations can
change rapidly, which may materially adversely affect our
ability to conduct securities-related transactions. We may be
subject to fines or other enforcement measures despite our best
efforts at compliance, which could cause our financial results
to suffer and harm our business.
In Russia, securities rules and regulations can change rapidly,
which may materially adversely affect our ability to conduct
securities-related transactions, including our ability to
attract investments in our securities in the Russian market.
Despite our best efforts at compliance, we may be subject to
fines or other enforcement measures, which could cause our
financial results to suffer and harm our business, financial
condition and results of operations.
Weaknesses in Ukrainian corporate law have often been used for
the purpose of disenfranchising or diluting minority
shareholders and misappropriating corporate assets. In
September 2008, the Ukrainian Parliament adopted a new Joint
Stock Company Law, drafted in consultation with international
experts, that came into effect in April 2009 and is meant to
improve the current law by introducing corporate practices that
are consistent with international standards. Kyivstar will be
required to amend and restate its charter and change its
corporate name prior to April 2011 in order to bring it into
full compliance with the new Joint Stock Company Law. There can
be no assurance that Kyivstar will be able to comply with these
changes on a timely basis. The effect of these reform efforts
remains to be seen, and any continuation of the corporate
governance issues that have plagued Ukrainian companies prior to
adoption of the new law could have a material adverse effect on
our business, financial condition and results of operations.
In certain cases we may be jointly and severally liable for any
obligations of a subsidiary under a transaction. We may also
incur secondary liability for any obligations of a subsidiary in
certain cases involving bankruptcy or insolvency. The other
shareholders of the subsidiary may seek compensation from us for
the losses sustained by the subsidiary that were caused by us.
This type of liability could result in significant obligations
and materially adversely affect our business.
Risks
Related to the Ownership of our ADSs
We may
need additional capital in the future and may not be able to
obtain it on favorable terms, if at all.
Our industry is highly capital intensive and our success depends
to a significant degree on our ability to develop and market
innovative products and to update our facilities and process
technology. We may require additional capital in the future to
finance our future growth and development, implement further
marketing and sales activities, fund our ongoing research and
development activities and meet our general working capital
needs. Our capital requirements will depend on many factors,
including acceptance of and demand for our products and
services, the extent to which we invest in new technology and
research and development projects, and the status and timing of
competitive developments. However, additional financing may not
be available when needed on terms favorable to us or at all. If
we are unable to obtain adequate funds on acceptable terms, we
may be unable to develop or enhance our products, take advantage
of future opportunities or respond to competitive pressures,
which could adversely affect our business, financial condition
and results of operations.
VimpelCom
is a holding company and depends on the performance of its
subsidiaries and their ability to make distributions to
it.
VimpelCom is a holding company and does not conduct any
revenue-generating business operations of its own. Its
principal assets are the equity interests it owns in its
operating subsidiaries, either directly or indirectly. As a
result, it is dependent upon cash dividends, distributions,
loans or other transfers it receives from its subsidiaries in
A-30
order to make dividend payments to its shareholders (including
holders of ADSs), to repay any debt it may incur, and to meet
its other obligations. VimpelCom may also need guarantees from
its subsidiaries to incur debt. The ability of VimpelCom’s
subsidiaries to pay dividends and make payments or loans to
VimpelCom and to guarantee VimpelCom’s debt, will depend on
their operating results and may be restricted by, among other
things, applicable corporate, tax and other laws and regulations
and agreements of those subsidiaries. Payments or distributions
from VimpelCom’s subsidiaries could also be subject to
restrictions on dividends or repatriation of earnings under
applicable local law, monetary transfer restrictions and foreign
currency exchange restrictions in the jurisdictions in which its
subsidiaries operate. For example, our Ukrainian subsidiaries,
Kyivstar and Storm, may be required to obtain individual
licenses or approvals from the National Bank of Ukraine in order
to pay us dividends. Kyivstar has successfully obtained such
licenses and approvals for its recent dividend distributions.
However, a draft law lifting the investment registration
requirement has recently been discussed in the Ukrainian
Parliament which is expected to simplify this dividend payment
procedure. VimpelCom’s subsidiaries are separate and
distinct legal entities. Any right that VimpelCom has to
receive any assets of or distributions from any subsidiary upon
its bankruptcy, dissolution, liquidation or reorganization, or
to realize proceeds from the sale of the assets of any
subsidiary, will be junior to the claims of that
subsidiary’s creditors, including trade creditors.
The payment of dividends is subject to the discretion of
VimpelCom’s supervisory board and VimpelCom’s assets
consist primarily of investments in its operating subsidiaries.
Various factors may cause the supervisory board to determine not
to pay dividends. Such factors include VimpelCom’s
financial condition, its earnings and cash flows, its capital
requirements, contractual restrictions and such other factors as
VimpelCom’s supervisory board may consider relevant.
VimpelCom
is a Bermuda company governed by Bermuda law, which may affect
your rights as a shareholder or holder of DRs.
VimpelCom is a Bermuda exempted company. As a result, the
rights of VimpelCom’s shareholders will be governed by
Bermuda law and by VimpelCom’s restated bye-laws. The
rights of shareholders under Bermuda law may differ from the
rights of shareholders of companies incorporated in other
jurisdictions. In addition, holders of ADSs do not have the
same rights under Bermuda law and VimpelCom’s restated
bye-laws as registered holders of VimpelCom’s shares.
Substantially all of our assets are located outside the United
States. It may be difficult for investors to enforce in the
United States judgments obtained in U.S. courts against
VimpelCom or its directors and executive officers based on civil
liability provisions of the U.S. securities laws. Uncertainty
exists as to whether courts in Bermuda will enforce judgments
obtained in other jurisdictions, including the United States,
under the securities laws of those jurisdictions, or entertain
actions in Bermuda under the securities laws of other
jurisdictions.
We are
not subject to corporate governance requirements under the NYSE
rules.
Our ADSs are listed on the NYSE; however, as a Bermuda company,
we are not be subject to the corporate governance provisions
under the NYSE listing rules that are applicable to a U.S.
company. The primary difference between our corporate
governance practice and the NYSE rules relates to
section 303A.01 of the NYSE rules, which provides that each
U.S. company listed on the NYSE must have a majority of
independent directors, as defined in the NYSE rules. Bermuda
corporate law does not require that we have a majority of
independent directors, and our restated bye-laws provide that
three out of nine of our directors will be independent for
purposes of the NYSE rules. In addition, our restated bye-laws
provide that our compensation committee is comprised of three
directors: one nominated by Xxxxxx, one nominated by Telenor and
one independent, unaffiliated director. As a result, unlike a
U.S. company listed on the NYSE, we will not have a majority of
independent directors and our compensation committee will not
consist entirely of independent directors. Accordingly, you
will not have the same protections afforded to shareholders of
companies that are subject to all of the NYSE corporate
governance requirements.
A-31
In addition to the information included in “Risk
Factors” and “Annex A — Risk
Factors Relating to VimpelCom’s Business” and the
other information included in this proxy statement, you should
carefully consider the following risks before making your voting
decision. The information below is divided into the Risks
Relating to Wind Italy’s Business and the Risks Relating to
OTH’s Business. There may be additional risks that we
currently consider not to be material or of which we are not
currently aware and these risks could materially adversely
affect our business, financial condition, results of operations
and business prospects.
Risks
Relating to Wind Italy’s Business
The
Italian telecommunications industry is characterized by high
levels of competition and Wind Italy expects the market to
remain highly competitive. If Wind Italy is not able to
successfully compete, Wind Italy’s financial performance
and business prospects may be materially adversely
affected.
All of the telecommunications markets in Italy in which Wind
Italy operates are characterized by high levels of competition
among mobile and fixed-line telecommunications and broadband
service providers. Wind Italy expects its markets to remain
competitive in the near term, and competition may be exacerbated
by further consolidation and globalization of the
telecommunications industry.
In the Italian mobile telecommunications market, Telecom Italia,
operating under the “XXX” brand name, Vodafone Italy
(“Vodafone”) and Xxxxxxxxx 3G, operating
under the “3” brand name, are currently Wind
Italy’s principal competitors. Telecom Italia and Vodafone
have well-established positions in the Italian mobile market and
each has a greater market share than Wind Italy does. Xxxxxxxxx
3G has been aggressively seeking new customers through the use
of handset subsidies, which are not customarily offered in the
Italian market.
Telecom Italia, as the incumbent in the market, has the
advantage of long-standing relationships with Italian customers.
Vodafone is very well-positioned in the market and is perceived
as having a technologically- advanced and reliable network in
the market. Certain of Wind Italy’s competitors also
benefit from greater levels of global advertising or stronger
brand recognition than Wind Italy does.
In addition, the Italian mobile market is approaching
saturation. See “— The success of Wind
Italy’s mobile operations depends on its ability to attract
and retain mobile subscribers. If Wind Italy is unable to
successfully manage its subscriber turnover or otherwise lose
mobile subscribers, Wind Italy may face increased subscriber
acquisition and retention costs and reduced revenues or lower
cash flows”. The level of saturation and the highly
consolidated nature of the market will result in continued
pricing pressure, and Wind Italy’s competitiveness will
depend on its ability to introduce new technologies, convergent
services and attractive bundled products at competitive prices,
as further growth of Wind Italy’s subscriber base in this
mature market will be primarily driven by its ability to acquire
other operators’ subscribers and its ability to retain
existing subscribers. See “— The success of Wind
Italy’s mobile operations depends on its ability to attract
and retain mobile subscribers. If Wind Italy is unable to
successfully manage its subscriber turnover or otherwise lose
mobile subscribers, Wind Italy may face increased subscriber
acquisition and retention costs and reduced revenues or lower
cash flows”. In addition, all Italian mobile operators,
including Wind Italy, have commercial agreements with mobile
virtual network operators, (“MVNOs”),
providing them access to their respective networks which the
MVNOs, in turn, sell to their own subscribers, which further
increases competition.
In the fixed line voice market, the incumbent, Telecom Italia,
maintains a dominant market position. Telecom Italia benefits
from cost efficiencies inherent in its existing
telecommunications infrastructure over which it provides its
fixed-line coverage. As a long-standing telecommunications
provider, Telecom Italia also benefits from customer
recognition, familiarity and customer loyalty. Increased
competition, as a result of the entry of new international
competitors, the introduction and growth of new technologies,
products and services, a decline in the number of fixed-line
subscribers due to continued
fixed-to-mobile
substitution, continued migration from narrowband
(dial-up) to
broadband usage and regulatory changes in the Italian market may
exert downward pressure on prices or otherwise cause Wind
Italy’s fixed-line subscriber base to contract, thereby
negatively impacting its revenues and profitability.
B-1
If Wind Italy is unable to win mobile
and/or
fixed-line subscribers from its competitors
and/or
retain its existing subscribers, or if Wind Italy fails to
launch compelling and innovative products and services at
competitive prices, Wind Italy could lose its subscribers, and
the financial performance and business prospects for its mobile
and fixed-line businesses could be materially adversely affected.
Wind
Italy’s debt could have an adverse effect on its financial
condition.
Wind Italy has outstanding debt and significant debt service
obligations. As of September 30, 2010, after adjusting for
the effects of the refinancing of Wind Italy’s debt in
November 2010, its total consolidated debt was
€ 8,899.6 million. Of this amount,
€3,380 million represented its indebtedness and the
remainder indebtedness of its subsidiaries and restricted
affiliates consolidated into the accounts of Wind Italy.
Wind Italy’s level of indebtedness could have important
negative consequences for it and for investors. For example, it:
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requires it to dedicate a large portion of its cash flow from
operations to fund payments on its debt, thereby reducing the
availability of its cash flow to fund working capital, capital
expenditures and other general corporate purposes;
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increases its vulnerability to adverse general economic or
industry conditions;
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limits Wind Italy’s flexibility in planning for, or
reacting to, changes in its business or the industry in which
its operates;
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limits its ability to raise additional debt or equity capital in
the future or increase the cost of such funding;
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could restrict it from making strategic acquisitions or
exploiting business opportunities; and
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could place it at a competitive disadvantage compared to less
leveraged competitors.
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There can be no assurance that Wind Italy’s business will
generate sufficient cash flow from operations or that future
borrowings will be available in an amount sufficient to enable
it to repay its existing credit facilities, to service its
indebtedness or to fund its liquidity needs. If Wind Italy is
unable to meet its debt service obligations, it may attempt to
restructure or refinance existing debt, sell certain of its
assets or seek additional funding. However, it may not be able
to do so on satisfactory terms, if at all. Failure to do so
could have a material adverse effect on its business, prospects,
financial condition and results of operations.
Wind
Italy’s business is capital intensive and has generated
negative cash flows in the past. Wind Italy may not have
sufficient liquidity to fund its capital expenditure programs or
its on-going operations in the future.
Wind Italy’s business is requires significant amounts of
capital. Historically, the
start-up
costs, extensive capital investments, operating expenditures and
debt service costs have contributed to Wind Italy’s
negative cash flows. Wind Italy has an extensive capital
expenditure program that requires significant capital outlays,
including for the maintenance, expansion and optimization of
Wind Italy’s global system for mobile communications
(“GSM”) network and expansion of Wind
Italy’s universal mobile telecommunications
(“UMTS”) network and high-speed downlink
packet access (“HSDPA”) coverage,
development of Wind Italy’s local loop unbundling
(“LLU”) exchanges and maintenance of
Wind Italy’s network infrastructure. Wind Italy may also
need to invest in new networks and technologies in the future,
which could require significant capital expenditures and, if
network usage develops faster than Wind Italy anticipates, Wind
Italy may require greater capital investments in shorter time
frames than it anticipates and Wind Italy may not have the
resources to make such investments. In addition, costs
associated with the licenses that Wind Italy needs to operate
its existing networks and technologies and those that Wind Italy
may develop in the future, and costs and rental expenses related
to their deployment, could be significant. The amount and
timing of Wind Italy’s future capital requirements may
differ materially from Wind Italy’s current estimates due
to various factors, many of which are beyond Wind Italy’s
control. Wind Italy may also be required to raise additional
debt or equity financing in amounts that could be substantial.
The type, timing and terms of any future financing will depend
on Wind Italy’s cash needs and the prevailing conditions in
the financial markets. Wind Italy may not be able to accomplish
any of these measures on a timely basis or on commercially
B-2
reasonable terms, if at all. Wind Italy may not generate
sufficient cash flows in the future to meet its capital
expenditure needs, sustain its operations or meet its other
capital requirements, which may have a material adverse effect
on Wind Italy’s business, financial condition and results
of operations.
Wind
Italy’s business, financial condition, results of
operations and liquidity may be adversely affected by the
current unfavorable global economic conditions.
As the crisis in the global financial and credit markets began
to spread to non-financial sectors of the world economy,
economies worldwide started to show significant signs of
weakness, resulting in a general contraction in consumer
spending that varies by market. While the telecommunications
sector is one of the industrial segments that has been less
affected by the global financial crisis and economic slowdown,
the recessionary conditions and uncertainty in the macroeconomic
environment may adversely impact consumer spending on
telecommunications products and services. Customers may decide
that they can no longer afford mobile services, or that they can
no longer afford the data and other services that are
instrumental in maintaining or increasing ARPU (average revenue
per user) , and, in turn, increasing its revenues.
In addition, as the global financial system experienced credit
and liquidity disruptions, leading to a reduction in liquidity,
greater volatility, general widening of credit spreads and, in
some cases, lack of transparency in money and capital markets,
many lenders reduced or ceased to provide funding to borrowers.
If these conditions continue, or worsen, it could negatively
affect Wind Italy’s ability to raise funding in the debt
capital markets
and/or
access secured lending markets on financial terms acceptable to
Wind Italy.
The continued impact of the global economic and market
conditions, including, among others, the events described above
could have a material adverse effect on Wind Italy’s
business, financial condition, results of operations or
liquidity.
Wind
Italy is subject to an audit by the Italian Tax Authority
regarding withholding taxes on certain interest
payments.
Proceedings by the Italian Tax Authority against Wind Italy are
in progress and could, if determined adversely to Wind Italy,
result in liabilities for substantial payments of withholding
taxes, penalties and interest, all as described in more detail
below.
As a general rule, interest paid to non-resident companies
resident for tax purposes in the European Union, including
interest on loans, is subject to withholding tax levied at a
domestic rate of 12.5%. The domestic rate may be reduced under
an applicable treaty against double taxation. No withholding tax
is due on interest payments by an Italian borrower if its lender
can rely on the benefit of the withholding tax exemption set
forth by the Italian rules implementing the European Union
Directive on intra-group payments of interest and royalties
(Article 26-quater
of Italian Presidential Decree No. 600/73, the “Decree
600/73”). Such exemption applies to interest payments made
to (i) sister companies having a 25% shareholder in common
with the borrower, and (ii) direct shareholders owning a
minimum 25% interest in the share capital of the borrower, in
each case, provided that the shareholding of the parent (in the
subsidiary or in the two sister companies, as applicable) has
been held for more than one year; in cases where interest
payments have occurred before the one year term has elapsed,
withholding taxes apply and a request for refund can be
submitted after the one year term elapses (the “E.U.
Exemption Regime”).
On June 12, 2009, the Italian Tax Authority notified Wind
Italy of the commencement of a tax audit (the “Tax
Audit”) with reference to (i) the application
by Wind Finance S.L. S.A., an affiliate of Wind Italy that
issued, on 29 September 2005, the Second Lien Notes,
pursuant to the E.U. Exemption Regime for a refund of
withholding taxes on interest payments made for 2005 and part of
2006 by Wind Italy to Wind Finance SL S.A., and (ii) the
eligibility for the E.U. Exemption Regime for withholding
taxes on interest payments made by Wind Italy to Wind Finance SL
S.A. for the remainder of 2006 and full years 2007 and 2008 on
such Second Lien Notes. The scope of the Tax Audit was
subsequently expanded to Wind Acquisition Finance S.p.A. (which
was merged into Wind Italy on December 31, 2006) with
reference to (i) the application by Wind Acquisition
Finance S.A., an affiliate of Wind Italy that issued, on
28 November 2005, the 2015 Notes, pursuant to the E.U.
Exemption Regime for a refund of withholding taxes on
interest payments made for 2005 and part of 2006 by Wind Italy
to Wind Acquisition Finance S.A., and (ii) the eligibility
for the withholding tax exemption claimed under the E.U.
Exemption Regime on interest
B-3
payments made by Wind Italy to Wind Acquisition Finance S.A. for
the remaining part of 2006 and full years 2007 and 2008 on the
2015 Notes.
On May 31, 2010, the findings of the Tax Audit were
submitted to Wind Italy in a report (processo verbale di
constatazione) (the “Tax Report”)
stating that a 12.5% withholding tax should have been applied on
the interest payments referred to in the Tax Audit, amounting to
an approximate amount of €71 million in taxes.
On November 29 and 30, 2010, the Italian Tax Authority notified
Wind Italy of the tax assessment for interest payments made by
Wind Italy for the year 2005. The assessment quantifies
withholding tax not applied on interest payments made in 2005 by
Wind Italy to Wind Finance SL S.A. and to Wind Acquisition
Finance S.A. in the amount of €1,300,077 in withholding
tax, plus penalties in the amount of €1,950,115 (which
equals 150% of the assessed withholding tax due), plus interest
in the amount of €173.398 (which equals the interest
computed up to November 30, 2010). The amount of
withholding tax assessed as due for the year 2005 represents
2.5% of interest payments made by Wind Italy during that year,
as Wind Italy had paid withholding tax at the rate of 10% (the
rate provided by the Double Tax Treaty between Italy and
Luxembourg) instead of at the rate of 12.5% (the ordinary rate
provided by Italian law) because the minimum holding period
required under the E.U. Exemption Regime had not yet
passed. On January 25, 2011, Wind Italy filed with the
Italian Tax Authority a request for mutual agreement
(accertamento con adesione), and within ninety days from
that date Wind Italy must decide whether to settle or appeal
before a tax court the tax audit findings.
As of the date of this proxy statement, no tax assessments
linked to the Tax Report have been issued for the years 2006,
2007 and 2008, which were also covered by the Tax Report. The
Italian Tax Authority can notify such an assessment at any time
up to December 31 of the fourth year following the year in which
the relevant tax return is submitted. Consequently, assessments
for the years 2006, 2007 and 2008 can be made until the end of
the years 2011, 2012 and 2013, respectively. Were the Italian
Tax Authority to confirm that the withholding tax on the
relevant interest payments was due, Wind Italy would be required
to pay withholding taxes and possible interest and penalties,
unless it successfully contests the assessment before a tax
court.
Should the Italian Tax Authority expand the scope of its
investigation, or open a new investigation, and make findings
similar to those in the Tax Report with respect to other tax
years periods or interest payments on other intercompany loans,
Wind Italy could become obligated to pay withholding tax on
historical or future interest payments made with respect to such
intercompany loans. Any requirement to make such past or future
payments could have a material adverse effect on Wind
Italy’s financial condition, cash flows and results of
operations and make it more difficult for Wind Italy to service
its debt as it comes due.
Italian
CFC legislation has been extended to EU companies.
Art. 167 of Italian Presidential Decree No. 917/1986
of December 22, 1986 (“Decree
No. 917”) provides for the rules of taxation
of foreign companies (“CFC”) located in
certain countries and territories with a privileged tax regime
(as identified by Ministerial Decree of November 21, 2001,
the “Black List”) that are directly or
indirectly controlled by Italian resident individuals, companies
and entities (“Italian CFC Legislation”).
Under the Italian CFC Legislation, the income of the CFC (as
re-calculated pursuant to the Italian tax rules regarding
business income) is attributed to, at the end of the financial
year of the CFC, the Italian resident controlling entity pro
rata to the latter’s ownership in the CFC and
separately taxed in Italy at a tax rate equal to the average tax
rate of the Italian resident controlling entity, which in any
case cannot be lower than 27%.
Following the amendments provided for by Law Decree No. 78
of July 1, 2009, enacted by Law No. 102 of
August 3, 2009, the application of the Italian CFC
Legislation has been extended also to CFCs that are located in
non-Black Listed countries or territories, thus including CFCs
located in EU Member States, provided that certain conditions
are met. Such new rules apply starting from the financial year
2010. However, there is still significant uncertainty regarding
the application of these new rules. Based on the above, some of
the foreign companies, including Wind Italy group companies
located within the EU, may fall within the scope of application
of the new Italian CFC legislation.
B-4
The
success of Wind Italy’s mobile operations depends on its
ability to attract and retain mobile subscribers. If Wind Italy
is unable to successfully manage its subscriber turnover or
otherwise lose mobile subscribers, Wind Italy may face increased
subscriber acquisition and retention costs and reduced revenues
or lower cash flows.
The mobile telecommunications market in Italy has expanded
rapidly in recent years and this expansion has driven the rapid
growth in Wind Italy’s mobile telecommunications business.
However, as a result of this expansion, the voice services
segment of the mobile telecommunications market in Italy is
approaching saturation. The degree to which the Italian mobile
telecommunications market will continue to expand is uncertain
and will depend on numerous factors, many of which are beyond
Wind Italy’s control. Such factors include, among others,
the business strategies and capabilities of Wind Italy’s
competitors, prevailing market conditions, the development of
new and/or
alternate technologies for mobile telecommunications products
and services and the effect of applicable regulations.
Wind Italy’s ability to attract new subscribers or to grow
its ARPU from existing subscribers despite market saturation and
the increased competition that has resulted from this market
saturation will depend in large part upon its ability to
stimulate and increase subscriber usage, convince subscribers to
switch from competing mobile operators to its services and its
ability to minimize rates of subscriber turnover, referred to in
the industry as customer “churn”. Churn is a measure
of customers who stop purchasing Wind Italy’s services,
leading to reduced revenues. A pre-paid mobile subscriber is
deemed to have churned if
he/she has
not recharged
his/her
mobile credit in the last twelve months, has requested to have
his/her SIM
card deactivated, has requested and obtained through mobile
number portability a switch to another telecommunications
operator the occurrence of a fraud event (e.g., traffic
anomalies or activation through false client identification). A
post-paid mobile subscriber is deemed to have churned when
he/she
requests that
his/her SIM
card is deactivated or due to payment default or has requested
and obtained through mobile number portability a switch to
another telecommunications operator or a fraud event has
occurred. Consistent with the Italian market generally, the
majority of Wind Italy’s mobile subscribers are pre-paid,
which contributes to churn, as subscribers are not contractually
bound in the long-term to use Wind Italy’s services and are
free to move to other operators with more attractive pricing or
other advantages. If Wind Italy fails to reduce or maintain its
rates of churn, or competing mobile operators improve their
ability to retain subscribers and thereby lower their churn
levels, Wind Italy’s cost of retaining and acquiring new
subscribers could increase, which could have a material adverse
effect on Wind Italy’s business, financial condition and
results of operations.
Further, Wind Italy’s ability to attract new subscribers
(and attract more high-value subscribers) may also be negatively
affected by the slowdown in the Italian economy and the economy
of Europe as a whole. See “ — Wind
Italy’s business, financial condition, results of
operations and liquidity may be adversely affected by the
current unfavorable global economic conditions”.
Market
demand for UMTS- and HSDPA-based services, including mobile
Internet, in Italy may not increase, limiting Wind Italy’s
ability to recoup the cost of its investment in its UMTS license
and network and its HSDPA technology, respectively, which could
adversely affect Wind Italy’s business, financial condition
and results of operations.
Wind Italy’s UMTS license, which is valid until 2029, cost
an aggregate of € 2,427 million. In June 2009, WIND
was awarded an additional 5MHz block of UMTS spectrum for the
assignment of rights of use for the frequencies in the
2100 MHz band for approximately €89 million which
rights were assigned by the Italian Ministry of Economic
Development in September 2009. Wind Italy plans to make
substantial investments in its UMTS network during the next
several years. In addition, Wind Italy began offering mobile
Internet services (based on HSDPA technology) at the end of
2007. Currently, WIND has expanded its HSDPA at 7.2 Mbps
in all UMTS covered cities and WIND plans to extend its coverage
in the near term, which will require substantial investments.
Wind Italy’s ability to recoup its UMTS-related
expenditures will depend largely upon continued and increasing
customer demand for UMTS-based services. Although there have
been signs of widespread demand for UMTS services in the last
three years, the size of the market is still unknown and may
fall short of industry expectations and UMTS technology may not
prove more attractive to subscribers than other existing
technologies and services. If UMTS-based mobile services do
not, or are slower than anticipated to, gain sufficiently broad
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commercial acceptance in Italy, or if Wind Italy derives a
smaller percentage of its total revenues than expected from its
UMTS-related services, Wind Italy may not be able to recoup its
investment in its UMTS license and network or profit from such
investment, which could have a material adverse effect on Wind
Italy’s business, financial condition and results of
operations. Furthermore, if third-party application service
providers fail or are slow to develop services for UMTS-based
mobile services, or if Wind Italy cannot obtain reasonably
priced UMTS handsets, technologically proven network equipment
or software with sufficient functionality or speed, Wind
Italy’s ability to generate revenues from its UMTS network
may also be adversely affected, which in turn could have a
material adverse effect on Wind Italy’s business, financial
condition and results of operations.
In addition, Wind Italy’s ability to recoup HSDPA-related
expenditures will depend largely upon implementing a competitive
pricing strategy that appeals to consumers while recouping an
investment in HSDPA technology. Further, the recent economic
slowdown and contraction in consumer spending in Europe could
affect demand for other services such as mobile Internet. If
subscribers use mobile Internet services offered by Wind
Italy’s competitors, reduce their usage of mobile Internet
services offered by Wind Italy, or cease to use mobile Internet
at all, Wind Italy may not be able to profit from its build-out
of HSDPA coverage at the levels it anticipate, or at all, which,
in turn, could have a material adverse effect on Wind
Italy’s business, financial condition or results of
operations.
Wind
Italy depends on third party telecommunications providers over
which it has no direct control for the provision of certain of
its services.
Wind Italy’s ability to provide high quality mobile and
fixed-line telecommunications services depends on its ability to
interconnect with the telecommunications networks and services
of other mobile and fixed-line operators, particularly those of
Wind Italy’s competitors. Wind Italy also relies on third
party operators for the provision of international roaming
services for its mobile subscribers. While Wind Italy has
interconnection and roaming agreements in place with other
operators, it does not have direct control over the quality of
their networks and the interconnections and roaming services
they provide. Any difficulties or delays in interconnecting
with other networks and services, or the failure of any operator
to provide reliable interconnections or roaming services to Wind
Italy on a consistent basis, could result in a loss of
subscribers or a decrease in voice traffic for Wind Italy, which
would reduce Wind Italy’s revenues and adversely affect
Wind Italy’s business, financial condition and results of
operations.
The
Italian fixed-line market is experiencing an ongoing trend of
migration from narrowband to broadband access; if Wind Italy
fails to successfully implement its strategy to convert its
narrowband subscribers to its broadband service and to gain new
broadband subscribers, Wind Italy’s business could be
adversely affected.
Broadband access increasingly comprises a larger share of the
Italian Internet market, while narrowband usage is declining
significantly. Currently, the majority of Wind Italy’s
Internet subscribers utilize broadband to access the Internet.
Wind Italy’s ability to migrate its existing narrowband
subscribers to its broadband services as well as to gain new
broadband subscribers may be adversely affected if:
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broadband usage in Italy does not continue to grow as currently
expected;
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competition increases, for reasons such as the entry of new
competitors, technological developments introducing new
platforms for Internet access
and/or
Internet distribution or the provision by other operators of
broadband connections superior or at more attractive terms to
that which Wind Italy can offer; or
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Wind Italy experiences any network interruptions or problems
related to its network infrastructure.
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Historically, subscribers who purchased Wind Italy’s
narrowband services have sometimes churned to other operators
when upgrading to broadband services. If Wind Italy is unable
to convert its existing narrowband subscribers to its broadband
services, fails to gain new broadband subscribers, or gains new
broadband subscribers at a slower rate than anticipated, Wind
Italy’s Internet services business and results of
operations may be adversely affected. Moreover Wind Italy may
not be able to offset in whole or in part decreases in the
number of subscribers
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using Wind Italy’s narrowband services with increases in
the number of subscribers using Wind Italy’s broadband
services.
The
telecommunications industry is significantly affected by rapid
technological change, and Wind Italy may not be able to
effectively anticipate or react to these changes.
The telecommunications industry is characterized by rapidly
changing technology and related changes in customer demand for
new products and services at competitive prices. Technological
developments are also shortening product life cycles and
facilitating convergence of various segments in the
telecommunications industry. Technological change and the
emergence of alternative technologies for the provision of
telecommunications services that are technologically superior,
cheaper or otherwise more attractive than those that Wind Italy
provides may render its services less profitable, less viable or
obsolete. At the time Wind Italy selects and advances one
technology over another, it may not be possible to accurately
predict which technology may prove to be the most economical,
efficient or capable of attracting subscribers or stimulating
usage and Wind Italy may develop or implement a technology that
does not achieve widespread commercial success or that is not
compatible with other newly developed technologies. Wind
Italy’s competitors or new market entrants may introduce
new or technologically superior mobile and fixed-line services
before Wind Italy does. In addition, Wind Italy may not receive
the necessary licenses to provide services based on these new
technologies in Italy, or may be negatively impacted by
unfavorable regulation regarding the usage of these
technologies. If Wind Italy is unable to effectively anticipate
or react to technological changes in the telecommunications
market or to otherwise compete effectively, Wind Italy could
lose subscribers, fail to attract new subscribers or incur
substantial costs in order to maintain its subscriber base, all
of which could have a material adverse effect on Wind
Italy’s business, financial conditions and results of
operations.
Wind Italy must continue to upgrade its existing mobile and
fixed-line networks in a timely manner in order to retain and
expand its customer base in each of its markets and to
successfully implement its strategy. Among other things, the
needs of Wind Italy’s business could require it to:
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upgrade the functionality of Wind Italy’s networks to allow
for the increased customization of services;
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increase its UMTS coverage in some of its markets;
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expand and maintain customer service, network management and
administrative systems; and
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upgrade older systems and networks to adapt them to new
technologies.
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Many of these tasks, which could create additional financial
strain on Wind Italy’s business and financial condition,
are not entirely under Wind Italy’s control and may be
affected by applicable regulation. If Wind Italy fails to
execute them successfully, Wind Italy services and products may
be less attractive to new customers and Wind Italy may lose
existing customers to Wind Italy’s competitors, which could
adversely affect Wind Italy’s business, financial condition
and results of operations.
In October 2007, the Italian government announced that operators
could bid for 3.5 GHz radio frequencies (WiMax spectrum).
The Italian government raised €136 million
(representing a 176% increase on the starting bid of
€49 million). However, many of the larger operators
such as Wind Italy, Fastweb S.p.A. and Mediaset S.p.A withdrew
from the tender.
The main winners of the auction were largely smaller operators
such as ARIADSL S.p.A., which were awarded licenses in all the
regions of Italy, and A.F.T. S.p.A. (provider of WiFi hotspots
around Italy), which was awarded licenses in all regions of
Italy. Multimedia group Retelit, through its subsidiary
e-via
S.p.A., was awarded licenses in central and northern Italy.
Telecom Italia was awarded three licenses, in the central and
southern regions of Italy, and the island of Sardinia.
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Although WiMax, which is a fixed wireless technology, has not
reached a commercially viable scale yet, it is possible that it
could emerge as an alternative and potentially dominant access
technology for the provision of broadband access. Currently,
fixed-line (i.e., fixed wireline) broadband is the
dominant access technology in Italy, although Wind Italy, along
with other operators, offer mobile Internet services. If WiMax
emerges as a fully mobile technology and challenges the current
fixed and mobile access technologies in the broadband market,
the business of operators who have chosen not to invest in WiMax
technology/spectrum may be materially adversely affected.
Wind Italy is licensed to provide mobile telecommunications
services in Italy. Wind Italy’s license to operate its
GSM/GPRS network expires in 2018, while its UMTS license expires
in 2029. However, the terms of Wind Italy’s licenses and
frequency allocations are subject to ongoing review by
Italy’s Communications Authority (Autoritá per le
Garanzie nelle Comunicazioni)
(“AGCOM”) and by the Italian Ministry of
Economic Development — Department of Communications
(the Authority in charge of the issuance of the licenses) and,
in some cases, are subject to modification or early
termination. Upon termination, the licenses may revert to the
local government, in some cases without any or adequate
compensation being paid to Wind Italy. If the technology that
is the subject of one of these licenses continues to be
important for the provision of mobile telecommunications
services, Wind Italy expects that it would seek to renew the
license upon expiration. There can be no assurance, however,
that any application for the renewal of one or more of these
licenses upon expiration of their respective terms will be
successful or would be renewed on equivalent or satisfactory
terms. In addition, Wind Italy may not be successful in
obtaining new licenses for the provision of mobile services
using new technologies that may be developed in the future and
will likely face competition for any such licenses. In the
event that Wind Italy is unable to renew a license or obtain a
new license for any technology that is important for the
provision of its service offerings, Wind Italy could be forced
to discontinue its use of that technology or Wind Italy may be
unable to use an important new technology, and Wind Italy’s
business could be materially adversely affected.
Wind Italy’s mobile network was supported by approximately
11,953 base station transmission systems, or
“BTS,” and 6,495 UMTS Node B’s as of
September 30, 2010. In the authorization procedure for the
installation of specific infrastructures, networks and plants
are also involved the competences of public authorities granted
with specific administrative powers at a local level, such as
the Municipalities. Therefore, in addition to the rules
provided for at a national level, specific minor prescriptions
relevant for the infrastructure networks may be provided at a
local level. Given the multitude of regulations that govern
such equipment and the various permits required to operate Wind
Italy’s BTS, Wind Italy cannot be certain that its right to
use a portion of its transmission system will not be
challenged. The loss of the right to use a material number of
base station transmission systems or any strategically located
base station transmission system that cannot be easily replaced
could have a disruptive effect on Wind Italy’s transmission
to certain areas which could materially, adversely affect its
business.
Wind
Italy depends on third parties to market, sell and provide a
significant portion of its mobile and fixed-line products and
services. If Wind Italy fails to maintain or further develop
its distribution and customer care channels, its ability to
sustain and further grow its subscriber base could be materially
adversely affected.
Most of Wind Italy’s mobile products and services are sold
to customers through retail channels. Wind Italy owns 158 Wind
Italy-owned stores and sells its products and services through
approximately 391 exclusive franchises over which it exercises a
significant degree of control. The remainder of Wind
Italy’s mobile products and services are sold through
third-party distributors, retail outlets or sales agencies, most
of which also distribute or sell products of Wind Italy’s
competitors. The sales agencies Wind Italy relies on attract
customers through points of sale placed in malls and fairs.
Most of Wind Italy’s fixed-line products and services
(including customer care) are sold to customers through Wind
Italy’s call centers, both through out-bound telephone
sales and in-bound calls to Wind Italy’s call center. The
distributors, retailers and sales agencies that Wind Italy
relies upon to distribute and sell its products are not under
its control and may stop distributing or selling its products at
any time. Should this occur with particularly important
distributors, retailers or agencies, Wind Italy may face
difficulty in finding new distributors, retailers or sales
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agencies that can generate the same level of revenues. In
addition, distributors, retailers and sales agencies that also
distribute or sell competing products and services may more
actively promote the products and services of Wind Italy’s
competitors than Wind Italy’s products and services. In
addition, some of Wind Italy’s call centers, including its
call centers for corporate subscribers, are outsourced to third
parties with whom Wind Italy has contracts. If these contracts
were terminated, Wind Italy would have to find replacement
services elsewhere, and the quality of such replacements could
be diminished.
Wind Italy distribution channels may require significant capital
expenditures. If the Transaction is consummated and Wind
Italy’s Libero Internet portal is spun off (as part of the
Wind Italy Spin-Off Assets), Wind Italy may not be able to
continue to utilize the Libero portal. Wind Italy may need to
establish alternative distribution channels for its broadband
services, which may result in significant costs
and/or may
not be successful. If Wind Italy fails to maintain or expand
its direct and indirect distribution presence, its ability to
retain or further grow its market share in the Italian mobile
and fixed-line telecommunications markets, including the
Internet market, could be adversely affected, which in turn
could have a material adverse effect on Wind Italy’s
business, financial condition and results of operations.
Wind
Italy is subject to extensive regulation and has recently been,
and may in the future, be adversely affected by regulatory
measures applicable to it.
Mobile, Internet, fixed-line voice and data operations are all
subject to extensive regulatory requirements in Italy. AGCOM and
the Italian Ministry of Economic Development together regulate
the Italian telecommunications market pursuant to a regulatory
framework that was adopted by the European Commission in 2002
and implemented in Italy through the adoption of the Electronic
Communications Code (the “Electronic Communications
Code”). The Electronic Communications Code
requires AGCOM to identify operators with “significant
market power” (i.e., operators which, individually
or jointly, enjoy a position equivalent to dominance) based on a
market analysis in retail and wholesale markets and to impose
ex ante regulations to protect competition in these
markets. The transposition into Italian law of EU Directives
2009/136/EC and 2009/140/EC, which were published in late 2009,
is ongoing and is yet to be concluded and involves a review of
the regulatory framework by the European Commission.
In accordance with the regulatory framework, as at September, 30
2010, AGCOM had substantially completed its second round of
market analysis. As a result, AGCOM designated Telecom Italia
as an operator with “significant market power” in all
of the markets listed in EU Recommendations (2007/879/EC) and
thus potentially subject to ex ante regulation which may
impose a number of constraints on it, including, among others,
price controls and non-discrimination obligations for the
provision of all regulated access products included in wholesale
markets.
As part of AGCOM’s market analysis, the only two relevant
markets where operators other than Telecom Italia were found to
hold a “significant market power” were the wholesale
termination of voice calls on individual mobile networks (mobile
termination market) and wholesale termination of voice calls on
individual fixed-line network (fixed-line termination market),
where WIND, as well as other network operators, were found to
hold a “significant market power.” As an ex
ante regulatory measure, AGCOM, adopted a
“glide-path” (a gradual decline in mobile termination
rates and fixed-line termination rates) for each of these
markets, such that as at July 2010 (in the case of fixed-line
termination market) and July 2012 (in the case of mobile
termination market); all termination rates will be the same for
each operator. As for the regulation of fixed termination prices
for all market players (including WIND) beyond 2010, AGCOM will
decide prices for 2011 based on the legacy cost accounting
methodologies adopted so far (formal proceeding started during
November 2010 to be concluded during the first half of 2011),
while from 2012 onwards tariffs will be set for all market
players according to the results of a still to be developed
theoretical cost model.
With respect to the “glide path” for mobile
termination rates, there is a risk that this may be reviewed
before its completion, which could result in the enforcement of
lower maximum termination rates than anticipated, according to
EU requests and regulatory trends following the guidance
provided on such issues by an EU Recommendation (2009/396/EC)
published in May 2009. The financial impact of the gradual
decrease in mobile termination rates on Wind Italy’s
business, financial condition and results of operations will
depend on the combination of a number of factors, which include
the volume of calls made by customers of other operators that
terminate on Wind Italy’s
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mobile network (for which Wind Italy charges termination rates,
which comprise its interconnection revenues) and volume of calls
by Wind Italy customers that terminate on the network of other
mobile network operators (for which Wind Italy is charged
interconnection rates, which comprise its interconnection
expenses), as well as on network traffic volume (for which Wind
Italy neither receives interconnection revenues nor incurs
interconnection costs).
In addition, Wind Italy depends on access to Telecom
Italia’s facilities to install its LLU facilities, as well
as on AGCOM to set reasonable wholesale (network) caps on the
prices that Telecom Italia can charge other operators, including
Wind Italy, for LLU access. As permitted by AGCOM, Telecom
Italia recently decided to raise the rates it charges Wind Italy
and other telecommunications operators for LLU access. If
Telecom Italia fails to allow Wind Italy access to these
facilities, or is slower than Wind Italy anticipates in allowing
Wind Italy access, or if AGCOM sets wholesale (network) caps for
LLU pricing at levels where Wind Italy cannot pass these
increases onto its customers, Wind Italy’s ability to roll
out additional direct access products and attract direct access
customers may be adversely affected, which in turn could have a
material adverse effect on Wind Italy’s business, financial
condition and results of operations.
In 2007, the EU Regulation on roaming (2007/717/EC) (the
“EU Roaming Regulation”) came into
effect, which provides for a steady reduction in mobile voice
and wholesale roaming charges for calls made to destinations
within the EU and EEA. As of July 1, 2009, the European
Commission’s proposal to extend the scope and duration of
the EU Roaming Regulation came into effect, which, among other
things, further reduces the caps applicable to roaming voice
charges, while extending the glide path for roaming voice
charges to 2012, and introduces a cap on the roaming charges
that operators can charge for SMSs and mobile data services.
With respect to EU mobile roaming services, the objective to
align the roaming and national retail tariffs by 2015 was
included in a communication from the European Commission to the
European Parliament published in May 2010.
Furthermore, the AGCOM has taken a vigorous approach in its
consumer protection activity, resulting in stricter regulation
of the provision of electronic services by operators. The
competition Authority (“AGCM”), who is
entrusted of consumer protection enforcement as well, has showed
a particular attention to the fairness of the offers made by the
electronic services operators. This might affect Wind
Italy’s ability to address customers with aggressive
commercial offers and expose it to fines in case of failure to
comply with the consumer protection regulation. In addition,
infringement decisions issued by the mentioned authorities can
be used as a base for class actions suits (see below).
Wind Italy is unable to predict the impact of any adopted,
proposed or potential changes in the regulatory environment in
which Wind Italy operates, which is subject to continuous review
by AGCOM. Further changes in the EU regulatory framework, or in
laws, regulation or government policy or further activities of
AGCOM could adversely affect Wind Italy’s business and
competitiveness. In particular, Wind Italy’s ability to
compete effectively in its existing or new markets could be
adversely affected if regulators decide to expand the
restrictions and obligations to which it is subject, or extend
such restrictions and obligations to new services and markets,
or otherwise withdraw or adopt regulations, including in respect
of interconnection, access or other tariffs charged by Telecom
Italia relating to services provided by it to Wind Italy or to
customers of Telecom Italia, which may impact Wind Italy’s
business, financial condition and results of operations. In
addition, decisions by regulators regarding the granting,
amendment or renewal of licenses, to Wind Italy or to third
parties, could materially adversely affect Wind Italy’s
business, financial condition and results of operations.
The
LLU model underlying Wind Italy’s direct fixed-line
business may be negatively affected by the roll-out of new
technologies by Telecom Italia, including its
“next-generation network”.
Telecom Italia has recently announced a plan to introduce a
progressive roll out of a “next generation network,” a
superior architectural telecommunications technology using fiber
optic cables delivering a speed of up to 100MB. The “next
generation network,” if introduced, would replace Telecom
Italia’s legacy copper network with fiber. Although there
is uncertainty around Telecom Italia’s strategy for
implementing the roll-out of such next generation network,
including the timing, and despite the fact that much will depend
on the political and legislative framework as well as the
regulatory infrastructure for such next-generation network in
Italy, it is possible that as Telecom Italia upgrades its
network, the local exchanges Wind Italy uses to provide LLU
services could be closed over time. As a result, Wind Italy may
be forced to co-locate at a different location where the cost of
unbundling is likely to be more expensive and space for
co-location is likely to be more limited, or adopt a different
approach to its business or build its own fiber network at a
material cost, which could have a material adverse affect on
Wind Italy’s business or results of operations.
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Wind
Italy may be subject to a deferral or to a limitation of the
deduction of interest expenses in Italy.
For taxpayers like Wind Italy, Article 96 of Decree
No. 917, as amended and restated, provides for the Italian
regime of interest expenses deduction, aimed at rationalizing
and simplifying the interest expenses deduction for Italian
corporate income tax (“IRES”) purposes.
Specifically, the rules allow for the full tax deductibility of
interest expense incurred by a company in each fiscal year up to
the amount of the interest income of the same fiscal year, as
evidenced by the relevant annual financial statements. A
further deduction of interest expense in excess of this amount
is allowed up to a threshold of 30% of the EBITDA of a company
(i.e., “risultato operativo xxxxx xxxxx gestione
caratteristica,” or “ROL”
calculated as the difference between (i) the value of
production -item A of the profit and loss account scheme
contained in Article 2425 of Italian Civil Code- and
(ii) the costs of production -item B of the profit and
loss accounts scheme contained in Article 2425 of Italian
Civil Code-, excluding depreciation, amortization and financial
leasing instalments relating to business assets) as recorded in
such company’s profit net loss account. The new law
provides that the amount of ROL (i) produced as from the
third fiscal year following the fiscal year 2007 (i.e.
2010) and (ii) not used for the deduction of the
amount of interest expense that exceeds interest income, can be
carried forward, increasing the amount of ROL for the following
fiscal years. Interest expense not deducted in a relevant
fiscal year can be carried forward to the following fiscal
years, provided that, in such fiscal years, the amount of
interest expense that exceeds interest income is lower than 30%
of ROL. Special rules apply to companies participating in the
same tax group, allowing, to a certain extent and with certain
limitations, to offset the excess interest expenses incurred by
an Italian company in the tax group with 30% of ROL of other
companies in the same tax group. Subject to certain limitation
the 30% of the foreign controlled entities’ ROL may be used
to offset any excess interest expenses of Italian companies
participating to the tax group. Based on the above rules, Wind
Italy may not be able to deduct all interest expenses borne by
Wind Italy in each relevant fiscal year, even if Wind Italy
would be able to carry forward over the following fiscal years
the amounts that may not be deducted in a given fiscal year.
Furthermore, any future changes in current Italian tax laws or
in their interpretation
and/or any
future limitation on the use of the foreign controlled entities
ROL may result an adverse impact on the deductibility of
interest expenses for Wind Italy which, in turn, could adversely
affect the Issuer’s and Wind Italy’s financial
condition and results of operations.
Equipment
and network systems failures could result in reduced user
traffic and revenue, require unanticipated capital expenditures
or harm Wind Italy’s reputation.
Wind Italy’s technological infrastructure (including Wind
Italy’s network infrastructure for mobile
telecommunications and fixed-line services, including Internet
services) is vulnerable to damage or disruptions from numerous
events, including fire, flood, windstorms or other natural
disasters, power outages, terrorist acts, equipment or system
failures, human errors or intentional wrongdoings, including
breaches of Wind Italy’s network or information technology
security. Unanticipated problems at Wind Italy’s
facilities, network or system failures or hardware or software
failures or computer viruses, or the occurrence of such
unanticipated problems at the facilities, network or systems of
third party- owned local and long distance networks on which
Wind Italy relies for the provision of interconnection and
roaming services could result in reduced user traffic and
revenue as a result of subscriber dissatisfaction with poor
performance and reliability, result in regulatory penalties or
require unanticipated capital expenditures. The occurrence of
network or system failure could also harm Wind Italy’s
reputation or impair Wind Italy’s ability to retain current
subscribers or attract new subscribers, which could have a
material adverse effect on Wind Italy’s business, financial
condition and results of operations.
If
Wind Italy is unable to maintain its relationships with its
equipment and telecommunications providers, or enter into new
relationships, Wind Italy’s business will be adversely
affected.
Wind Italy has relationships with a number of key vendors for
mobile and fixed-line network equipment, software, UMTS and for
the provision of content. Wind Italy’s ability to grow its
subscriber base depends in part on its ability to source
adequate supplies of network equipment, mobile handsets,
software and content in a timely manner.
Suppliers of network equipment have limited resources which may
impact the rapidity of Wind Italy’s network expansion. In
addition, suppliers of handsets are at times subject to supply
constraints, for example during the winter holiday season,
during which there is often a shortage of components. Wind
Italy does not have direct
B-11
operational or financial control over its key suppliers and has
limited influence with respect to the manner in which these key
suppliers conduct their businesses. Wind Italy’s reliance
on these suppliers exposes it to risks related to delays in the
delivery of their services, and, from time to time, Wind Italy
has experienced extensions of lead times or limited supplies due
to capacity constraints and other supply-related factors.
Wind Italy’s suppliers may not continue to provide
equipment and services to Wind Italy at attractive prices or
Wind Italy may not be able to obtain such equipment and services
in the future from these or other providers on the scale and
within the time frames Wind Italy requires, if at all. If Wind
Italy’s key suppliers are unable to provide Wind Italy with
adequate equipment and supplies, or provide them in a timely
manner, Wind Italy’s ability to attract subscribers or
offer attractive product offerings could be negatively affected,
which in turn could materially adversely affect Wind
Italy’s business, financial condition and results of
operations.
Wind
Italy may not be able to attract and retain key
personnel.
Wind Italy’s success and growth strategy depend in large
part on its ability to attract and retain key management,
marketing, finance and operating personnel. There can be no
assurance that Wind Italy will continue to attract or retain the
qualified personnel needed for its business. Competition for
qualified senior managers in Wind Italy’s industry is
intense and there is limited availability of persons with the
requisite knowledge of the telecommunications industry and
relevant experience in Italy. Wind Italy’s failure to
recruit and retain key personnel or qualified employees could
have a material adverse effect on Wind Italy’s business,
financial condition and results of operations.
Actual
or perceived health risks or other problems relating to mobile
telecommunications transmission equipment and devices could lead
to decreased mobile communications usage, litigation or stricter
regulation.
Various reports have alleged that there may be health risks
associated with the effects of electromagnetic signals from
antenna sites and from mobile handsets and other mobile
telecommunications devices. It cannot be assured that further
medical research and studies will not establish a link between
electromagnetic signals or radio frequency emissions and these
health concerns. The actual or perceived risk of mobile
telecommunications devices, press reports about risks or
consumer litigation relating to such risks could adversely
affect the size or growth rate of Wind Italy’s subscriber
base and result in decreased mobile usage or increased
litigation costs. As are the other telecommunications operators
in Italy, Wind Italy is currently party to a number of pending
civil suits in which plaintiffs are claiming damages of an
indeterminate amount based on alleged exposure to
electromagnetic radiation based on Wind Italy’s
technology. In addition, these health concerns may cause the EU
and Italian authorities to impose stricter regulations on the
construction of BTSs or other telecommunications network
infrastructure, which may hinder the completion or increase the
cost of network deployment and the commercial availability of
new services. If actual or perceived health risks were to
result in decreased mobile usage, consumer litigation or
stricter regulation, Wind Italy’s business, financial
condition and results of operations could be materially
adversely affected.
Claims
of third parties that Wind Italy infringe their intellectual
property could significantly harm Wind Italy’s financial
condition, and defending intellectual property claims may be
expensive and could divert valuable company
resources.
Wind Italy operates in an industry characterized by frequent
disputes over intellectual property. As the number of
convergent product offerings and overlapping product functions
increase, the possibility of intellectual property infringement
claims against Wind Italy may increase. Any such claims or
lawsuits could be expensive and time consuming to defend, could
cause Wind Italy to cease offering or licensing services and
products that incorporate the challenged intellectual property,
or could require Wind Italy to develop non-infringing products
or services, if feasible, which could divert the attention and
resources of technical and management personnel. In addition,
Wind Italy cannot assure you that Wind Italy would prevail in
any litigation related to infringement claims against Wind
Italy. A successful claim of infringement against Wind Italy
could result in its being required to pay significant damages,
cease the development or sale of certain products and services
that incorporate the challenged intellectual property, obtain
licenses from the holders of such intellectual property which
may not be available on commercially reasonable terms, or
otherwise redesign those products to avoid infringing upon
others’ intellectual property rights, any of which could
materially adversely affect Wind Italy’s business,
financial condition and results of operations.
B-12
Moreover, although Wind Italy does not own any patents that Wind
Italy considers material for its business, Wind Italy considers
certain of its registered trademarks and trade names, including
“Wind Italy,” “Infostrada” and
“Libero,” to be material to its business. Wind
Italy has pledged these trade names and certain of its other
intellectual property rights which Wind Italy considers material
to its senior lenders to secure certain credit facilities. If
the security interests that Wind Italy has granted in respect of
its intellectual property were enforced, Wind Italy could lose
its rights to this intellectual property.
Wind
Italy is continuously involved in disputes and legal
proceedings, including disputes and legal proceedings relating
to the regulatory and competition authorities, competitors and
other parties, which, when concluded, could have a material
adverse effect on its business, financial condition and results
of operations.
Wind Italy is subject to numerous risks relating to the legal,
civil, tax, regulatory and competition proceedings to which it
is a party or in which it is otherwise involved or which could
develop in the future, and certain of these proceedings (or
proceedings in which it may become involved), if adversely
resolved, could have a material adverse effect on its business,
financial condition or results of operations. Furthermore, Wind
Italy’s involvement in legal, regulatory and competition
proceedings may harm its reputation. Wind Italy cannot assure
you what the ultimate outcome of any particular legal proceeding
will be.
The
implementation of laws in Italy that would allow for “class
action” lawsuits could materially increase the number of
claims against Wind Italy and the related amount of damages
sought.
With the aim of protecting consumers’ rights, finance law
(“Xxxxx Finanziaria”) no. 244 of
December 24, 2007, as subsequently amended, introduced to
the Italian legal system a new type of legal remedy entitled
“azione di classe” or “class action”,
inserting
article 140-bis
into legislative decree no. 206 of June 9, 2005
(the Consumer Code). A class action may be brought to claim
damages or refunds on the basis of allegations of:
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violations of the “contractual rights” of consumers or
users who are in an “identical situation”
vis-à-vis a business enterprise, including rights
arising from standard terms and conditions found in contractual
forms as per articles 1341 and 1342 of the Italian Civil
Code (which may include form agreements such as those Wind Italy
enters into with its subscribers);
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violations of “identical rights” of final consumers of
a certain product vis-à-vis its manufacturer
(regardless of whether there is a contractual relation); or
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violations of “identical rights” of consumers or users
involving compensation for unfair commercial practices or
anti-competitive conduct.
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A class action may be brought by any consumer or user, either
directly or through an association or committee acting on his
behalf.
The class action law took effect on January 1, 2010, but it
is only available for claims relating to “unlawful
events” that occurred after August 15, 2009. To date,
there have been very few actions filed on the basis of the new
law; none of these actions were filed against Wind Italy. This
new law could increase the number of claims and the amount of
monetary relief sought, and could increase the potential
liability to which Wind Italy is exposed, which, in turn, could
materially adversely affect Wind Italy’s business,
financial condition and results of operations.
To the
extent that Wind Italy experiences labor disputes or work
stoppages, its business could be materially adversely
affected.
The Italian constitution provides that all employees of Italian
companies have the right to set up and join trade unions and to
carry on union activities, including appointing workers’
representatives to negotiate with their employer. The right to
go on strike is provided for under Italian law. Wind
Italy’s employees have gone on strike in the past and,
despite any agreements that Wind Italy may have with unions,
Wind Italy cannot guarantee that its employees will not go on
strike in the future. Any work stoppages resulting from
employee strikes could hinder Wind Italy’s ability to
provide its standard level of customer service. In addition,
Wind Italy has been in the past and is currently party to labor
disputes with certain of its employees on an individual basis.
While Wind Italy believes
B-13
that none of these disputes are material individually, there can
be no assurance that these claims or future claims by employees
will not have a material adverse effect on its business,
financial condition or results of operations.
Wind Italy, along with the other companies engaged in the
telecommunications services business, from time to time
negotiates with the relevant unions the renewal of the
collective labor agreements. Should the union make requests
during the course of negotiations with Wind Italy that Wind
Italy refuses to accept, there is a risk that the union could
call on its members to strike to force Wind Italy to give in to
the union’s demands, which could have a material adverse
effect on Wind Italy’s business, financial condition and
results of operations.
Anticipated
synergies from Wind Italy’s membership in the Wind Telecom
group may not materialize.
Wind Italy and OTH are Wind Telecom group companies. As a Wind
Telecom group company, Wind Italy hopes to benefit from a number
of investment savings and management efficiencies. For example,
Wind Italy believes that by combining its purchasing power with
that of OTH in the procurement of network equipment and
software, Wind Italy may be able to increase its negotiating
leverage with its suppliers and attain improved unit prices and
service levels. However, the investment savings and managerial
efficiencies are based on a number of assumptions and judgments
that are subject to a wide variety of business, economic and
competitive risks and uncertainties and present the expected
course of action and the expected future financial impact on
Wind Italy’s performance of Wind Italy’s membership in
the Wind Telecom group, which may differ materially from the
actual investment savings and managerial efficiencies realized.
There can be no assurances that Wind Italy will be able to
successfully implement the strategic and operational
initiatives, including, among others, the increase in its
purchasing power vis-à-vis its suppliers. In
addition, there can be no assurance that these synergies will
continue following the Transaction. An inability to realize the
full extent of anticipated benefits of Wind Italy’s
membership in the Wind Telecom group could have a material
adverse effect on Wind Italy’s business, financial
condition and results of operations.
Risks
Relating to OTH’s Business
As a result of tax claims by the Algerian government in respect
of the years 2004, 2005, 2006 and 2007 (the “Tax
Claims”), on November 26, 2009, OTH asked the
lenders under its US$2.5 billion credit facility (the
“Senior Credit Agreement”) to waive
until January 26, 2010 a certain tax representation in the
Senior Credit Agreement, specifically that “No claims or
investigations by any Tax authority are being or are reasonably
likely to be made or conducted against it which are reasonably
likely to result in a liability of or claim against any member
of the Group to pay any material amount of, or in respect of
Tax” and to waive any event of default which may arise to
the extent that OTH would be required to repeat the
representation prior to obtaining the waiver. On
December 15, 2009 the majority lenders approved this
request.
On January 21, 2010 OTH obtained consent of a majority of
its senior secured lenders under its US$2.5 billion credit
facility to: (1) permanently waive the Tax Claims from the
above tax representation; (2) confirm that for the purposes
of the Senior Credit Agreement, Globalive Investments Holding
Corp will be treated as a “group” company, and
(3) to confirm that the guarantee OTH had issued in
connection with banglalink’s financing facilities (as well
as similar guarantees) should not be included in calculating its
unconsolidated secured net borrowings covenant under the Senior
Credit Agreement.
In January 2011 OTH obtained waivers from its senior secured
lenders in connection with the Senior Credit Agreement, the
US$230,013,000 notes issued by Orascom Telecom Oscar S.A.E. and
certain guarantees given by it to secure the payment obligations
of Orascom Telecom Bangladesh Limited. The waivers granted
relief in respect of a number of representations, warranties and
covenants insofar as these were affected by tax claims by the
Algerian government in respect of the years 2004, 2005, 2006 and
2007, and were granted following the application of part of the
proceeds of the sale of Orascom Telecom Tunisie to partially pay
down the underlying credit facilities. For more information, see
“The Refinancing Plan — Consents and Waivers
Obtained by Wind Telecom Entities and OTH — Consents
of Holders of OTH Debt”.
It is possible that these waivers may not be sufficient and that
further waivers might be needed by the Company if circumstances
change.
B-14
OTH is
currently subject to tax claims by the Algerian tax authority
with respect to payment of certain taxes, the outcome of which
is uncertain.
OTH is currently subject to tax claims by the Algerian tax
authority with respect to payment of taxes during its taxation
period between 2002 and 2009, the outcome of which is uncertain.
Claims in
relation to the period from July 2002 and ending in August
2007:
In 2002, when XXX signed its investment agreement with the
Algerian Investment Promotion Organization in connection with
its GSM license, OTA was granted favorable tax treatment for a
period of five years starting in July 2002 and ending in August
2007. XXX has been charged by the Algerian Directions des
Grandes Entreprises (Tax Department for Large-Scale Companies or
“DEG”) with a final tax reassessment for
2004 and has been ordered to pay an amount equal to
US$54 million. While a tax claim remains outstanding, OTA
is unable by law to repatriate dividends to foreign investors,
including the Orascom Telecom. With respect to the 2004 tax
assessment, XXX filed a claim against the DGE and paid a deposit
equal to 100% of the reassessed amount for 2004, in order to
obtain a payment deferment (in accordance with Article 74
of the Tax Procedure Code) and allow XXX to repatriate 50% of
OTA’s 2008 dividend to foreign investors.
In November 2009, XXX received a further final tax reassessment
for the years 2005 through 2007 from the DGE ordering it to pay
an amount equal to US$596.6 million. The DGE has alleged
that (i) OTA did not keep proper manual accounts during
these years notwithstanding that OTA’s accounts were fully
audited and approved by both OTA’s international auditors
and its local statutory auditors, which accounts for 78% of the
tax claim, and (ii) OTA failed to deduct certain expenses
such as management and bad debt expenses and therefore
understated the taxable income.
In Algeria the tax authorities are able to raise additional tax
assessments for four years after the end of the relevant tax
period. However, once a preliminary tax claim is received by a
company the four year statute of limitation is tolled. XXX has
received the final tax assessment for the years 2004, 2005, 2006
and 2007. XXX filed a tax claim objection (tax appeal) on the
2004 as well as 2005, 2006 and 2007 final tax assessments.
On March 7, 2010 XXX received a rejection on its submitted
administrative appeal filed on December 27, 2009 against
the notice of reassessment dated 16 November 2009 received
from the DGE in respect of the tax years 2005, 2006 and 2007.
XXX’s administrative appeal in relation to the 2004 tax
reassessment has also been rejected.
Tax
claims in relation to the 2008 and 2009 tax years:
On September 30, 2010, OTH announced that XXX has received
a preliminary tax notification from the DGE in respect of the
years 2008 and 2009, in which said department has re-assessed
taxes alleged to be owed by XXX in the amount of approximately
DZD 17 billion (approximately US$230 million), despite
the fact that XXX has already paid the taxes due for these years.
The tax audit for these years was initiated in early 2010
following the tax filing for 2009. This reassessment was based
primarily on the unfounded allegation that XXX did not keep
proper accounts for the years 2008 and 2009 notwithstanding that
XXX’s accounts were fully audited and approved by both
OTA’s international auditors (“KPMG”), and its
local statutory auditors.
XXX received a final tax notification from the DGE in respect of
the years 2008 and 2009 in December 2010. Without prejudice to
their rights under the Investment Agreement, applicable
bilateral investment treaty and applicable laws, OTH and OTA
intend to take all necessary legal steps to challenge said
unfounded tax reassessment.
There can be no assurance that the Algerian tax authority will
not make further tax assessments against OTA in the future or
that XXX would be successful in appealing any current or future
assessment. Depending on the final assessment, payment of the
claimed amounts may have an adverse effect on OTH’s
business, prospects, financial condition and results of
operations and make it more difficult for it to service its debt
as it becomes due.
In addition, the tax and other regulatory laws and regulations
in Algeria are subject to change or interpretation by the local
authorities, including changes or interpretations that may
subject OTA to penalties, both monetary and statutory, which
could adversely affect the conduct of its business.
B-15
OTH
and its subsidiaries are continuously involved in disputes and
legal proceedings, including disputes and legal proceedings
relating to the regulatory and competition authorities,
competitors and other parties, which, when concluded, could have
a material adverse effect on its business, financial condition
and results of operations.
OTH and its subsidiaries are subject to numerous risks relating
to the legal, civil, tax, regulatory and competition proceedings
to which it is a party or in which it is otherwise involved or
which could develop in the future, and certain of these
proceedings (or proceedings in which it may become involved), if
adversely resolved, could have a material adverse effect on its
business, financial condition or results of operations.
Furthermore, OTH’s involvement in legal, regulatory and
competition proceedings may harm its reputation. OTH cannot
assure you what the ultimate outcome of any particular legal
proceeding will be or that such outcome will not have a material
adverse effect on its business, financial condition and results
of operations.
In addition to the disputes in relation to taxation described
above, there are a number of ongoing disputes in Algeria that
may have an impact on the business, operations and performance
of OTA and OTH’s other subsidiaries in Algeria. OTH’s
ability to repatriate profits from Algeria and to continue to
own and control its operations in Algeria may be impacted. A
number of laws have been enacted in Algeria which have an impact
on OTA and OTH’s investments in Algeria, and there can be
no assurance that there will not be further new laws and changes
to existing laws that will have an impact on OTA and OTH.
On April 15, 2010, an injunction by the Bank of Algeria
came into effect that restricts all Algerian banks from engaging
in foreign banking transactions on behalf of OTA. XXX has
challenged this injunction in the Algerian courts but the case
is still pending. As a result of the injunction OTA faces
difficulties in importing equipment from foreign suppliers and
is prevented from transferring funds outside of Algeria. The
Algerian authorities have alleged breaches of foreign exchange
regulations which could result in significant fines being levied
on OTA and a criminal investigation has been initiated by the
Bank of Algeria. OTH’s subsidiaries’ networks have
also been subjected to shutdowns allegedly on the basis of
national security concerns and OTA has been banned from
advertising on Algerian state television. In addition,
OTA’s importation of goods has been frozen by Algerian
customs authorities.
The 2009 Finance Act creates a preemptive right over foreign
companies in favor of the Algerian State which could interfere
with OTH’s ability to sell its direct and indirect
shareholding in OTA. The 2009 Finance Act also creates new
requirements for companies to reinvest profits in Algeria. Under
the 2010 Supplemental Finance Act profitable companies will be
subjected to windfall taxes in the range of 30% to 80%.
OTH is
dependent upon payments from its subsidiaries to fund its
liquidity needs, and its ability to receive funds from its
subsidiaries is often dependent upon the consent of other
participants who are not under its control.
OTH is a holding company that does not itself conduct any
business operations. As a result, it relies upon dividends,
management fees, and other payments from its subsidiaries and
its affiliated companies to generate the funds necessary to meet
its obligations. To date, OTH has principally funded its
obligations with cash flows from dividend and management fee
payments from its operations in Algeria, Pakistan and Egypt.
OTH’s subsidiaries and its affiliated companies are
separate legal entities and are under no obligation, contractual
or otherwise, to pay dividends. In addition, in many
jurisdictions, the ability OTH’s subsidiaries to pay
dividends to it is subject to consent by national regulators.
For example, during the pendency of the ongoing tax assessment
by the DGE over OTA’s operations in Algeria, OTA is unable
by law to repatriate certain dividends to foreign investors,
including Orascom Telecom.
Generally, OTH’s subsidiaries and its affiliated companies
are required to make certain payments to it under management
services and technical assistance agreements. The ability of
OTH’s subsidiaries and affiliated companies to make such
payments to it will be subject to, among other things, the
availability of profits or funds, the terms of each
entity’s indebtedness, the terms of their license, the
terms of their articles of association, the terms of their
shareholder agreements and applicable laws, including foreign
exchange controls, withholding tax issues, and other laws and
B-16
approvals of the central bank of the relevant jurisdictions.
The majority of its subsidiaries and affiliated companies have
entered into financing facilities, many of which restrict the
payment of dividends by such subsidiaries and restricted
affiliated companies to OTH. In addition, from time to time,
OTH could, at its option, forgo the payment of a dividend by a
subsidiary to the extent that it determines that the retention
of the proceeds at the subsidiary level of such amounts would be
beneficial to it or the respective subsidiary, including with
respect to covenant compliance.
OTH’s
ability to exercise control over its subsidiaries and affiliated
companies is, in some cases, dependent upon the consent and
co-operation of other participants who are not under its
control. Disagreements or terms in the agreements governing its
subsidiaries and affiliated companies could adversely affect its
business, prospects, financial condition and results of
operations.
OTH currently has an interest in mobile network operations in 10
countries, including Algeria (OTA), Pakistan (Mobilink), Egypt
(Mobinil), Bangladesh (banglalink), and North Korea
(koryolink). The Egyptian and North Korean operations are
intended to be spun-off following Closing pursuant to the
Spin-Off Plan. See “The Spin-Off Plan” for
more information. OTH has further operations in each of
Zimbabwe (through Telecel Zimbabwe), Burundi, Central African
Republic and Namibia (through its subsidiary Telecel Globe).
Further, OTH has invested in an operation in Canada (through its
affiliate, WIND Mobile) and manages the Alfa network in Lebanon
(through an agreement with the government of Lebanon).
OTH’s participation of ownership in each of its
subsidiaries and affiliated companies varies from market to
market, and it does not always have a majority interest in its
affiliates companies. Although the terms of OTH’s
investments vary, its business, prospects, financial condition
and results of operations may be materially and adversely
affected if disagreements develop with its partners, which OTH
has experienced in the past.
OTH’s ability to withdraw funds, including dividends, from
its participation in, and to exercise management control over,
subsidiaries and investments depends on the consent of its other
partners in these subsidiaries. Further, failure to resolve any
disputes with its partners in certain of its operating
subsidiaries could restrict payments made by these operating
subsidiaries to it and have an adverse effect on its business,
prospects, financial condition and results of operations. In
addition, agreements governing these arrangements contain, in
some cases, change of control and similar provisions which, if
triggered under certain circumstances could give other
participants in these investments the ability to purchase
OTH’s interests or enact other penalties.
OTH’s
debt could have an adverse effect on its financial
condition.
OTH have outstanding debt and significant debt service
obligations. As of September 30, 2010, its total
consolidated debt was US$4,907 million.
OTH’s level of indebtedness could have important negative
consequences for it and for investors. For example, it could:
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require it to dedicate a large portion of its cash flow from
operations to fund payments on its debt, thereby reducing the
availability of its cash flow to fund working capital, capital
expenditures and other general corporate purposes;
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increase its vulnerability to adverse general economic or
industry conditions;
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limit OTH’s flexibility in planning for, or reacting to,
changes in its business or the industry in which its operates;
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limit its ability to raise additional debt or equity capital in
the future or increase the cost of such funding;
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restrict it from making strategic acquisitions or exploiting
business opportunities;
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make it more difficult for it to satisfy its obligations with
respect to its debt; and
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place it at a competitive disadvantage compared to its
competitors.
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There can be no assurance that OTH’s business will generate
sufficient cash flow from operations or that future borrowings
will be available in an amount sufficient to enable it to repay
its existing credit facilities, to service its
B-17
indebtedness or to fund its liquidity needs. If OTH is unable
to meet its debt service obligations, it may attempt to
restructure or refinance existing debt, sell certain of its
assets or seek additional funding. However, it may not be able
to do so on satisfactory terms, if at all. Failure to do so
could have a material adverse effect on its business, prospects,
financial condition and results of operations.
OTH is
subject to restrictive debt covenants that may limit its ability
to finance its future operations and capital needs and to pursue
business opportunities and activities.
OTH is subject to the affirmative and negative covenants
contained in its Senior Credit Agreement and other financing
facilities and its Indenture (defined herein) in respect of the
February 2007 Notes (defined herein) that limit its flexibility
in operating its business. For example, these agreements
restrict its ability to, among other things:
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pay dividends or make other distributions;
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create certain liens;
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make certain asset dispositions;
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make certain loans or investments;
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issue or sell share capital of its subsidiaries;
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issue certain guarantees;
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enter into transactions with affiliates; and
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merge, consolidate, or sell, lease or transfer all or
substantially all of its assets.
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There can be no assurance that the operating and financial
restrictions and covenants in these agreements will not
adversely affect OTH’s ability to finance its future
operations or capital needs or engage in other business
activities that may be in its interest or react to adverse
market developments.
The Senior Credit Agreement and the indenture under which the
OTH High Yield Notes are issued (the
“Indenture”) also require it to maintain
specified financial ratios and satisfy financial condition
tests, which become more restrictive over time. OTH’s
ability to meet those financial ratios and tests can be affected
by events beyond its control, and there can be no assurance that
they will meet them. A breach of any of those covenants,
ratios, tests or restrictions could result in an event of
default under its financing facilities which could then result
in an event of default under the Indenture (under relevant
cross-default provisions). Upon the occurrence of any event of
default under its financing facilities, subject to applicable
cure periods and other limitations on acceleration or
enforcement, the relevant creditors could cancel the
availability of the financing facilities and elect to declare
all amounts outstanding under the relevant financing facility,
together with accrued interest, immediately due and payable. In
addition, OTH guarantees the obligations of certain of its
subsidiaries and restricted affiliates under certain of their
international financings and, if any subsidiary or restricted
affiliate defaults under one of these financings, the relevant
lender will have the right to enforce the relevant guarantee
against OTH. In any default under OTH’s financing
facilities (including any default under the aforementioned
guarantees) could lead to an event of default and acceleration
under other debt instruments (including guarantees) that contain
cross default or cross acceleration provisions, which could have
a material adverse effect on its business, results of
operations, financial condition and prospects.
OTH
may not be able to obtain additional financing, if necessary, to
re-finance its existing debt when it matures or to fund its
capital expenditure requirements and its acquisition
strategy.
OTH cannot assure you that it will generate sufficient cash
flows in the future to meet its capital expenditure needs,
sustain its operations or meet its other capital requirements,
including paying back its indebtedness when it becomes due.
OTH’s capital expenditure needs relate to the maintenance
and expansion of its networks, operations and services and
pursuing investment and acquisition opportunities for both its
existing and potential new GSM and non-GSM businesses. In
addition, its actual capital expenditure requirements may exceed
the amounts currently
B-18
estimated or the timing of its future capital requirements may
differ materially from its current estimates due to various
factors, many of which are beyond its control. Accordingly, OTH
may be required to raise additional debt or equity financing in
amounts that could be substantial. OTH’s ability to
arrange external financing, and the cost of such financing,
depends on numerous factors, including its future financial
condition, general economic and capital markets conditions,
interest rates, credit availability from banks or other lenders,
restrictions and covenants contained in its existing financing
agreements, investor confidence in its business, applicable
provisions of tax and securities laws and political and economic
conditions in any relevant jurisdiction. There can be no
assurance OTH would be able to accomplish any of these measures
on a timely basis or on commercially reasonable terms, if at
all. Any reductions or delays in its capital expenditure
program and its acquisition strategy could have an adverse
effect on its business, prospects, financial condition and
results of operations.
The tax and other regulatory laws and regulations in the
jurisdictions in which OTH operates are subject to change or
interpretation by local authorities, including changes or
interpretations that may subject it to penalties, both monetary
and statutory, which could adversely affect the conduct of its
business. OTH is subject to routine and non-routine tax audits
in a number of countries in relation to current operations, for
example, Algeria, and discontinued operations, for example,
Jordan.
OTH
operates in a competitive environment in each of its
markets.
OTH operates in an increasingly competitive environment across
its markets. Although new laws and regulatory initiatives may
provide it with increased business opportunities by removing or
substantially reducing certain barriers to competition, in so
doing they also create a more competitive business environment
and may encourage new entrants, which could affect its key
operating items such as ARPU and churn rate.
OTH’s competitors fall into three broad categories:
(i) international diversified telecommunications companies;
(ii) state-owned and partly state-owned telecommunications
companies; and (iii) local and regional companies. Many of
its global competitors have substantially greater financial,
personnel, technical, marketing and other resources. In a
number of countries, its competitors are government-owned
entities or major international or local business participants.
For example, in Algeria, one of OTH’s main competitors is
the mobile subsidiary of state owned telecoms operator,
Algérie Télécom. Although OTH has local partners
and/or
management in all of its operations, its local competitors
(including the state-owned and partially state-owned
competitors) may have greater locally available resources, may
be more favored politically and by local regulators or may be
preferred by customers.
The continuing trend toward business combinations and strategic
alliances in the telecommunications industry may create
increased competition. Competition may lead to a reduction in
the rate at which OTH is able to add new customers and to a
decrease in its market share as customers purchase
telecommunications services, or other competing services, from
other providers.
The competitive focus in certain of OTH’s markets such as
Algeria and Egypt continues to shift from customer acquisition
to customer retention as a result of increased penetration of
the mobile telecommunications market. There can be no assurance
that OTH will not continue to experience increases in customer
churn rates in certain markets, reflecting increased numbers of
customer deactivations, particularly as competition for existing
customers intensifies. An increase in churn rates may result in
lower revenue and higher costs resulting from the need to
replace customers and may consequently have a material adverse
effect on its profitability.
Increasing competition has also led, in certain markets, to
reductions in the prices that OTH is able to charge for its
services and may lead to further price declines in the future.
In addition, it faces increasing competition in the markets in
which it operates due to the entrance of new telecommunications
services providers.
If OTH is not able to successfully compete in its markets, this
could have a material adverse effect on its business, prospects,
financial condition and results of operations.
B-19
OTH
operates in the highly regulated telecommunications market.
Changes in laws, regulations or governmental policy affecting
its business activities could adversely affect its business,
financial condition and results of operations.
Telecommunications businesses in each of its markets are subject
to governmental regulation regarding licensing, competition,
frequency allocation and costs and arrangements pertaining to
interconnection and leased lines. Changes in laws, regulations
or governmental policy affecting its business activities could
adversely affect its business, prospects, financial condition
and results of operations.
In many of the countries in which OTH operates, local regulators
have significant latitude in the administration and
interpretation of telecommunications licenses. In addition, the
actions taken by these regulators in the administration and
interpretation of these licenses may be influenced by local
political and economic pressures. OTH cannot provide any
assurance that governments or their regulatory bodies in the
countries in which it operates will not issue telecommunications
licenses to new operators whose services will compete with OTH.
Decisions by regulators, including the amendment or revocation
of any existing licenses, could adversely affect its business,
prospects, financial condition and results of operations.
Regulators and governmental authorities may make different
interpretations of existing laws and regulations that could have
a negative impact on OTH.
Finally, disagreements with regulatory and other authorities in
the jurisdictions in which OTH operates or plans to operate can
affect its business, prospects, financial condition and results
of operations, including with respect to the level of control it
asserts over its operating assets.
Bangladesh
In Bangladesh, in March 2009, the Bangladeshi Telecommunications
Regulatory Commission (“BTRC”) issued and
implemented a new directive relating to tariffs and sharing of
interconnection revenue between the telecommunications operators
which has had a negative impact on OTH’s subsidiary’s
(banglalink) ability to increase its customer base and therefore
adversely affected its revenues.
In Algeria, the national regulator announced its intention to
regulate the promotions that telecommunications carriers may
offer, to require its consent to interconnection agreements,
offers and tariffs and to require additional identity checks for
subscribers. These new directions have had the effect of
hampering market competition in Algeria, increasing tariff rates
for subscribers and, with respect to the identity checks,
causing subscribers to cancel their subscriptions. Algeria may
impose new laws, rules or regulations that affect OTH’s
business, prospects, financial condition or results of
operations. For example Algeria has recently implemented new
laws affecting sales by foreign investors of their shares in
Algerian companies.
Zimbabwe
In Zimbabwe, following the introduction of laws with respect to
home-ownership of companies, in August 2007, the Post and
Telecommunications Regulatory Authority of Zimbabwe
(“POTRAZ”) notified Telecel Zimbabwe that its
license had been cancelled because of a failure to reduce
foreign shareholding to 49%. Telecel Zimbabwe has requested a
two year extension to reduce its holding to within the 49%
threshold. OTH cannot assure you that it will be successful in
obtaining a fair value transaction for the disposal of its
current shares in excess of the 49% threshold or at all or that
it will be successful in reinstating the license in Zimbabwe.
In addition, in certain countries, the expansion plans of
existing mobile operations are likely to require additional
spectrum to be allocated to such operations by the local
authorities. There can be no assurance that such allocations
will be made or, if made, that the terms and timing will be
consistent with its business plans.
In certain jurisdictions, OTH’s recent acquisitions have
been subject to local consents and approvals, such as the
requirement to obtain a telecommunications license for newly
acquired local operating companies. To the extent that OTH has
been advised to do so, these local consents and approvals have
thus far been successfully
B-20
obtained. In other cases, OTH has been advised by local counsel
that no consents and approvals are required. There can be no
assurance that all material consent and approval have been
obtained. Failure to obtain consents or approvals could result
in the invalidation of share transfers, the loss of local
operating licenses or the loss of other locally held legal or
contractual rights. The fixed-line carriers that OTH relies on
for interconnection are largely state-owned entities. Although
its principal arrangements with fixed-line carriers are
contractually specified in interconnection agreements and it
believes that its relationships with fixed-line carriers are
generally satisfactory, the deterioration or termination of
these arrangements and relationships, or the inability to enter
into new arrangements and relationships with one or more
carriers, could have a material adverse effect upon its cost
structure, service, quality and network coverage, and business,
prospects, financial condition and results of operations.
Many of OTH’s subsidiaries hold leading market shares in
their respective jurisdictions. In three out of its four
largest markets (Algeria, Pakistan, and Egypt), it is considered
to be the market leader in terms of operations and number of
subscribers. In the forth, Bangladesh, it acquired a marginal
operator in 2004 which has now become the second-largest
operator. Being designated a “significant market
power” or “dominant operator” may subject certain
of its subsidiaries to local restrictions such as asymmetric
pricing for interconnection rates (with other leading operators
charging lower rates), restrictions on pricing, limits on
acquisitions or other controls as regulators seek to allow for
greater competition within the market.
For example, since 2007, the Algerian Autorité de
Régulation de la Poste et des Télécommunications
(“ARPT”) has made several decisions declaring
OTA a “dominant operator” and, as a result, OTA has
been under pressure from ARPT to increase its retail tariffs and
leave more room for its competitors. XXX has filed claims
against such requests and has also filed a separate claim
against ARPT in respect of its criteria for the approval of
termination tariffs, however to date has been unsuccessful in
respect of such claims. From July 2009, the ARPT introduced
revised market termination tariffs, with OTA penalized more than
its competitors as a result of being deemed a “dominant
operator”.
In Pakistan, Mobilink was determined to have “significant
market power” in August 2004 and, as a result has been
subjected to increased regulation by the PTA. Mobilink is now
required to seek the prior approval of the PTA before changing
its tariffs or offering new packages to provide cost based
interconnection services pursuant to the terms and conditions
under which the Pakistan Telecommunications Company Limited will
supply certain interconnection related services to the operator
(“Reference Interconnection Offer”). The entry
of new players (Warid, Telenor and Zong) into the market, has
led to a sharp increase in competition. As such, in July 2009
the PTA issued a consultation paper for the redefining of the
relevant markets and revising the SMP (defined herein) to take
into account the new market conditions.
Finally, although the relevant decree has not yet been
implemented, it is expected that Xxxxxxx will also be classified
by the Egyptian competition authority as an entity exercising
“significant market power” within its market which may
result in Mobinil being treated less favorably than other
operators with a corresponding negative effect on its business,
prospects, financial condition and results of operations in
Egypt. OTH’s Egyptian operations are part of the OTH
Spin-Off Assets that are intended to be transferred to
Weather II following Closing. See “The Spin-Off
Plan”.
Increased regulation could result in higher operational costs
and decrease its ability to present attractive offers to
OTH’s subscribers and potential subscribers which could
adversely affect its business, financial condition and results
of operations.
The
legality of the ownership structure for operations in Canada is
being challenged.
Under the Canadian Telecommunications Act, certain
telecommunications companies operating in Canada must not be
controlled by non-Canadians. OTH holds its interest in Globalive
Wireless Management Corp. (“WIND
Mobile”) and other Canadian telecommunications
companies through Globalive Investment Holdings Corp.
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(“Globalive Holdings”). OTH indirectly
holds 65.08% of the outstanding shares of Globalive Holdings and
32.02% of voting rights.
Industry Canada, the Canadian governmental body responsible for
awarding spectrum licenses, ruled that WIND Mobile was in
compliance with Canadian ownership and control rules and granted
WIND Mobile spectrum licenses on March 16, 2009.
On October 29, 2009, the Canadian Radio Television and
Telecommunications Commission (“CRTC”),
an independent regulatory body that regulates and supervises
Canadian broadcasting and telecommunications systems, decided
that WIND Mobile was not in compliance with Canadian ownership
and control rules, and was therefore not eligible to operate as
a telecommunications common carrier in Canada.
On December 11, 2009 the Government of Canada varied the
decision of the CRTC by Order in Council, confirming that WIND
Mobile met the Canadian ownership and control rules and clearing
it to commence operations. Following this decision, WIND Mobile
commenced commercial operations on December 16, 2009.
Shortly after, certain of WIND Mobile’s competitors filed
an application challenging the decision of the Government of
Canada, and on February 4, 2011, the Federal Court of
Canada ruled (the “Federal Court
Ruling”) that the Government of Canada’s
decision contained two legal errors and should be quashed. The
Federal Court Ruling is stayed for a period of 45 days from
the date of the ruling. WIND Mobile currently intends to appeal
the decision and to request an extension of the 45 day stay
pending disposition of its appeal. In the event that WIND Mobile
is unsuccessful in its appeal(s), and assuming that the
Government of Canada does not render the Federal Court Ruling
moot by changing the Canadian ownership and control rules or
issuing a new or varied Order in Council, then the shareholders
in WIND Mobile could be required to make changes to the
ownership structure or financing arrangements in an effort to
have the CRTC determine that WIND Mobile is compliant with those
rules, which could have a material adverse affect on its
business, prospects, financial condition and results of
operations
and/or could
affect OTH’s interest in
and/or
revenue from WIND Mobile.
The terms of OTH’s licenses, permits and frequency
allocations are subject to finite terms, ongoing review
and/or
periodic renewal and, in some cases, are subject to modification
or early termination or may require renewal with the applicable
government authorities. For example, its banglalink license is
due for renewal in November 2011. While OTH does not expect any
of its subsidiaries or associated companies to be required to
cease operations at the end of the term of their business
arrangements or licenses, there can be no assurance that these
business arrangements or licenses will be renewed on equivalent
satisfactory terms, or at all. Upon termination, the licenses
and assets of these companies may revert to the local
governments or local telecommunications operators, in some cases
without any or adequate compensation being paid.
OTH has in the past paid significant amounts for certain of its
GSM and 3G telecommunications licenses, and the competition for
granting these licenses is increasing as more competitors enter
its markets. For this reason, OTH may have to pay increasingly
substantial license fees in certain markets, as well as meet
specified network build out requirements. There can be no
assurance that it will be successful in obtaining or funding
these licenses, or, if licenses are awarded, that they can be
obtained on terms acceptable to it. In addition, if it obtains
or renews further licenses, it may need to seek future funding
through additional borrowings or equity offerings, and it cannot
assure you that such funding will be obtained on satisfactory
terms or at all, which could adversely affect its business,
financial condition and results of operations.
OTH is
exposed to certain risks in respect of the development,
expansion and maintenance of its mobile telecommunications
networks
OTH’s ability to increase its subscriber base depends upon
the success of the expansion and management of its networks and
upon its ability to obtain sufficient financing to facilitate
these plans. The build-out of its networks is
B-22
subject to risks and uncertainties which could delay the
introduction of services in some areas and increase the cost of
network construction, including obtaining sufficient financing.
OTH is engaged in a number of network expansion and
infrastructure projects. In connection with its network
strategy, from time to time, OTH may establishing joint ventures
with other carriers in its markets which may involve the sale of
assets and may require funding from it. Network expansion and
infrastructure projects, including those in its development
pipeline, typically require substantial capital expenditure
throughout the planning and construction phases and it may take
months or years before it can obtain the necessary permits and
approvals and the new sites become operational, during which
time OTH is subject to a number of construction, financing,
operating, regulatory and other risks beyond its control,
including, but not limited to:
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shortages of materials, equipment and labor;
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an inability to make any necessary financing arrangements on
favorable terms, if at all;
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changes in demand for its services;
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labor disputes and disputes with
sub-contractors;
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inadequate infrastructure, including as a result of failure by
third parties to fulfill their obligations relating to the
provision of utilities and transportation links that are
necessary or desirable for the successful operation of a project;
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failure to complete projects according to specifications;
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adverse weather conditions and natural disasters;
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accidents;
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changes in local governmental priorities; and
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an inability to obtain and maintain project development
permission or requisite governmental licenses, permits or
approvals.
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The occurrence of one or more of these events may have a
material adverse effect on OTH’s ability to complete its
current or future network expansion projects on schedule or
within budget, if at all, and may prevent it from achieving its
targeted increases in its subscriber base, revenues, internal
rates of return or capacity associated with such projects.
There can be no assurance that OTH will be able to generate
revenues from its expansion projects that meet its planned
targets and objectives, or that they will be sufficient to cover
the associated construction and development costs, which could
have a material adverse effect on its business, prospects,
financial condition, results of operations and prospects.
OTH is
dependent on third party telecommunications providers over which
it has no direct control for the provision of interconnection
and roaming services.
OTH’s ability to provide high quality and commercially
viable mobile telecommunications services depends, in some
cases, on its ability to interconnect with the
telecommunications networks and services of other local,
domestic and international mobile and fixed-line operators. OTH
also relies on other telecommunications operators for the
provision of international roaming services for its
subscribers. While it has interconnection and international
roaming agreements in place with other telecommunications
operators, it has no direct control over the quality of their
networks and the interconnections and international roaming
services they provide. Any difficulties or delays in
interconnecting with other networks and services, or the failure
of any operator to provide reliable interconnections or roaming
services to it on a consistent basis, could result in its loss
of subscribers or a decrease in traffic, which could adversely
affect its business, financial condition and results of
operations.
Continued
cooperation between OTH and its equipment and service providers
is important to maintain its operations.
Once a manufacturer of telecommunications equipment has designed
and installed its equipment within a system, the operator of the
system will often be reliant on such manufacturer for continued
service and supply.
B-23
OTH’s ability to grow its subscriber base depends in part
on its ability to source adequate supplies of network equipment
and on its ability to source adequate supplies of mobile
handsets, software and content on a timely basis. For example,
it has made substantial equipment purchases from and entered
into vendor financing arrangements with Nokia Siemens Networks,
Alcatel, Huawei and Motorola. Continued cooperation with these
equipment and service providers is essential for it to maintain
its operations.
OTH does not have direct operational or financial control over
its key suppliers and has limited influence with respect to the
manner in which its key suppliers conduct their business. Its
subsidiaries’ reliance on these suppliers subjects them and
OTH to risks resulting from any delays in the delivery of
services. OTH cannot assure you that its suppliers will
continue to provide equipment and services to its subsidiaries
at attractive prices or that it will be able to obtain such
equipment and services in the future from these or other
providers on the scale and within the time frames required, if
at all. The inability or unwillingness of its key suppliers to
provide its subsidiaries with adequate equipment and supplies on
a timely basis and at attractive prices could materially and
negatively impact their ability to attract subscribers or offer
attractive product offerings, either of which could materially
and negatively impact its business, financial condition and
results of operations.
The
telecommunications industry is being significantly affected by
rapid technological change and OTH may not be able to
effectively anticipate or react to these changes.
The telecommunications industry is characterized by
technological changes, including an increasing pace of change in
existing mobile systems, industry standards and ongoing
improvements in the capacity and quality of technology. Its
commercial success depends on providing high quality
telecommunications services. If OTH is unable to anticipate
customer preferences or industry changes, or if it is unable to
modify its services on a timely basis, it may lose customers.
As new technologies develop, its equipment may need to be
replaced or upgraded, or its networks may need to be rebuilt in
whole or in part in order to sustain its competitive position as
a market leader. Continuing technological advances, ongoing
improvements in the capacity and quality of digital technology
and short development cycles also contribute to the need for
continual upgrading and development of its equipment, technology
and operations. As a result, OTH cannot assure you that
existing, proposed or as yet undeveloped technologies will not
become dominant in the future and render the technologies it
uses less profitable or that it will be successful in responding
in a timely and cost-effective way to keep up with new
developments. To respond successfully to technology advances,
OTH may require substantial capital expenditures and access to
related or enabling technologies in order to integrate the new
technology with its existing technology. If OTH is not
successful in anticipating and responding to technological
change and resulting consumer preferences in a timely and
cost-effective manner, its quality of services, business
prospects, financial condition and results of operations could
be materially adversely affected.
OTH’s
infrastructure, including its network equipment and systems may
be vulnerable to natural disasters, security risks and other
events that may disrupt its services and could affect its
business, prospects, financial condition and results of
operations.
OTH’s business depends on providing subscribers with
service reliability, network capacity, security and account
management. The services it provides, however, may be subject
to disruptions resulting from numerous factors, including fire,
flood or other natural disasters, signal jamming, power outages,
acts of terrorism and vandalism, equipment or system failures
and breaches of network or information technology security. For
example, in November 2007, Cyclone Sidr caused widespread power
outages in Bangladesh resulting in 2,238 of its towers to be
disrupted for up to 72 hours. If any of these events were
to occur, it could cause limited or severe service disruption
which could result in subscriber dissatisfaction, regulatory
penalties or reduced revenues. In addition, OTH relies on
manufacturers of telecommunications equipment for continued
maintenance service and supply, and continued cooperation on the
part of these manufacturers is important for it to maintain its
operations without disruption. Mobilink was also affected by
the floods during 2010, though it is too early to assess the
impact, and similar events in any market in which OTH operates
could affect its business. As a further example, in January and
February 2011 telecommunications services in Egypt re
intermittently affected by order of the government (including a
temporary suspension of all mobile networks) in response to the
nationwide protests which were then occurring.
B-24
In the event OTH experiences significant problems with its
switches, base stations, base station controllers, network
backbone, other system hardware or software or with the
manufacturers on whom it relies, including problems outside its
control, it could result in limited or severe service
interruptions or quality of service problems. Although OTH has
backup capacity for its network management operations and
maintenance systems, automatic transfer to its backup capacity
is not seamless, and may cause network service interruptions.
Any interruption of services could harm its business reputation
and reduce the confidence of its subscribers and consequently
impair its ability to obtain and retain subscribers and could
lead to a violation of the terms of its various licenses, each
of which could materially or adversely affect its business.
OTH
may not be able to adequately protect its intellectual property,
which could harm the value of its brand and branded products and
adversely affect its business.
OTH depends on its brands and branded products and believe that
they are important to its business. It relies primarily on
trademarks and similar intellectual property rights to protect
its brands and branded products. The success of its business
depends on its continued ability to use its existing trademarks
in order to increase brand awareness and further develop its
branded products in its markets. OTH has registered certain
trademarks and has other trademark registrations pending. It
registers all of its trademarks that it currently uses in the
markets in which they are used though in many cases it cannot be
certain that these trademarks have not been registered by
another party in the past. OTH may not be able to adequately
protect it trademarks and its use of these trademarks may result
in liability for trademark infringement, trademark dilution or
unfair competition.
Many of OTH’s subsidiaries and restricted affiliates have
pledged their shares as security under their financings. In the
event of a default of their obligations, lenders under these
financings have the right to sell these shares to other parties
in an effort to reclaim these outstanding obligations. If its
lenders sell these shares to other parties in the event of such
a default, its ownership of these subsidiaries and restricted
affiliates may be reduced or terminated and, as a result, its
control over, and cash flows from, its subsidiaries and
restricted affiliates may be adversely affected.
OTH’s
business strategy contains risks and
uncertainties.
OTH may pursue new acquisitions or investments (including
underserved or emerging markets) and may pursue additional
investment opportunities in relation to its existing operations,
or restructuring of existing operations. The ability to carry
out this strategy will depend, among other things, on its
ability to identify and compete for new opportunities, the
availability of financing and regulatory licensing and approvals
and, in some cases, the selection of appropriate international
and local partners and the continued contributions of certain of
its key management and technical personnel. There can be no
assurance that it will continue to attract and retain the
qualified personnel needed for its business. Competition for
key personnel in the telecommunications industry is intense, and
there is limited availability of individuals with the requisite
knowledge of the telecommunications industry and relevant
experience in the markets in which it operates. OTH may not be
able to successfully recruit, train or retain the necessary
qualified personnel in the future. Its failure to manage its
personnel needs successfully could have a material adverse
effect on its business, financial condition and results of
operations. In addition, its prospects should be considered in
light of the risks and transaction costs that are inherent in
acquisitions and the development of new activities. Further,
there is no assurance that it will be successful in bids for new
licenses (if any).
OTH’s
business, prospects, financial condition, results of operations
and liquidity may be adversely affected by the current
unfavorable global economic conditions.
As the crisis in the global financial and credit markets began
to spread to non-financial sectors of the world economy in the
second half of 2008 and in 2009, economies worldwide started to
show significant signs of weakness, resulting in a general
contraction in consumer spending that varies by market. While
the
B-25
telecommunications sector is one market segment that has been
somewhat less affected by the global financial crisis and
economic slowdown, recessionary conditions and uncertainty in
the macroeconomic environment may adversely impact consumer
spending on telecommunications products and services. Customers
may decide that they can no longer afford mobile services, or
that they can no longer afford the data services and value-added
services that are instrumental in maintaining or increasing ARPU
(average revenue per user), and, in turn, increasing its
revenues.
In addition, as the global financial system have experienced
unprecedented credit and liquidity conditions and disruptions,
leading to a reduction in liquidity, greater volatility, general
widening of credit spreads and, in some cases, lack of
transparency in money and capital markets, many lenders have
reduced or ceased to provide funding to borrowers. If these
conditions continue, or similar global or regional issues occur,
in 2011 it could negatively affect OTH’s ability to raise
funding in the debt or equity capital markets
and/or
access secured lending markets on financial terms acceptable to
it or at all.
The continued impact of the global economic and market
conditions, including, among others, the events described above
could have a material adverse effect on OTH’s business,
prospects, financial condition, results of operations or
liquidity.
Risks
Relating to the Countries in Which OTH Operates
OTH is
subject to political, social and economic risks in the countries
in which it operates.
A substantial part of its assets and operations are currently
located in jurisdictions which are, have been, or could in the
future be subject to political, economic and social
instability. Its operating results are and will be affected by
economic and political developments in or affecting each of the
countries in which it operates and, in particular, by the level
of economic activity. While recent economic and political
reforms have been implemented in certain of its markets, it
cannot assure you that these reforms will be long lasting.
OTH’s business, prospects, financial condition and results
of operations may be adversely affected by changes in the
political structure or governments in the countries in which it
operates and by hostile changes in the political environment
both at home and in their respective regions. As a result of
operating in certain locations which could be subject to
heightened risks, its local subsidiaries may incur substantial
costs to maintain the safety of their personnel, property and
equipment. Despite these precautions, the safety of its
personnel, property and equipment in these locations may
continue to be at risk. In addition, network maintenance and
expansion projects in these areas could be delayed or cancelled
due to the need for heightened security for employees and
contractors operating in these areas. For example, Bangladesh
and Algeria in particular face ongoing challenges with respect
to violence along and within their respective borders from
extremists. Such developments may have a negative impact on its
financial condition, results of operation and business prospects.
By way of example, in January and February 2011 there were
widespread protests in Egypt against the government which
resulted in extensive disruption and damage throughout the
country to public and private property and infrastructure. Its
offices and shops suffered damage and mobile networks and
services were temporarily suspended by order of the authorities.
Pakistan, by way of further example, has experienced
country-wide strikes and transportation blockages as well as a
relatively volatile political atmosphere in the country since
early 2007. Political instability may also result from events
in some regions of the country such as ongoing insurgencies in
the western provinces or Pakistan’s long running dispute
with India over the region of Kashmir, either of which could
destabilize the internal political situation in Pakistan. OTH
cannot assure you that the operation of its business would not
be adversely affected in the event of increased political
instability within Pakistan.
In Zimbabwe, the government of Zimbabwe faces a difficult
political environment and unstable economy. Further, recently
introduced politically motivated laws with respect to ownership
of companies have impacted its operations in Zimbabwe.
B-26
In addition, the global credit crisis has seen governments
increasingly look to protecting their home-grown market
participants. Whilst OTH has endeavored to tailor its
individual brands to a specific country to create “local
brands”, it has in recent times seen increasing examples of
antipathy towards foreign investors.
This has been most noticeable in Zimbabwe where recent
legislation has been put in place to ensure that at least 50% of
companies are home-owned. Further, rioting in Algeria following
the Algeria / Egypt football match in November 2009
targeted OTH’s headquarters and several of its retail
outlets causing considerable physical damage. These instances
indicate that there may be certain sensitivities where a foreign
company operates one of the public services. Further, such
attacks have had an adverse effect on OTH’s image and
business in the period immediately following.
OTH
operates in a number of jurisdictions, any of which could change
its fiscal, tax or foreign exchange laws in a way that could
unfavorably affect its financial status.
OTH holds interests in its mobile networks through its
subsidiaries in various jurisdictions in and outside Egypt. It
cannot assure you that the laws or administrative practices
relating to taxation (including the current position as to
withholding taxes on dividends from these subsidiaries, and tax
concessions in certain operations), foreign exchange or
otherwise in these jurisdictions will not change. Any such
change could have a material adverse effect on its financial
affairs and on its ability to receive funds from its
subsidiaries.
Certain
jurisdictions in which OTH operates mobile businesses are
subject to international sanctions.
Each of North Korea and Zimbabwe is subject to international
sanctions imposed by the European Union and the United States,
among others. In addition, North Korea is subject to sanctions
imposed by the United Nations. These sanctions have the effect
of restricting financial transactions and the import and export
of goods and services, including goods and services required to
operate, maintain and develop mobile networks. There can be no
assurance that if international sanctions are changed or subject
to enhanced enforcement, OTH will be able to finance its
operations, transfer funds to and from each company and operate
its mobile networks in North Korea and Zimbabwe. If it is
unable to continue to operate these businesses, it could
adversely affect its business, financial condition and results
of operations. Although OTH’s North Korean operations are
intended to be transferred to Weather II at or shortly
after Closing, there can be no assurance that the transfer will
be completed or that such transfer will relieve the combined
company from penalties and applicable laws.
There can be no assurance that OTH will be able to continue to
comply with all international sanctions regimes, whether or not
there are any changes to such regimes. If OTH cannot comply
with such regimes in the future, it would likely be required to
cease its operations in such jurisdictions, which could
adversely affect its business, financial condition and results
of operations.
Local
currency fluctuations could affect OTH’s cash flows which
could, in turn, impact its ability to invest in its subsidiaries
and pay certain obligations as cash flows are generated in local
currencies.
Each of OTH’s subsidiaries earns its revenue and incurs
operating expenses principally in its local currency. Its
operating results, as presented in U.S. dollars, are affected by
exchange rate fluctuations between the U.S. dollar and a number
of local currencies. In addition, its capital expenditures are
incurred partially in Euro and U.S. dollars and are often
financed from operating cash flows
and/or local
currency borrowings. To the extent the local currency
depreciates against the Euro or U.S. dollar, as applicable, the
relative cost of the capital expenditure in local currency
increases. In addition, while OTH has raised capital in Euro or
U.S. dollars. In these cases it may hedge its
subsidiaries’ exposure to Euro or U.S. dollars, but in some
cases the market for these financial instruments is not well
developed. For these reasons, volatility in the exchange rate
of a local currency against the Euro or U.S. dollar can result
in gains or losses. Any negative effect of local currency
fluctuations on OTH’s cash flows could adversely impact
ability to maintain its expected level of capital expenditure
and investments in its subsidiaries and to pay certain
obligations, which could adversely affect its business,
financial condition and results of operations.
B-27
Potential
inflation in local economies may affect some customers’
ability to pay for OTH’s services, and it may also
adversely affect the stability of the telecommunications market
in those countries.
OTH’s operations are dependent upon the economies of the
markets in which it has interests. These markets are in
countries with economies in various stages of development or
structural reform, some of which are subject to rapid
fluctuations in terms of consumer prices, employment levels,
gross domestic product and interest and foreign exchange rates.
OTH may be subject to such fluctuation in the local economies
and to the effect of such fluctuations on the ability of
customers to pay for its services and to its ability to increase
its customer base in such affected countries. In addition,
these fluctuations may affect the ability of the market to
support its existing telecommunications interests or any growth
in telecommunications operations. It is also possible that a
period of significant inflation in any of its markets could
adversely affect its affect its business, financial condition
and results of operations.
Emerging
markets are generally subject to greater risk than more
developed markets and actual and perceived risks associated with
investing in emerging economies could dampen foreign investment
the countries in which OTH operates.
The disruptions recently experienced in the international and
domestic capital markets have led to reduced liquidity and
increased credit risk for certain market participants and have
resulted in a reduction of available financing. Companies
located in countries in emerging markets may be particularly
susceptible to these disruptions and reductions in the
availability of credit or increased financing costs, which could
result in financial difficulties. In addition, the availability
of credit to entities operating within the emerging markets is
significantly influenced by levels of investor confidence in
these markets, and, as such, any factors that impact market
confidence, for example, a decrease in credit ratings or state
or central bank intervention in one market, could affect the
price or availability of funding for entities within any of
these markets. Moreover, during such times, companies operating
in emerging markets can face severe liquidity constraints as
foreign funding resources are withdrawn. Thus, whether or not
the countries in which OTH operates are relatively stable,
financial turmoil in any emerging market country, some of which
recently have experienced significant political instability
(including terrorism), could seriously disrupt its business.
Any such disruption could adversely affect its business,
financial condition and results of operations.
Most
of the jurisdictions in which OTH operates have currency control
restrictions.
At the subsidiary level, OTH seeks to reduce its foreign
exchange exposure arising from transactions through a policy of
matching, to the extent possible, the denomination of
liabilities and revenues. Its ability to reduce its foreign
currency exchange exposure may be limited by restrictions on
borrowings in local currency. For example, under local
regulations in Bangladesh, companies are required to obtain
approval from the State Bank in order to engage in long-term
borrowing in the local market and the State Bank may impose
certain terms and conditions when providing approval. OTH
cannot assure you therefore of its ability to reduce its foreign
exchange exposure by borrowing in local currency, which could
adversely affect its business, financial condition and results
of operations.
In addition, most of the countries in which OTH operates have
implemented currency control restrictions and, in particular,
rules surrounding the repatriation of dividends to foreign
investors. There can be no guarantee that existing legislation
will not have an adverse impact on its revenues to the extent
that it is prevented from receiving dividends from its
subsidiaries or that its subsidiaries may not incur problems
with external financing or supply contracts with foreign
companies as a result of applicable legislation.
For example, in 2009 the Algerian government put into place
legislation to prevent companies from repatriating dividends to
foreign investors while outstanding tax claims existed against
such company. As a result of the existing claim, OTA is
currently prevented from repatriating 50% of the 2008 dividend
and all of the 2009 dividend. This has had a material adverse
effect on the liquidity of the Company.
B-28
INDEX TO
FINANCIAL STATEMENTS
VIMPELCOM
LTD.
|
|
|
|
|
Unaudited Condensed Consolidated Financial Statements
|
|
|
F-2
|
|
Unaudited Condensed Consolidated Balance Sheets as of
September 30, 2010 and December 31, 2009
|
|
|
F-2
|
|
Unaudited Condensed Consolidated Statements of Income for the
nine-month periods ended September 30, 2010 and 2009
|
|
|
F-3
|
|
Unaudited Condensed Consolidated Statements of Cash Flows for
the nine-month periods ended September 30, 2010 and 2009
|
|
|
F-4
|
|
Unaudited Condensed Consolidated Statements of Changes in Equity
and Comprehensive Income for the nine-month periods ended and as
of September 30, 2010 and 2009
|
|
|
F-5
|
|
Notes to Unaudited Condensed Consolidated Financial Statements
|
|
|
F-7
|
|
|
WIND TELECOM S.p.A.
|
|
|
|
|
|
Unaudited Consolidated Interim Financial Statements
|
|
|
F-33
|
|
Unaudited Consolidated Income Statement for the nine-month
periods ended September 30, 2010 and 2009
|
|
|
F-34
|
|
Consolidated Statement of Comprehensive Income for the
nine-month periods ended September 30, 2010 and 2009
|
|
|
F-35
|
|
Unaudited Consolidated Statement of Financial Position as of
September 30, 2010 and December 31, 2009
|
|
|
F-36
|
|
Unaudited Consolidated Cash Flow Statement for the nine-month
periods ended September 30, 2010 and 2009
|
|
|
F-37
|
|
Unaudited Statement of Changes in Consolidated Equity for the
nine-month periods ended and as of September 30, 2010 and 2009
|
|
|
F-38
|
|
Notes to the Unaudited Consolidated Interim Financial Statements
|
|
|
F-39
|
|
|
|
|
|
|
Audited Consolidated Financial Statements
|
|
|
F-100
|
|
Audited Consolidated Financial Statements
|
|
|
F-164
|
|
Report of Auditors
|
|
|
F-165
|
|
Consolidated Statement of Financial Position as of
December 31, 2009 and 2008
|
|
|
F-168
|
|
Consolidated Income Statement for the years ended December 31,
2009 and 2008
|
|
|
F-169
|
|
Consolidated Statement of Comprehensive Income for the years
ended December 31, 2009 and 2008
|
|
|
F-170
|
|
Consolidated Cash Flow Statement for the years ended December
31, 2009 and 2008
|
|
|
F-171
|
|
Statement of Changes in Consolidated Equity for the years ended
and as of December 31, 2009 and 2008
|
|
|
F-172
|
|
Notes to the Consolidated Financial Statements
|
|
|
F-173
|
|
F-1
VimpelCom
Ltd.
Unaudited Condensed Consolidated Balance Sheets
as of September 30, 2010 and December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
Note
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(In thousands of US dollars, except share amounts)
|
|
|
Assets
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
2,467,002
|
|
|
$
|
1,446,949
|
|
Trade accounts receivable, net of allowance for doubtful accounts
|
|
|
|
|
|
|
525,659
|
|
|
|
392,365
|
|
Inventory
|
|
|
|
|
|
|
83,620
|
|
|
|
61,919
|
|
Deferred income taxes
|
|
|
|
|
|
|
99,405
|
|
|
|
91,493
|
|
Input value added tax
|
|
|
|
|
|
|
143,908
|
|
|
|
96,994
|
|
Due from related parties
|
|
|
|
|
|
|
113,006
|
|
|
|
249,631
|
|
Other current assets
|
|
|
|
|
|
|
348,501
|
|
|
|
627,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
3,781,102
|
|
|
|
2,966,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
6,480,385
|
|
|
|
5,561,569
|
|
Telecommunications licenses, net
|
|
|
|
|
|
|
583,221
|
|
|
|
542,597
|
|
Goodwill
|
|
|
|
|
|
|
6,943,143
|
|
|
|
3,284,293
|
|
Other intangible assets, net
|
|
|
|
|
|
|
1,629,117
|
|
|
|
700,365
|
|
Software, net
|
|
|
|
|
|
|
513,459
|
|
|
|
448,255
|
|
Investments in associates
|
|
|
|
|
|
|
440,952
|
|
|
|
436,767
|
|
Other assets
|
|
|
|
|
|
|
674,367
|
|
|
|
792,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
$
|
21,045,746
|
|
|
$
|
14,732,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, redeemable noncontrolling interest and equity
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
|
|
$
|
749,750
|
|
|
$
|
545,690
|
|
Due to employees
|
|
|
|
|
|
|
149,032
|
|
|
|
113,368
|
|
Due to related parties
|
|
|
|
|
|
|
2,777
|
|
|
|
9,211
|
|
Accrued liabilities
|
|
|
|
|
|
|
393,798
|
|
|
|
315,666
|
|
Taxes payable
|
|
|
|
|
|
|
287,015
|
|
|
|
212,767
|
|
Customer advances, net of VAT
|
|
|
|
|
|
|
326,956
|
|
|
|
376,121
|
|
Customer deposits
|
|
|
|
|
|
|
28,412
|
|
|
|
28,386
|
|
Short-term debt
|
|
|
6
|
|
|
|
2,126,113
|
|
|
|
1,813,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
4,063,852
|
|
|
|
3,414,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
|
|
|
|
787,178
|
|
|
|
596,472
|
|
Long-term debt
|
|
|
6
|
|
|
|
4,366,641
|
|
|
|
5,539,906
|
|
Other non-current liabilities
|
|
|
|
|
|
|
171,418
|
|
|
|
164,636
|
|
Commitments, contingencies and uncertainties
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
9,389,088
|
|
|
|
9,715,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest
|
|
|
7
|
|
|
|
518,664
|
|
|
|
508,668
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible voting preferred stock (0.001 US$ nominal value per
share), 128,532,000 shares authorized;
128,532,000 shares issued and outstanding
|
|
|
|
|
|
|
129
|
|
|
|
129
|
|
Common stock (0.001 US$ nominal value per share),
2,000,000,000 shares authorized; 1,302,559,308 shares
issued (December 31, 2009: 1,025,620,440);
1,291,232,105 shares outstanding (December 31, 2009:
1,014,291,580)
|
|
|
|
|
|
|
1,303
|
|
|
|
1,026
|
|
Ordinary stock (0.001 US$ nominal value per share), 50,000,000
shares authorized; nil shares issued and outstanding
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
Additional paid-in capital
|
|
|
|
|
|
|
6,294,869
|
|
|
|
1,142,594
|
|
Retained earnings
|
|
|
|
|
|
|
5,286,612
|
|
|
|
4,074,492
|
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
(497,816
|
)
|
|
|
(488,277
|
)
|
Treasury stock, at cost, 11,327,203 shares of common stock
(December 31, 2009: 11,328,860)
|
|
|
|
|
|
|
(223,406
|
)
|
|
|
(223,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total VimpelCom shareholders’ equity
|
|
|
|
|
|
|
10,861,691
|
|
|
|
4,506,543
|
|
Noncontrolling interest
|
|
|
|
|
|
|
276,302
|
|
|
|
1,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
|
|
|
|
11,137,994
|
|
|
|
4,508,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable noncontrolling interest and
equity
|
|
|
|
|
|
$
|
21,045,746
|
|
|
$
|
14,732,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
VimpelCom
Ltd.
Unaudited
Condensed Consolidated Statements of Income
for the
nine-month periods ended September 30, 2010 and
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
Note
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(In thousands of US dollars, except share amounts)
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
|
|
|
|
|
$
|
2,785,966
|
|
|
$
|
2,245,967
|
|
|
$
|
7,567,961
|
|
|
$
|
6,298,463
|
|
Sales of equipment and accessories
|
|
|
|
|
|
|
35,072
|
|
|
|
26,130
|
|
|
|
106,190
|
|
|
|
86,998
|
|
Other revenues
|
|
|
|
|
|
|
3,351
|
|
|
|
5,523
|
|
|
|
22,999
|
|
|
|
14,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
|
|
|
|
2,824,390
|
|
|
|
2,277,620
|
|
|
|
7,697,151
|
|
|
|
6,400,155
|
|
Revenue based tax
|
|
|
|
|
|
|
—
|
|
|
|
(1,823
|
)
|
|
|
—
|
|
|
|
(5,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
|
|
|
|
|
2,824,390
|
|
|
|
2,275,797
|
|
|
|
7,697,151
|
|
|
|
6,394,316
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service costs
|
|
|
|
|
|
|
594,687
|
|
|
|
488,425
|
|
|
|
1,649,297
|
|
|
|
1,370,952
|
|
Cost of equipment and accessories
|
|
|
|
|
|
|
44,276
|
|
|
|
26,876
|
|
|
|
118,505
|
|
|
|
85,564
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
799,122
|
|
|
|
599,186
|
|
|
|
2,208,835
|
|
|
|
1,710,198
|
|
Depreciation
|
|
|
|
|
|
|
408,284
|
|
|
|
366,039
|
|
|
|
1,137,486
|
|
|
|
1,000,201
|
|
Amortization
|
|
|
|
|
|
|
137,771
|
|
|
|
71,164
|
|
|
|
321,010
|
|
|
|
213,947
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
8,683
|
|
|
|
12,974
|
|
|
|
39,812
|
|
|
|
42,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
|
|
|
|
1,992,825
|
|
|
|
1,564,664
|
|
|
|
5,474,945
|
|
|
|
4,423,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
|
|
831,565
|
|
|
|
711,133
|
|
|
|
2,222,206
|
|
|
|
1,970,480
|
|
Other income and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
14,558
|
|
|
|
7,706
|
|
|
|
42,182
|
|
|
|
41,310
|
|
Net foreign exchange (loss)/gain
|
|
|
|
|
|
|
27,267
|
|
|
|
24,516
|
|
|
|
5,808
|
|
|
|
(397,191
|
)
|
Interest expense
|
|
|
|
|
|
|
(125,713
|
)
|
|
|
(156,793
|
)
|
|
|
(399,637
|
)
|
|
|
(434,802
|
)
|
Equity in net gain/(loss) of associates
|
|
|
|
|
|
|
19,201
|
|
|
|
4,861
|
|
|
|
26,505
|
|
|
|
(25,754
|
)
|
Other (expenses)/income, net
|
|
|
|
|
|
|
(26,512
|
)
|
|
|
(3,206
|
)
|
|
|
(84,868
|
)
|
|
|
(8,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income and expenses
|
|
|
|
|
|
|
(91,199
|
)
|
|
|
(122,916
|
)
|
|
|
(410,010
|
)
|
|
|
(824,561
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
740,365
|
|
|
|
588,217
|
|
|
|
1,812,198
|
|
|
|
1,145,919
|
|
Income tax expense
|
|
|
|
|
|
|
230,303
|
|
|
|
152,336
|
|
|
|
561,310
|
|
|
|
309,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
510,062
|
|
|
|
435,881
|
|
|
|
1,250,887
|
|
|
|
836,254
|
|
Net income/(loss) attributable to the noncontrolling interest
|
|
|
|
|
|
|
14,161
|
|
|
|
1,384
|
|
|
|
38,768
|
|
|
|
(2,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to VimpelCom
|
|
|
|
|
|
$
|
495,901
|
|
|
$
|
434,497
|
|
|
$
|
1,212,120
|
|
|
$
|
838,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to VimpelCom per common share restated
|
|
|
|
|
|
$
|
0.39
|
|
|
$
|
0.44
|
|
|
$
|
1.05
|
|
|
$
|
0.82
|
|
Weighted average common shares outstanding (thousand)
|
|
|
|
|
|
|
1,291,232
|
|
|
|
1,012,862
|
|
|
|
1,178,629
|
|
|
|
1,012,555
|
|
Diluted EPS:
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to VimpelCom per common share restated
|
|
|
|
|
|
$
|
0.39
|
|
|
$
|
0.43
|
|
|
$
|
1.05
|
|
|
$
|
0.79
|
|
Weighted average diluted shares (thousand)
|
|
|
|
|
|
|
1,291,655
|
|
|
|
1,035,417
|
|
|
|
1,179,141
|
|
|
|
1,050,635
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
VimpelCom
Ltd.
Unaudited
Condensed Consolidated Statements of Cash Flows
for the
nine-month periods ended September 30, 2010 and
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
Note
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(In thousands of US dollars)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
|
|
|
$
|
2,901,086
|
|
|
$
|
2,761,844
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
|
|
|
|
(750,530
|
)
|
|
|
(482,455
|
)
|
Purchases of intangible assets
|
|
|
|
|
|
|
(15,245
|
)
|
|
|
(13,067
|
)
|
Purchases of software
|
|
|
|
|
|
|
(145,591
|
)
|
|
|
(128,001
|
)
|
Investments in associates
|
|
|
|
|
|
|
—
|
|
|
|
(12,424
|
)
|
Payment for shares in Golden Telecom
|
|
|
|
|
|
|
(143,569
|
)
|
|
|
—
|
|
Caxx xroceeds from Kyivstar aqcuisition
|
|
|
2
|
|
|
|
167,077
|
|
|
|
—
|
|
Acqusition of Foratec, net of cash acquired
|
|
|
2
|
|
|
|
(36,372
|
)
|
|
|
—
|
|
Cash increase due to Sky Mobile consolidation
|
|
|
3
|
|
|
|
4,702
|
|
|
|
—
|
|
Loan granted
|
|
|
|
|
|
|
(5,305
|
)
|
|
|
—
|
|
Loan receivable repayment
|
|
|
|
|
|
|
22,910
|
|
|
|
—
|
|
Proceeds from withdrawal of deposits
|
|
|
|
|
|
|
435,166
|
|
|
|
—
|
|
Purchases of other assets, net
|
|
|
|
|
|
|
(15,065
|
)
|
|
|
(29,877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) investing activities
|
|
|
|
|
|
|
(481,820
|
)
|
|
|
(665,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from bank and other loans
|
|
|
|
|
|
|
738,450
|
|
|
|
1,226,137
|
|
Repayments of bank and other loans
|
|
|
|
|
|
|
(1,589,976
|
)
|
|
|
(1,691,052
|
)
|
Payments of fees in respect of debt issues
|
|
|
|
|
|
|
(2,606
|
)
|
|
|
(51,516
|
)
|
Share capital issued and paid
|
|
|
|
|
|
|
905
|
|
|
|
—
|
|
Share premium contributed
|
|
|
|
|
|
|
(225
|
)
|
|
|
5,412
|
|
Purchase of noncontrolling interest in consolidated subsidiaries
|
|
|
|
|
|
|
(12,594
|
)
|
|
|
(439
|
)
|
Payment of dividends
|
|
|
|
|
|
|
(2,049
|
)
|
|
|
—
|
|
Payment of dividends to noncontrolling interest
|
|
|
|
|
|
|
(34,517
|
)
|
|
|
(718
|
)
|
Purchase of own shares
|
|
|
|
|
|
|
(479,936
|
)
|
|
|
—
|
|
Net proceeds from employee stock options
|
|
|
|
|
|
|
27
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
|
|
|
|
(1,382,521
|
)
|
|
|
(512,176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
(16,691
|
)
|
|
|
23,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
|
|
|
|
1,020,053
|
|
|
|
1,607,632
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
1,446,949
|
|
|
|
914,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
|
|
|
|
$
|
2,467,002
|
|
|
$
|
2,522,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
(In thousands of US dollars)
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
|
|
|
|
$
|
490,468
|
|
|
$
|
280,774
|
|
Interest
|
|
|
|
|
|
|
378,872
|
|
|
|
377,568
|
|
Non-cash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable for property, equipment and other long-lived
assets
|
|
|
|
|
|
|
293,171
|
|
|
|
128,150
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
VimpelCom
Ltd.
Unaudited
Condensed Consolidated Statements of Changes in Equity and
Comprehensive Income
for the
nine-month periods ended and as of September 30, 2010 and
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Voting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total Equity
|
|
|
|
|
|
|
|
|
Redeemable
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
Attributable
|
|
|
Noncontrolling
|
|
|
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Stock
|
|
|
to VimpelCom
|
|
|
Interest
|
|
|
Total Equity
|
|
|
Interest
|
|
|
Net Income
|
|
|
|
(In thousands of US dollars, except share amounts)
|
|
|
Balances at June 30, 2010
|
|
|
128,532,000
|
|
|
$
|
129
|
|
|
|
1,302,559,308
|
|
|
$
|
1,303
|
|
|
$
|
6,291,921
|
|
|
$
|
4,790,710
|
|
|
$
|
(609,555
|
)
|
|
$
|
(223,406
|
)
|
|
$
|
10,251,102
|
|
|
$
|
293,412
|
|
|
$
|
10,544,514
|
|
|
$
|
515,273
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation accrual
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,089
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,089
|
|
|
|
—
|
|
|
|
1,089
|
|
|
|
—
|
|
|
|
—
|
|
Acquisition of noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(10,263
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(10,263
|
)
|
|
|
(37
|
)
|
|
|
(10,300
|
)
|
|
|
—
|
|
|
|
—
|
|
Accretion to redeemable non-controlling interest
(Note 7)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,122
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,122
|
|
|
|
—
|
|
|
|
12,122
|
|
|
|
(12,122
|
)
|
|
|
—
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation effect, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
111,739
|
|
|
|
—
|
|
|
|
111,739
|
|
|
|
(15,721
|
)
|
|
|
96,018
|
|
|
|
—
|
|
|
|
—
|
|
Net income/(loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
495,901
|
|
|
|
—
|
|
|
|
—
|
|
|
|
495,901
|
|
|
|
(1,352
|
)
|
|
|
494,549
|
|
|
|
15,513
|
|
|
|
510,062
|
|
Total accumulated comprehensive income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
495,901
|
|
|
|
111,739
|
|
|
|
—
|
|
|
|
607,640
|
|
|
|
(17,073
|
)
|
|
|
590,567
|
|
|
|
15,513
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2010
|
|
|
128,532,000
|
|
|
$
|
129
|
|
|
|
1,302,559,308
|
|
|
$
|
1,303
|
|
|
$
|
6,294,869
|
|
|
$
|
5,286,612
|
|
|
$
|
(497,816
|
)
|
|
$
|
(223,406
|
)
|
|
$
|
10,861,691
|
|
|
$
|
276,302
|
|
|
$
|
11,137,993
|
|
|
$
|
518,664
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2009
|
|
|
128,532,000
|
|
|
$
|
129
|
|
|
|
1,025,620,440
|
|
|
$
|
1,026
|
|
|
$
|
1,142,594
|
|
|
$
|
4,074,492
|
|
|
$
|
(488,277
|
)
|
|
$
|
(223,421
|
)
|
|
$
|
4,506,543
|
|
|
$
|
1,966
|
|
|
$
|
4,508,509
|
|
|
$
|
508,668
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15
|
|
|
|
27
|
|
|
|
—
|
|
|
|
27
|
|
|
|
—
|
|
|
|
—
|
|
Consolidation of Variable interest entity (Note 3)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
332,889
|
|
|
|
332,889
|
|
|
|
—
|
|
|
|
—
|
|
Stock based compensation accrual
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,875
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,875
|
|
|
|
—
|
|
|
|
2,875
|
|
|
|
—
|
|
|
|
—
|
|
Dividends to noncontrolling interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(35,919
|
)
|
|
|
(35,919
|
)
|
|
|
—
|
|
|
|
—
|
|
Acquisition of noncontrolling interests
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(10,263
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(10,263
|
)
|
|
|
(37
|
)
|
|
|
(10,300
|
)
|
|
|
—
|
|
|
|
—
|
|
Effect of Exchange Offer (Note 1)
|
|
|
—
|
|
|
|
—
|
|
|
|
(24,764,212
|
)
|
|
|
(25
|
)
|
|
|
(498,241
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(498,266
|
)
|
|
|
—
|
|
|
|
(498,266
|
)
|
|
|
498,241
|
|
|
|
—
|
|
Repurchase of noncontrolling interest in OJSC VimpelCom
(Note 1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,637
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,637
|
|
|
|
—
|
|
|
|
30,637
|
|
|
|
(500,781
|
)
|
|
|
—
|
|
Issuance of shares for acquisition of Kyivstar
(Note 2)
|
|
|
—
|
|
|
|
—
|
|
|
|
301,653,080
|
|
|
|
302
|
|
|
|
5,595,364
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,595,666
|
|
|
|
—
|
|
|
|
5,595,666
|
|
|
|
—
|
|
|
|
—
|
|
Issuance of shares (Note 9)
|
|
|
—
|
|
|
|
—
|
|
|
|
50,000
|
|
|
|
—
|
|
|
|
905
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
905
|
|
|
|
—
|
|
|
|
905
|
|
|
|
—
|
|
|
|
—
|
|
Accretion to redeemable non-controlling interest
(Note 7)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,986
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,986
|
|
|
|
—
|
|
|
|
30,986
|
|
|
|
(30,986
|
)
|
|
|
—
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation effect, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,539
|
)
|
|
|
—
|
|
|
|
(9,539
|
)
|
|
|
(17,844
|
)
|
|
|
(27,483
|
)
|
|
|
—
|
|
|
|
—
|
|
Net income/(loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,212,120
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,212,120
|
|
|
|
(4,753
|
)
|
|
|
1,207,367
|
|
|
|
43,520
|
|
|
|
1,250,887
|
|
Total accumulated comprehensive income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,212,120
|
|
|
|
(9,539
|
)
|
|
|
—
|
|
|
|
1,202,581
|
|
|
|
(22,597
|
)
|
|
|
1,179,984
|
|
|
|
43,520
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2010
|
|
|
128,532,000
|
|
|
$
|
129
|
|
|
|
1,302,559,308
|
|
|
$
|
1,303
|
|
|
$
|
6,294,869
|
|
|
$
|
5,286,612
|
|
|
$
|
(497,816
|
)
|
|
$
|
(223,406
|
)
|
|
$
|
10,861,691
|
|
|
$
|
276,302
|
|
|
$
|
11,137,993
|
|
|
$
|
518,664
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
VimpelCom
Ltd.
Unaudited
Condensed Consolidated Statements of Changes in Equity and
Comprehensive Income — (Continued)
for the
nine-month periods ended and as of September 30, 2010 and
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Voting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total Equity
|
|
|
|
|
|
|
|
|
Redeemable
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
Attributable
|
|
|
Noncontrolling
|
|
|
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in Capital
|
|
|
Earnings
|
|
|
Income (loss)
|
|
|
Stock
|
|
|
to VimpelCom
|
|
|
Interest
|
|
|
Total Equity
|
|
|
Interest
|
|
|
Net Income
|
|
|
|
(In thousands of US dollars, except share amounts)
|
|
|
Balances at June 30, 2009 restated (Note 1)
|
|
|
128,532,000
|
|
|
$
|
129
|
|
|
|
1,025,620,440
|
|
|
$
|
1,026
|
|
|
$
|
1,139,836
|
|
|
$
|
3,675,771
|
|
|
$
|
(573,645
|
)
|
|
$
|
(237,964
|
)
|
|
$
|
4,005,153
|
|
|
$
|
31,363
|
|
|
$
|
4,036,516
|
|
|
$
|
502,406
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(160
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
8,762
|
|
|
|
8,602
|
|
|
|
—
|
|
|
|
8,602
|
|
|
|
—
|
|
|
|
—
|
|
Stock based compensation accrual
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
310
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
310
|
|
|
|
—
|
|
|
|
310
|
|
|
|
—
|
|
|
|
—
|
|
Dividends to noncontrolling interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(75
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(75
|
)
|
|
|
—
|
|
|
|
(75
|
)
|
|
|
(383
|
)
|
|
|
—
|
|
Accretion to redeemable non-controlling interest
(Note 7)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,183
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,183
|
|
|
|
—
|
|
|
|
5,183
|
|
|
|
(5,183
|
)
|
|
|
—
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
87,573
|
|
|
|
—
|
|
|
|
87,573
|
|
|
|
3,674
|
|
|
|
91,247
|
|
|
|
—
|
|
|
|
—
|
|
Net income/(loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
434,497
|
|
|
|
—
|
|
|
|
—
|
|
|
|
434,497
|
|
|
|
(7,120
|
)
|
|
|
427,377
|
|
|
|
8,504
|
|
|
|
435,881
|
|
Total accumulated comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
434,497
|
|
|
|
87,573
|
|
|
|
—
|
|
|
|
522,070
|
|
|
|
(3,446
|
)
|
|
|
518,624
|
|
|
|
8,504
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2009 restated (Note 1)
|
|
|
128,532,000
|
|
|
$
|
129
|
|
|
|
1,025,620,440
|
|
|
$
|
1,026
|
|
|
$
|
1,145,169
|
|
|
$
|
4,110,193
|
|
|
$
|
(486,072
|
)
|
|
$
|
(229,202
|
)
|
|
$
|
4,541,243
|
|
|
$
|
27,917
|
|
|
$
|
4,569,160
|
|
|
$
|
505,344
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
|
128,532,000
|
|
|
$
|
129
|
|
|
|
1,025,620,440
|
|
|
$
|
1,026
|
|
|
$
|
1,164,125
|
|
|
$
|
3,271,878
|
|
|
$
|
(90,020
|
)
|
|
$
|
(239,649
|
)
|
|
$
|
4,107,489
|
|
|
$
|
32,754
|
|
|
$
|
4,140,243
|
|
|
$
|
469,604
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,066
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,447
|
|
|
|
11,513
|
|
|
|
—
|
|
|
|
11,513
|
|
|
|
—
|
|
|
|
—
|
|
Dividends to noncontrolling interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(75
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(75
|
)
|
|
|
—
|
|
|
|
(75
|
)
|
|
|
(383
|
)
|
|
|
—
|
|
Stock based compensation accrual
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,843
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,843
|
|
|
|
—
|
|
|
|
1,843
|
|
|
|
—
|
|
|
|
—
|
|
Accretion to redeemable non-controlling interest
(Note 7)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(21,865
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(21,865
|
)
|
|
|
—
|
|
|
|
(21,865
|
)
|
|
|
21,865
|
|
|
|
—
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(396,052
|
)
|
|
|
—
|
|
|
|
(396,052
|
)
|
|
|
11,557
|
|
|
|
(384,495
|
)
|
|
|
—
|
|
|
|
—
|
|
Net income/(loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
838,390
|
|
|
|
—
|
|
|
|
—
|
|
|
|
838,390
|
|
|
|
(16,394
|
)
|
|
|
821,996
|
|
|
|
14,258
|
|
|
|
836,254
|
|
Total accumulated comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
838,390
|
|
|
|
(396,052
|
)
|
|
|
—
|
|
|
|
442,338
|
|
|
|
(4,837
|
)
|
|
|
437,501
|
|
|
|
14,258
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2009 restated (Note 1)
|
|
|
128,532,000
|
|
|
$
|
129
|
|
|
|
1,025,620,440
|
|
|
$
|
1,026
|
|
|
$
|
1,145,169
|
|
|
$
|
4,110,193
|
|
|
$
|
(486,072
|
)
|
|
$
|
(229,202
|
)
|
|
$
|
4,541,243
|
|
|
$
|
27,917
|
|
|
$
|
4,569,160
|
|
|
$
|
505,344
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial Statements
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
1.
|
Basis of
presentation and significant accounting policies
|
Basis of
presentation
VimpelCom Ltd. (“VimpelCom” or the
“Company”) was formed in Bermuda on
June 5, 2009, as an exempted company under the name New
Spring Company Ltd., which was subsequently changed to VimpelCom
Ltd. on October 1, 2009. VimpelCom Ltd. was formed to
recapitalize Open Joint Stock Company
“Vimpel-Communications”
(“OJSC VimpelCom”) and acquire the entire
equity interest of OJSC VimpelCom with CJSC “Kyivstar
G.S.M.” (“Kyivstar”). Altimo
Holdings & Investments Limited
(“Altimo”) and Telenor ASA
(“Telenor”) or their affiliates were the two
major shareholders in each of the companies.
In these notes, VimpelCom or the Company also refers to
VimpelCom Ltd.’s consolidated subsidiaries and consolidated
variable interest entities.
On April 21, 2010, VixxxxXxx xuccessfully completed an
exchange offer (“Exchange Offer”) for OJSC
VimpelCom shares (including shares represented by American
Depositary Shares (“ADS”)), and acquired
approximately 98% of OJSC VimpelCom’s outstanding shares
(including shares represented by ADSs). Therefore, effective
April 21, 2010, OJSC VimpelCom is a subsidiary of
VimpelCom. VimpelCom is the accounting successor to OJXX
XxxxxxXxx, therefore accounting data and disclosures related to
the period prior to April 21, 2010, represent accounting
data and disclosures of OJSC VimpelCom. Information about the
number of shares prior to April 21, 2010 has been adjusted
to reflect the effect of the recapitalization due to the
Exchange Offer.
On May 25, 2010, VixxxxXxx xerved a squeeze-out demand
notice to OJSC VimpelCom demanding that the remaining
shareholders of OJSC VimpelCom sell their shares to VimpelCom.
The squeeze-out process was completed on August 6, 2010.
As a result, VimpelCom became the sole shareholder of OJSC
VimpelCom. The increase in additional paid-in capital of
US$30,637 represents the difference between the amount recorded
as redeemable noncontrolling interest on April 21, 2010 and
the amount of liability to noncontrolling shareholders in OJSC
VimpelCom recorded on May 25, 2010 when a squeeze-out
demand notice was served (Note 8). The difference resulted
from a change in the Russian xxxxx to US dollar exchange rate.
On May 14, 2010, OJSC VimpelCom ADS were delisted from the
NYSE. On June 2, 2010, OJSC VimpelCom shares were delisted
from RTS (the Russian Trading Systems).
VimpelCom Ltd. ADS began trading on the New York Stock Exchange
(“NYSE”) on April 22, 2010.
The accompanying unaudited condensed consolidated financial
statements of VimpelCom have been prepared in accordance with US
GAAP for interim financial information and with the instructions
of the United States Securities and Exchange Commission
(“SEC”) to
Form 10-Q
and Article 10 of
Regulation S-X,
primarily codified in
ASC 270-10-S99,
Interim Reporting-Overall-SEC materials.
In the opinion of VixxxxXxx’s management, all adjustments
(consisting of normal, recurring accruals) considered necessary
for a fair presentation of financial position, results of
operations and cash flow for the interim periods have been
included. Operating results for the three-month and nine-month
periods ended September 30, 2010 are not necessarily
indicative of the results that may be expected for the year
ended December 31, 2010. For further information, refer to
OJSC VimpelCom’s audited consolidated financial statements
for the year ended December 31, 2009.
The balance sheet at December 31, 2009 presented herein has
been derived from the audited financial statements of OJSC
VimpelCom at that date adjusted for recapitalization of equity
items due to the Exchange Offer, but does not include all of the
information and footnotes required by US GAAP for complete
annual financial statements.
The accompanying financial statements have been presented in US
dollars. Amounts are presented in thousands, except for share
and per share (ADS) amounts or unless otherwise indicated.
In connection with the Exchange Offer and related regulatory
filings, effective September 30, 2009, the Company changed
its reporting currency to the US dollar from the Russian xxxxx.
F-7
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
1.
|
Basis of
presentation and significant accounting policies
(continued)
|
Basis of
presentation (continued)
Property
and equipment
Property and equipment is stated at historical cost. The
Company depreciates property and equipment assets using the
straight-line method, depreciation expense is recognized ratably
over the estimated useful life of the asset.
The following categories with the associated useful lives are
used:
|
|
|
|
|
Mobile telecommunications equipment
|
|
|
7 - 9 years
|
|
Fixed line telecommunication equipment
|
|
|
3 - 12 years
|
|
Fiber-optic equipment
|
|
|
9 - 10 years
|
|
Buildings and constructions
|
|
|
20 years
|
|
Electronic exchange devices
|
|
|
7 years
|
|
Office and measuring equipment, vehicles and furniture
|
|
|
5 - 10 years
|
|
Equipment acquired under capital leases is depreciated using the
straight-line method over its estimated useful life or the lease
term, whichever is shorter. Depreciation of these assets
recorded under capital leases is included in
“depreciation” in the statement of income.
Capitalized leasehold improvement expenses for base station
positions is depreciated using the straight-line method over the
estimated useful life of seven years or the lease term,
whichever is shorter.
Repair and maintenance costs are expensed as incurred. Interest
costs are capitalized with respect to qualifying construction
projects, the capitalization period begins when “qualifying
expenditures” are made, development activities are underway
and interest cost is being incurred.
Accumalated depreciation on property and equipment amounted to
US$5,275,860 and US$3,730,395 as of September 30, 2010 and
December 31, 2009, respectively.
Revenue
recognition
VimpelCom generates revenues from providing voice, data and
other telecommunication services through a range of wireless,
fixed and broadband internet services, as well as selling
equipment and accessories. Service revenues include revenues
from airtime charges from contract and prepaid subscribers,
monthly contract fees, interconnect revenue, roaming charges and
charges for value added services (“VAS”).
Interconnect revenue is generated when the Company receives
traffic from mobile or fixed subscribers of other operators and
that traffic terminates on VimpelCom’s network. Roaming
revenues include both revenues from VimpelCom customers who roam
outside of home country network and revenues from other wireless
carriers for roaming by their customers on VimpelCom’s
network. VAS includes short messages (“SMS”),
multimedia messages (“MMS”), caller number
identification, call waiting, data transmission, mobile
Internet, downloadable content and other services. The cost of
content revenue relating to VAS is presented net of related
costs when the Company acts as an agent of the content
providers. VimpelCom charges subscribers a fixed monthly fee
for the use of the service, which is recognized as revenue in
the respective month.
Service revenue is generally recognized when the services
(including VAS and roaming revenue) are rendered. Prepaid
cards, used as a method of cash collection, are accounted for as
customer advances for future services. Prepaid cards do not
have expiration dates but are subject to statutory expiration
periods, and unused balances are added to service revenue when
cards expire. Also, VimpelCom uses
E-commerce
systems, retail offices and agent locations as channels for
receiving customer payments. Revenues from mobile equipment
sales, such as handsets, are recognized in the period in which
the equipment is sold.
Revenue from Internet services is measured primarily by monthly
fees and internet-traffic volume which has been not included in
monthly fees. Revenue from service contracts is accounted for
when the services are provided.
F-8
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
1.
|
Basis of
presentation and significant accounting policies
(continued)
|
Revenue
recognition (continued)
Payments from customers for fixed-line equipment are not
recognized as revenue until installation and testing of such
equipment are completed and accepted by the customer. Domestic
Long Distance/International Long Distance
(“DLD/ILD”) and zonal revenues are recorded
gross or net depending on the contractual arrangements with the
end-users. The Company recognizes DLD/ILD and zonal revenues
from local operators net of payments to these operators for
interconnection and agency fees when local operators establish
end-user tariffs and assume credit risk.
Revenues are stated net of value-added tax and sales tax charged
to customers.
In accordance with the provisions of
ASC 605-10-S25-3,
Revenue Recognition-Overall-SEC Recognition-Delivery and
Performance, VimpelCom defers upfront telecommunications
connection fees. The deferral of revenue is recognized over the
estimated average subscriber life, which is from 15 to
30 months for mobile subscribers and from 4 to
9.5 years for fixed line subscribers. The Company also
defers direct incremental costs related to connection fees for
fixed line subscribers, in an amount not exceeding the revenue
deferred.
Income
taxes
For purposes of these interim condensed consolidated financial
statements, VimpelCom recognizes tax expense on the basis of the
expected effective tax rate for the financial year 2010. At the
end of each interim period VimpelCom makes its best estimate of
the effective tax rate expected to be applicable for the full
fiscal year, with that rate being used to record income taxes on
a current
year-to-date
basis. The effective tax rate reflects anticipated tax credits,
non-deductible expenses and other permanent differences,
adjustments and other valuation movements. Discrete events are
included in the period in which they occur and are not included
in the expected rate for the year.
VimpelCom’s effective income tax rate increased during the
nine months ended September 30, 2010 as compared to the
nine months ended September 30, 2009 primarily due to the
effect of the new legal structure of the Company on the amount
of accrued deferred taxes on estimated dividends for financial
years 2009 and 2010 to be paid to the Company by its
subsidiaries.
Recent
accounting pronouncements
In June 2009, the FASB issued SFAS No. 167, Amendments to
FASB Interpretation No. 46(R), primarily codified in
ASC 810-10,
Consolidation-Overall. SFAS 167 amends FIN 46(R), to
require an enterprise to perform an analysis to determine
whether the enterprise’s variable interest or interests
give it a controlling financial interest in a variable interest
entity. This statement is effective for both interim and annual
periods as of the beginning of each reporting entity’s
first annual reporting period that begins after
November 15, 2009. The adoption of this statement required
VimpelCom to consolidate LLC Sky Mobile (“Sky
Mobile”) as a variable interest entity starting
January 1, 2010 (Note 3).
In October 2009, FASB issued ASU
2009-13,
Revenue Recognition, codified in
ASC 605-25,
Revenue Recognition — Multiple Element Arrangement.
ASU 2009-13
eliminates the use of the residual method of allocation and
requires use of the relative-selling price method. ASU
2009-13
expands the disclosures required for multiple-element revenue
arrangements. ASU
2009-13 is
effective for both interim and annual periods as of the
beginning of reporting entity’s first annual reporting
period that begins after June 15, 2010, with earlier
application permitted for full annual periods. VimpelCom
adopted ASU
2009-13
since the January 1, 2010 by means of prospective
application of its provisions. No changes in the units of
accounting occurred as a result of the adoption of ASU
2009-13, no
changes in the pattern and timing of revenue recognition took
place. The Company uses vendor specific evidence of selling
price (VSOE) as the basis for allocation of multiple element
arrangement’s considerations. The adoption of the ASU
2009-13 has
not materially affected the financial statements in the period
F-9
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
1.
|
Basis of
presentation and significant accounting policies
(continued)
|
Recent
accounting pronouncements (continued)
after the initial adoption, as the fair value of elements from
multiple arrangements approximate their VSOE values and revenue
from multiple arrangements is not significant.
In January 2010, FASB issued ASU
2010-06,
Improving Disclosures about Fair Value Measurements, an
amendment of ASC 820, Fair Value Measurements and
Disclosures (formerly SFAS No. 157 Fair Value
Measurements). ASU
2010-06
requires additional disclosures regarding assets and liabilities
that are transferred between levels of the fair value
hierarchy. ASU
2010-06
clarifies guidance pertaining to the level of disaggregation at
which fair value disclosures should be made and the requirements
to disclose information about the valuation techniques and
inputs used in estimating Level 2 and Level 3 fair
value measurements. ASU
2010-06 is
effective for interim and annual reporting periods beginning
after December 15, 2009, except for the requirement to
separately disclosure purchases, sales, issuances, and
settlements in the Level 3 rollforward, which becomes
effective for fiscal years (and for interim periods within those
fiscal years) beginning after December 15, 2010. The
adoption of this statement expanded VimpelCom’s disclosures
relative to fair value measurements (Note 5).
In April 2010, FASB issued ASU
2010-13,
Effect of Denominating the Exercise Price of a Share-Based
Payment Award in the Currency of the Market in Which the
Underlying Equity Security Trades. ASU
2010-13
clarifies that a share-based payment award with an exercise
price denominated in the currency of a market in which a
substantial portion of the entity’s equity securities
trades should not be considered to contain a condition that is
not a market, performance, or service condition. Therefore,
such an award should not be classified as a liability if it
otherwise qualifies as equity. The adoption of the ASU does not
affect VimpelCom’s Financial Statements as historically
VimpelCom qualifies such share-based payments as equity
instruments.
In July 2010, FASB issued ASU
2010-20,
Disclosure about credit quality of financing receivables and the
allowances for credit losses, an amendment of ASC 310,
Receivables. The ASU requires to provide extensive new
disclosures about financing receivables, including credit risk
exposures and the allowance for credit losses. The disclosure
requirements among other things are: a rollforward of the
allowance for credit losses, credit quality information such as
credit risk scores or external credit agency ratings, impaired
loan information, modification information, nonaccrual and past
due information. ASU
2010-20 is
effective for interim and annual reporting periods ending on or
after 15 December 2010. The adoption of this statement
will expand VimpelCom’s disclosures relative to financing
receivables.
Restatement
of the measurement of noncontrolling interest
The unaudited condensed consolidated financial statements as of
September 30, 2009 and for the three and nine-month periods
ended September 30, 2009 have been restated. The
restatement was required to correct the Company’s treatment
of its redeemable noncontrolling interest described in
Note 7.
Prior to the restatement, the Company accounted for the
noncontrolling interest at its carrying value as permanent
equity under the line item “Noncontrolling interest.”
In accordance with ACS
480-10, the
noncontrolling interest held by Xxxxxxx in Limnotex should have
been classified as temporary equity (under the line item
“Redeemable noncontrolling interest”) in its
consolidated financial statements and recorded at its estimated
fair value at the date of the change to its contractual
arrangements with Xxxxxxx. The difference between this amount
and the previous carrying value of the noncontrolling interest
was charged to VimpelCom’s shareholders’ equity.
The amounts originally presented in additional paid-in capital,
accumulated other comprehensive loss, and noncontrolling
interest as of September 30, 2009 and December 31,
2008 have been restated to initially recognize the redeemable
noncontrolling interest as temporary equity on June 28,
2008 at fair value and to account for the subsequent accretion
of the redeemable noncontrolling interest accordingly. Earnings
per share amounts were adjusted accordingly.
F-10
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
On April 21, 2010, after the completion of the Exchange
Offer, VimpelCom Ltd. acquired 100% ownership interest in
Kyivstar from the affiliates of Altimo and the affiliates of
Telenor ASA in exchange for 301,653,080 VimpelCom common shares.
The reason for the acquisition was that management believed that
it would be value creative and in the best interests of the
Company’s stakeholders.
The acquisition of Kyivstar by VimpelCom Ltd. is accounted for
as a business combination under the “acquisition
method,” as defined by ASC 805. The acquisition
method requires the cost of the purchase to be based on the fair
value of the consideration on the acquisition date.
The purchase price consideration was US$5,595,665, which was
calculated based on the market value of OJSC VimpelCom shares on
April 21, 2010 (US$18.55 per share).
The provisional values of consolidated identifiable assets and
liabilities of Kyivstar as of April 21, 2010, were as
follows:
|
|
|
|
|
|
|
As of April 21,
|
|
|
|
2010
|
|
|
Cash and cash equivalents
|
|
$
|
167,077
|
|
Other current assets
|
|
|
206,530
|
|
Property and equipment
|
|
|
954,098
|
|
Licenses (15 years weighted average remaining useful life)
|
|
|
129,887
|
|
Customer Relationships (12 years weighted average remaining
useful life)
|
|
|
815,763
|
|
Other intangible assets (15 years weighted average
remaining useful life)
|
|
|
176,545
|
|
Software (5 years weighted average remaining useful life)
|
|
|
181,589
|
|
Goodwill
|
|
|
3,442,842
|
|
Other non-current assets
|
|
|
29,970
|
|
|
|
|
|
|
Total assets acquired
|
|
|
6,104,300
|
|
|
|
|
|
|
Current liabilities
|
|
|
159,814
|
|
Long-term liabilities
|
|
|
348,821
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
508,635
|
|
|
|
|
|
|
Total acquisition price
|
|
$
|
5,595,665
|
|
|
|
|
|
|
The excess of the purchase consideration over the fair value of
the identifiable net assets of Kyivstar amounted to US$3,442,842
and was recorded as goodwill. This goodwill is not deductible
for tax purposes. The direct transaction costs incurred in the
transactions were treated as expenses under ASC 805 with no
impact on goodwill. The evaluation of fair value of net
identifiable assets of Kyivstar and assigning of goodwill to
reporting units are not yet finalized because the Company is
still evaluating certain information relating to Ukrainian
market and synergy assessment.
The recognized goodwill is expected to be realized from the
potential of Ukrainian telecommunication market development in
the future as well as synergies with other operating units in
Ukraine and operating markets in CIS and Russia.
The results of operations of Kyivstar were included in the
accompanying consolidated financial statements from the
acquisition date of April 21, 2010. Net operating revenue,
operating income and net income attributable to
F-11
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
2.
|
Business
combinations (continued)
|
Kyivstar
(continued)
VimpelCom of Kyivstar, before eliminating intercompany
transactions, for the period from April 21, 2010 to
September 30, 2010 were US$652,220, US$173,406 and
US$129,848 in the accompanying consolidated statement of income.
The following unaudited pro forma combined results of operations
for VimpelCom give effect to the Kyivstar business combination
as if it had occurred on January 1, 2009. These pro forma
amounts are provided for informational purposes only and do not
purport to present the results of operations of VimpelCom had
the transactions assumed therein occurred on or as of the date
indicated, nor is it necessarily indicative of the results of
operations which may be achieved in the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30, 2010
|
|
September 30, 2009
|
|
September 30, 2009
|
|
|
Unaudited
|
|
Pro forma total operating revenues
|
|
$
|
8,075,490
|
|
|
$
|
2,622,100
|
|
|
$
|
7,421,900
|
|
Pro forma net income attributable to VimpelCom
|
|
|
1,259,001
|
|
|
|
493,300
|
|
|
|
1,026,186
|
|
Pro forma basic and diluted net income per common share
|
|
$
|
0.87
|
|
|
$
|
0.38
|
|
|
$
|
0.77
|
|
Foratec
On July 29, 2010, VimpelCom acquired 100% of the share
capital of Closed Joint Stock Company Foratec Communication
(“Foratec”), one of the leading alternative
fixed-line providers in Urals region of Russia. The primary
reason for the acquisition of Foratek was enhancing VimpelCom
presence in Ural Region, including business services market.
The total value of the transaction amounted to
RUR1,120 million (the equivalent to US$37,096 as of
July 29, 2010). The acquisitions were recorded under the
purchase method of accounting. The fair value of acquired
identifiable net assets of Foratec amounted to US$13,381. The
excess of the acquisition cost over the fair market value of the
identifiable net assets amounted to US$23,715. This amount was
recorded as goodwill, was mainly assigned to the Russia fixed
reporting unit and is subject to annual impairment tests. The
recognized goodwill is expected to be realized primarily from
the synergy combination of VIP and Foratec’s regional
operations.
Tacom
On July 30, 2010, VimpelCom increased its ownership
interest in Limited Liability Company Tacom, a consolidated
Tajikistan subsidiary of VimpelCom, from 80% to 90% by acquiring
an additional 10% ownership interest for a total cash
consideration of US$10,300. The transaction was accounted for
as a decrease in noncontrolling interest and a change in
additional paid-in capital.
|
|
3.
|
Consolidated
variable interest entities
|
On February 13, 2008, VimpelCom advanced to Xxxxxxx
Investments Limited (“Xxxxxxx”), under a loan
agreement as of February 11, 2008 (the “Xxxxxxx
Loan Agreement”), a loan in the principal amount of
US$350,000 and at the interest rate of 10%. The loan was
secured by 25% of the shares of Limnotex Developments Limited
(“Limnotex”).
The Xxxxxxx Loan Agreement was entered into after Xxxxxxx
acquired the entire issued share capital of Menacrest Limited
(“Menacrest”), which is the parent company of
Sky Mobile, a mobile operator in Kyrgyzstan,
F-12
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
3.
|
Consolidated
variable interest entities (continued)
|
Sky
Mobile (continue)
holding GSM and 3G licenses to operate over the entire territory
of Kyrgyzstan (Note 13). Xxxxxxx granted the
Company two call options (the “Call Option
Agreement”) over the entire issued share capital of
Menacrest.
On May 29, 2009, XxxxxxXxx agreed to amend the Xxxxxxx Loan
Agreement in that the term of the loan facility was extended
until February 11, 2014 and the interest rate was changed
to a fixed amount per annum starting from the effective date of
the amendment. Also, the security interest granted by Xxxxxxx
to XXXX XxxxxxXxx over 25% of the shares of Limnotex was
replaced by a security interest over 100% of the shares of
Menacrest.
In accordance with
ASC 810-10,
VimpelCom analyzed these agreements to determine if the entities
that are party to them are variable interest entities
(“VIE”) on both quantitative and qualitative
basis. The Company concluded that Sky Mobile is a VIE.
As a result of the adoption of
ASC 810-10,
Consolidation-Overall, starting January 1, 2010
(Note 1) VimpelCom was considered the primary
beneficiary of Sky Mobile because VimpelCom: (1) has the
power to direct matters that most significantly impact the
activities of the VIE through the management agreement arranged
between KaR-Tel Limited Liability Partnership
(“KaR-Tel”), a consolidated subsidiary of
VimpelCom, and Sky Mobile, and (2) has the right to receive
benefits of the VIE that could potentially be significant to the
VIE. The right is achieved through the price mechanism of the
Call Option Agreement and through the agreement that all
dividends declared and distributed by Sky Mobile and Menacrest
should be transferred directly to VimpelCom as settlement of the
outstanding loan and interest accrued due from Xxxxxxx.
The consolidation of Sky Mobile was accounted for as a business
combination under ASC 805, Business Combinations. The
Company does not own any shares in Sky Mobile, thus, all the
equity of Sky Mobile was classified as noncontrolling interest.
Under
ASC 810-10,
VimpelCom is required to initially measure the assets,
liabilities and noncontrolling interest in Sky Mobile at their
carrying amounts as of January 1, 2010, such carrying
amounts being the amounts at which the assets, liabilities and
noncontrolling interest would have been carried in the
consolidated financial statements of VimpelCom if the amended
standard had been effective at the date when VimpelCom first met
the conditions to be the primary beneficiary under the amended
standard, and the fair values of the assets, liabilities and
noncontrolling interest of Sky Mobile had been initially
measured at such a date. VimpelCom has determined that such a
date was March 28, 2008. The evaluation of fair value of
net identifiable assets of Sky Mobile as of March 28, 2008
is not yet finalized due to additional time required to obtain
valuations.
F-13
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
3.
|
Consolidated
variable interest entities (continued)
|
Sky
Mobile (continue)
The provisional values of consolidated identifiable assets and
liabilities of Sky Mobile as of January 1, 2010, the date
VimpelCom initially consolidated Sky Mobile due to the
application of requirements of
ASC 810-10
(Note 1), were as follows:
|
|
|
|
|
|
|
As of the
|
|
|
Effective Date of
|
|
|
Consolidation
|
|
Cash and cash equivalents
|
|
$
|
4,702
|
|
Other current assets
|
|
|
26,358
|
|
Property and equipment (5 years weighted average remaining
useful life)
|
|
|
81,582
|
|
Licenses (6 years weighted average remaining useful life)
|
|
|
12,212
|
|
Other intangible assets
|
|
|
32,787
|
|
Goodwill
|
|
|
202,804
|
|
Other non-current assets
|
|
|
4,557
|
|
|
|
|
|
|
Total assets acquired
|
|
|
365,002
|
|
|
|
|
|
|
Current liabilities
|
|
|
(25,178
|
)
|
Long-term liabilities
|
|
|
(6,935
|
)
|
|
|
|
|
|
Total liabilities
|
|
|
(32,113
|
)
|
|
|
|
|
|
Noncontrolling interest
|
|
$
|
(332,889
|
)
|
|
|
|
|
|
The recognized goodwill is expected to be realized from the
potential of Kyrgyzstan telecommunication market development in
the future as well as synergies with other operating markets in
CIS.
The results of operations of Sky Mobile were included in the
accompanying consolidated statement of income from the effective
consolidation date of January 1, 2010, as required by
ASC 810-10.
Creditors and beneficial interest holders of Sky Mobile have no
recourse to the general credit of VimpelCom. The Company is not
contractually required and did not provide Sky Mobile with
financial support, thus Sky Mobile is primarily financed from
its own sources.
The magnitude of Sky Mobile’s impact on VimpelCom’s
financial position and performance may be illustrated by the
following. As of September 30, 2010, the carrying amounts
of Sky Mobile current assets and non-current assets were
US$36,964 and US$296,764, and short-term liabilities and
long-term liabilities were US$34,226 and US$6,236, respectively,
before eliminating intercompany balances, in the accompanying
consolidated balance sheet. Also, net operating revenue,
operating income and net income attributable to VimpelCom of Sky
Mobile, before eliminating intercompany transactions, for the
three-month period ended September 30, 2010 were US$29,263,
US$73 and nil, and for the nine-month period ended
September 30, 2010 were US$82,346, US$14,134 and nil,
respectively, in the accompanying consolidated statement of
income. Sky Mobile’s impact on VimpelCom cash flows is
immaterial.
The following unaudited pro forma combined results of operations
for VimpelCom give effect to the Sky Mobile business combination
as if it had occurred on January 1, 2009. These pro forma
amounts are provided for informational purposes only and do not
purport to present the results of operations of VimpelCom had
the transactions assumed therein occurred on or as of the date
indicated, nor is it necessarily indicative of the results of
operations which may be achieved in the future.
F-14
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
3.
|
Consolidated
variable interest entities (continued)
|
Sky
Mobile (continue)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30, 2009
|
|
September 30, 2009
|
|
|
Unaudited
|
|
Pro forma total operating revenues
|
|
$
|
2,301,330
|
|
|
$
|
6,476,723
|
|
Pro forma net income attributable to VimpelCom
|
|
|
434,497
|
|
|
|
838,390
|
|
Pro forma basic and diluted net income per common share
|
|
$
|
0.44
|
|
|
$
|
0.82
|
|
|
|
4.
|
Derivative
instruments
|
VimpelCom uses derivative instruments, including swaps, forward
contracts and options to manage certain foreign currency and
interest rate exposures. The Company views derivative
instruments as risk management tools and does not use them for
trading or speculative purposes. Derivatives are considered to
be economic xxxxxx, however all derivatives are accounted for on
a fair value basis and the changes in fair value are recorded in
the statement of income. Cash flows from derivative instruments
are reported in the operating activities section in the
statement of cash flows.
The Company measures the fair value of derivatives on a
recurring basis, using observable inputs (Level 2), such as
LIBOR floating rates, which were 0.49781% and 0.28219% as of
September 30, 2010 and December 31, 2009,
respectively, using income approach with present value
techniques.
The following table represents VimpelCom’s derivatives as
of September 30, 2010 and for the three-month and
nine-month periods ended September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
|
Location of
|
|
Location of
|
|
|
Location of
|
|
Location of
|
|
|
Location of
|
|
Location of
|
|
|
Location of
|
|
Location of
|
|
|
|
Gain (Loss)
|
|
Gain (Loss)
|
|
|
Gain (Loss)
|
|
Gain (Loss)
|
|
|
Gain (Loss)
|
|
Gain (Loss)
|
|
|
Gain (Loss)
|
|
Gain (Loss)
|
|
Derivatives not
|
|
Recognized in
|
|
Recognized in
|
|
|
Recognized in
|
|
Recognized in
|
|
|
Recognized in
|
|
Recognized in
|
|
|
Recognized in
|
|
Recognized
|
|
Designated as
|
|
Income
|
|
Income
|
|
|
Income
|
|
Income
|
|
|
Income
|
|
Income
|
|
|
Income
|
|
in Income
|
|
Hedging Insturments
|
|
on
|
|
on
|
|
|
on
|
|
on
|
|
|
on
|
|
on
|
|
|
on
|
|
on
|
|
Under ASC 815-10
|
|
Derivative
|
|
Derivative
|
|
|
Derivative
|
|
Derivative
|
|
|
Derivative
|
|
Derivative
|
|
|
Derivative
|
|
Derivative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate exchange contracts
|
|
Other income/ (expense)
|
|
$
|
(21
|
)
|
|
Other income/ (expense)
|
|
$
|
(708
|
)
|
|
Other income/ (expense)
|
|
$
|
(167
|
)
|
|
Other income/ (expense)
|
|
$
|
1,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Net foreign exchange (loss)/gain
|
|
|
9,954
|
|
|
Net foreign exchange (loss)/gain
|
|
|
(13,570
|
)
|
|
Net foreign exchange (loss)/gain
|
|
|
14,018
|
|
|
Net foreign exchange (loss)/gain
|
|
|
(28,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments under
ASC 815-10
|
|
|
|
$
|
9,933
|
|
|
|
|
$
|
(14,278
|
)
|
|
|
|
$
|
13,851
|
|
|
|
|
$
|
(27,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010
|
|
|
As of December 31, 2009
|
|
|
|
Liability Derivatives
|
|
|
Liability Derivatives
|
|
Derivatives not Designated as Hedging
|
|
Balance Sheet
|
|
|
|
|
Balance Sheet
|
|
|
|
Insturments Under ASC 815-10
|
|
Location
|
|
Fair Value
|
|
|
Location
|
|
Fair Value
|
|
|
Interest rate exchange contracts
|
|
Accrued liabilities
|
|
$
|
735
|
|
|
Accrued liabilities
|
|
$
|
1,163
|
|
Interest rate exchange contracts
|
|
Other non-current liabilities
|
|
|
278
|
|
|
Other non-current liabilities
|
|
|
3,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments under
ASC 815-10
|
|
|
|
$
|
1,013
|
|
|
|
|
$
|
5,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On October 27, 2007, Xxxxxxxx entered into a three-year
Interest Rate Swap agreement with Citibank, N.A. London Branch,
to reduce the volatility of cash flows in the interest payments
for variable-rate debt in the amount of US$225,000.
F-15
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
4.
|
Derivative
instruments (continued)
|
Pursuant to the agreement, Sovintel will exchange interest
payments on a regular basis and will pay a fixed rate equal to
4.355% in the event LIBOR floating rate is not greater than
5.4%, and otherwise Sovintel shall pay LIBOR floating rate. As
of September 30, 2010, outstanding notional amount was
US$103,883 (Note 12).
On June 11, 2010, XxxxxxXxx entered into a forward
agreement with ING Bank N.V. to sell US$461,501 in Russian
rubles at rate 31.4655 Russian rubles per one US dollar to
economically hedge squeeze out payments to noncontrolling
shareholders in OJSC VimpelCom (Note 8) due in July
2010. This forward agreement was realized on July 14,
2010, expiration date, with a gain of US$9,192.
On July 14, 2010 VimpelCom entered into a forward agreement
with ING Bank N.V. to sell US$461,501 in Russian rubles at rate
30,56 Russian rubles per one US dollar which was fully exercised
on July 28, 2010 with a gain of US$4,826.
The disclosure of derivatives fair value is also provided in
Note 5.
|
|
5.
|
Fair
value of financial instruments
|
VimpelCom measures financial assets and financial liabilities at
fair value on a recurring basis.
The following table provides the disclosure of fair value
measurements separately for each major security type measured at
fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
|
|
|
|
|
|
Fair Value Measurements as of
|
|
|
|
|
|
|
September 30, 2010 Using
|
|
|
|
|
|
December 31, 2009 Using
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Total as
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Total as of
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
September 30,
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
December 31,
|
|
Description
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
2009
|
|
|
Interest rate exchange contracts (Note 4)
|
|
$
|
—
|
|
|
$
|
1,013
|
|
|
$
|
—
|
|
|
$
|
1,013
|
|
|
$
|
—
|
|
|
$
|
5,124
|
|
|
$
|
—
|
|
|
$
|
5,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
—
|
|
|
$
|
1,013
|
|
|
$
|
—
|
|
|
$
|
1,013
|
|
|
$
|
—
|
|
|
$
|
5,124
|
|
|
$
|
—
|
|
|
$
|
5,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010 and December 31, 2009, the
fair value of fixed and floating rate bank loans (based on
future cash flows discounted at current market rates) was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
December 31, 2009
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
Value
|
|
Value
|
|
Value
|
|
Value
|
|
Loans payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eurobonds
|
|
$
|
1,800,647
|
|
|
$
|
2,079,640
|
|
|
$
|
1,800,647
|
|
|
$
|
1,946,126
|
|
US$3,500 million Loan Facility
|
|
|
390,000
|
|
|
|
390,022
|
|
|
|
1,170,000
|
|
|
|
1,145,071
|
|
UBS (Luxemburg) S. A.
|
|
|
784,764
|
|
|
|
875,436
|
|
|
|
1,063,264
|
|
|
|
1,111,915
|
|
Sberbank
|
|
|
1,430,357
|
|
|
|
1,437,844
|
|
|
|
1,436,555
|
|
|
|
1,458,612
|
|
EUR600 million Loan Facility
|
|
|
449,616
|
|
|
|
461,899
|
|
|
|
632,371
|
|
|
|
636,793
|
|
Ruble Bonds
|
|
|
659,282
|
|
|
|
713,404
|
|
|
|
661,284
|
|
|
|
733,609
|
|
US$275 million Loan Facility
|
|
|
126,968
|
|
|
|
129,516
|
|
|
|
190,410
|
|
|
|
188,001
|
|
Loans receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xxxxxxx (Note 3)
|
|
$
|
327,090
|
|
|
$
|
332,808
|
|
|
$
|
350,000
|
|
|
$
|
324,652
|
|
These loans payable are recorded in long term debt except
current portion, which is recorded in short term debt.
F-16
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
5.
|
Fair
value of financial instruments (continued)
|
The loan granted to Xxxxxxx is recorded in other non-current
assets.
The fair value of bank financing, equipment financing contracts
and other financial instruments not included in the table above
approximates carrying value.
The fair market value of financial instruments, including cash
and cash equivalents, which are included in current assets and
liabilities, accounts receivable and accounts payable
approximates the carrying value of these items due to the short
term nature of these amounts.
|
|
6.
|
Short and
long term debt
|
VimpelCom finances its operations using a variety of lenders in
order to minimize total borrowing costs and maximize financial
flexibility. The Company continues to use bank debt, lines of
credit and notes to fund operations, including capital
expenditures.
The following table provides a summary of outstanding bank
loans, equipment financing indebtedness, capital lease
obligations and other debt as of:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
December 31, 2009
|
|
Bank loans, less current portion
|
|
$
|
4,168,286
|
|
|
$
|
5,356,655
|
|
Long-term portion of equipment financing
|
|
|
198,354
|
|
|
|
182,935
|
|
Long-term portion of capital leases
|
|
|
—
|
|
|
|
316
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
4,366,640
|
|
|
$
|
5,539,906
|
|
|
|
|
|
|
|
|
|
|
Bank loans, current portion
|
|
$
|
2,051,922
|
|
|
$
|
1,729,364
|
|
Short-term portion of equipment financing
|
|
|
73,769
|
|
|
|
79,830
|
|
Short-term portion of capital leases
|
|
|
422
|
|
|
|
3,947
|
|
|
|
|
|
|
|
|
|
|
Bank and other loans, current portion
|
|
$
|
2,126,113
|
|
|
$
|
1,813,141
|
|
|
|
|
|
|
|
|
|
|
On January 12, 2010, LLC VimpelCom-Invest, a consolidated
Russian subsidiary of VimpelCom, determined the interest rate
for the fourth and subsequent payment periods at 9.25% per annum
related to its Russian xxxxx-denominated bonds in an aggregate
principal amount of RUR10,000 million (US$427,749 at
exchange rate as of July 25, 2008) issued on
July 25, 2008. Bonds holders had the right to sell their
bonds to VimpelCom-Invest until January 22, 2010 in
accordance with the original terms of the bonds. On
January 26, 2010, VimpelCom-Invest repurchased an aggregate
principal amount of RUR6,059 million (or approximately
US$201,345 at the exchange rate as of January 26,
2010) from bond holders who exercised their right to sell
the bonds. As of February 24, 2010, VimpelCom-Invest sold
back in the market all repurchased bonds. As of
September 30, 2010, the principal amount of debt
outstanding under these bonds was RUR10,000 million
(equivalent to US$328,915 at the exchange rate as of
September 30, 2010).
On March 12, 2010, XxxxxxXxx signed a Termination
Agreements to the Pledge Agreements signed with Sberbank on
May 25, 2009 to release the telecommunication equipment
from pledge.
On June 9, 2010, XxxxxxXxx signed a series of Amendments to
the following loan Agreements with Sberbank.
Starting June 1, 2010, Sberbank decreased the interest rate
on loan facility agreement signed on March 10, 2009, from
10.75% to 9.00% per annum and the maximum level of the interest
rate range from 11.00% to 9.25% per annum.
In accordance with an Amendment Agreement to the Loan Agreements
signed on February 14, 2008 and on August 28, 2009,
Sberbank decreased the interest rate on this loan facility from
11.00% to 9.25% per annum and the maximum level of the interest
rate range from 11.25% to 9.5% per annum.
F-17
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
On June 1, 2010, XxxxxxXxx made a drawdown of the second
tranche under the Loan Agreement with HipoVereinsbank
(“HVB”) signed on March 24, 2009 in the
amount of US$57,115. The principal amount of debt outstanding
under this loan as of September 30, 2010 was US$136,724.
On April 9, 2010, VimpelCom submitted to the Russian
Federal Service on the Financial Market documentation required
for the potential issuance of Russian xxxxx-denominated bonds
through the Company’s Russian subsidiary LLC
VimpelCom-Invest. On May 27, 2010, the Russian Federal
Service on the Financial Market registered the Prospectus. The
bonds may be issued depending on VimpelCom funding needs within
a period of one year from the date on which the Russian Federal
Service on the Financial Market registered the submitted
documentation. The proposed amount of the issue is up to
RUR20,000 million, which is the equivalent of approximately
US$657,829 at the exchange rate as of September 30, 2010,
and the proposed maturity period is five years. The coupons are
to be paid semi-annually. The bond issue structure allows the
issuer to grant investors a put option
and/or
retain a redemption right. The bonds may be issued in two
series with face values of RUR10,000 million for each, and
the coupon rate will be determined based on market conditions.
The bonds were issued in October 2010 (Note 12).
On June 18, 2010, XxxxxxXxx signed a six-month Overdraft
Credit Facility Agreement with The Royal Bank of Scotland N.V.,
in the principal amount of up to EUR15 million for general
corporate purposes. The Facility bears annual interest at a
rate of EURIBOR + 1.5%. The principal amount of debt
outstanding under this loan agreement as of September 30,
2010 was EUR13,5 million.
On July 9, 2010, XxxxxxXxx signed a one-year Bridge
Facility Agreement with four international banks: Barclays, BNP
Paribas, Citibank N.A., London Branch and The Royal Bank of
Scotland N.V., in the amount of US$470,000 for the purpose of
financing the squeeze out process for OJSC VimpelCom shares
(Note 1). The Bridge Facility Agreement bears
annual interest at a rate of LIBOR + 1.5% for the first three
months from (and including) the signing date; LIBOR + 1.75%
after the date falling three months from (and including) the
signing date but before the date falling six months from (and
including) the signing date; LIBOR + 2.3% after the date falling
six months from (and including) the signing date but before the
date falling nine months from (and including) the signing date;
LIBOR + 3.3% thereafter. The full amount available under the
Bridge Facility Agreement was disbursed on July 27, 2010
and was subject to the issuance of the guarantee from OJSC
VimpelCom which was provided to the Lenders on August 23,
2010.
|
|
7.
|
Redeemable
noncontrolling interest
|
The Company accounts for securities with redemption features
that are not solely within the control of the issuer in
accordance with EITF Topic D-98, Classification and Measurement
of Redeemable Securities (codified as ACS
480-10 —
Distinguishing Liabilities from Equity (“ACS
480-10”)).
In June 2008, OJSC VimpelCom modified its contractual
arrangements with respect to the 25% noncontrolling interest in
its subsidiary Limnotex, which is held by Xxxxxxx. The modified
contractual arrangements contained embedded redemption features
that could or will result in the noncontrolling interest being
redeemable outside of the control of OJSC VimpelCom at various
dates. Under the modified contractual arrangements as of
December 31, 2008, Xxxxxxx could exercise a put option
between January 1, 2010 and December 31, 2010, at a
redemption amount of US$550,000 in the aggregate. Additionally,
after the 2008 audited financial statements of KaR-Tel were
issued, OJSC VimpelCom had a call option on the noncontrolling
interest for a redemption amount determined by a fair
value-based pricing mechanism which should have been exercised
on or before December 31, 2011.
In May 2009, the contractual arrangements related to the
noncontrolling interest were further amended to extend the
timing of the redeemable features embedded in the contractual
arrangements. Under the amended contractual arrangements,
Xxxxxxx may exercise a put option between January 1, 2013
and December 31, 2013, at a redemption amount of US$550,000
in the aggregate. Additionally, after the 2011 audited
financial statements of
F-18
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
7.
|
Redeemable
noncontrolling interest (continued)
|
KaR-Tel are issued, OJSC VimpelCom may exercise a call option on
the noncontrolling interest for a redemption amount determined
by a fair value-based pricing mechanism and the call option must
be exercised on a date which is after the issuance of the
audited financial statements of KaR-Tel for the year ended
December 31, 2014. As of September 30, 2010, the
redemption amount of the redeemable noncontrolling interest
based on this fair value-based pricing mechanism (as if the
noncontrolling interest were currently redeemable) was
US$674,807.
The Company classifies redeemable noncontrolling interest as
temporary equity. The Company recorded it at its estimated fair
value at the date of the change to its contractual arrangements
with Xxxxxxx and then accreted to its redemption amount over the
redemption term. The estimated fair value of the redeemable
noncontrolling interest was calculated by discounting the future
redemption amount of the noncontrolling interest from
January 1, 2010 (the date on which the noncontrolling
interest was first to become redeemable outside of
VimpelCom’s control (under the June 2008 modified
contractual arrangements, prior to the May 2009 amendment)). The
redeemable noncontrolling interest has been valued based on the
terms of the put option because the fair value of the redemption
amount that may be required under the put option exceeded the
fair value of the redemption amount that may be required under
the call option. If, in the future, the fair value of the
redemption amount under the call option is greater, the
redeemable noncontrolling interest will accrete to that amount.
The redeemable noncontrolling interest is first credited with
its share of earnings of the Company’s subsidiary,
Limnotex, and, to the extent that this is less than the required
accretion, the difference is charged to additional paid-in
capital. The charge to additional paid-in capital does not
affect net income attributable to VimpelCom in the
Company’s income statement, but does reduce the numerator
in the calculation of earnings per share (Note 8).
Net income attributable to VimpelCom per common share for all
periods presented has been determined in accordance with
ASC 260, Earnings per Share, by dividing income available
to common shareholders by the weighted average number of common
shares outstanding during the period.
F-19
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
8.
|
Earnings
per share (continued)
|
The following table sets forth the computation of basic and
diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands US dollars, except share amounts)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income/(loss) attributable to VimpelCom
|
|
$
|
495,901
|
|
|
$
|
434,497
|
|
|
$
|
1,212,120
|
|
|
$
|
838,390
|
|
Noncontrolling interest in OJSC VimpelCom
|
|
|
|
|
|
|
2,540
|
|
|
|
|
|
|
|
2,540
|
|
Impact on net income attributable to VimpelCom through changes
in redeemable noncontrolling interest
|
|
|
9,092
|
|
|
|
6,659
|
|
|
|
23,239
|
|
|
|
(13,627
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earnings
|
|
|
504,993
|
|
|
|
443,696
|
|
|
|
1,235,359
|
|
|
|
827,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per
share — weighted average common shares
outstanding (thousand)
|
|
|
1,291,232
|
|
|
|
1,012,862
|
|
|
|
1,178,629
|
|
|
|
1,012,555
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
423
|
|
|
|
22,554
|
|
|
|
512
|
|
|
|
38,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per
share — assumed conversions (thousand)
|
|
|
1,291,655
|
|
|
|
1,035,417
|
|
|
|
1,179,141
|
|
|
|
1,050,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income attributable to VimpelCom per common
share
|
|
$
|
0.39
|
|
|
$
|
0.44
|
|
|
$
|
1.05
|
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income attributable to VimpelCom per common
share
|
|
$
|
0.39
|
|
|
$
|
0.43
|
|
|
$
|
1.05
|
|
|
$
|
0.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options (representing 5,514 shares) that are
out of the money as of September 30, 2010 that could
potentially dilute basic EPS in the future were not included in
the computation of diluted EPS because to do so would have been
antidilutive for the periods presented.
|
|
9.
|
Stock
based compensation
|
In 2010, XxxxxxXxx’s Board adopted a stock option plan for
directors, senior managers and other employees (the
“2010 Plan”). The 2010 Plan is administered by
the Board but administration may be delegated to the
Compensation Committee. The administrator determines the terms
and conditions of grants under the 2010 Plan, including the
number of options to be granted, the exercise price and the
vesting schedule. An option, upon vesting, entitles the holder
to purchase one common share of the Company at the price
determined by the Board or the Compensation Committee.
In June 2010, the Compensation Committee of the Board, which
administrators VimpelCom stock option plans, approved the
issuance of up to 1,250,000 options to senior managers of the
Company. The exercise price is generally the NYSE closing price
for an ADS as of the grant date plus 10%. These options
generally vest over three years subject to achievement of key
performance indicators. As of September 30, 2010, 850,000
options were granted and none are currently redeemable.
Upon the closing of the Exchange Offer on April 21, 2010,
the Company retained OJSC VimpelCom’s Amended and Restated
2000 Stock Option Plan (“2000 Plan”) with
certain adjustments as were necessary to cause
F-20
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
9.
|
Stock
based compensation (continued)
|
the 2000 Plan to apply to the Company’s common shares. The
options granted by OJSC VimpelCom prior to completion of the
Exchange Offer continue to be governed by the 2000 Plan.
Pursuant to a Share Sale and Purchase Agreement (the
“Agreement”) dated as of January 4, 2010,
on April 27, 2010, the Company’s CEO, Xxxxxxxxx
Xxxxxxxx, acquired 50,000 of our common shares (or the
Depositary Receipts (“DR”) equivalent) after
the closing of the Exchange Offer for a price US$18,1 per
share. Additionally, pursuant to the Agreement, the Company
agreed to grant, in 2012, up to 1,000,000 additional common
shares (or the DR equivalent) to Xx. Xxxxxxxx based on its
achieving revenue and performance targets for performance in
2010 and 2011. The Company may repurchase the common shares (or
the DR equivalent) issued to Xx. Xxxxxxxx under the Agreement
if his employment ends for any reason before December 31,
2011.
Management analyzes the reportable segments separately because
of different economic environments and stages of development in
different geographical areas, requiring different investment and
marketing strategies. The segment data for acquired operations
are reflected herein from the date of their acquisitions.
The Management Board of VimpelCom Ltd utilizes multiple views of
data to measure segment performance. The Management Board
identified Russia mobile, Russia fixed line, CIS mobile, CIS
fixed line, Ukraine mobile, Ukraine fixed line and Asia mobile
reporting segments based on the business activities in different
geographical areas. Although Georgia is no longer a member of
the CIS, consistent with VimpelCom’s historic reporting
practice VimpelCom continues to include Georgia in its CIS
reporting segment. Mobile lines include activities for the
providing of wireless telecommunication services to the
Company’s subscribers; fixed line includes all activities
for providing wireline telecommunication services, broadband and
consumer Internet.
The separation of Ukraine mobile and Ukraine fixed line segments
(consisting of the operations of VimpelCom’s indirect
Ukrainian subsidiaries Closed Joint Stock Company
“Ukrainian Radio Systems” (“URS”) and
“Golden Telecom” Limited Liability Company
(“GT LLC”) as well as Kyivstar operations
beginning from April 21, 2010), from CIS mobile and CIS
fixed line segments, as well as Asia mobile from “All
other” item was made in the second quarter of 2010.
Starting second quarter of 2010 VimpelCom also started to
consider VimpelCom’s equity in net results of operations of
the Company’s associates Morefront Holdings Ltd. and
GTEL-Mobile as part of operations of Russia mobile and Asia
mobile reporting segments, respectively, as well as
VimpelCom’s DVB-T and DVB-H activities were allocated to
Russia fixed line and Russia mobile segments, respectively.
These amounts were previously reported in the “All
other” category. The comparative information for
abovementioned changes was retrospectively adjusted.
The “All other” category includes VimpelCom head
quarter expenses for the office located in Amsterdam.
The Management Board of VimpelCom uses measurements that are
consistent with VimpelCom’s consolidated financial
statements and, accordingly, are reported on the same basis
herein. The accounting policies of the segments are the same as
those of VimpelCom. Management Board evaluates the performance
of its segments on a regular basis primarily based on revenue,
operating income before depreciation and amortization
(“OIBDA”), operating income, income before
income taxes and net income attributable to VimpelCom.
Intersegment revenues may be accounted for at amounts different
from sales to unaffiliated companies. Historically intersegment
revenues were eliminated in consolidation. Starting from
January 1, 2010, VimpelCom’s Management Board changed
the approach to intersegment revenues and expenses in a way that
operating revenues and operating expenses of Russia mobile and
Russia fixed line segments from each other and operating
revenues and operating expenses of CIS mobile and CIS fixed line
segments from each other are eliminated on the level of a
segment, as well as certain expenses and revenues were allocated
to allow revenues and expenses related to those revenues to
produce financial result within one segment. Headquarter
expenses were allocated to appropriate reportable segments. The
comparative information was retrospectively adjusted.
F-21
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
10.
|
Segment
information (continued)
|
Financial information by reportable segment for the three-month
and nine-month periods ended September 30, 2010 and 2009 is
presented in the following tables.
Three months ended September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Russia
|
|
Russia
|
|
CIS
|
|
CIS Fixed
|
|
Ukraine
|
|
Ukraine
|
|
Asia
|
|
All
|
|
|
|
|
Mobile
|
|
Fixed Line
|
|
Mobile
|
|
Line
|
|
Mobile
|
|
Fixed Line
|
|
Mobile
|
|
Other
|
|
Total
|
|
Net operating revenues from external customers
|
|
$
|
1,754,731
|
|
|
$
|
332,590
|
|
|
$
|
307,904
|
|
|
$
|
27,996
|
|
|
$
|
386,540
|
|
|
$
|
9,646
|
|
|
$
|
4,983
|
|
|
$
|
—
|
|
|
$
|
2,824,390
|
|
Intersegment revenues
|
|
|
2,455
|
|
|
|
9,643
|
|
|
|
12,532
|
|
|
|
12,553
|
|
|
|
23,479
|
|
|
|
6,289
|
|
|
|
5
|
|
|
|
—
|
|
|
|
66,955
|
|
OIBDA
|
|
|
886,287
|
|
|
|
101,754
|
|
|
|
159,451
|
|
|
|
16,536
|
|
|
|
240,070
|
|
|
|
2,110
|
|
|
|
(8,800
|
)
|
|
|
(19,787
|
)
|
|
|
1,377,621
|
|
Operating income
|
|
|
631,494
|
|
|
|
45,880
|
|
|
|
81,032
|
|
|
|
(342
|
)
|
|
|
107,400
|
|
|
|
(1,524
|
)
|
|
|
(12,510
|
)
|
|
|
(19,867
|
)
|
|
|
831,565
|
|
Net income/(loss) attributable to VimpelCom
|
|
|
437,781
|
|
|
|
20,346
|
|
|
|
38,187
|
|
|
|
(3,465
|
)
|
|
|
76,491
|
|
|
|
(2,123
|
)
|
|
|
(22,340
|
)
|
|
|
(48,975
|
)
|
|
|
495,901
|
|
Expenditures for long-lived assets
|
|
|
336,069
|
|
|
|
46,611
|
|
|
|
52,835
|
|
|
|
25,365
|
|
|
|
47,142
|
|
|
|
3,865
|
|
|
|
8,196
|
|
|
|
—
|
|
|
|
520,082
|
|
Three months ended September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Russia
|
|
Russia
|
|
CIS
|
|
CIS Fixed
|
|
Ukraine
|
|
Ukraine
|
|
Asia
|
|
|
|
|
|
|
Mobile
|
|
Fixed Line
|
|
Mobile
|
|
Line
|
|
Mobile
|
|
Fixed Line
|
|
Mobile
|
|
Other
|
|
Total
|
|
Net operating revenues from external customers
|
|
$
|
1,633,996
|
|
|
$
|
311,502
|
|
|
$
|
254,308
|
|
|
$
|
29,168
|
|
|
$
|
29,531
|
|
|
$
|
14,916
|
|
|
$
|
2,376
|
|
|
$
|
—
|
|
|
$
|
2,275,797
|
|
Intersegment revenues
|
|
|
1,435
|
|
|
|
5,586
|
|
|
|
5,827
|
|
|
|
7,803
|
|
|
|
2,729
|
|
|
|
9,422
|
|
|
|
—
|
|
|
|
—
|
|
|
|
32,802
|
|
OIBDA
|
|
|
895,124
|
|
|
|
99,547
|
|
|
|
137,439
|
|
|
|
17,290
|
|
|
|
6,441
|
|
|
|
5,702
|
|
|
|
(13,208
|
)
|
|
|
—
|
|
|
|
1,148,335
|
|
Operating income/(loss)
|
|
|
635,966
|
|
|
|
27,698
|
|
|
|
72,737
|
|
|
|
(1,390
|
)
|
|
|
(10,118
|
)
|
|
|
1,395
|
|
|
|
(15,155
|
)
|
|
|
—
|
|
|
|
711,133
|
|
Net income/(loss) attributable to VimpelCom
|
|
|
426,774
|
|
|
|
30,100
|
|
|
|
42,227
|
|
|
|
(4,285
|
)
|
|
|
(40,453
|
)
|
|
|
2,245
|
|
|
|
(22,111
|
)
|
|
|
—
|
|
|
|
434,497
|
|
Expenditures for long-lived assets
|
|
|
65,587
|
|
|
|
24,730
|
|
|
|
14,996
|
|
|
|
6,587
|
|
|
|
1,570
|
|
|
|
1,453
|
|
|
|
8,231
|
|
|
|
—
|
|
|
|
123,154
|
|
Nine months ended September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Russia
|
|
Russia
|
|
CIS
|
|
CIS Fixed
|
|
Ukraine
|
|
Ukraine
|
|
Asia
|
|
All
|
|
|
|
|
Mobile
|
|
Fixed Line
|
|
Mobile
|
|
Line
|
|
Mobile
|
|
Fixed Line
|
|
Mobile
|
|
Other
|
|
Total
|
|
Net operating revenues from external customers
|
|
$
|
5,068,077
|
|
|
$
|
963,464
|
|
|
$
|
848,681
|
|
|
$
|
79,664
|
|
|
$
|
689,814
|
|
|
$
|
32,512
|
|
|
$
|
14,939
|
|
|
$
|
—
|
|
|
$
|
7,697,151
|
|
Intersegment revenues
|
|
|
5,298
|
|
|
|
23,029
|
|
|
|
29,963
|
|
|
|
33,654
|
|
|
|
34,431
|
|
|
|
24,612
|
|
|
|
5
|
|
|
|
—
|
|
|
|
150,993
|
|
OIBDA
|
|
|
2,581,238
|
|
|
|
281,267
|
|
|
|
432,371
|
|
|
|
45,124
|
|
|
|
402,014
|
|
|
|
14,866
|
|
|
|
(25,532
|
)
|
|
|
(50,646
|
)
|
|
|
3,680,702
|
|
Operating income
|
|
|
1,818,975
|
|
|
|
109,975
|
|
|
|
216,954
|
|
|
|
4,996
|
|
|
|
152,953
|
|
|
|
4,870
|
|
|
|
(35,791
|
)
|
|
|
(50,725
|
)
|
|
|
2,222,206
|
|
Net income/(loss) attributable to VimpelCom
|
|
|
1,210,160
|
|
|
|
(28,257
|
)
|
|
|
94,378
|
|
|
|
(4,179
|
)
|
|
|
93,760
|
|
|
|
2,618
|
|
|
|
(61,053
|
)
|
|
|
(95,309
|
)
|
|
|
1,212,120
|
|
Expenditures for long-lived assets
|
|
|
641,283
|
|
|
|
108,970
|
|
|
|
141,179
|
|
|
|
39,901
|
|
|
|
99,853
|
|
|
|
15,789
|
|
|
|
33,955
|
|
|
|
—
|
|
|
|
1,080,931
|
|
F-22
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
10.
|
Segment
information (continued)
|
Nine months ended September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Russia
|
|
Russia
|
|
CIS
|
|
CIS Fixed
|
|
Ukraine
|
|
Ukraine
|
|
Asia
|
|
|
|
|
|
|
Mobile
|
|
Fixed Line
|
|
Mobile
|
|
Line
|
|
Mobile
|
|
Fixed Line
|
|
Mobile
|
|
Other
|
|
Total
|
|
Net operating revenues from external customers
|
|
$
|
4,507,595
|
|
|
$
|
926,942
|
|
|
$
|
739,248
|
|
|
$
|
91,573
|
|
|
$
|
81,628
|
|
|
$
|
44,100
|
|
|
$
|
3,230
|
|
|
$
|
—
|
|
|
$
|
6,394,316
|
|
Intersegment revenues
|
|
|
2,789
|
|
|
|
14,890
|
|
|
|
14,741
|
|
|
|
16,872
|
|
|
|
4,921
|
|
|
|
24,371
|
|
|
|
—
|
|
|
|
—
|
|
|
|
78,584
|
|
OIBDA
|
|
|
2,436,847
|
|
|
|
310,900
|
|
|
|
383,495
|
|
|
|
50,329
|
|
|
|
11,362
|
|
|
|
17,190
|
|
|
|
(25,495
|
)
|
|
|
—
|
|
|
|
3,184,628
|
|
Operating income/(loss)
|
|
|
1,697,670
|
|
|
|
135,061
|
|
|
|
192,572
|
|
|
|
1,691
|
|
|
|
(35,131
|
)
|
|
|
6,649
|
|
|
|
(28,032
|
)
|
|
|
—
|
|
|
|
1,970,480
|
|
Net income/(loss) attributable to VimpelCom
|
|
|
767,561
|
|
|
|
98,839
|
|
|
|
71,930
|
|
|
|
(645
|
)
|
|
|
(68,162
|
)
|
|
|
5,143
|
|
|
|
(36,276
|
)
|
|
|
—
|
|
|
|
838,390
|
|
Expenditures for long-lived assets
|
|
|
208,261
|
|
|
|
79,494
|
|
|
|
40,750
|
|
|
|
9,193
|
|
|
|
2,864
|
|
|
|
5,949
|
|
|
|
44,794
|
|
|
|
—
|
|
|
|
391,305
|
|
Information about total assets of each reporting segment as of
September 30, 2010 and December 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Russia Mobile
|
|
$
|
8,621,094
|
|
|
$
|
8,554,209
|
|
Russia Fixed line
|
|
|
4,265,160
|
|
|
|
4,208,967
|
|
CIS Mobile
|
|
|
2,836,948
|
|
|
|
2,367,179
|
|
CIS Fixed line
|
|
|
418,092
|
|
|
|
360,242
|
|
Ukraine Mobile
|
|
|
6,513,502
|
|
|
|
325,368
|
|
Ukraine Fixed line
|
|
|
140,716
|
|
|
|
130,359
|
|
Asia Mobile
|
|
|
389,357
|
|
|
|
558,034
|
|
All other
|
|
|
10,725
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total assets for reportable segments
|
|
$
|
23,195,593
|
|
|
$
|
16,504,358
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of VimpelCom’s total segment financial
information to the corresponding consolidated amounts follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Total assets for reportable segments
|
|
$
|
23,195,593
|
|
|
$
|
16,504,358
|
|
Elimination of intercompany balances
|
|
|
(2,149,847
|
)
|
|
|
(1,771,817
|
)
|
|
|
|
|
|
|
|
|
|
Total consolidated assets
|
|
$
|
21,045,746
|
|
|
$
|
14,732,541
|
|
|
|
|
|
|
|
|
|
|
In Russia, Kazakhstan and Ukraine, VimpelCom’s revenues
from external customers amounted to US$2,087,323, US$194,138 and
US$396,184 for the three-months and US$6,033,387, US$531,656 and
US$722,324 for the nine-month periods ended September 30,
2010, respectively, and long-lived assets amounted to
US$5,111,383, US$679,328 and US$2,568,006 as of
September 30, 2010, respectively.
|
|
11.
|
Commitments,
contingencies and uncertainties
|
The economies of the countries in which VimpelCom operates
continue to display certain traits consistent with that of a
market in transition. These characteristics have in the past
included higher than normal historic inflation, lack of
liquidity in the capital markets, and the existence of currency
controls which cause the national currency to be illiquid
outside of their territories.
F-23
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
11.
|
Commitments,
contingencies and uncertainties (continued)
|
The imposition of exchange controls or other similar
restrictions on currency convertibility in CIS countries and
particularly in Uzbekistan could limit VimpelCom’s ability
to convert local currencies in a timely manner or at all.
Recent developments in Kyrgyzstan (conditions of political
instability and disorders) have severely affected the
country’s business and economic environment. Any such
restrictions and these developments could have a material
adverse effect on VimpelCom’s business, financial
condition, results of operations and title to assets owned by
Sky Mobile. The continued success and stability of the
economies of these countries will be significantly impacted by
their respective governments’ continued actions with regard
to supervisory, legal and economic reforms.
The Russian economy is vulnerable to market downturns and
economic slowdowns elsewhere in the world. The global financial
crisis has resulted in a decline in gross domestic product,
capital markets instability, significant deterioration of
liquidity in the banking sector, and tighter credit conditions
within Russia as well as xxxxx depreciation. While the Russian
Government has introduced a range of stabilization measures
aimed at providing liquidity and supporting debt refinancing for
Russian banks and companies, there continues to be uncertainty
regarding the access to capital and cost of capital for Russian
companies, which could affect VimpelCom’s financial
position, results of operations and business prospects. The
crisis may also damage purchasing power of VimpelCom’s
customers mainly in the business sector and thus lead to decline
in revenue streams and cash generation.
While management believes it is taking appropriate measures to
support the sustainability of VimpelCom’s business in the
current circumstances, unexpected further deterioration in the
areas described above could negatively affect the Company’s
results and financial position in a manner not currently
determinable.
In the ordinary course of business, VimpelCom may be party to
various legal and tax proceedings, and subject to claims,
certain of which relate to the developing markets and evolving
fiscal and regulatory environments in which VimpelCom operates.
In the opinion of management, XxxxxxXxx’s liability, if
any, in all pending litigation, other legal proceeding or other
matters, other than what is discussed in this Note, will not
have a material effect upon the financial condition, results of
operations or liquidity of VimpelCom.
VimpelCom’s operations and financial position will continue
to be affected by political developments in the countries in
which VimpelCom operates including the application of existing
and future legislation, telecom and tax regulations. These
developments could have a significant impact on VimpelCom’s
ability to continue operations. VimpelCom does not believe that
these contingencies, as related to its operations, are any more
significant than those of similar enterprises in such countries.
Telecom
licenses capital commitments
VimpelCom’s ability to generate revenues in Russia is
dependent upon the operation of the wireless telecommunications
networks authorized under its various licenses.
VimpelCom’s GSM-900/1800 licenses that cover Moscow and the
Moscow region, Central region, Volga region, Caucasus region,
and the Siberia region have been reissued and under the new
terms expire on April 28, 2013. The GSM-900/1800 licenses
that cover the Northwest region, Urals and part of Far East
region expire in 2011 — 2015 (the GSM-900/1800 license
for Irkutsk region, excluding Ust-Ordynskiy Buryatskiy
Autonomous Region, expires in 2011).
In April 2007, VimpelCom was awarded a license for the provision
of “3G” mobile radiotelephony communications
services for the entire territory of the Russian Federation that
expires on May 21, 2017. The 3G license was granted
subject to certain capital commitments. The three major
conditions are that VimpelCom will have to build a certain
number of base stations that support 3G standards and will have
to start services provision by certain dates in each subject
area of the Russian Federation, and also will have to build a
certain number of base stations by the end of the third, fourth
and fifth years from the date of granting of the license. To
date all of these conditions have been fulfilled according to
the indicated terms and schedule.
F-24
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
11.
|
Commitments,
contingencies and uncertainties (continued)
|
Telecom
licenses capital commitments (continued)
KaR-Tel owns a GSM-900 license to operate over the entire
territory of Kazakhstan. The license expires in August 2013. In
July 2008, the GSM-900 license was amended with the permission
for KaR-Tel to render services in GSM-1800 standard and with the
related commitment to cover cities with population of more than
1000 people by December 31, 2012.
URS and GT LLC, VimpelCom’s indirect Ukrainian subsidiaries
own GSM licenses. CJSC “URS” owns a GSM-900 and 2
GSM-1800 licenses to operate over the entire territory of
Ukraine, which expires in July 2021, October 2020 and December
2020 respectively. GT LLC owns three GSM-1800 licenses to
operate over the nearly entire territory of Ukraine (except 3
regions), which expires in July 2014 and May 2021, respectively.
In April 2009, the National Commission on Regulation of
Telecommunication of Ukraine has amended its regulation
establishing so-called “license terms” applicable to
all mobile telecommunication network operators licensed in
Ukraine.
Under the amendments, Ukrainian mobile telecommunication network
operators are obliged to ensure radiofrequency coverage of 90%
of cities within one year from the date of issue of respective
mobile telecommunication services license, and 80% of all other
settlements and major highways - within two years from the same
date. In case respective license allows rendering mobile
telecommunication services in several regions, each of these
requirements shall be fulfilled in each region with an interval
of not more than two months. These new capital commitments
apply to URS and GT LLC. The commitments should be fully
complied with in all regions licensed for use of radiofrequency
corresponding to GSM
900/1800
standard as follows: URS — by August 2015 and
GT LLC — by October 2014.
Kyivstar, the Company’s subsidiary, met the license terms
applicable to all the mobile telecommunication network operators
licensed in Ukraine according to the Regulations of the National
Commission on Regulation of Telecommunication of Ukraine amended
in April 2009 in respect to the minimal mobile network coverage
requirements. The existing network coverage is sufficient for
minimal network coverage requirements and no material capital
expenditures are reasonably expected to be incurred with regards
to coverage requirements.
Sky Mobile owns a GSM-900/1800 license to operate over the
entire territory of Kyrgyzstan which expires in May 2016 and a
3G (WCDMA/UMTS) license to operate over the entire territory of
Kyrgyzstan, which is valid until October 2015. Under the 3G
license, from the moment of receipt of corresponding permits to
use radio-frequency bands Sky Mobile is primarily obliged to:
(a) deploy 3G network in Chuy oblast within two years;
(b) deploy 3G network over the entire territory of
Kyrgyzstan within 5 years; (c) organize in 100 postal
telegraph offices of KyrgyzPost located in the rural areas
centers of public access with necessary computer equipment and
access to Internet within 2 years; (d) reimburse costs
required to clear radio-frequency range from existing
radio-electronic equipment in the amount of up to
KGS200 million (equivalent to US$4,287 at the exchange rate
as of September 30, 2010). To date Sky Mobile is in full
compliance with the terms of the 3G license.
The taxation systems in the countries in which VimpelCom
operates are evolving as their respective national governments
transform their national economies from a command to market
oriented economies. In the Russian Federation, VimpelCom’s
predominant market, there were many tax laws and related
regulations introduced in previous periods as well as in 2010
which were not always clearly written, and their interpretation
is subject to the opinions of the local tax inspectors and
officials of the Ministry of Finance. Instances of inconsistent
opinions between local, regional and federal tax authorities and
Ministry of Finance are not unusual. Management believes that
it has paid or accrued all taxes that are applicable. Where
uncertainty exists, VimpelCom has accrued tax liabilities based
on management’s best estimate.
F-25
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
11.
|
Commitments,
contingencies and uncertainties (continued)
|
Telecom
licenses capital commitments (continued)
On April 30, 2009, the Company’s
subsidiary — Sovintel — received a final
decision of the Russian tax inspectorate’s audit of its tax
filings for financial years 2006 and 2007. According to the
final decision, Sovintel owed an additional RUR324 million
in taxes (including RUR36 million in fines and penalties),
which is approximately US$10,657 (including US$1,184 in fines
and penalties) at the exchange rate as of September 30,
2010. Sovintel disagreed with the tax inspectorate’s
decision and has filed a lawsuit in the Russian Arbitration
courts. The court satisfied Sovintel’s lawsuit partly in
the amount of RUR112 million (including RUR7 million
in fines and penalties) which is approximately US$3,684
(including US$230 in fines and penalties) at the exchange rate
as of September 30, 2010. The Tax inspectorate could have
challenged this part of the court ruling in higher court
instances during 3 months after Russian Arbitration
court’s decision. Date of filing of an appeal has expired.
The tax authorities have won the amount of RUR212 million
(including RUR29 million in fines and penalties) in the
Court of Cassation, which is approximately US$6,973 (including
US$954 in fines and penalties) at the exchange rate as of
September 30, 2010, which was fully accrued as of
September 30, 2010 in accordance with
ASC 740-10,
Income taxes — Overall. The Company challenged such
court decision in the Supreme Arbitration Court of the Russian
Federation. The Supreme Arbitration Court of the Russian
Federation dismissed an appeal.
KaR-Tel
litigation
On January 10, 2005, KaR-Tel received an “order to
pay” (“Order to Pay”) issued by The
Savings Deposit Insurance Fund, a Turkish state agency
responsible for collecting state claims arising from bank
insolvencies (the “Fund”), in the amount of
approximately US$5,168,036 at the exchange rate as of
September 30, 2010 (stated as approximately Turkish lira
7.55 quadrillion and issued prior to the introduction of the New
Turkish Lira, which became effective as of January 1,
2005). The Order to Pay, dated as of October 7, 2004, was
delivered to KaR-Tel by the Bostandykski Regional Court of
Almaty. The Order to Pay does not provide any information
regarding the nature of, or basis for, the asserted debt, other
than to state that it is a debt to the Turkish Treasury and the
term for payment was May 6, 2004.
On January 17, 2005, KaR-Tel delivered to the Turkish
consulate in Almaty a petition to the Turkish court objecting to
the propriety of the order and requesting the Turkish court to
cancel the Order to Pay and stay of execution proceedings in
Turkey. The petition was assigned to the
4th
Administrative Court in Turkey, and it should be reviewed
pursuant to applicable law.
On June 1, 2006, KaR-Tel received formal notice of the
4th
Administrative Court’s ruling that the stay of execution
request was denied. KaR-Tel’s Turkish counsel has advised
KaR-Tel that the stay request is being adjudicated separately
from the petition to cancel the Order to Pay. KaR-Tel submitted
an appeal of the ruling with respect to the stay application.
On June 1, 2006, KaR-Tel also received the Fund’s
response to its petition to cancel the order. In its response,
the Fund asserts, among other things, that the order to pay was
issued in furtherance of its collection of approximately Turkish
lira 7.55 quadrillion (prior to the introduction of the New
Turkish Lira, which became effective as of January 1,
2005) in claims against the Uzan group of companies that
were affiliated with the Uzan family in connection with the
failure of T. Imar Bankasi, T.A.S. The Fund’s response to
KaR-Tel’s petition claims that the Uzan group of companies
includes KaR-Tel, Rumeli Telecom A.S. and Telsim Mobil
Telekomunikasyon Hizmetleri A.S. Rumeli Telecom A.S. and
Telsim Mobil Telekomunikasyon Hizmetleri A.S are Turkish
companies that owned an aggregate 60% of the equity interests in
KaR-Tel until their interests were redeemed by KaR-Tel in
November 2003 in accordance with a decision of the Review Panel
of the Supreme Court of Kazakhstan. In July 2006, KaR-Tel
submitted its response, dated June 30, 2006, to the
Fund’s response via the Kazakh Ministry of Justice, to be
forwarded to the 4th Administrative Court of Istanbul. In
its response, KaR-Tel denied in material part the factual and
legal assertions made by the Fund in support of the order to pay.
F-26
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
11.
|
Commitments,
contingencies and uncertainties (continued)
|
KaR-Tel
litigation (continued)
On December 11, 2008, KaR-Tel received a Decision of
Territorial Court of Istanbul dated December 12, 2007,
wherein the Court rejected KaR-Tel’s appeal with respect to
the stay of execution request.
On October 20, 2009, KaR-Tel filed with Sisli
3d Court
of the First Instance in Istanbul a claim to recognize in the
Republic of Turkey the decision of the Almaty City Court of the
Republic of Kazakhstan dated June 6, 2003 regarding, among
other things, compulsory redemption of equity interests in
KaR-Tel owned by Rumeli Telecom A.S. and Telsim Mobil
Telekomunikasyon Hizmetleri A.S., which was confirmed by the
Civil Panel of the Supreme Court of the Republic of Kazakhstan
on June 23, 2003, as amended by the resolution of the
Review Panel of the Supreme Court of the Republic of Kazakhstan
dated October 30, 2003 (“Recognition
Claim”). On October 20, 2009, KaR-Tel also filed
with the
4th
Administrative Court of Istanbul a petition asking the Court to
treat the recognition of the Kazakhstan court decision as a
precedential issue and to stay the proceedings in relation to
the order to pay.
On September 28, 2010, Sisli
3d Court
of the First Instance in Istanbul reviewed the Recognition Claim
and ruled in favor of KaR-Tel recognizing the Kazakhstan Court
judgements on the territory of the Republic of Turkey. The
court decision is appealable by defendants.
The Company continues to believe that the Fund’s claim is
without merit, and KaR-Tel will take whatever further actions it
deems necessary and appropriate to protect itself against the
Fund’s claim (Note 12).
Kyivstar
acquisition
XxxxxxXxx understands that the Antimonopoly Committee of Ukraine
(the “AMC”) delivered to Telenor and Xxxxxx notices
dated April 22, 2010 informing them that the AMC is
reconsidering its March 9, 2010 decision authorizing the
acquisition of Kyivstar and OJSC VimpelCom by Telenor and Altimo
through VimpelCom Ltd (Note 1). The notice stated that the
authorization was suspended until the AMC completed the
reconsideration process. VimpelCom understands that the relevant
parties are cooperating with the AMC. On October 19, 2010,
the AMC confirmed its March 9, 2010 authorization of the
acquisition.
Other
litigations
Since November 2006, the Chief Executive Officer and directors
of the Company have received several letters from OJSC Mobile
TeleSystems (“MTS”) and its representatives
claiming that Sky Mobile’s Kyrgyz telecom business and its
assets were misappropriated from Bitel, an MTS affiliate, and
demanding that the Company not purchase Sky Mobile, directly or
indirectly, or participate or assist in the sale of Sky Mobile
to any other entities. These letters have suggested that MTS
will take any and all legal action necessary against the Company
in order to protect MTS’s interest in Bitel and
Bitel’s assets. As of the date hereof, management is not
aware of any pending legal action against the Company in
connection with this matter except for the litigation against
Sky Mobile discussed in the paragraph below.
The Company started to consolidate Sky Mobile from
January 1, 2010 (Notes 1 and 3). Sky Mobile is
a defendant in litigation in the Isle of Man. The litigation
was brought by affiliates of MTS against Sky Mobile and
affiliates of Altimo and alleges that the Kyrgyz judgment
determining that an Altimo affiliate was the rightful owner of
interest in the equity of Bitel prior to the asset sale between
Sky Mobile and Bitel and that Bitel shares and Sky Mobile assets
were misappropriated. The legal proceedings in this matter are
pending. At this time the Company is unable to assess the
likelihood of the ultimate outcome of this litigation and its
effect on the Company’s operating results and financial
position.
The Federal Anti-Monopoly Service of Russia
(“FAS”) started legal proceedings against
VimpelCom, MTS and Megafon about their alleged violation of
anti-monopoly legislation by charging artificially high prices
for roaming services. On October 22, 2010, FAS released
its conclusion that VimpelCom violated certain provisions in
F-27
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
11.
|
Commitments,
contingencies and uncertainties (continued)
|
Other
litigations (continued)
the Federal Law “On the Protection of Competition” in
respect of its roaming services. VimpelCom does not believe that
it is in violation of the anti-monopoly legislation but if its
roaming tariffs are found to violate applicable legislation, the
Company could face certain fines of up to 15% of the revenue
from the services provided in violation of the legislation. At
this stage, the Company evaluates this risk as probable.
VimpelCom accrued a loss contingency in the amount of
RUR68.5 million (equivalent to US$2,254 at the exchange
rate as of September 30, 2010) in relation to this
claim. These amounts were included in other (expenses)/income
for the three and nine months ended September 30, 2010 in
the accompanying consolidated statements of income. The related
liability in the amount of RUR68.5 million (equivalent to
US$2,254 at the exchange rate as of September 30,
2010) was reflected as short-term accrued liabilities in
the balance sheet as of September 30, 2010.
At the complaint from OJSC MGTS, the FAS started legal
proceedings against VimpelCom about its alleged violation of
anti-monopoly legislation by tying counterparties with traffic
agreements containing disadvantageous prices in Moscow. On
May 19, 2010, FAS found the activities of VimpelCom to be
in violation of anti-monopoly legislation. VimpelCom does not
believe that it is in violation of the anti-monopoly legislation
and has appealed the FAS decision. The Company does not believe
that an unfavorable outcome of this case is probable and no
amounts have been accrued in these financial statements in
relation to this claim. However, fines for violation of the
anti-monopoly legislation can reach 15% of the revenue from the
services provided in violation of the legislation and
VimpelCom’s reasonable estimate of this fine is a range
between RUR58.5 million (or US$1,944 at the exchange rate
as of September 30, 2010) and RUR877.4 million
(or US$29,157 at the exchange rate as of September 30, 2010.
On April 18, 2008, Global Undervalued Securities Master
Fund, L.P. (“Global Undervalued”), timely
filed a petition in a Delaware court demanding appraisal of its
approximately 1.4 million shares of Golden Telecom which it
did not tender in the tender offer pursuant to which VimpelCom
acquired Golden Telecom. On April 23, 2010, the court
determined the fair value of Golden Telecom shares to be
US$125.49 per share. Interest was applied for a period from
February 28, 2008 to the date of payment. VimpelCom
accrued an additional loss contingency in the amount of
US$52,733 in relation to cash rights for shares of Golden
Telecom. These amounts were included in other (expenses)/income
for nine months ended September 30, 2010 in the
accompanying consolidated statements of income.
In June 2010, Golden Telecom and Global Undervalued entered into
an agreement pursuant to which in July 2010 Golden Telecom
paid to Global Undervalued US$165,542 based on the US$105.00 per
share tender offer price and interest, partially repaying the
liability. Pursuant to the agreement, in July 2010 Golden
Telecom deposited US$33,222 into an escrow account, reflecting
it in other current assets as of September 30, 2010.
Golden Telecom, Inc. filed a notice of appeal and which is
pending. Petitioners in the case have since filed a
cross-appeal of the judgment. All payments already made remain
subject to the final resolution of this matter and Golden
Telecom may be required to make additional payments to Global
Undervalued should the court rule in favor of Global
Undervalued’s cross-appeal
The Magadan Regional Department of Roskomnadzor (Federal
Supervision Agency for Information Technologies and
Communications) has commenced administrative proceedings against
VimpelCom. The alleged violation consisted of provision of 2G
communications services in Magadan Region after the withdrawal
of the license. On May 12, 2010, a judgment was passed on
the imposition of sanctions against VimpelCom in the form of a
fine of 40,000 rubles (equivalent to US$1.3 as of May 12,
2010). VimpelCom filed an appeal. The hearings on the appeal
are scheduled for August 18, 2010. On August 18,
2010, the decision of the court of first instance was upheld
without any changes.
On May 14, 2010, the Antimonopoly Agency of Kazakhstan
(“the Agency”) initiated an investigation of
the alleged breach of antimonopoly laws of Kazakhstan by all
three Kazakhstan GSM-operators (KaR-Tel LLP
F-28
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
11.
|
Commitments,
contingencies and uncertainties (continued)
|
Other
litigations (continued)
(TM Beeline)), GSM Kazakhstan OAO Kazakhtelecom LLP (TM
KCell, Active), and Mobile Telecom Systems LLP (TM Neo)), by
abuse of dominant position through infringement of
consumers’ rights by way of determination of a threshold
(minimal) amounts of money on consumer’s account required
for rendering (switching on and off) roaming services
(“the Threshold Amounts”). Further, the Agency
decided to consider investigations, jointly with FAS, of
Kazakhstan antimonopoly law breaches with respect to all the
three Kazakhstan GSM-operators, including KaR-Tel, as well as
operators-partners in the Russian Federation on indications of
anticompetitive concerted actions and agreements as to
establishing and (or) price maintenance as well as use of
per-minute step of tariffication. The Agency also decided to
make a proposal to the Ministry of Telecommunications and
Information of Kazakhstan as to earlier transfer to per-second
tariffication for roaming services (date determined by law is
January 1, 2012), and to conduct an evaluation of roaming
tariffs.
On June 21, 2010, the Agency completed the part of its
investigation related to the Threshold Amounts and alleged that
all three Kazakhstan GSM-operators abused their dominant
position through infringement of customers’ lawful rights
by way of establishing the Threshold Amounts, being establishing
of minimal amounts on user’s account to switch on roaming
services for prepaid and postpaid users in off-line roaming, and
switching off roaming services when a user occurs negative
balance on the consumer’s account.
On July 3, 2010, the Agency initiated an administrative
procedure with respect to all the three Kazakhstan GSM
operators, including KaR-Tel, and issued the protocol on
administrative offence (“the Protocol”). The
Agency filed with the Administrative Court a claim based on the
Protocol. The Company estimates KaR-Tel’s share of
administrative fines amounting to KZT 11.6 billion (the
equivalent to US$78,646 at the exchange rate as of July 3,
2010). The Agency plans to continue another part of
investigation — with respect to concerted actions of
Kazakhstan and Russian GSM-mobile operators on establishing
and/or
preservation of tariffs (“Concerted Actions
Investigation”). KaR-Tel believes that the claim of
the Agency is without merits and intends to protect its rights
and lawful interest in courts of Kazakhstan. On July 16,
2010, KaR-Tel filed a claim to recognize as illegal and annul
the acts of the Agency, which have served as a procedural basis
for the Protocol. No provisions were made in relation to this
case in the accompanying condensed consolidated financial
statements (Note 12).
A lawsuit was filed by the State Property Committee (Federal
Agency for Management of the State Property) against Sovintel
seeking eviction from the premises (about 4,000 sq.m) at
Krasnokazarmennaya Street, where its Data Center and equipment
are currently located. In substantiation of its claim the
plaintiff asserts that the lease agreement between Sovintel and
FGUP VEI is void, since it was entered into without a consent of
the owner (the State Property Committee) to lease such premises.
Hearings of the case are scheduled for January 17 and 25, 2011.
Management evaluates the risk of an adverse outcome of this
lawsuit as probable. No amounts have been accrued in these
financial statements in relation to this claim due to
immateriality, but in case of an adverse decision of the court,
eviction of Sovintel from the premises may cause interruption of
the work of the equipment (fixed-line network) that could have a
negative impact on the future results of operations of the
Company commencing the period when such interruption occurs.
Other
commitments
On August 13, 2008, the Company entered into an agreement
with Apple Sales International (“Apple”) to
purchase 1.5 million IPhone handsets under the quarterly
purchase installments over a two year period beginning with
commercial launch in the fourth quarter 2008. In 2009 and 2008,
the Company made 0.5% and 12% of its total purchase installment
contemplated by the agreement, respectively. During the nine
month period ended September 30, 2010 the Company made
5.85% of its total purchase installment contemplated by the
agreement with Apple.
F-29
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
11.
|
Commitments,
contingencies and uncertainties (continued)
|
Other
commitments (continued)
On September 16, 2009, XxxxxxXxx signed an agreement for
the acquisition of a 78% stake in Millicom Lao Co., Ltd., a
mobile telecom operator with operations in the Lao PDR
(“Millicom Lao”), from Millicom Holding B.V.
(Netherlands) and Cameroon Holdings B.V. (Netherlands). The
remaining 22% of Millicom Lao is owned by the Government of the
Lao PDR, as represented by the Ministry of Finance.
The purchase price for the acquisition will be determined on the
completion date and will be based on an enterprise value of
Millicom Lao of US$102,000.
On March 31, 2010, Millicom Holding B.V. sent notice to
Vimpelcom that VimpelCom had not completed the agreement to
acquire Millicom Holding B.V.’s 74.1% holding in Millicom
Lao despite all conditions precedent having been met. The
notice also stated that Millicom Holding B.V. reserved its
rights under the terms of the agreement, including the right to
seek compensation for any loss of value and indicated its
intention to proceed with the sale of its Laos operation. The
transaction has not yet been closed by VimpelCom due to absence
of endorsement from the Lao government. VimpelCom is continuing
to seek such endorsement, however there is no assurance that it
will receive the endorsement and complete the transaction.
The Company evaluated subsequent events up to December 2,
2010, the date VimpelCom’s Financial Statements were
available to be issued.
Transaction
with Weather
On October 4, 2010, the Company and Weather Investments
S.p.A (“Weather”) signed an agreement to
combine their two groups (the “Transaction”).
Closing of the Transaction is subject to conditions precedent,
including, among others, receipt of consents required under
competition or anti-trust laws in certain jurisdictions; receipt
of corporate approvals, including board approvals; approval from
the Company’s shareholders for the issuance of Company
shares in connection with the Transaction and any other required
matters; financing; and execution of a binding
shareholders’ agreement between Altimo or its affiliates,
Telenor or its affiliates and Weather shareholders. If a
condition precedent cannot be met, the agreement can be
terminated.
At the closing of the Transaction, the Company will own, through
Weather, 51.7% of Orascom Telecom Holding S.A.E.
(“Orascom Telecom”) and 100% of Wind
Telecomunicazioni S.p.A. (“Wind Italy”).
Under the terms of the Transaction, Weather shareholders will
contribute to VimpelCom their shares in Weather in exchange for
consideration consisting of 325,639,827 newly issued VimpelCom
common shares, approximately US$1,800,000 in cash and certain
assets that will be demerged from Orascom Telecom and from Wind
Italy. The Weather interests in these assets, which principally
comprise Orascom Telecom’s investments in Egypt and North
Korea, will be transferred to the current Weather shareholders.
Wind Hellas Telecommunications S.A. in Greece is entirely
excluded from the Transaction.
The Company shares to be issued to Weather shareholders at the
closing of the Transaction will represent a 20.0% economic
interest and a 18.5% voting interest in the enlarged VimpelCom
group.
The terms of the signed agreement were unanimously approved on
October 3, 2010 by both the Company’s Supervisory
Board and the Weather Board of Directors.
Roaming
litigations in Kazakhstan
On October 25, 2010, the Kazakhstan Antimonopoly Agency
(the “Agency”) completed the Concerted Actions
Investigation and reclassified alleged concerted actions of
KaR-Tel and other Russian and Kazakhstan GSM-operators into
establishing of monopolisticly high tariffs. On
November 3, 2010, the Agency initiated an administrative
procedure and issued a new protocol on administrative offence,
according to which the Agency has
F-30
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
12.
|
Subsequent
events (continued)
|
Roaming
litigations in Kazakhstan (continued)
found KaR-Tel and the other two Kazakhstan GSM-operators liable
for abuse of their dominant position on the market by way of
establishing monopolistically high roaming tariffs (“the
New Protocol”). Under Kazakhstan laws, the Agency
should lodge the New Protocol into administrative court, and the
court is to review the matter and to decide on the merits and on
appicable fines. While the Company does not agree with the New
Protocol and intends to challenge it, the ultimate resolution of
this matter could result in a loss of KZT 9.9 billion
(equivalent to US$67,087 as of November 3, 2010) in
excess of the amount accrued.
As to the litigation related to the Protocol alleging as illegal
KaR-Tel’s acts on establishing of the Threshold Amounts, on
October 19, 2010 the Interregional Economic Court of Astana
has ruled in favor of KaR-Tel and recognized as illegal, null
and void all acts of the Agency and its territorial branch,
which have served as procedural basis for the Protocol. The
decision has not come into force and is appealable by the Agency
within 15 days after receipt thereof by the Agency. On
November 15, 2010 KaR-Tel has received copy of the
Agency’s appeal on the decision.
On November 23, 2010 KaR-Tel LLP has filed a claim with
Astana Interregional Economic Court against the Agency
requesting the Court to recognize illegal and to annul acts of
the Agency preceeding the New Protocol.
KaR-Tel
litigation
On October 25, 2010, the
4th
Administrative Court of Istanbul reviewed KaR-Tel’s
petition to annul the Payment Order and has ruled in favor of
KaR-Tel. The Court has recognized the Order to Pay as illegal
and annulled it. The court decision is appealable by the Fund.
Sky
Mobile
On October 20, 2010, the Company exercised the first call
option to acquire 50.1% of the issued share capital of Menacrest
(Note 3). The remaining 49.9% of Menacrest is owned by
Xxxxxxx. On the same date the pledge over 100% of Menacrest
shares was released by the Company and Management Agreement
terminated.
The purchase price for the acquisition is US$150,300, which has
been set off against part of the debt of Xxxxxxx to the Company
under the Xxxxxxx Loan Agreement.
Other
subsequent events
On October 8, 2010 VimpelCom fully repaid before maturity
the outstanding balance including the accrued interest under the
one-year Bridge Facility Agreement with four international
banks: Barclays, BNP Paribas, Citibank N.A., London Branch and
The Royal Bank of Scotland N.V, in the aggregate amount of
US$470,160.
On October 15, 2010 VimpelCom fully repaid before maturity
the outstanding balance, including the accrued interest, under
its unsecured loan agreement with The Bank of Tokyo-Mitsubishi
UFJ, Ltd., Barclays Capital, BNP Paribas, Commerzbank
Aktiengesellschaft, Standard Bank Plc, Sumitomo Mitsui Banking
Corporation Europe Limited and WestLB AG, London Branch as
mandated lead arrangers and bookrunners and Standard Bank Plc as
agent signed on October 15, 2008 in an aggregate amount of
EUR333 million (equivalent to US$469,381 at the exchange
rate as of October 15, 2010).
On October 19, 2010, VimpelCom issued Russian
xxxxx-denominated bonds through LLC VimpelCom-Invest, a
consolidated Russian subsidiary of VimpelCom, in an aggregate
principal amount of RUR20,000 million which is the
equivalent of approximately $655,000 at the exchange rate of
Central Bank of Russia as of October 19, 2010. The bonds
have a five-year maturity and bear an annual interest rate of
8.3%. Interest will be paid semiannually. No early redemption
rights were granted. The proceeds of the offering will be used
for financing development and expansion of VimpelCom’s core
business.
F-31
VimpelCom
Ltd.
Notes to
Unaudited Condensed Consolidated Financial
Statements — (Continued)
(Amounts presented are in thousands of US dollars unless
otherwise indicated)
|
|
12.
|
Subsequent
events (continued)
|
Other
subsequent events (continued)
As of October 25, 2010, Sovintel fully exercised a SWAP
under its Interest Rate SWAP agreement with Citibank
(Note 4).
On October 27, 2010 VimpelCom fully repaid before maturity
the outstanding balance, including the accrued interest, under
unsecured loan agreement with banks, financial institutions and
other institutional lenders as lenders, Citibank, N.A. London
Branch and ING Bank N.V. as mandated lead arrangers, and
Citibank International plc as agent signed by XXX Xxxxxxxx on
January 25, 2007 in an aggregate amount of US$127,776.
On November 15, 2010, VimpelCom Ltd.’s Supervisory
Board declared the payment of an interim dividend of US$0.46 per
American depositary share (“ADS”) amounting to a total
interim dividend payment of approximately US$600,000. Each ADS
represents one common share. The interim dividend is being paid
in accordance with VimpelCom’s dividend policy.
The record date for the Company’s shareholders entitled to
receive interim dividends has been set for November 29,
2010. The Company will make appropriate tax withholdings of up
to 15% when the dividend is paid to the Company’s ADS
depositary. The dividend will be paid by the Company before
December 31, 2010.
On November 22 and on November 30, 2010, VimpelCom fully
repaid before maturity the outstanding balance, including the
accrued interest, under the Amended and restated Agreement,
dated February 24, 2004 and November 3, 2005, with
Svenska Handelsbanken AB (publ) in the amount of US$69,700 and
US$99,750, respectively.
F-32
INDEX TO
FINANCIAL STATEMENTS
WIND
TELECOM S.p.A.
|
|
|
|
|
Unaudited Consolidated Interim Financial Statements
|
|
|
F-33
|
|
Unaudited Consolidated Income Statement for the nine-month
periods ended September 30, 2010 and 2009
|
|
|
F-34
|
|
Consolidated Statement of Comprehensive Income for the
nine-month periods ended September 30, 2010 and 2009
|
|
|
F-35
|
|
Unaudited Consolidated Statement of Financial Position as of
September 30, 2010 and December 31, 2009
|
|
|
F-36
|
|
Unaudited Consolidated Cash Flow Statement for the nine-month
periods ended September 30, 2010 and 2009
|
|
|
F-37
|
|
Unaudited Statement of Changes in Consolidated Equity for
the nine-month periods ended and as of September 30, 2010 and
2009
|
|
|
F-38
|
|
Notes to the Unaudited Consolidated Interim Financial Statements
|
|
|
F-39
|
|
|
|
|
|
|
Audited Consolidated Financial Statements
|
|
|
F-100
|
|
Audited Consolidated Financial Statements
|
|
|
F-164
|
|
Report of Auditors
|
|
|
F-165
|
|
Consolidated Statement of Financial Position as of
December 31, 2009 and 2008
|
|
|
F-168
|
|
Consolidated Income Statement for the years ended December 31,
2009 and 2008
|
|
|
F-169
|
|
Consolidated Statement of Comprehensive Income for the years
ended December 31, 2009 and 2008
|
|
|
F-170
|
|
Consolidated Cash Flow Statement for the years ended December
31, 2009 and 2008
|
|
|
F-171
|
|
Statement of Changes in Consolidated Equity for the years ended
and as of December 31, 2009 and 2008
|
|
|
F-172
|
|
Notes to the Consolidated Financial Statements
|
|
|
F-173
|
|
F-33
CONSOLIDATED
INCOME STATEMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Note
|
|
|
9 Months
|
|
|
9 Months
|
|
|
III Quarter
|
|
|
III Quarter
|
|
|
|
(Millions of euro)
|
|
|
Revenue
|
|
|
6
|
|
|
|
7,179
|
|
|
|
7,094
|
|
|
|
2,450
|
|
|
|
2,371
|
|
Other revenue
|
|
|
7
|
|
|
|
107
|
|
|
|
136
|
|
|
|
22
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
|
|
|
|
7,286
|
|
|
|
7,230
|
|
|
|
2,472
|
|
|
|
2,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and services
|
|
|
8
|
|
|
|
(3,772
|
)
|
|
|
(3,719
|
)
|
|
|
(1,266
|
)
|
|
|
(1,198
|
)
|
Other operating costs
|
|
|
9
|
|
|
|
(241
|
)
|
|
|
(213
|
)
|
|
|
(90
|
)
|
|
|
(75
|
)
|
Personnel expenses
|
|
|
10
|
|
|
|
(496
|
)
|
|
|
(478
|
)
|
|
|
(158
|
)
|
|
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before depreciation and amortization,
reversal of impairment losses/impairment losses on non-current
assets and gains/losses on disposal of non-current assets
|
|
|
|
|
|
|
2,777
|
|
|
|
2,820
|
|
|
|
958
|
|
|
|
971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
11
|
|
|
|
(1,384
|
)
|
|
|
(1,413
|
)
|
|
|
(468
|
)
|
|
|
(438
|
)
|
Reversal of impairment losses/(impairment losses) on non-current
assets
|
|
|
12
|
|
|
|
(808
|
)
|
|
|
(1,536
|
)
|
|
|
(6
|
)
|
|
|
(4
|
)
|
Gains (losses) on disposal of non-current assets
|
|
|
|
|
|
|
19
|
|
|
|
2
|
|
|
|
21
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating result
|
|
|
|
|
|
|
604
|
|
|
|
(127
|
)
|
|
|
505
|
|
|
|
533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance income
|
|
|
13
|
|
|
|
128
|
|
|
|
281
|
|
|
|
(7
|
)
|
|
|
83
|
|
Finance expense
|
|
|
13
|
|
|
|
(1,338
|
)
|
|
|
(1,379
|
)
|
|
|
(419
|
)
|
|
|
(586
|
)
|
Share of profit (losses) of equity accounted investees
|
|
|
14
|
|
|
|
(63
|
)
|
|
|
(15
|
)
|
|
|
(12
|
)
|
|
|
(7
|
)
|
Foreign exchange gains (losses), net
|
|
|
15
|
|
|
|
(63
|
)
|
|
|
8
|
|
|
|
72
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) before tax
|
|
|
|
|
|
|
(732
|
)
|
|
|
(1,232
|
)
|
|
|
139
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
|
16
|
|
|
|
(252
|
)
|
|
|
(435
|
)
|
|
|
(104
|
)
|
|
|
(176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (Loss) from continuing operations
|
|
|
|
|
|
|
(984
|
)
|
|
|
(1,667
|
)
|
|
|
35
|
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (Loss) from discontinued operations
|
|
|
5
|
|
|
|
699
|
|
|
|
97
|
|
|
|
630
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (Loss) for the period
|
|
|
|
|
|
|
(285
|
)
|
|
|
(1,570
|
)
|
|
|
665
|
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
|
|
|
|
363
|
|
|
|
153
|
|
|
|
343
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (Loss) for the period attributable to owners of the
parent
|
|
|
|
|
|
|
(648
|
)
|
|
|
(1,723
|
)
|
|
|
322
|
|
|
|
(127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (in euro)
|
|
|
|
|
|
|
(0.95
|
)
|
|
|
(2.54
|
)
|
|
|
0.47
|
|
|
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
|
(1.48
|
)
|
|
|
(2.61
|
)
|
|
|
(0.01
|
)
|
|
|
(0.18
|
)
|
Discontinued operations
|
|
|
|
|
|
|
0.53
|
|
|
|
0.07
|
|
|
|
0.48
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-34
STATEMENT
OF CONSOLIDATED COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Note
|
|
|
9 Months
|
|
|
9 Months
|
|
|
|
(Millions of euro)
|
|
|
Profit (Loss) for the period
|
|
|
|
|
|
|
(285
|
)
|
|
|
(1,570
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange differences on translating foreign operations
|
|
|
|
|
|
|
(56
|
)
|
|
|
(89
|
)
|
Available-for-sale
financial assets
|
|
|
|
|
|
|
(1
|
)
|
|
|
0
|
|
Cash flow xxxxxx
|
|
|
19
|
|
|
|
45
|
|
|
|
(180
|
)
|
Other
|
|
|
|
|
|
|
82
|
|
|
|
(4
|
)
|
Income tax relating to components of other comprehensive income
|
|
|
23
|
|
|
|
(20
|
)
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income for the period, net of tax
|
|
|
|
|
|
|
50
|
|
|
|
(221
|
)
|
Total comprehensive income for the period
|
|
|
|
|
|
|
(235
|
)
|
|
|
(1,791
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners of the parent
|
|
|
|
|
|
|
(606
|
)
|
|
|
(1,902
|
)
|
Non-controlling interests
|
|
|
|
|
|
|
371
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-35
STATEMENT
OF CONSOLIDATED FINANCIAL POSITION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
At December 31,
|
|
At January 1,
|
|
|
Note
|
|
2010
|
|
2009 (Restated)
|
|
2009 (Restated)
|
|
|
(Millions of euro)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
17
|
|
|
|
6,803
|
|
|
|
7,577
|
|
|
|
7,720
|
|
Intangible assets
|
|
|
18
|
|
|
|
9,287
|
|
|
|
10,554
|
|
|
|
12,269
|
|
Financial assets
|
|
|
19
|
|
|
|
1,088
|
|
|
|
866
|
|
|
|
517
|
|
Investments accounted for using the equity method
|
|
|
5
|
|
|
|
766
|
|
|
|
0
|
|
|
|
0
|
|
Deferred tax assets
|
|
|
20
|
|
|
|
394
|
|
|
|
466
|
|
|
|
588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
|
|
|
|
18,338
|
|
|
|
19,463
|
|
|
|
21,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
|
|
|
|
60
|
|
|
|
77
|
|
|
|
101
|
|
Trade receivables
|
|
|
|
|
|
|
1,784
|
|
|
|
1,796
|
|
|
|
1,738
|
|
Financial assets
|
|
|
19
|
|
|
|
63
|
|
|
|
101
|
|
|
|
124
|
|
Current tax assets
|
|
|
|
|
|
|
141
|
|
|
|
104
|
|
|
|
98
|
|
Other receivables
|
|
|
21
|
|
|
|
832
|
|
|
|
463
|
|
|
|
580
|
|
Cash and cash equivalents
|
|
|
22
|
|
|
|
1,097
|
|
|
|
1,733
|
|
|
|
1,196
|
|
Non-current assets classified as held for sale
|
|
|
5
|
|
|
|
0
|
|
|
|
78
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
3,977
|
|
|
|
4,352
|
|
|
|
3,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
22,315
|
|
|
|
23,815
|
|
|
|
24,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity and Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued capital
|
|
|
|
|
|
|
565
|
|
|
|
565
|
|
|
|
503
|
|
Share premium reserve
|
|
|
|
|
|
|
3,289
|
|
|
|
3,295
|
|
|
|
3,196
|
|
Legal reserve
|
|
|
|
|
|
|
118
|
|
|
|
118
|
|
|
|
117
|
|
Reserves and Retained earnings or losses carried forward
|
|
|
|
|
|
|
(5,118
|
)
|
|
|
(4,461
|
)
|
|
|
(3,519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity attributable to owners of the parent
|
|
|
|
|
|
|
(1,146
|
)
|
|
|
(483
|
)
|
|
|
297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
|
|
|
|
858
|
|
|
|
290
|
|
|
|
219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
|
|
|
|
|
(288
|
)
|
|
|
(193
|
)
|
|
|
516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
24
|
|
|
|
13,958
|
|
|
|
16,825
|
|
|
|
17,697
|
|
Employee benefits
|
|
|
|
|
|
|
71
|
|
|
|
70
|
|
|
|
69
|
|
Provisions
|
|
|
|
|
|
|
217
|
|
|
|
279
|
|
|
|
233
|
|
Other non-current liabilities
|
|
|
|
|
|
|
94
|
|
|
|
104
|
|
|
|
169
|
|
Deferred tax liabilities
|
|
|
20
|
|
|
|
1,115
|
|
|
|
1,112
|
|
|
|
1,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
|
|
|
|
15,455
|
|
|
|
18,390
|
|
|
|
19,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
24
|
|
|
|
3,418
|
|
|
|
1,343
|
|
|
|
747
|
|
Trade payables
|
|
|
|
|
|
|
2,326
|
|
|
|
2,766
|
|
|
|
2,809
|
|
Other payables
|
|
|
|
|
|
|
1,213
|
|
|
|
1,323
|
|
|
|
1,183
|
|
Tax payable
|
|
|
|
|
|
|
191
|
|
|
|
148
|
|
|
|
292
|
|
Liabilities directly associated with non-current assets
classified as held for sale
|
|
|
5
|
|
|
|
0
|
|
|
|
38
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
7,148
|
|
|
|
5,618
|
|
|
|
5,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
22,603
|
|
|
|
24,008
|
|
|
|
24,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity and Liabilities
|
|
|
|
|
|
|
22,315
|
|
|
|
23,815
|
|
|
|
24,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-36
CONSOLIDATED
CASH FLOW STATEMENT
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
9 Months
|
|
|
9 Months
|
|
|
|
(Millions of euro)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Profit (loss) for the period
|
|
|
(285
|
)
|
|
|
(1,570
|
)
|
Adjustments to reconcile the profit/(loss) for the period
with the cash flows from/(used in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation, amortization and (reversal of impairment
losses)/impairment losses on non-current assets
|
|
|
2,258
|
|
|
|
3,041
|
|
(Gains) losses from repurchase of financial liabilities
|
|
|
0
|
|
|
|
(121
|
)
|
Exchange rate differences
|
|
|
(245
|
)
|
|
|
222
|
|
Net change in provisions and employee benefits
|
|
|
(61
|
)
|
|
|
37
|
|
(Gains) Losses on disposal of non-current assets
|
|
|
(19
|
)
|
|
|
(2
|
)
|
(Gain) loss from discontinued operation
|
|
|
(699
|
)
|
|
|
0
|
|
Share of profit (loss) of equity accounted investments
|
|
|
(63
|
)
|
|
|
(15
|
)
|
Changes in current assets
|
|
|
15
|
|
|
|
159
|
|
Changes in current liabilities
|
|
|
175
|
|
|
|
(223
|
)
|
|
|
|
|
|
|
|
|
|
Net cash from (used in) operating activities
|
|
|
1,076
|
|
|
|
1,528
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Acquisition of property, plant and equipment
|
|
|
(811
|
)
|
|
|
(935
|
)
|
Proceeds from sale of property, plant and equipment
|
|
|
78
|
|
|
|
11
|
|
Acquisition of intangible assets
|
|
|
(194
|
)
|
|
|
(252
|
)
|
Advances and loans made to associates and other parties
|
|
|
(194
|
)
|
|
|
(107
|
)
|
(Acquisition)/Disposal of financial assets
|
|
|
5
|
|
|
|
(51
|
)
|
Net proceeds from Mobinil/ECMS transaction
|
|
|
193
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Net cash from (used in) investing activities
|
|
|
(923
|
)
|
|
|
(1,334
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Changes in loans and bank facilities
|
|
|
(1,011
|
)
|
|
|
(331
|
)
|
Proceeds from capital increase
|
|
|
0
|
|
|
|
10
|
|
Dividends paid
|
|
|
(44
|
)
|
|
|
(48
|
)
|
Changes in other financial assets and liabilities
|
|
|
(9
|
)
|
|
|
(59
|
)
|
Transactions on OTH’s shares
|
|
|
275
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
Net cash from (used in) financing activities
|
|
|
(789
|
)
|
|
|
(336
|
)
|
|
|
|
|
|
|
|
|
|
Net cash flows for the period
|
|
|
(636
|
)
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the period
|
|
|
1,733
|
|
|
|
1,196
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period
|
|
|
1,097
|
|
|
|
1,054
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL
INFORMATION ON THE CONSOLIDATED CASH FLOW STATEMENT
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
9 Months
|
|
|
9 Months
|
|
|
|
(Millions of euro)
|
|
|
Income tax paid
|
|
|
206
|
|
|
|
419
|
|
Interest expense paid
|
|
|
1,193
|
|
|
|
1,022
|
|
Interest received on hedging derivative instruments
|
|
|
249
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-37
STATEMENT
OF CHANGES IN CONSOLIDATED EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Attributable to Owners of the Parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves/
|
|
|
Attributable
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
|
|
|
|
|
|
Retained
|
|
|
to Owners
|
|
|
Non-
|
|
|
|
|
|
|
Issued
|
|
|
Premium
|
|
|
Legal
|
|
|
Earnings/(Losses
|
|
|
of the
|
|
|
Controlling
|
|
|
Total
|
|
|
|
Capital
|
|
|
Reserve
|
|
|
Reserve
|
|
|
Carried Forward)
|
|
|
Parent
|
|
|
Interests
|
|
|
Equità
|
|
|
|
(Millions of euro)
|
|
|
Balances at January 1, 2009
|
|
|
503
|
|
|
|
3,196
|
|
|
|
117
|
|
|
|
(3,519
|
)
|
|
|
297
|
|
|
|
219
|
|
|
|
516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the period:
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(1,902
|
)
|
|
|
(1,902
|
)
|
|
|
111
|
|
|
|
(1,791
|
)
|
— Profit (loss) for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,723
|
)
|
|
|
(1,723
|
)
|
|
|
153
|
|
|
|
(1,570
|
)
|
— Translation differences
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39
|
)
|
|
|
(39
|
)
|
|
|
(50
|
)
|
|
|
(89
|
)
|
— Cash Flow hedge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(135
|
)
|
|
|
(135
|
)
|
|
|
7
|
|
|
|
(128
|
)
|
— Other movements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
1
|
|
|
|
(4
|
)
|
Transactions with equity holders:
|
|
|
62
|
|
|
|
99
|
|
|
|
0
|
|
|
|
(76
|
)
|
|
|
85
|
|
|
|
(38
|
)
|
|
|
47
|
|
— Share capital increase (decrease)
|
|
|
62
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
161
|
|
|
|
|
|
|
|
161
|
|
— Payment into the reserve for future capital increases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(151
|
)
|
|
|
(151
|
)
|
|
|
|
|
|
|
(151
|
)
|
— Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
(48
|
)
|
|
|
(48
|
)
|
— Transactions on OTH’s shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
62
|
|
|
|
30
|
|
|
|
92
|
|
— Other movements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
13
|
|
|
|
(20
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2009
|
|
|
565
|
|
|
|
3,295
|
|
|
|
117
|
|
|
|
(5,497
|
)
|
|
|
(1,520
|
)
|
|
|
292
|
|
|
|
(1,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at January 1, 2010
|
|
|
565
|
|
|
|
3,295
|
|
|
|
118
|
|
|
|
(4,461
|
)
|
|
|
(483
|
)
|
|
|
290
|
|
|
|
(193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the period:
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(606
|
)
|
|
|
(606
|
)
|
|
|
371
|
|
|
|
(235
|
)
|
— Profit (loss) for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(648
|
)
|
|
|
(648
|
)
|
|
|
363
|
|
|
|
(285
|
)
|
— Translation differences
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
(29
|
)
|
|
|
(27
|
)
|
|
|
(56
|
)
|
— Fair value on AFS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
0
|
|
|
|
(1
|
)
|
— Cash Flow hedge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
35
|
|
|
|
(2
|
)
|
|
|
33
|
|
— Other movements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
37
|
|
|
|
37
|
|
|
|
74
|
|
Transactions with equity holders:
|
|
|
0
|
|
|
|
(6
|
)
|
|
|
0
|
|
|
|
(51
|
)
|
|
|
(57
|
)
|
|
|
197
|
|
|
|
140
|
|
— Dividends
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
(50
|
)
|
— Transactions on OTH’s shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
279
|
|
|
|
275
|
|
— Other movements
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
(47
|
)
|
|
|
(3
|
)
|
|
|
(82
|
)
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2010
|
|
|
565
|
|
|
|
3,289
|
|
|
|
118
|
|
|
|
(5,118
|
)
|
|
|
(1,146
|
)
|
|
|
858
|
|
|
|
(288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-38
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
1 WEATHER
INVESTMENTS GROUP
Weather Investments SpA (hereafter also “Weather”, the
“Parent” or the “Company”) is a joint stock
company with registered office in Xxx xxx Xxx Xxxxxxx, 00 and
administrative offices in Xxx Xxxxxx Xxxxxx Xxxxx 00, Xxxx,
Xxxxx.
At the date of the preparation of these consolidated financial
statements the Company was held for 67.02% by Weather
Investments II Sàrl, controlled by companies owned by
the Sawiris family, by the subsidiary WIND Acquisition Holdings
Finance SpA Holding for 7.76%, institutional investors holding
for 21.61% and other investors holding for 3.61%.
Weather Investments SpA and its subsidiaries (hereafter the
“Group” or the “Weather Group”) operate in
the telecommunications sector, principally in Italy, Greece and
the emerging markets of North Africa, the Middle East and Asia,
through the three
sub-groups
WIND Telecomunicazioni (hereafter the “WIND Group”),
Orascom Telecom (hereafter the “OTH Group”) and WIND
Hellas Telecommunications (hereafter the “WIND Hellas
Group”). More specifically:
|
|
|
|
•
|
the WIND Group operates in Italy in the telecommunications
services sector under the “Infostrada” and
“WIND” brands (fixed-line and mobile telephony
services) and services through its subsidiaries ITnet Srl and
Italia OnLine Srl under the “Libero” brand
(internet services). The WIND Group managed an international
long distance network through the group controlled by WIND
International Services SpA;
|
|
|
•
|
the OTH Group operates mainly in the mobile telecommunication
services sector in the following countries: Algeria (Djezzy),
Pakistan (Mobilink), Tunisia (Tunisiana), Bangladesh
(Banglalink), Zimbabwe (Telecel Zimbabwe), Burundi, the Central
African Republic (through the subsidiary Telecel Globe), the
Democratic Republic of North Korea (Koryolink) and Canada
(Globalive);
|
|
|
•
|
the WIND Hellas Group operates in Greece as an integrated
operator in the fixed and mobile telecommunications services
sector and also in the internet sector. It should be noted that
during October 2010, the first phase of the debt restructuring
process has been concluded determining the selection of the
preferred bidder for WIND Hellas (as better described in
note 1.2). Consequently, starting from the fourth quarter
of 2010, WIND Hellas is no longer controlled by the Weather
Group, and will be deconsolidated accordingly.
|
At September 30, 2010, the Weather Group recorded a
negative equity of €1,146 million as a consequence of
the loss for the period equal to €648 million. This
loss has been influenced by the one-off event such as the
impairment losses equal to €772 million recognised by
the WIND Hellas Group following the impairment test performed on
goodwill booked in its assets (see note 12 and 18). This
change has been partially offset by the significant gain of
€699 million (of which €362 million related
to the group) realized by OTH Group in the third quarter of
2010, as per the sale signed with France Telecom about the
change in governance relating to the investments in ECMS
and Mobinil.
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-39
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
The following chart sets out the structure of the Weather Group
and its three main operating groups at September 30, 2010.
The following chart sets out the structure of the subgroup
headed by WIND Acquisition Holdings Finance SpA at
September 30, 2010.
(*) With effective date
April 1, 2010, Mondo Wind srl and Phone srl merged and
constitued Wind Retail srl, fully owned by Wind
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-40
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
The following chart sets out the structure of the subgroup
headed by Orascom Telecom Holdings SAE at September 30,
2010.
The following chart sets out the structure of the subgroup
headed by Weather Finance I Sarl and Hellas Telecommunications
Sàrl at September 30, 2010.
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-41
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
1.1 Extraordinary
transactions involving the Weather Investments
Group
|
|
a)
|
The
VimpelCom transaction
|
On October 4, 2010, VimpelCom Ltd and Weather Investments
SpA signed an agreement to merge the two groups creating the
world’s fifth largest mobile telecommunications carrier in
terms of subscribers.
At the closing of the Transaction, VimpelCom will indirectly
own, through Weather, 51.7% of Orascom Telecom Holding SAE and
100% of WIND Telecomunicazioni SpA. Under the terms of the
Transaction, Weather’s shareholders will contribute to
VimpelCom their shares in Weather in exchange for a
consideration consisting of 325,639,827 newly issued VimpelCom
common shares, USD 1.8 billion in cash and certain
assets that will be demerged from Orascom Telecom and from Wind
Italy.
Weather’s interests in these assets, which principally
comprise Orascom Telecom’s investments in Egypt and North
Korea and WIS and Libero portal operations in Italy, will be
transferred to the current Weather shareholders.
At the closing of the Transaction, Weather’s current
shareholders will have an investment in the new Vimpelcom Group,
whose presence will be extended in Europe, Asia, Africa and
North America.
The Transaction is subject to certain closing conditions,
including: (i) the receipt of consents required under
competition or anti-trust laws in certain jurisdictions;
(ii) the receipt of corporate approvals, including board
approvals; (iii) shareholder approval for the issuance of
shares in connection with the transaction and any other required
matters; (iv) financing; (v) the preparation of a
binding shareholders’ agreement among existing shareholders
of VimpelCom and Weather; and (vi) agreement on the
structure and timing of the spin-off transactions.
Under the share sale and exchange agreement, final board and
shareholder approvals for the Transaction are required to be
obtained from both companies. It is expected that the VimpelCom
EGM will occur before the year end with receipt of regulatory
approvals and completion of the Transaction expected in the
first quarter of 2011. The demergers should be completed by the
third quarter of 2011.
|
|
b)
|
Reserves
distribution by Weather Investments SpA
|
At an ordinary general meeting held on May 29, 2010, the
shareholders of the Parent approved the distribution of
dividends, through distributable reserves, for an overall amount
equal to €50 million (equal to about €0.063 per
share).
|
|
c)
|
Weather
Warrants Regulation
|
In accordance with the Weather Warrants Regulations, the holders
of warrants could have exercised their warrants to subscribe a
certain number of shares of Weather Investments SpA from
April 1, 2006 to August 11, 2010. The warrant
exercise period expired with no warrants holders having
exercised their rights for the shares. Therefore, the warrants
reserve created by the March 13, 2007 resolution of the
shareholders of Weather Investments SpA in connection with the
exercise of warrants (now equal to €44 million) has
expired, together with the warrants exercise period. The
warrants reserve was initially created with funds from the share
premium reserve. The warrants reserve has been allocated back
within the share premium reserve.
|
|
d)
|
OTH’s
share capital increase
|
On January 13, 2010, Orascom Telecom Holding SAE announced
that it will increase its share capital to further strengthen
the Company’s financial position and ensure the OTH’s
liquidity necessary to meet the OTH Group’s financial
requirements should there be no immediate resolution of the
previously announced tax dispute in Algeria, and for general
corporate purposes.
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-42
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
The Company offered up to 4,356,590,515 new ordinary shares
equal to 871,318,103 new Global Depositary Receipts. In the
subscription period started January 31, 2010 until
March 1, 2010, a total number of 4,342,083,487 ordinary
shares were subscribed.
Following the approval of the Egyptian Financial Services
Authority, a new subscription period started on March 7,
2010 until March 10, 2010 during which the remaining
14,507,028 ordinary shares were subscribed. The subscription
price was 1 EGP per new share.
Weather Capital Special Purpose 1 SA and Weather Capital
Sàrl subscribed respectively no. 435,673,425 GDRs and
14,455,000 GDRs, therefore, subsequent to this share capital
increase the subsidiaries held a stake in OTH equal to 50.17%
and 1.66% respectively.
Following the above-mentioned transaction, the Weather
Group’s majority holding in the OTH Group is equal to
51.83% at September 30, 2010 (51.89% at December 31,
2009).
1.2 Greek
Group situation
• Restructuring
process
The economic trend of the first nine months of 2010 shows a
further worsening in respect of that of 2009 which was already
characterized by a marked contraction in the results of the WIND
Hellas Group due to three factors, namely: a reduction in prices
as a consequence of market competition, the regulatory reduction
in interconnection tariffs and the economic crisis; and despite
a first quarter in line with the budget forecast, starting from
the second quarter of 2010, the WIND Hellas Group has
experienced a severe impact on its business caused by the
macro-economic conditions in Greece, the government’s
austerity measures and the highly competitive market environment.
In early June 2010, the subsidiary initiated discussions with
certain creditors including lenders under the Revolving Credit
Facility (RCF), counterparties under the Hedging Agreements and
advisors to an ad-hoc committee of senior secured floating rate
notes holders representing a majority in principal amount of the
Senior Secured Floating Rate Notes (“Noteholder
Committee”) to address the critical financial situation
faced by the subsidiary.
Following such discussions, WIND Hellas negotiated the terms of
a standstill agreement (the “Standstill Agreement”),
the purpose of which was to enable the WIND Hellas Group to
stabilize its liquidity position while it pursues a sale or
other restructuring alternatives which would create a
sustainable capital structure on a long-term basis. At
June 30, 2010, WIND Hellas Group reached an agreement with
approximately 88% of the Revolving Credit Facility Lenders, 100%
of the Hedging Banks and Note holders representing approximately
48% of the aggregate principal amount of the Senior Secured
Notes (on July 20, 2010, note holders representing
approximately 80.6% of the aggregate principal amount of the
Senior Secured Notes had acceded to the Standstill Agreement),
which allowed it to take a number of actions to materially
improve its liquidity position and stabilise its capital
structure while it conducts a strategic review of alternatives
to address its capital structure in the long term. This
agreement remained in place until November 5, 2010 unless
terminated early in accordance with its terms.
Material highlights of the Standstill agreement between WIND
Hellas and its revolving credit facility lenders, hedging banks
and senior secured note holders were:
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•
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The suspension of amortization payments under the RCF, interest
payments to the senior secured note holder, and settlement
payments under the swap agreements;
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•
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The suspension of the rights consenting creditors to take
certain actions in relation to certain defaults and
cross-defaults occurring in relation to the RCF, the Hedging
Agreements and the Senior Secured Notes during the period ending
on 5 November 2010, in which the Standstill Agreement is
effective.
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Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-43
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
The WIND Hellas Group also announced the details of a strategic
review to ensure its continued long term success. This included
soliciting offers to acquire WIND Hellas or to make an
investment in the company in connection with a restructuring of
its debt.
In accordance with the Standstill Agreement, the following key
milestones were agreed and have, or will be, reached:
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•
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on July 1, 2010, the Group announced the details of a
strategic review to ensure its continued long term success.
This included soliciting offers to acquire WIND Hellas
and/or an
investment in WIND Hellas in connection with a restructuring of
its debt. The process was concluded on October 14, 2010;
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•
|
Xxxx Corner-Xxxxx of Xxxxxxx and Xxxxxx has been appointed as
Chief Restructuring Officer to the Board of WIND Hellas and as
an independent director on the board of Weather Finance III
and its subsidiaries to work alongside the current directors,
management and the Group’s advisors to implement the
Group’s restructuring plan.
|
Furthermore, in the mentioned restructuring process, the
following timetable was planned:
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•
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Invite expressions of interest launched on July 5, 2010
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•
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first round bids: on July 31, 2010
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•
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second round bids: on September 15, 2010
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•
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Preferred bidder selected or entry into a restructuring term
sheet: on October 14, 2010
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Completion
of first round bids
On August 2, 2010, the Group announced that in accordance
with such timetable agreed with its creditors under the
Standstill Agreement, it has received preliminary expressions of
interest from a number of potential investors thus completing
the first stage of the process to review strategic alternatives,
which includes the potential sale of the business.
The Group has instructed its financial advisor, Xxxxxx Xxxxxxx,
to begin the second stage of the process which included the
submission of final offers by September 15, 2010.
The process was completed by mid October 2010. The Group is
currently taking all the necessary steps to implement the
binding offer of the preferred bidder as quickly as
practicable. The process should be presumably concluded by
December 2010.
For the subsequent events, please refer to note 30.
• Accounting
treatment
Following the restructuring process, the financial information
of the Weather Finance I Group and Weather Finance II Group
as of and for the nine-month period ended September 30,
2010 has been prepared on a going concern basis, waiting for the
possible future developments of these entities. Also the
financial information of the operating company WIND Hellas as of
and for the nine-month period ended September 30, 2010 has
been prepared on a going concern basis, assuming that it will
have sufficient financial and capital resources to meet its
financial and operating requirements for the foreseeable future
based on the outcome of the process as disclosed in
note 30. However, the WIND Hellas ability to continue as a
going concern is strongly dependent on the conclusion of the
binding offer previously mentioned.
It should be noted that the financial information of Weather
Finance III, Hellas Telecommunications III SCA, Hellas
Telecommunications IV Sarl, Hellas Telecommunications V SCA
and Hellas Telecommunications VI Sarl
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-44
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
has been presented on a non-going concern basis, as for such
entities a possible bankruptcy procedure will be started.
Furthermore, the Weather Group consolidated interim financial
statements as of and for the nine-month period ended
September 30, 2010 have been prepared considering the
Hellas Group financial information (with respect to the holding
companies Hellas Telecommunications Sarl, Hellas
Telecommunications I Sarl, Hellas Telecommunications Limited and
Hellas Telecommunications Finance SCA) presented on a non-going
concern basis. The relevant decision has been triggered by the
fact that Hellas Telecommunications II SCA entered a
pre-pack administration procedure and sold by way of auction its
main assets (the investments in WIND Hellas Telecommunications
SA and Hellas Telecommunications IV Sarl), acquired by the
Weather Finance I Group.
The fact that Hellas Telecommunications II SCA has entered
into a pre-pack administration procedure has triggered a default
event for the Unsecured PIK Notes, having a nominal amount equal
to €200 million, held by Hellas Telecommunications
Finance SCA. Considering the Greek Group’s financial
difficulties, it is taking the necessary steps to place Hellas
Telecommunications Finance SCA, the holder of the Unsecured PIK
Notes and Hellas Telecommunications I, the guarantor of the
Unsecured PIK Notes, into bankruptcy in Luxembourg. As a
consequence of such default, the Unsecured PIK Notes equal to
€282 million are classified under current financial
liabilities.
Weather Group considers that no significant expenses will come
out of the Hellas Telecommunications II SCA
winding-up
and the Hellas Telecommunications Finance SCA, Hellas
Telecommunications I Sàrl, Weather Finance III
Sàrl, Hellas Telecommunications III SCA, Hellas
Telecommunications IV Sarl, Hellas Telecommunications V SCA
and Hellas Telecommunications Sàrl (Hellas
VI) possible bankruptcy procedure.
With respect to the Put and Call option existing between WIND
Telecomunicazioni SpA and Weather on Hellas Telecommunications I
Sarl shares, it should be noted that on June 30, 2010, as
resolved by the Board of Directors of WIND on March 17,
2010, the Put option was partially exercised by the subsidiary
WIND, and consequently Weather accepted to exercise the Call
option on the 985 shares held in Hellas Telecommunications
I Sàrl for an amount of €70 million. The
related amount due from Weather Investments SpA has been
recognized through the assignment of an equal amount of
receivables from the subsidiaries Enel. Net Srl
(€48.8 million), ITALIA ONLINE Srl
(€18.7 million), ITNET Srl (€2.1 million)
and WIS SpA (€0.4 million).
1.3 Algerian
situation
On April 27, 2009, XXX has received a final tax assessment
relating to the 2004 tax year amounting to
DZD3,948 million, plus DZD584 million in penalties
(totally equal to €45 million). The Company filed an
appeal against the tax authority after the payment of 20% of the
principal tax assessment amounting to DZD790 million (equal
to €8 million). During 2009, XXX also paid the
residual amount of DZD3,743 million, of which
DZD584 million in penalties (equal to
€37 million, of which €6 million in
penalties).
In January 2010, the company received a rejection of its
objection, relating to the 2004 tax assessment and dated June
2009, under the Algerian tax laws and procedures the company has
4 months from date of receipt to re-object to the
rejection. Therefore, the company is now preparing the required
documentation for the re-appeal. Relating to such assessment,
an initial provision with an amount of DZD709 million
(approximately €7 million) was accounted for, then the
company booked a complementary provision amounting to
DZD199 million (€2 million) according to the
external report.
On November 16, 2009, the Tax Department for Large Scale
Companies (DGE) issued to OTA an assessment report for the years
2005 to 2007, amounting to DZD43,910 million, plus
DZD3,639 million in penalties (totally equal to
€468 million). 85% of the assessed amount is due to a
rejection of XXX’s accounts.
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-45
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
In December 2009, considering that the majority of the
ruling’s remarks assessed are arbitrary and unfounded, XXX
appealed the assessment after the payment of
DZD8,782 million (€86 million) which represents
20% of the principal amount assessed for
2005-2007.
For this proceeding the company, supported by an independent
expert’s report, already at December 31, 2009 booked a
tax payable of €29 million (equivalent to
DZD3 billion) for the
2005-2007
assessment.
On March 7, 2010, XXX received a notice of the rejection of
its administrative appeal, relating to the
2005-2007
tax assessment, filed in December 2009. In order to file a
second appeal, XXX paid a further 20% of the outstanding balance
of the taxes and penalties assessed by the DGE, with an amount
of DZD8,001 million, of which DZD919 million in
penalties (totally equal to €79 million). During
April 2010, the company paid an additional amount of
DZD30,766 million, of which DZD2,720 million in
penalties (totally equal to €303 million),
representing the remaining balance of the principal and the
penalties of the authorities’ tax reassessment claim
covering the years
2005-2007.
At September 30, 2010, XXX paid a total amount of
DZD52,081 million (equal to €512 million) for the
period
2004-2007,
including penalties. An additional amount of
DZD1,768 million (€17 million) has been suspended
until the final assessment of the Administrative Court. All
amounts paid will be recoverable if XXX’s case against the
tax authority is successful.
On September 30, 2010, Orascom Telecom Algeria received a
preliminary tax notification from the Algerian DGE in respect of
the years 2008 and 2009, in the amount of approximately DZD
17 billion (€167 million). Under the Algerian
tax laws and procedures the company has 40 days to respond
to the preliminary tax notification before receiving the final
reassessment. XXX would then within a period of 30 days
either pay the full amount alleged to be owed or challenge the
reassessment through the local appeal process, whereby it will
be required to pay 20% of the claim’s principal amount.
The amount paid will be recoverable if XXX’s appeal is
successful. This preliminary Reassessment comes despite the
fact that XXX had already paid the taxes due for the same
years. The tax audit for these years was immediately initiated
in early 2010 following the tax filing for 2009. The tax
notification is based primarily on the unfounded allegation that
XXX did not keep proper accounts for the years 2008 and 2009
notwithstanding the fact that XXX’s accounts were audited.
Without prejudice to their rights under the Investments
Agreement, applicable bilateral investment treaty and applicable
laws, OTH and OTA intend to take all necessary legal steps to
challenge the preliminary tax notification, considering that the
ruling’s remarks assessed are arbitrary and unfounded.
In addition to the above, Djezzy filed a petition against the
Central Bank of Algeria’s injunction restraining all
Algerian banks from making any transfers abroad in foreign
currency to Djezzy’s suppliers, and putting on hold any
custom clearance of imported goods.
On June 13, 2010, this petition was rejected by the
Algerian civil court for lack of jurisdiction. XXX also filed a
new petition before the Algerian administrative courts (State
Council) on June 24, 2010. Although this situation
generated a huge challenge for Djezzy to keep the network
operating in spite of the ban on importing equipment and spare
parts, Djezzy managed to avoid any major network issues.
During September 2010, the Central Bank of Algeria verbally
presented a complaint against OTA for not respecting foreign
trade transactions. This complaint is subject of under
investigation by the Algerian Authority.
Finally, it should be noted that on August 29, 2010, the
Algerian government published the new complementary finance law
for 2010, whose main regulations are: the introduction of a
pre-emption right for the sale of Algerian investments held by
foreign shareholders in favor of the Algerian government, in the
case of failure to identify the SIM cards, there will be penalty
of DZD100 thousand (€1 thousand) on each non-identified SIM
for the first year to increase to DZD150 thousand (€1.5
thousand) during the second year and a new tax rate between 30%
and 80% for the extra profit realized in certain conditions that
will be detailed with an implementing regulation.
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-46
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
1.4 WIND
Telecomunicazioni Tax Assessments
On June 12, 2009, the Italian tax authorities notified WIND
of the commencement of a tax audit with reference to the
application for a refund on interest payments made by WIND to
Wind Finance SL S.A. (the issuer of a second lien note
instrument) for 2005 and part of 2006 and the non payment of
withholding taxes on interest payments made by WIND to Wind
Finance SL SA for the remainder of 2006, 2007 and 2008. The
scope of the audit was expanded to also include the application
for a refund on interest payments made by WIND to WAF SA (the
issuer of high yield bonds) for 2005 an part of 2006 and the non
payment of withholding taxes on interest payments made by WIND
to the Wind Acquisition Finance SA for the remaining part of
2006 and for 2007 and 2008.
On May 31, 2010, the findings of the audit were submitted
to WIND in a report confirming the view that withholding taxes
had to be applied and proposing that the tax authorities impose
a 12.5% withholding tax on the investigated interest payments,
for an approximate amount of €70 million. The tax
assessment has not yet been issued by the tax authorities, and
as such no payment obligation has been realized. Were the
Italian tax authorities to confirm that the withholding tax on
the relevant interest payments was due, WIND would be required
to pay withholding taxes and possible interest and penalties,
unless WIND contests the assessment before a tax court. On
basis of insights made, no provisions have been made in the
financial statements of the subsidiary at September 30,
2010.
2.1 Basis
of presentation
The consolidated interim financial statements of the Weather
Investments Group as of and for the first nine-month period
ended September 30, 2010 have been prepared on a going
concern basis and in accordance with the International Financial
Reporting Standards (“IFRS”) endorsed by the European
Union.
The term IFRS includes all the International Financial Reporting
Standards, all the International Accounting Standards
(“IAS”), all the interpretations of the International
Financial Reporting Interpretations Committee
(“IFRIC”) and all the interpretations of the Standing
Interpretations Committee (“SIC”) that as of the
present date have been endorsed by the European Union and are
contained in published EU Regulations.
The form and content of the consolidated interim financial
statements as of and for the nine-month period ended
September 30, 2010 comply with IAS 34 Interim Financial
Reporting. The primary financial statements have been
prepared in accordance with IAS 1, while the notes have been
drawn up in a condensed format as permitted by IAS 34.
These consolidated interim financial statements do not include
all the disclosures required for the annual financial statements
and should be read in conjunction with the consolidated
financial statements as of and for the year ended
December 31, 2009.
The income statement and statement of comprehensive income
figures provided relate to the third quarter of 2010 and the
nine-month ended September 30, 2010. The statement of
financial position figures given refer to those as of
September 30, 2010.
The accounting standards adopted by the Group are the same used
for the preparation of the consolidated financial statements as
of and for the year ended December 31, 2009, except as
described below.
The preparation of this document required management to apply
accounting principles, policies and methodologies that at times
are based on complex, subjective judgments, estimates based on
past experience and assumptions determined from time to time to
be reasonable and realistic on the basis of the related
circumstances and on the available information. The application
of these estimates and assumptions affects the reported amounts
in the income statement, the statement of comprehensive income,
the statement of financial position, the cash flow statement and
the accompanying notes. The final balances of the items in the
consolidated interim financial
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-47
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
statements that were determined by using these estimates and
assumptions may differ from those reported in the present
statements given the uncertainty surrounding the assumptions and
conditions upon which the estimates are based. The more
significant assessments made by management regarding the
application of the Group’s accounting principles and the
main sources of uncertainty in making estimates are consistent
with those used in the preparation of the consolidated financial
statements as of and for the year ended December 31, 2009.
Income tax is recognized on the basis of the taxable profit for
the period and applicable laws and regulations, using tax rates
in force at the end of the reporting period.
These consolidated interim financial statements as of and for
the nine-month period ended September 30, 2010 are
presented in euros, which is the functional currency of the
countries in which the Group operates, while all amounts shown
in the tables and in the notes are expressed in millions of
euros unless otherwise indicated.
The Board of Directors of the Parent approved the consolidated
interim financial statements as of and for the nine-month period
ended September 30, 2010, on November 22, 2010.
Reclassification
of comparative figures (Restatement)
Following the analysis made for the implementation of a new
consolidation and reporting system for the Group, some
reclassification for prior period balances in the statement of
financial position, income statement and the detailed schedules
in the notes have been posted to provide, where necessary, a
better representation of the balances duly identified.
In particular, the reclassified balances are: property, plant
and equipment, intangible assets, other receivables, employee
benefits, provisions, other non-current liabilities, trade
payables and other payables, other revenue, purchase and
services, other operating costs and personnel expenses.
In particular, at December 31, 2009 in respect of a
decrease in trade payables for €160 million, the
following balances increased: employee benefits
(€2 million), provisions (€64 million),
other non-current liabilities (€26 million) and other
payables (€68 million).
These reclassifications, showed in the detailed schedules,
however, do not affect the Group’s loss for the period or
equity. In particular, in accordance with IAS 1,
paragraph 39, the statement of financial position shows
also the consolidated figures of the beginning of the
comparative period coming from the consolidated financial
statements as of December 31, 2008. The IFRS have been
applied consistency with the “Framework for the preparation
of financial statements” and no exceptional events occurred
such to require the waivers provided by IAS 1, paragraph 19.
For further reclassifications made on comparative figures of the
income statement and profit (loss) from discontinued operations,
please refer to note 5.
In addition, during 2010 in order to follow sector practice more
closely, the directors of the subsidiary WIND Telecomunicazioni
SpA have changed the presentation of costs incurred for the
acquisition of customers (mainly relating to commissions paid to
the sales network) capitalizing them as intangible assets, when
the IFRS requirements for recognition as non-current assets are
met, and amortizing them over the minimum contractual term. In
prior years these costs were deferred over the minimum
contractual term and presented as “Other receivables”
in current assets, so this change in presentation has had no
effect on the opening equity or the profit or loss of prior
years. The effects relating to this different representation
may be found in the notes 8, 11, 18 and 21.
2.2 New
accounting standards and interpretations
The Group has adopted all the newly issued and amended standards
of the IASB and interpretations of the IFRIC, approved by the
European Union, applicable to its transactions and effective for
financial statements for years beginning on or after
January 1, 2010.
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-48
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
Accounting
principles, amendments and interpretations adopted from
January 1, 2010
The following is a brief description of the new standards and
interpretations adopted by the Group in the preparation of the
consolidated interim financial statements at September 30,
2010.
• IFRS 3 — Business Combinations (Revised
January 2008)
The main changes to IFRS 3 concern: i) the accounting
treatment of step acquisition of subsidiaries, ii) the
possibility to measure non-controlling interests in a partial
acquisition at fair value, iii) the recognition of
acquisition-related costs as period expenses and iv) the
recognition at the acquisition date of any contingent
consideration included in the arrangements. The introduction of
this standard had no effect on the Group’s consolidated
interim financial statements at September 30, 2010.
The restructured IFRS 1 eliminates certain transitory provisions
and also contains certain minor changes to the text having the
aim of ensuring high quality information in the accounts of
first-time adopters. The introduction of this standard had no
effect on the Group’s consolidated interim financial
statements at September 30, 2010.
The aim of this amendment to IAS 39 is to clarify the
application of hedge accounting to the inflation component of
financial instruments and option contracts when they are used as
hedging instruments. The amendment, effective from July 1,
2009, had no effect on the Group’s consolidated interim
financial statements at September 30, 2010.
The revisions to IAS 27 principally affect the accounting for
transactions and events that result in a change in the
Group’s interest in its subsidiaries and the attribution of
a subsidiary’s losses to non-controlling interests. The
amendment, effective from July 1, 2009, had no effect on
the Group’s consolidated interim financial statements at
September 30, 2010.
• IFRIC 17 — Distribution of Non-cash
Assets to Owners
This interpretation provides clarification and guidance for
accounting for the distribution of non-cash assets to owners.
The interpretation, effective from July 1, 2009, had no
effect on the Group’s consolidated interim financial
statements at September 30, 2010.
This interpretation, effective from July 1, 2009, provides
clarification and guidance for accounting for items of property,
plant and equipment received from customers or for cash received
from customers to acquire or construct items of property, plant
and equipment. The introduction of this interpretation had no
effect on the Group’s consolidated interim financial
statements at September 30, 2010.
• Improvements to IFRS (April 2009)
In April 2009 the International Accounting Standards Board
(IASB) issued Improvements to IFRS as part of its annual process
of making amendments designed to simplify and clarify
international financial reporting standards. The majority of
these improvements, effective from July 1, 2009, are
clarifications of or corrections to existing IFRS or changes
resulting from amendments made previously to IFRS. The
amendments to IFRS 8, IAS 17, IAS 36 and IAS 39 lead to changes
to existing requirements or provide additional guidance on the
implementation of these requirements.
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-49
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
• Amendments to IFRS 2 — Group
Cash-settled Share-based Payment Transactions
These amendments, effective from January 1, 2010, clarify
the accounting for share-based payment transactions where the
supplier of the goods or services is paid in cash and the
obligation is undertaken by another group entity (group
cash-settled share-based payment transactions).
Accounting standards, amendments and interpretations not yet
applicable and not adopted early by the Group
The following standards and interpretations had been issued at
the date of these notes but were not yet effective for the
preparation of these consolidated interim financial statements.
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Effective Date
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Standard/Interpretation
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According to IASB
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EU Endorsement
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Amendments to IAS 32 — Classifications of rights
issues
|
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Annual financial statements beginning on or
after February 1, 2010
|
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Endorsed
|
IAS 24 — Related Party Disclosures (revised in
November 2009)
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Annual financial statements beginning on or
after January 1, 2011
|
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Endorsed
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IFRS 9 — Financial Instruments
|
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Annual financial statements beginning on or
after January 1, 2013
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Not endorsed
|
IFRIC 19 — Extinguishing Financial Liabilities with
Equity Instruments
|
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Annual financial statements beginning on or
after July 1, 2010
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Endorsed
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Annual financial statements beginning on or
after January 1, 2011
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Endorsed
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Improvements to IFRS (May 2010)
|
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Annual financial statements beginning on or
after January 1, 2011
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Not endorsed
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Annual financial statements beginning on or
after July 1, 2011
|
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Not endorsed
|
The Group is currently assessing any impact the new standards
and interpretations may have on the financial statements for the
years in which they become effective.
2.3 Risk
management
In the nine-month period ended September 30, 2010, the
Group did not change the objectives and policies of its
financial risk management activities, which are, therefore, the
same as those described in the consolidated financial statements
as of and for the year ended December 31, 2009.
The consolidated interim financial statements as of and for the
nine-month period ended September 30, 2010 include the
financial statements of Weather Investments SpA and those
entities over which that company exercises control, both
directly or indirectly, from the date of acquiring control to
the date when such control ceases. Control may be exercised if
the Company owns, directly or indirectly, more than half of the
shares with voting rights of an entity, or if it is able to
exert a dominant influence over the entity, expressed as the
power to govern, directly or indirectly, the financial and
operating policies of an entity under contractual or legal
agreements and obtain the related benefits, regardless of its
shareholding relationships. Potential voting rights that are
exercisable or convertible at the end of the reporting period
are considered in assessing whether control exists.
There are no changes in the scope of consolidation compared to
the consolidated interim financial statements as of and for the
nine-month period ended September 30, 2009. On
July 17, 2009 the subsidiary Mondo WIND Srl acquired 100%
of the quota capital of Phone Srl, for which details may be
found in the consolidated financial statements as of and for the
year ended December 31, 2009, and with the aim of pursuing
economic, operational and
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-50
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
corporate structure efficiency objectives the reverse merger of
Mondo WIND Srl into Phone Srl was completed on March 25,
2010, with Phone Srl changing its name at the same time to WIND
Retail Srl.
Segments have been identified by taking into consideration the
Group’s organizational structure and its system of internal
reporting. More specifically, the segments to which these
disclosures relate are operating segments or aggregations of
operating segments which are regularly reviewed by management.
The format selected provides information on the results,
financial position and cash flows of the main companies of the
Group providing telephony services (fixed and mobile), analyzed
by their geographical location (Italy, Greece, Algeria,
Pakistan, Egypt, Tunisia, Bangladesh, the Central African
Republic and the Democratic People’s Republic of North
Korea) and summarized information for the other Group companies
which provide services connected with and linked to the
telephony business and the holding companies.
SEGMENT
INFORMATION: BUSINESS
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2010
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2009
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9 Months
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9 Months
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|
(Millions of euro)
|
|
|
Product and services:
|
|
|
|
|
|
|
|
|
Mobile
|
|
|
5,610
|
|
|
|
4,022
|
|
Fixed — line and Internet
|
|
|
1,502
|
|
|
|
3,013
|
|
Other revenue & income
|
|
|
174
|
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
7,286
|
|
|
|
7,230
|
|
|
|
|
|
|
|
|
|
|
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-51
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telecom
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operating
|
|
|
Other
|
|
|
|
|
|
|
|
|
Profit (loss) from
|
|
|
Intercompany
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and
|
|
|
|
|
|
segments
|
|
|
Telecom
|
|
|
|
|
|
|
|
|
assets held for
|
|
|
eliminations and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South
|
|
|
North
|
|
|
(GSM &
|
|
|
services
|
|
|
|
|
|
Holdings &
|
|
|
sale/discontinued
|
|
|
Consolidation
|
|
|
|
|
|
|
Italy
|
|
|
Greece
|
|
|
Algeria
|
|
|
Pakistan
|
|
|
Egypt
|
|
|
Tunisia
|
|
|
Bangladesh
|
|
|
Africa
|
|
|
Korea
|
|
|
Fixed)
|
|
|
(Non GSM)
|
|
|
Total
|
|
|
Others
|
|
|
operations
|
|
|
adjustments
|
|
|
Consolidated
|
|
|
|
(Millions of euro)
|
|
Total segment revenue - September 30, 2010
|
|
|
4,355
|
|
|
|
620
|
|
|
|
990
|
|
|
|
632
|
|
|
|
337
|
|
|
|
211
|
|
|
|
256
|
|
|
|
60
|
|
|
|
32
|
|
|
|
—
|
|
|
|
228
|
|
|
|
7,721
|
|
|
|
32
|
|
|
|
(337
|
)
|
|
|
—
|
|
|
|
7,416
|
|
Total segment revenue - September 30, 2009
|
|
|
4,230
|
|
|
|
827
|
|
|
|
1,045
|
|
|
|
581
|
|
|
|
518
|
|
|
|
194
|
|
|
|
191
|
|
|
|
44
|
|
|
|
14
|
|
|
|
0
|
|
|
|
194
|
|
|
|
7,838
|
|
|
|
26
|
|
|
|
(518
|
)
|
|
|
—
|
|
|
|
7,346
|
|
(Inter-segment revenue - September 30, 2010)
|
|
|
(39
|
)
|
|
|
(6
|
)
|
|
|
(33
|
)
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
(15
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(15
|
)
|
|
|
(113
|
)
|
|
|
(17
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(130
|
)
|
(Inter-segment revenue - September 30, 2009)
|
|
|
(45
|
)
|
|
|
(11
|
)
|
|
|
(24
|
)
|
|
|
(5
|
)
|
|
|
0
|
|
|
|
(15
|
)
|
|
|
(0
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
31
|
|
|
|
(29
|
)
|
|
|
(99
|
)
|
|
|
(16
|
)
|
|
|
0
|
|
|
|
—
|
|
|
|
(115
|
)
|
Total revenue from external customers - September 30,
2010
|
|
|
4,316
|
|
|
|
614
|
|
|
|
957
|
|
|
|
627
|
|
|
|
337
|
|
|
|
196
|
|
|
|
256
|
|
|
|
60
|
|
|
|
32
|
|
|
|
—
|
|
|
|
213
|
|
|
|
7,608
|
|
|
|
15
|
|
|
|
(337
|
)
|
|
|
—
|
|
|
|
7,286
|
|
Total revenue from external customers - September 30, 2009
|
|
|
4,186
|
|
|
|
816
|
|
|
|
1,021
|
|
|
|
576
|
|
|
|
518
|
|
|
|
179
|
|
|
|
191
|
|
|
|
44
|
|
|
|
14
|
|
|
|
31
|
|
|
|
164
|
|
|
|
7,738
|
|
|
|
10
|
|
|
|
(518
|
)
|
|
|
—
|
|
|
|
7,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and services - September 30, 2010
|
|
|
(2,351
|
)
|
|
|
(409
|
)
|
|
|
(345
|
)
|
|
|
(336
|
)
|
|
|
(149
|
)
|
|
|
(79
|
)
|
|
|
(124
|
)
|
|
|
(34
|
)
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
(164
|
)
|
|
|
(3,996
|
)
|
|
|
(38
|
)
|
|
|
149
|
|
|
|
113
|
|
|
|
(3,772
|
)
|
Purchases and services - September 30, 2009
|
|
|
(2,278
|
)
|
|
|
(491
|
)
|
|
|
(375
|
)
|
|
|
(341
|
)
|
|
|
(190
|
)
|
|
|
(69
|
)
|
|
|
(103
|
)
|
|
|
(29
|
)
|
|
|
(5
|
)
|
|
|
(27
|
)
|
|
|
(136
|
)
|
|
|
(4,045
|
)
|
|
|
14
|
|
|
|
190
|
|
|
|
121
|
|
|
|
(3,719
|
)
|
Other expenses - September 30, 2010
|
|
|
(98
|
)
|
|
|
(36
|
)
|
|
|
(32
|
)
|
|
|
(10
|
)
|
|
|
(32
|
)
|
|
|
(7
|
)
|
|
|
(45
|
)
|
|
|
(3
|
)
|
|
|
(7
|
)
|
|
|
—
|
|
|
|
(6
|
)
|
|
|
(276
|
)
|
|
|
(146
|
)
|
|
|
32
|
|
|
|
149
|
|
|
|
(241
|
)
|
Other expenses - September 30, 2009
|
|
|
(99
|
)
|
|
|
(31
|
)
|
|
|
(36
|
)
|
|
|
(9
|
)
|
|
|
(48
|
)
|
|
|
(7
|
)
|
|
|
(15
|
)
|
|
|
(3
|
)
|
|
|
(0
|
)
|
|
|
(2
|
)
|
|
|
(6
|
)
|
|
|
(256
|
)
|
|
|
(2
|
)
|
|
|
48
|
|
|
|
(3
|
)
|
|
|
(213
|
)
|
Wages and employees benefit expenses - September 30,
2010
|
|
|
(270
|
)
|
|
|
(48
|
)
|
|
|
(40
|
)
|
|
|
(31
|
)
|
|
|
(13
|
)
|
|
|
(12
|
)
|
|
|
(13
|
)
|
|
|
(10
|
)
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(37
|
)
|
|
|
(475
|
)
|
|
|
(35
|
)
|
|
|
13
|
|
|
|
1
|
|
|
|
(496
|
)
|
Wages and employees benefit expenses - September 30, 2009
|
|
|
(258
|
)
|
|
|
(56
|
)
|
|
|
(41
|
)
|
|
|
(35
|
)
|
|
|
(32
|
)
|
|
|
(12
|
)
|
|
|
(11
|
)
|
|
|
(10
|
)
|
|
|
(1
|
)
|
|
|
(10
|
)
|
|
|
(22
|
)
|
|
|
(488
|
)
|
|
|
(22
|
)
|
|
|
32
|
|
|
|
—
|
|
|
|
(478
|
)
|
EBITDA - September 30, 2010
|
|
|
1,597
|
|
|
|
121
|
|
|
|
540
|
|
|
|
250
|
|
|
|
143
|
|
|
|
98
|
|
|
|
74
|
|
|
|
13
|
|
|
|
19
|
|
|
|
—
|
|
|
|
6
|
|
|
|
2,861
|
|
|
|
(204
|
)
|
|
|
(143
|
)
|
|
|
263
|
|
|
|
2,777
|
|
EBITDA - September 30, 2009
|
|
|
1,551
|
|
|
|
237
|
|
|
|
569
|
|
|
|
190
|
|
|
|
248
|
|
|
|
91
|
|
|
|
62
|
|
|
|
2
|
|
|
|
7
|
|
|
|
(8
|
)
|
|
|
0
|
|
|
|
2,951
|
|
|
|
0
|
|
|
|
(248
|
)
|
|
|
118
|
|
|
|
2,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization - September 30, 2010
|
|
|
(738
|
)
|
|
|
(193
|
)
|
|
|
(186
|
)
|
|
|
(141
|
)
|
|
|
(64
|
)
|
|
|
(35
|
)
|
|
|
(71
|
)
|
|
|
(15
|
)
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
(1,452
|
)
|
|
|
(4
|
)
|
|
|
64
|
|
|
|
8
|
|
|
|
(1,384
|
)
|
Depreciation and amortization - September 30, 2009
|
|
|
(779
|
)
|
|
|
(189
|
)
|
|
|
(183
|
)
|
|
|
(133
|
)
|
|
|
(92
|
)
|
|
|
(30
|
)
|
|
|
(67
|
)
|
|
|
(14
|
)
|
|
|
(4
|
)
|
|
|
(0
|
)
|
|
|
(12
|
)
|
|
|
(1,504
|
)
|
|
|
(1
|
)
|
|
|
92
|
|
|
|
0
|
|
|
|
(1,413
|
)
|
Impairment of non current assets - September 30, 2010
|
|
|
(3
|
)
|
|
|
(870
|
)
|
|
|
—
|
|
|
|
(14
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(19
|
)
|
|
|
(906
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
98
|
|
|
|
(808
|
)
|
Impairment of non current assets - September 30, 2009
|
|
|
1
|
|
|
|
(1,521
|
)
|
|
|
0
|
|
|
|
(13
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1,536
|
)
|
|
|
0
|
|
|
|
—
|
|
|
|
0
|
|
|
|
(1,536
|
)
|
Gains (losses) on disposal of non current assets -
September 30, 2010
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31
|
|
|
|
29
|
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
(5
|
)
|
|
|
19
|
|
Gains (losses) on disposal of non current assets -
September 30, 2009
|
|
|
(4
|
)
|
|
|
5
|
|
|
|
(0
|
)
|
|
|
1
|
|
|
|
(0
|
)
|
|
|
0
|
|
|
|
(0
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
23
|
|
|
|
0
|
|
|
|
25
|
|
|
|
3
|
|
|
|
—
|
|
|
|
(26
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income - September 30, 2010
|
|
|
144
|
|
|
|
17
|
|
|
|
—
|
|
|
|
6
|
|
|
|
2
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
172
|
|
|
|
191
|
|
|
|
(2
|
)
|
|
|
(233
|
)
|
|
|
128
|
|
Interest income - September 30, 2009
|
|
|
179
|
|
|
|
13
|
|
|
|
2
|
|
|
|
23
|
|
|
|
2
|
|
|
|
1
|
|
|
|
(0
|
)
|
|
|
(3
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
217
|
|
|
|
238
|
|
|
|
(2
|
)
|
|
|
(172
|
)
|
|
|
281
|
|
Interest expense - September 30, 2010
|
|
|
(773
|
)
|
|
|
(157
|
)
|
|
|
(8
|
)
|
|
|
(59
|
)
|
|
|
(20
|
)
|
|
|
(2
|
)
|
|
|
(25
|
)
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
(1,053
|
)
|
|
|
(525
|
)
|
|
|
20
|
|
|
|
220
|
|
|
|
(1,338
|
)
|
Interest expense - September 30, 2009
|
|
|
(628
|
)
|
|
|
(238
|
)
|
|
|
(5
|
)
|
|
|
(69
|
)
|
|
|
(37
|
)
|
|
|
(3
|
)
|
|
|
(15
|
)
|
|
|
(4
|
)
|
|
|
(0
|
)
|
|
|
(9
|
)
|
|
|
(5
|
)
|
|
|
(1,014
|
)
|
|
|
(1,724
|
)
|
|
|
37
|
|
|
|
1,322
|
|
|
|
(1,379
|
)
|
Share of profit (losses) of Associates - September 30,
2010
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(78
|
)
|
|
|
(78
|
)
|
|
|
15
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(63
|
)
|
Share of profit (losses) of Associates - September 30, 2009
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(15
|
)
|
|
|
0
|
|
|
|
(15
|
)
|
|
|
0
|
|
|
|
—
|
|
|
|
0
|
|
|
|
(15
|
)
|
Foreign exchange gains (losses), net - September 30,
2010
|
|
|
(6
|
)
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
(21
|
)
|
|
|
6
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
(30
|
)
|
|
|
(27
|
)
|
|
|
(6
|
)
|
|
|
—
|
|
|
|
(63
|
)
|
Foreign exchange gains (losses), net - September 30, 2009
|
|
|
3
|
|
|
|
0
|
|
|
|
(3
|
)
|
|
|
(47
|
)
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
1
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(45
|
)
|
|
|
54
|
|
|
|
(1
|
)
|
|
|
0
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (Loss) Before Tax - September 30, 2010
|
|
|
220
|
|
|
|
(1,083
|
)
|
|
|
343
|
|
|
|
21
|
|
|
|
67
|
|
|
|
61
|
|
|
|
(24
|
)
|
|
|
(8
|
)
|
|
|
14
|
|
|
|
—
|
|
|
|
(68
|
)
|
|
|
(457
|
)
|
|
|
(559
|
)
|
|
|
(67
|
)
|
|
|
351
|
|
|
|
(732
|
)
|
Profit (Loss) Before Tax - September 30, 2009
|
|
|
323
|
|
|
|
(1,692
|
)
|
|
|
380
|
|
|
|
(49
|
)
|
|
|
122
|
|
|
|
57
|
|
|
|
(19
|
)
|
|
|
(18
|
)
|
|
|
3
|
|
|
|
(10
|
)
|
|
|
(17
|
)
|
|
|
(921
|
)
|
|
|
(1,431
|
)
|
|
|
(122
|
)
|
|
|
1,243
|
|
|
|
(1,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt - September 30, 2010
|
|
|
9,045
|
|
|
|
2,174
|
|
|
|
(101
|
)
|
|
|
485
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
261
|
|
|
|
37
|
|
|
|
(22
|
)
|
|
|
—
|
|
|
|
(97
|
)
|
|
|
11,780
|
|
|
|
3,372
|
|
|
|
—
|
|
|
|
26
|
|
|
|
15,178
|
|
Net debt - December 31, 2009
|
|
|
8,540
|
|
|
|
2,206
|
|
|
|
(82
|
)
|
|
|
551
|
|
|
|
255
|
|
|
|
9
|
|
|
|
225
|
|
|
|
28
|
|
|
|
(14
|
)
|
|
|
30
|
|
|
|
(34
|
)
|
|
|
11,714
|
|
|
|
4,024
|
|
|
|
—
|
|
|
|
(212
|
)
|
|
|
15,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets - September 30, 2010
|
|
|
15,591
|
|
|
|
1,510
|
|
|
|
1,069
|
|
|
|
931
|
|
|
|
—
|
|
|
|
188
|
|
|
|
159
|
|
|
|
60
|
|
|
|
62
|
|
|
|
35
|
|
|
|
—
|
|
|
|
19,605
|
|
|
|
16,553
|
|
|
|
—
|
|
|
|
(13,843
|
)
|
|
|
22,315
|
|
Total assets - December 31, 2009
|
|
|
16,054
|
|
|
|
2,685
|
|
|
|
1,724
|
|
|
|
1,490
|
|
|
|
997
|
|
|
|
338
|
|
|
|
674
|
|
|
|
247
|
|
|
|
107
|
|
|
|
(26
|
)
|
|
|
404
|
|
|
|
24,694
|
|
|
|
12,396
|
|
|
|
—
|
|
|
|
(13,275
|
)
|
|
|
23,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PPE and Intangible assets - September 30, 2010
|
|
|
11,344
|
|
|
|
1,215
|
|
|
|
1,108
|
|
|
|
1,194
|
|
|
|
—
|
|
|
|
226
|
|
|
|
693
|
|
|
|
203
|
|
|
|
93
|
|
|
|
—
|
|
|
|
213
|
|
|
|
16,289
|
|
|
|
205
|
|
|
|
—
|
|
|
|
(404
|
)
|
|
|
16,090
|
|
PPE and Intangible assets - December 31, 2009
|
|
|
11,540
|
|
|
|
2,227
|
|
|
|
1,219
|
|
|
|
1,240
|
|
|
|
873
|
|
|
|
245
|
|
|
|
621
|
|
|
|
193
|
|
|
|
76
|
|
|
|
30
|
|
|
|
189
|
|
|
|
18,453
|
|
|
|
184
|
|
|
|
—
|
|
|
|
(506
|
)
|
|
|
18,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure - September 30, 2010
|
|
|
554
|
|
|
|
51
|
|
|
|
42
|
|
|
|
73
|
|
|
|
55
|
|
|
|
21
|
|
|
|
117
|
|
|
|
19
|
|
|
|
23
|
|
|
|
—
|
|
|
|
52
|
|
|
|
1,007
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,009
|
|
Capital expenditure - September 30, 2009
|
|
|
585
|
|
|
|
75
|
|
|
|
154
|
|
|
|
109
|
|
|
|
106
|
|
|
|
20
|
|
|
|
55
|
|
|
|
13
|
|
|
|
19
|
|
|
|
—
|
|
|
|
49
|
|
|
|
1,185
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,187
|
|
F-52
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
5 ACQUISITIONS
AND DISPOSALS, ASSETS AND LIABILITIES HELD FOR SALE
• Acquisitions
The reverse merger of Mondo WIND Srl into Phone Srl became
effective on April 1, 2010 and the name of Phone Srl
changed to WIND Retail Srl. During the second half of 2009 the
subsidiary Mondo WIND Srl had completed the acquisition of the
entire quota capital of Phone Srl, which details may be found in
the consolidated financial statements as of and for the year
ended December 31, 2009 of the subsidiary WIND
Telecomunicazioni SpA. On January 28, 2010, 4G Retail Srl
contributed 2 sales outlets to Phone Srl, and on
February 1, 2010 Mondo WIND Srl acquired the quotas in
Phone Srl allocated to 4G Retail as a result of the contribution.
The following table sets out the total acquisitions price and
the fair value of the net assets acquired.
|
|
|
|
|
|
|
(Thousands of euro)
|
|
|
Cash flow
|
|
|
662
|
|
Fair value of the net assets acquired
|
|
|
547
|
|
Goodwill
|
|
|
115
|
|
The following table provides details of the net assets of Phone
Srl acquired resulting from contribution by statement of
financial position item.
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
(Thousands of euro)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
9
|
|
|
|
10
|
|
Intangible assets
|
|
|
52
|
|
|
|
499
|
|
Other receivables
|
|
|
75
|
|
|
|
75
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Employee benefits
|
|
|
19
|
|
|
|
20
|
|
Other payables
|
|
|
18
|
|
|
|
17
|
|
Net assets acquired
|
|
|
99
|
|
|
|
547
|
|
•
Assets and liabilities held for sale
On July 4, 2010, the subsidiary OTH announced that it has
concluded the sale of its internet services companies,
LINKdotNet and Link Egypt, to ECMS for a total consideration
calculated on the basis of the combined enterprise value of
USD130 million (equal to €95 million).
On April 14, 2010, Orascom Telecom Holding and France
Telecom (FT) presented the outline of a new and comprehensive
agreement on Mobinil and ECMS. The agreement, which has been
signed, will effectively bring to an end all disputes in
relation to their joint investment in Mobinil. The two groups
will continue their partnership on a renewed basis, implementing
a revised shareholder agreement but with no change to the
existing ownership structure or their shareholders’ voting
rights.
The parties agreed to amend the existing deadlock mechanism and
replace it with a right granted to OTH, in certain deadlock
situations, to put its shares in Mobinil and ECMS to France
Telecom upon occurrence of certain conditions. Pursuant to the
agreement which took effect on July 13, 2010, the Company
has the option to put its 34.6% interest in ECMS to FT:
1) during the period from September 15 through
November 15, 2012;
2) during the period from September 15 through
November 15, 2013, or;
3) at anytime until November 15, 2013 in a limited
number of deadlock situations.
F-53
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
Under the agreement, France Telecom agreed to pay OTH a global
settlement fee of USD300 million (€234 million)
in consideration of OTH’s undertakings and obligations
under the master agreement, the termination of the original
shareholder agreement as well as the execution of the amended
and restated shareholder agreement.
This agreement will allow the two telecom operators to
contribute their respective know-how and added value to the
successful and profitable development of Mobinil and ECMS. The
agreement also includes the integration of LINKdotNET (the
leading ISP in Egypt) into ECMS, allowing the company, subject
to the approval of its corporate bodies, to extend broadband and
corporate communications services to its 26 million
customers and create value for its shareholders and its
3,500 employees.
As a result of the amended Shareholder Agreement and the new
governance model, starting from the effective date
(July 13, 2010), France Telecom will fully consolidate
Mobinil and its subsidiaries (consolidated through proportional
integration until 2009).
Starting from the same date, OTH measured its investments in
Mobinil and ECMS at fair value (determined as the average market
value of ECMS shares for the last 20 days before the
closing date), in accordance with IAS 31 ‘Interests in
Joint Ventures’ and subsequently accounted for them using
the equity method. OTH recognized a gain of
€699 million on the transaction by comparing the
carrying amount of the investments in Mobinil and ECMS to the
relevant fair value, taking into consideration the net proceeds
from the transaction for the global settlement fee amounting to
USD300 million (equal to €234 million); this gain
is recognised in the profit from assets held for sale and
discontinued operations.
Based on considerations made, the fair value of the put option
is assumed to be equal to zero, as its exercise is considered
not probable at the moment.
The following table shows the profit from discontinued
operations/assets held for sale:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
9 Months
|
|
|
9 Months
|
|
|
|
(Millions of euro)
|
|
|
Revenue
|
|
|
341
|
|
|
|
487
|
|
Expenses
|
|
|
(251
|
)
|
|
|
(366
|
)
|
|
|
|
|
|
|
|
|
|
Profit from operating activities
|
|
|
90
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
(20
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
Profit from operating activities, net of income tax
|
|
|
70
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of discontinued operations
|
|
|
721
|
|
|
|
0
|
|
Income tax on gain on sale of discontinued operations
|
|
|
(92
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Profit from discontinued operations/assets held for sale
|
|
|
699
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-54
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
The following table provides details of the net assets and net
cash from the transaction relating to the sale of the subsidiary
ECMS:
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010
|
|
|
|
ECMS
|
|
|
LinkdotNet+Link Egypt
|
|
|
|
(Millions of euro)
|
|
|
Property, plant and equipment
|
|
|
928
|
|
|
|
63
|
|
Inventories
|
|
|
9
|
|
|
|
0
|
|
Trade and other receivables
|
|
|
72
|
|
|
|
26
|
|
Cash and cash equivalents
|
|
|
41
|
|
|
|
13
|
|
Deferred tax liabilities
|
|
|
(38
|
)
|
|
|
(1
|
)
|
Trade and other payables
|
|
|
(758
|
)
|
|
|
(92
|
)
|
|
|
|
|
|
|
|
|
|
Net assets and liabilities
|
|
|
254
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
Consideration received, settled in cash
|
|
|
234
|
*
|
|
|
73
|
|
(Cash and cash equivalents disposed of)
|
|
|
(41
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Net cash of transaction
|
|
|
193
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Amount translated at the average rate USD/EUR of July 2020,
equal to 1.28 |
The cash flows relating to discontinued operations are the
following:
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010
|
|
|
At September 30, 2009
|
|
|
|
(Millions of euro)
|
|
|
Net cash used in/from operating activities
|
|
|
79
|
|
|
|
174
|
|
Net cash used in/from investing activities
|
|
|
109
|
|
|
|
(100
|
)
|
Net cash used in/from financing activities
|
|
|
(19
|
)
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
169
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
Revenue amounted to €7,179 million for the nine
months ended September 30, 2010 (€7,094 million
in the first nine months of 2009), with an increase of
€85 million over the corresponding period of 2009. In
the third quarter of 2010 revenue amounted to
€2,450 million with an increase of
€79 million over the corresponding period of 2009.
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-55
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
The following table provides an analysis of the balance for the
first nine months of 2010 and for the third quarter of 2010
compared with the corresponding periods of 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
9 Months
|
|
|
9 Months
|
|
|
Amount
|
|
|
%
|
|
|
III Quarter
|
|
|
III Quarter
|
|
|
Amount
|
|
|
%
|
|
|
|
(Millions of euro)
|
|
|
Revenue from sale
|
|
|
211
|
|
|
|
246
|
|
|
|
(35
|
)
|
|
|
(14.2
|
)%
|
|
|
69
|
|
|
|
80
|
|
|
|
(11
|
)
|
|
|
(13.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Telephone services
|
|
|
5,480
|
|
|
|
5,274
|
|
|
|
206
|
|
|
|
3.9
|
%
|
|
|
1,856
|
|
|
|
1,771
|
|
|
|
85
|
|
|
|
4.8
|
%
|
- Interconnection traffic
|
|
|
1,231
|
|
|
|
1,327
|
|
|
|
(96
|
)
|
|
|
(7.2
|
)%
|
|
|
420
|
|
|
|
420
|
|
|
|
(0
|
)
|
|
|
(0.0
|
)%
|
- International roaming
|
|
|
74
|
|
|
|
102
|
|
|
|
(28
|
)
|
|
|
(27.5
|
)%
|
|
|
34
|
|
|
|
51
|
|
|
|
(17
|
)
|
|
|
(33.3
|
)%
|
- Judicial authorities services
|
|
|
6
|
|
|
|
7
|
|
|
|
(1
|
)
|
|
|
(14.3
|
)%
|
|
|
2
|
|
|
|
2
|
|
|
|
(0
|
)
|
|
|
(1.1
|
)%
|
- Other revenue from services
|
|
|
177
|
|
|
|
137
|
|
|
|
40
|
|
|
|
29.2
|
%
|
|
|
69
|
|
|
|
47
|
|
|
|
22
|
|
|
|
46.4
|
%
|
- Construction contract
|
|
|
0
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
n.m.
|
|
|
|
(0
|
)
|
|
|
(0
|
)
|
|
|
(0
|
)
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue from services
|
|
|
6,968
|
|
|
|
6,848
|
|
|
|
120
|
|
|
|
1.8
|
%
|
|
|
2,381
|
|
|
|
2,291
|
|
|
|
90
|
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,179
|
|
|
|
7,094
|
|
|
|
85
|
|
|
|
1.2
|
%
|
|
|
2,450
|
|
|
|
2,371
|
|
|
|
79
|
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net increase of €85 million is mainly driven by
the positive performance of the WIND Group and OTH Group,
partially offset by the negative growth of the WIND Hellas Group
reporting a decrease of €206 million in the period.
With reference to the revenue from telephone service, the OTH
Group shows an increase of €128 million over the first
nine months of 2009, the positive performance, both in USD and
in Euro, is attributable mainly to the positive performance of
the subsidiaries Koryolink, Telecel Globe, Banglalink, Mobilink
and Tunisiana, partially offset by a negative performance of the
subsidiary Djezzy (Algeria).
In particular, with reference to the subsidiary Orascom Telecom
Algeria (OTA), it should be noted that the negative performance
(less revenue for €93 million over the first nine
months of 2009) was due to the impact of the events
occurred starting from the last quarter of 2009, as well as the
stagnation in the allowance of promotion and the banning
advertising on the government owned TV channels. Furthermore,
lower VAS revenue had an adverse impact on revenue growth.
Please also refer to note 1.3.
The revenue growth of the other OTH operations is mainly
attributable to an increase in traffic from a higher subscriber
base and promotions, as well as higher VAS revenue.
The increase in revenue from telephone services achieved by the
WIND Group (€173 million), is essentially attributable
to a rise in the mobile segment due to the increase in the
customer base and the growth in offers dedicated to mobile
internet browsing. In the fixed segment, there has been a rise
in revenue from fixed charges and contributions mainly in
internet and data services as a consequence of growth in the
customer base, and due to tariff policies.
Referring to WIND Hellas, there was a considerable decrease in
telephone service revenue in WIND Hellas Group in the first nine
months of 2010, (€129 million) compared to the
corresponding period of the previous year, mainly due to
intensified market competition and difficult macroeconomic
conditions (as mentioned in note 1.2) which led to mobile
contract and prepaid outgoing revenues decline.
Furthermore, fixed service revenue decreased in the first nine
months of 2010 compared to the related period of 2009 as a
result of a different mix between bundle and off-bundle usage,
despite the expansion of the LLU customer base.
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-56
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
The decrease in the Weather Group revenue from interconnection
traffic in the first nine months of 2010, amounting to
€96 million is mainly due to the WIND group as an
effect of:
|
|
|
|
•
|
lower termination revenue from the mobile and fixed network
caused by the reduction in unit charges, which was only
partially offset by an increase in fixed and mobile traffic;
|
|
|
•
|
the decrease in interconnection revenue from narrowband internet
traffic following a general shift in the direction of broadband
technology;
|
|
|
•
|
a reduction in the volume of traffic of value added services
Voice, only partially offset by the increase in the volume of
traffic of value added services SMS.
|
With reference to the decrease in revenue from international
roaming, during the first nine months of 2010, there was a
general reduction in roaming tariffs on international markets
which was not sufficiently offset by the increase in the roaming
volumes of the data and voice component.
Other revenue of €107 million in the first nine
months of 2010 (€136 million in the first nine months
of 2009) decreased by €29 million compared to the
corresponding period of 2009. In the third quarter of 2010, the
balance amounts to €22 million with a decrease of
€4 million over the corresponding period of 2009.
The decrease in the item is mainly due to inclusion in the
nine-month period ended September 30, 2009 of
€30 million arising from agreements reached by the
subsidiary WIND for the settlement with some operators together
with the grant of €8 million received, during 2009, by
WIND from Puglia Region as part of the “Measures to support
local growth” programme, regarding investments made between
2004 and 2008.
Purchases and services amounted to
€3,772 million in the first nine months of 2010
(€3,719 million in the first nine months of 2009),
with an increase of €53 million over the corresponding
prior year period. In the third quarter of 2010, the balance
amounts to €1,266 million (€1,198 million in
the third quarter of 2009) with an increase of
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-57
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
€67 million. The following table provides an analysis
of the balance for the first nine months of 2010 and for the
third quarter of 2010 compared with the corresponding periods of
2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
9 Months
|
|
|
9 Months
|
|
|
Amount
|
|
|
%
|
|
|
III Quarter
|
|
|
III Quarter
|
|
|
Amount
|
|
|
%
|
|
|
|
(Millions of euro)
|
|
|
Interconnection traffic
|
|
|
1,203
|
|
|
|
1,266
|
|
|
|
(63
|
)
|
|
|
(5.0
|
)%
|
|
|
409
|
|
|
|
401
|
|
|
|
8
|
|
|
|
2.0
|
%
|
Purchases of raw materials, consumables, supplies and goods
|
|
|
299
|
|
|
|
380
|
|
|
|
(81
|
)
|
|
|
(21.3
|
)%
|
|
|
99
|
|
|
|
117
|
|
|
|
(18
|
)
|
|
|
(15.4
|
)%
|
Customer acquisition costs
|
|
|
374
|
|
|
|
325
|
|
|
|
49
|
|
|
|
15.1
|
%
|
|
|
126
|
|
|
|
110
|
|
|
|
16
|
|
|
|
14.5
|
%
|
Other services
|
|
|
310
|
|
|
|
259
|
|
|
|
51
|
|
|
|
19.7
|
%
|
|
|
102
|
|
|
|
89
|
|
|
|
13
|
|
|
|
14.6
|
%
|
Lease of civil and technical sites
|
|
|
261
|
|
|
|
247
|
|
|
|
14
|
|
|
|
5.7
|
%
|
|
|
87
|
|
|
|
83
|
|
|
|
4
|
|
|
|
4.8
|
%
|
Lease of local access network
|
|
|
282
|
|
|
|
259
|
|
|
|
23
|
|
|
|
9.0
|
%
|
|
|
94
|
|
|
|
87
|
|
|
|
7
|
|
|
|
8.5
|
%
|
Advertising and promotional services
|
|
|
232
|
|
|
|
225
|
|
|
|
7
|
|
|
|
3.1
|
%
|
|
|
63
|
|
|
|
59
|
|
|
|
4
|
|
|
|
6.8
|
%
|
Maintenance and repair
|
|
|
225
|
|
|
|
217
|
|
|
|
8
|
|
|
|
3.8
|
%
|
|
|
74
|
|
|
|
66
|
|
|
|
8
|
|
|
|
11.8
|
%
|
Lease of telecommunication circuits
|
|
|
95
|
|
|
|
105
|
|
|
|
(10
|
)
|
|
|
(9.5
|
)%
|
|
|
30
|
|
|
|
37
|
|
|
|
(7
|
)
|
|
|
(18.9
|
)%
|
Outsourced services
|
|
|
107
|
|
|
|
109
|
|
|
|
(2
|
)
|
|
|
(1.8
|
)%
|
|
|
35
|
|
|
|
35
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Utilities
|
|
|
150
|
|
|
|
133
|
|
|
|
17
|
|
|
|
12.8
|
%
|
|
|
53
|
|
|
|
44
|
|
|
|
9
|
|
|
|
20.5
|
%
|
Consultancies and professional services
|
|
|
98
|
|
|
|
83
|
|
|
|
15
|
|
|
|
18.5
|
%
|
|
|
44
|
|
|
|
25
|
|
|
|
19
|
|
|
|
78.1
|
%
|
National and international roaming
|
|
|
39
|
|
|
|
39
|
|
|
|
0
|
|
|
|
0.0
|
%
|
|
|
17
|
|
|
|
18
|
|
|
|
(1
|
)
|
|
|
(5.6
|
)%
|
Other leases and use of third party assets
|
|
|
46
|
|
|
|
46
|
|
|
|
0
|
|
|
|
0.7
|
%
|
|
|
16
|
|
|
|
18
|
|
|
|
(2
|
)
|
|
|
(9.6
|
)%
|
Bank and postal charges
|
|
|
20
|
|
|
|
20
|
|
|
|
0
|
|
|
|
2.0
|
%
|
|
|
7
|
|
|
|
8
|
|
|
|
(1
|
)
|
|
|
(7.9
|
)%
|
Transport and storage costs
|
|
|
13
|
|
|
|
12
|
|
|
|
1
|
|
|
|
12.1
|
%
|
|
|
4
|
|
|
|
4
|
|
|
|
0
|
|
|
|
11.1
|
%
|
Variation in inventories
|
|
|
18
|
|
|
|
(4
|
)
|
|
|
22
|
|
|
|
n.m.
|
|
|
|
6
|
|
|
|
(1
|
)
|
|
|
7
|
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,772
|
|
|
|
3,719
|
|
|
|
53
|
|
|
|
1.4
|
%
|
|
|
1,266
|
|
|
|
1,198
|
|
|
|
67
|
|
|
|
5.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase of €53 million is mainly due to the
following changes:
|
|
|
|
•
|
a decrease of €63 million in “Interconnection
traffic” costs as a result of the fall in termination
tariffs on the mobile network and the lower costs for internet
collection due to the increase in broadband traffic, only
partially offset by higher volumes of international termination
retail volumes and higher termination costs incurred with other
operators as the result of the introduction of the
interoperability of series 4 numbers for the WIND Group;
|
|
|
•
|
a decrease of €81 million in “Purchases of raw
materials, consumables, supplies and goods”;
|
only partially offset by:
|
|
|
|
•
|
an increase of €49 million in “Customer
acquisition costs” compared to the first nine months of
2009 principally due to the increase in commissions resulting
from the rise in activations and mobile traffic, mainly deriving
from the WIND Group and OTH Group. The balance for the
nine-month period ended at September 30, 2009 and for the
third quarter of 2009 includes the reclassifications of
€60 million and €20 million, respectively,
from this item to amortization of intangible assets due to the
different presentation of some customer acquisition costs, for
which details may be found in note 2.1;
|
|
|
•
|
an increase of €51 million in “Other
services” mainly attributable to the OTH Group relating to
the increase in network costs and launching of new services as
Blackberry and GPRS;
|
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-58
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
|
|
|
|
•
|
an increase of €23 million in “Lease of local
access network” due to an increase in the LLU and WLR
customer bases also as the result of the migration of the VLLU
customer base to the Wholesale Line Rental (WLR) service for the
WIND and WIND Hellas Group partially offset by a
decrease in the OTH Group;
|
|
|
•
|
an increase of €22 million in “Variation in
inventories” due to the lower average cost of handsets
attributable to OTH Group, due the lower operating activities of
Ring Pakistan and Ring Bangladesh.
|
Other operating costs amounted to €241 million
in the first nine months of 2010 (€213 million in the
first nine months of 2009), with an increase of
€28 million over the corresponding period of 2009. In
the third quarter of 2010, the balance amounts to
€90 million (€75 million in the third
quarter of 2009) with an increase of €15 million.
The following table provides an analysis of the balance for the
first nine months of 2010 and for the third quarter of 2010
compared with the corresponding periods of 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
9 Months
|
|
|
9 Months
|
|
|
Amount
|
|
|
%
|
|
|
III Quarter
|
|
|
III Quarter
|
|
|
Amount
|
|
|
%
|
|
|
|
(Millions of euro)
|
|
|
Impairment losse on trade receivables and current assets
|
|
|
92
|
|
|
|
88
|
|
|
|
4
|
|
|
|
4.5
|
%
|
|
|
36
|
|
|
|
33
|
|
|
|
3
|
|
|
|
9.1
|
%
|
Annual license fees
|
|
|
39
|
|
|
|
37
|
|
|
|
2
|
|
|
|
5.4
|
%
|
|
|
13
|
|
|
|
12
|
|
|
|
1
|
|
|
|
8.3
|
%
|
Gifts
|
|
|
52
|
|
|
|
22
|
|
|
|
30
|
|
|
|
n.m
|
|
|
|
25
|
|
|
|
8
|
|
|
|
17
|
|
|
|
n.m.
|
|
Accruals for costs
|
|
|
3
|
|
|
|
10
|
|
|
|
(7
|
)
|
|
|
(70.0
|
)%
|
|
|
(2
|
)
|
|
|
4
|
|
|
|
(6
|
)
|
|
|
n.m.
|
|
Other operating costs
|
|
|
43
|
|
|
|
44
|
|
|
|
(1
|
)
|
|
|
(2.3
|
)%
|
|
|
14
|
|
|
|
18
|
|
|
|
(4
|
)
|
|
|
(22.2
|
)%
|
Accruals for risks
|
|
|
12
|
|
|
|
12
|
|
|
|
0
|
|
|
|
0.0
|
%
|
|
|
4
|
|
|
|
0
|
|
|
|
4
|
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
241
|
|
|
|
213
|
|
|
|
28
|
|
|
|
13.1
|
%
|
|
|
90
|
|
|
|
75
|
|
|
|
15
|
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase shown above is due principally to the increased
promotional costs incurred by the OTH Group following the
increase in the numbers of subscribers of the new services.
There was also a slight increase in the impairment losses on
trade receivables and current assets, as an effect of the
increase in collection risk due to the rise in receivables and
the collection performances for the WIND Group, while for the
WIND Hellas Group this increase (from €17 million for
the nine-month period ended September 30, 2009 to
€22 million for the nine-month period ended
September 30, 2010) is mainly due to worse payment
behaviour of customers as a result of the general economic
conditions in Greece, partially offset by the OTH Group.
Personnel expenses amounted to €496 million in
the first nine months of 2010 (€478 million in the
first nine months of 2009), an increase of €18 million
over the corresponding period of 2009. In the third quarter of
2010, the balance amounts to €158 million
(€153 million in the third quarter of 2009) with
an increase of €5 million. The
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-59
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
following table provides an analysis of the balance for the
first nine months of 2010 and for the third quarter of 2010
compared with the corresponding periods of 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
9 Months
|
|
|
9 Months
|
|
|
Amount
|
|
|
%
|
|
|
III Quarter
|
|
|
III Quarter
|
|
|
Amount
|
|
|
%
|
|
|
|
(Millions of euro)
|
|
|
Wages and salaries
|
|
|
360
|
|
|
|
357
|
|
|
|
3
|
|
|
|
0.8
|
%
|
|
|
113
|
|
|
|
113
|
|
|
|
0
|
|
|
|
0.0
|
%
|
Social security charges
|
|
|
80
|
|
|
|
75
|
|
|
|
5
|
|
|
|
6.7
|
%
|
|
|
26
|
|
|
|
24
|
|
|
|
2
|
|
|
|
8.3
|
%
|
Other
|
|
|
71
|
|
|
|
54
|
|
|
|
17
|
|
|
|
31.5
|
%
|
|
|
23
|
|
|
|
17
|
|
|
|
6
|
|
|
|
35.3
|
%
|
Post-employment benefits
|
|
|
20
|
|
|
|
19
|
|
|
|
1
|
|
|
|
5.3
|
%
|
|
|
7
|
|
|
|
6
|
|
|
|
1
|
|
|
|
16.7
|
%
|
(Costs capitalised for internal works)
|
|
|
(35
|
)
|
|
|
(27
|
)
|
|
|
(8
|
)
|
|
|
29.6
|
%
|
|
|
(11
|
)
|
|
|
(7
|
)
|
|
|
(4
|
)
|
|
|
57.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
496
|
|
|
|
478
|
|
|
|
18
|
|
|
|
3.8
|
%
|
|
|
158
|
|
|
|
153
|
|
|
|
5
|
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in wages and salaries refers to the OTH Group for
the increase in the average number of employees (also
high-profile) and to the WIND Group, as a consequence of the
renewal of the National labor contract signed on
October 23, 2009 and the increase in the costs incurred for
the long-term incentives plan regarding certain Group employees,
which in total amounted to €5 million in the first
nine months of 2010 (€7 million in the first nine
months of 2009).
The number of employees at September 30, 2010 and 2009 is
provided in the following tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
|
Units
|
|
9 Months
|
|
|
9 Months
|
|
|
Amount
|
|
|
%
|
|
|
III Quarter
|
|
|
III Quarter
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
Senior management
|
|
|
486
|
|
|
|
441
|
|
|
|
45
|
|
|
|
10.2
|
%
|
|
|
6
|
|
|
|
59
|
|
|
|
(53
|
)
|
|
|
(89.8
|
)%
|
|
|
|
|
Middle management
|
|
|
2,171
|
|
|
|
2,501
|
|
|
|
(330
|
)
|
|
|
(13.2
|
)%
|
|
|
(90
|
)
|
|
|
14
|
|
|
|
(104
|
)
|
|
|
n.m.
|
|
|
|
|
|
Employees
|
|
|
22,253
|
|
|
|
20,575
|
|
|
|
1,678
|
|
|
|
8.2
|
%
|
|
|
(2,236
|
)
|
|
|
(1,643
|
)
|
|
|
(593
|
)
|
|
|
36.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
24,910
|
|
|
|
23,517
|
|
|
|
1,393
|
|
|
|
5.9
|
%
|
|
|
(2,320
|
)
|
|
|
(1,570
|
)
|
|
|
(750
|
)
|
|
|
47.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
|
Average Number of Employees
|
|
9 Months
|
|
|
9 Months
|
|
|
Amount
|
|
|
%
|
|
|
III Quarter
|
|
|
III Quarter
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
Senior management
|
|
|
447
|
|
|
|
399
|
|
|
|
48
|
|
|
|
12.1
|
%
|
|
|
(27
|
)
|
|
|
23
|
|
|
|
(50
|
)
|
|
|
n.m.
|
|
|
|
|
|
Middle management
|
|
|
2,203
|
|
|
|
2,296
|
|
|
|
(93
|
)
|
|
|
(4.0
|
)%
|
|
|
(187
|
)
|
|
|
(63
|
)
|
|
|
(124
|
)
|
|
|
n.m.
|
|
|
|
|
|
Employees
|
|
|
21,180
|
|
|
|
20,067
|
|
|
|
1,113
|
|
|
|
5.5
|
%
|
|
|
(2,523
|
)
|
|
|
(2,157
|
)
|
|
|
(366
|
)
|
|
|
16.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
23,830
|
|
|
|
22,762
|
|
|
|
1,068
|
|
|
|
4.7
|
%
|
|
|
(2,737
|
)
|
|
|
(2,197
|
)
|
|
|
(540
|
)
|
|
|
24.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11 DEPRECIATION
AND AMORTIZATION
Depreciation and amortization amounted to
€1,384 million for the first nine months of 2010
(€1,413 million in the first nine months of 2009), a
decrease of €29 million over the corresponding period
of 2009. In the third quarter of 2010 the balance amounts to
€468 million (€438 million in the third
quarter of 2009) with an increase of €30 million.
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-60
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
The following table provides an analysis of the balance for the
first nine months of 2010 and for the third quarter of 2010
compared with the corresponding periods of 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
|
|
|
9 Months
|
|
|
9 Months
|
|
|
Amount
|
|
|
%
|
|
|
III Quarter
|
|
|
III Quarter
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
|
(Millions of euro)
|
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— Land and buildings
|
|
|
14
|
|
|
|
15
|
|
|
|
(1
|
)
|
|
|
(6.7
|
)%
|
|
|
5
|
|
|
|
6
|
|
|
|
(1
|
)
|
|
|
(16.7
|
)%
|
|
|
|
|
— Plant and machinery
|
|
|
874
|
|
|
|
877
|
|
|
|
(3
|
)
|
|
|
(0.3
|
)%
|
|
|
295
|
|
|
|
283
|
|
|
|
12
|
|
|
|
4.2
|
%
|
|
|
|
|
— Industrial and commercial equipment
|
|
|
10
|
|
|
|
9
|
|
|
|
1
|
|
|
|
11.1
|
%
|
|
|
4
|
|
|
|
3
|
|
|
|
1
|
|
|
|
33.3
|
%
|
|
|
|
|
— Other assets
|
|
|
50
|
|
|
|
50
|
|
|
|
0
|
|
|
|
0.0
|
%
|
|
|
17
|
|
|
|
14
|
|
|
|
3
|
|
|
|
21.4
|
%
|
|
|
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— Industrial patents and similar rights
|
|
|
66
|
|
|
|
90
|
|
|
|
(24
|
)
|
|
|
(26.7
|
)%
|
|
|
23
|
|
|
|
31
|
|
|
|
(8
|
)
|
|
|
(25.8
|
)%
|
|
|
|
|
— Licenses, trademarks and similar rights
|
|
|
200
|
|
|
|
173
|
|
|
|
27
|
|
|
|
15.6
|
%
|
|
|
72
|
|
|
|
35
|
|
|
|
37
|
|
|
|
n.m.
|
|
|
|
|
|
— Other intangible assets
|
|
|
170
|
|
|
|
199
|
|
|
|
(29
|
)
|
|
|
(14.6
|
)%
|
|
|
52
|
|
|
|
66
|
|
|
|
(14
|
)
|
|
|
(21.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,384
|
|
|
|
1,413
|
|
|
|
(29
|
)
|
|
|
(2.1
|
)%
|
|
|
468
|
|
|
|
438
|
|
|
|
30
|
|
|
|
6.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization decreased by
€29 million over the first nine months of 2009 mainly
due to the lengthening of the amortization period the mobile
Customer List of the WIND Group, reflected from the fourth
quarter of 2009, that led to a decrease of €32 million
in the amortization of the first nine months of 2010.
The increase of €30 million over the third quarter of
2009 is mainly due to the WIND Group (for €18 million)
relating to the lengthening of the amortization period of UMTS
License that led to a decrease in the third quarter of 2009 of
€37 million over the amortization accounted in the
first half of 2009.
It should be noted that for the nine-month period ended
September 30, 2009, the balance of Amortization of other
intangible assets includes the reclassification of
€60 million, originally recognized in Purchases and
services, due to the different presentation of some customer
acquisition costs adopted by the WIND Group, for which details
may be found in note 2.1.
For the nine-month period ended September 30, 2010 the
Reversal of Impairment losses (Impairment losses) on
non-current assets amounts to €808 million
(€1,536 million for the nine-month period ended
September 30, 2009) with a decrease of
€728 million. In the third quarter of 2010, the
balance amounts to €6 million (€4 million in
the third quarter of 2009) with a decrease of
€2 million. For the nine-month period ended
September 30, 2010, the balance mainly refers to the
impairment losses on the goodwill recorded by WIND Hellas Group
in its assets, equal to €772 million. For the
nine-month period ended September 30, 2009, the balance
mainly relates to the impairment losses on the goodwill of the
Hellas Group, made during the second quarter of 2009, following
the Greek group’s unfavorable economic performance.
It should be noted that the recoverable amount of the WIND
Hellas CGU based on its value in use, was determined by
discounting the future cash flows generated from the continuing
use of the unit. The carrying amount of the CGU was determined
to be higher than its recoverable amount and an impairment loss
of €772 million was recognised. The impairment loss
was fully allocated to goodwill. For further details please
refer to note 18.
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-61
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
For the nine-month period ended September 30, 2010, the
remaining balance includes the impairment losses on property and
equipment in Pakistan (approximately €13 million) and
on the Medcable Marine cable (approximately
€19 million).
In the first nine months of 2010, the Group’s financial
situation generated net finance expense of
€1,210 million (€1,098 million in the first
nine months of 2009). In the third quarter of 2010, the balance
amounted to €426 million (€503 million in
the third quarter of 2009).The following table provides an
analysis of the balance for the first nine months of 2010 and
for the third quarter of 2010 compared with the corresponding
periods of 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
2010
|
|
2009
|
|
Change
|
|
|
9 Months
|
|
9 Months
|
|
Amount
|
|
%
|
|
III Quarter
|
|
III Quarter
|
|
Amount
|
|
%
|
|
|
(Millions of euro)
|
|
Interest income from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks
|
|
|
12
|
|
|
|
20
|
|
|
|
(8
|
)
|
|
|
(40.0
|
)%
|
|
|
3
|
|
|
|
6
|
|
|
|
(3
|
)
|
|
|
(50.0
|
)%
|
Cash flow xxxxxx, transfer from equity
|
|
|
2
|
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
(33.3
|
)%
|
|
|
(13
|
)
|
|
|
0
|
|
|
|
(13
|
)
|
|
|
n.m.
|
|
Dividends
|
|
|
1
|
|
|
|
0
|
|
|
|
1
|
|
|
|
n.m.
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
n.m.
|
|
Fair value gains of non hedging derivative instruments
|
|
|
53
|
|
|
|
101
|
|
|
|
(48
|
)
|
|
|
(47.5
|
)%
|
|
|
(24
|
)
|
|
|
56
|
|
|
|
(80
|
)
|
|
|
n.m.
|
|
Fair value measurement of financial assets at fair value (other
than derivative instruments)
|
|
|
(2
|
)
|
|
|
0
|
|
|
|
(2
|
)
|
|
|
n.m.
|
|
|
|
(2
|
)
|
|
|
0
|
|
|
|
(2
|
)
|
|
|
n.m.
|
|
Fair value gains realized from equity on sales of assets
Available For Sale
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
n.m.
|
|
|
|
1
|
|
|
|
0
|
|
|
|
1
|
|
|
|
n.m.
|
|
Other
|
|
|
62
|
|
|
|
157
|
|
|
|
(95
|
)
|
|
|
(60.5
|
)%
|
|
|
28
|
|
|
|
21
|
|
|
|
7
|
|
|
|
33.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finance income
|
|
|
128
|
|
|
|
281
|
|
|
|
(153
|
)
|
|
|
(54
|
)%
|
|
|
(7
|
)
|
|
|
83
|
|
|
|
(90
|
)
|
|
|
(108.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-62
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
Change
|
|
2010
|
|
2009
|
|
Change
|
|
|
9 Months
|
|
9 Months
|
|
Amount
|
|
%
|
|
III Quarter
|
|
III Quarter
|
|
Amount
|
|
%
|
|
|
(Millions of euro)
|
|
Interest expense on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond issues
|
|
|
621
|
|
|
|
511
|
|
|
|
110
|
|
|
|
21.5
|
%
|
|
|
203
|
|
|
|
257
|
|
|
|
(54
|
)
|
|
|
(21.0
|
)%
|
Bank loans
|
|
|
373
|
|
|
|
599
|
|
|
|
(226
|
)
|
|
|
(37.7
|
)%
|
|
|
119
|
|
|
|
199
|
|
|
|
(80
|
)
|
|
|
(40.2
|
)%
|
Financial payables
|
|
|
106
|
|
|
|
96
|
|
|
|
10
|
|
|
|
10.4
|
%
|
|
|
37
|
|
|
|
33
|
|
|
|
4
|
|
|
|
12.1
|
%
|
Discounted provisions
|
|
|
2
|
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
(33.3
|
)%
|
|
|
0
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
(100
|
)%
|
Cash flow xxxxxx, transfer from equity
|
|
|
128
|
|
|
|
44
|
|
|
|
84
|
|
|
|
n.m.
|
|
|
|
30
|
|
|
|
34
|
|
|
|
(4
|
)
|
|
|
(11.8
|
)%
|
Fair value hedge, losses on derivative financial instruments
|
|
|
5
|
|
|
|
0
|
|
|
|
5
|
|
|
|
n.m.
|
|
|
|
1
|
|
|
|
0
|
|
|
|
1
|
|
|
|
n.m.
|
|
Fair value measurement of non hedging derivatives
|
|
|
49
|
|
|
|
26
|
|
|
|
23
|
|
|
|
88.5
|
%
|
|
|
17
|
|
|
|
1
|
|
|
|
16
|
|
|
|
n.m.
|
|
Other Fair value losses
|
|
|
0
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
n.m.
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
n.m.
|
|
Other
|
|
|
54
|
|
|
|
99
|
|
|
|
(45
|
)
|
|
|
(45.5
|
)%
|
|
|
12
|
|
|
|
61
|
|
|
|
(49
|
)
|
|
|
(80.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finance expense
|
|
|
1,338
|
|
|
|
1,379
|
|
|
|
(41
|
)
|
|
|
(3.0
|
)%
|
|
|
419
|
|
|
|
586
|
|
|
|
(167
|
)
|
|
|
(28.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance income for the first nine months of 2010
consisted mainly of the following:
|
|
|
|
•
|
income of €53 million resulting from the fair value
measurement of embedded derivatives of WAHF on the PIK Proceeds
Loan Agreement. It should be noted that for the nine-month
period ended September 30, 2009, the balance included the
income of €74 million relating to the embedded
derivatives on the Senior Notes. For further details, please
refer to note 24;
|
|
|
•
|
other income of €62 million mainly refer to the
interest on the loan granted to Globalive.
|
It should be noted that the decrease occurred during the in the
first nine months of 2010 is mainly due to the one-off gain
recognized in 2009 for the repurchase of the WIND Acquisition
Holdings Finance SpA PIK Loan (for €81 million), and
the Hellas Finance Telecommunications SCA PIK loan (for
€14 million).
With reference to the OTH Group, in the first nine months of
2010 finance income decreased by €23 million, the main
reasons for such reduction are the decrease in OTA bank deposits
during the first nine months of 2010 over the corresponding
period of 2009; and the one-off gain realized upon repurchase of
a portion of PMCL senior Notes in May 2009
(€16 million).
Finance expense consists mainly of the interest incurred
on the financial liabilities outstanding at September 30,
2010, for which details may also be found in note 25. More
specifically:
|
|
|
|
•
|
the increase of €110 million in interest expense on
bonds, mainly due to the effect of the placing by the Luxembourg
subsidiary WIND Acquisition Finance SA on July 13, 2009 of
the new bond consisting of two separate tranches of
€1,250 million and USD2,000 million, bearing a
coupon of 11.75% and expiring in 2017. The increase is also
affected by the placement, on December 15, 2009, of a new
high yield bond, by the subsidiary WIND Acquisition Holdings
Finance SpA, consisting of two tranches of
€325 million and USD625 million and bearing a
coupon of 12.25%. This increase is partially offset by the
decline in bond interest expense following the restructuring of
the Hellas Group debt, occurred in the last quarter of 2009;
|
|
|
•
|
the increase of €84 million in cash flow hedge
transfer from equity, mainly due to a portion of the cash flow
hedge reserve related to the derivative financial instruments
hedging the currency and interest risk on WIND
(€40 million) and interest risk on OTH financial
liabilities (€42 million);
|
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-63
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
|
|
|
|
•
|
the expense coming from the fair value measurement of non
hedging derivatives equal to €49 million, which mainly
refer to the measurement of embedded derivatives on Senior Notes
of WIND Group (for €45 million) and the WIND Hellas
derivatives (for €2 million).
|
These negative effects are partially offset by a decrease in
interest on bank loans (for €226 million) mainly due
to the repayment of the PIK Loan Agreement made by WIND
Acquisition Holdings Finance SpA in July 2009 and lower interest
on the Senior Credit Agreement of WIND Telecomunicazioni SpA
following the advance repayment of €336 million made
on January 12, 2010 and of €27 million made on
August 9, 2010.
Furthermore, there was a decrease in other finance expense
amounting to €45 million which is mainly due to the
inclusion, in 2009 figures, of €19 million of losses
deriving from the sale of OTH shares and €10 million
of fees for the early repayment of financial liabilities.
14 SHARE
OF PROFIT (LOSS) OF EQUITY ACCOUNTED INVESTEES
A loss of €63 million (a loss of €15 million
in the first nine months of 2009) is recognized in this
item for the first nine months ended September 30, 2010,
representing the Group’s share of the losses arising from
the investment held by OTH in the Canadian company Globalive
(65.4%) and in Mobinil/ECMS (34.66%).
The following table shows the principal figures of the
subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the
|
|
|
|
As of and for the
|
|
|
Nine-Month Period
|
|
|
|
Nine-Month Period
|
|
|
Ended September 30, 2010
|
|
|
|
Ended September 30, 2009
|
|
|
Mobinil/ECMS
|
|
Globalive
|
|
Total
|
|
Globalive
|
|
|
(Millions of euro)
|
|
Current assets
|
|
|
256
|
|
|
|
57
|
|
|
|
313
|
|
|
|
301
|
|
Non-current assets
|
|
|
1,685
|
|
|
|
606
|
|
|
|
2,291
|
|
|
|
119
|
|
Current liabilities
|
|
|
692
|
|
|
|
85
|
|
|
|
777
|
|
|
|
68
|
|
Non-current liabilities
|
|
|
763
|
|
|
|
857
|
|
|
|
1,620
|
|
|
|
382
|
|
Revenue
|
|
|
370
|
|
|
|
73
|
|
|
|
443
|
|
|
|
23
|
|
Net profit (loss)
|
|
|
38
|
|
|
|
(196
|
)
|
|
|
(158
|
)
|
|
|
(34
|
)
|
% shareholding
|
|
|
34.66
|
%
|
|
|
65.4
|
%
|
|
|
|
|
|
|
65.4
|
%
|
Proportional share of net profit (loss)
|
|
|
13
|
|
|
|
(128
|
)
|
|
|
(115
|
)
|
|
|
(22
|
)
|
Amortization expense of identifiable assets
|
|
|
0
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
Elimination of proportional share of intra group interest expense
|
|
|
0
|
|
|
|
52
|
|
|
|
52
|
|
|
|
8
|
|
Elimination of proportional share of management fees
|
|
|
2
|
|
|
|
0
|
|
|
|
2
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of profit (loss) of equity accounted investees
|
|
|
15
|
|
|
|
(78
|
)
|
|
|
(63
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 FOREIGN
EXCHANGE GAINS (LOSSES), NET
For the nine-month period ended September 30, 2010,
Foreign exchange gains (losses), net show a loss equal to
€63 million (gain equal to €8 million at
September 30, 2009).
The net increase is mainly due to unrealized foreign exchange
losses on financial liabilities as a result of the depreciation
of the main currencies against USD.
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-64
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
The following table provides an analysis of the balance for the
first nine months of 2010 and for the third quarter of 2010
compared with the corresponding periods of 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
9 Months
|
|
|
9 Months
|
|
|
Amount
|
|
|
%
|
|
|
III Quarter
|
|
|
III Quarter
|
|
|
Amount
|
|
|
%
|
|
|
|
(Millions of euro)
|
|
|
Realized exchange gains
|
|
|
61
|
|
|
|
34
|
|
|
|
27
|
|
|
|
79.4
|
%
|
|
|
12
|
|
|
|
19
|
|
|
|
(7
|
)
|
|
|
(36.8
|
)%
|
Exchange gains from measurement
|
|
|
152
|
|
|
|
211
|
|
|
|
(59
|
)
|
|
|
(28.0
|
)%
|
|
|
(305
|
)
|
|
|
134
|
|
|
|
(439
|
)
|
|
|
n.m.
|
|
Cash flow xxxxxx, transfer from equity (Forex effect)
|
|
|
118
|
|
|
|
2
|
|
|
|
116
|
|
|
|
n.m.
|
|
|
|
(242
|
)
|
|
|
2
|
|
|
|
(244
|
)
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange gain
|
|
|
331
|
|
|
|
247
|
|
|
|
84
|
|
|
|
34.0
|
%
|
|
|
(535
|
)
|
|
|
155
|
|
|
|
(690
|
)
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized losses on exchange
|
|
|
15
|
|
|
|
35
|
|
|
|
(20
|
)
|
|
|
(57.1
|
)%
|
|
|
(1
|
)
|
|
|
6
|
|
|
|
(7
|
)
|
|
|
n.m.
|
|
Exchange losses from measurement
|
|
|
379
|
|
|
|
104
|
|
|
|
275
|
|
|
|
n.m.
|
|
|
|
(570
|
)
|
|
|
8
|
|
|
|
(578
|
)
|
|
|
n.m.
|
|
Cash flow xxxxxx, transfer from equity (Forex effect)
|
|
|
0
|
|
|
|
100
|
|
|
|
(100
|
)
|
|
|
(100.0
|
)%
|
|
|
(36
|
)
|
|
|
84
|
|
|
|
(120
|
)
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange losses
|
|
|
394
|
|
|
|
239
|
|
|
|
155
|
|
|
|
64.9
|
%
|
|
|
(607
|
)
|
|
|
98
|
|
|
|
(705
|
)
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total — net
|
|
|
(63
|
)
|
|
|
8
|
|
|
|
(71
|
)
|
|
|
n.m.
|
|
|
|
72
|
|
|
|
57
|
|
|
|
15
|
|
|
|
26.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 INCOME
TAX
For the nine-month period ended September 30, 2010,
Income tax amounted to €252 million
(€435 million for the nine-month period ended
September 30, 2009) with a decrease of
€183 million compared with the first nine months of
2009. In the third quarter of 2010, the balance amounted to
€104 million (€176 million in the third
quarter of 2009) with a decrease of €72 million.
During the first nine months of 2010, the decrease equal to
€183 million mainly refers to the decrease in current
tax. The following table provides an analysis of the balance
for the first nine months of 2010 and for the third quarter of
2010 compared with the corresponding periods of 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
9 Months
|
|
|
9 Months
|
|
|
Amount
|
|
|
%
|
|
|
III Quarter
|
|
|
III Quarter
|
|
|
Amount
|
|
|
%
|
|
|
|
(Millions of euro)
|
|
|
Current tax
|
|
|
302
|
|
|
|
528
|
|
|
|
(226
|
)
|
|
|
(42.8
|
)%
|
|
|
85
|
|
|
|
208
|
|
|
|
(123
|
)
|
|
|
(59.1
|
)%
|
Deferred tax
|
|
|
(50
|
)
|
|
|
(93
|
)
|
|
|
43
|
|
|
|
(46.2
|
)%
|
|
|
19
|
|
|
|
(32
|
)
|
|
|
51
|
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
252
|
|
|
|
435
|
|
|
|
(183
|
)
|
|
|
(42.1
|
)%
|
|
|
104
|
|
|
|
176
|
|
|
|
(72
|
)
|
|
|
(40.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The current tax decreased by €226 million over the
first nine months of 2009, mainly due to the lower taxable
result of the WIND Group and OTH Group for the first nine months
of 2010.
17 PROPERTY,
PLANT AND EQUIPMENT
At September 30, 2010, Property, plant and equipment
amounted to €6,803 million
(€7,577 million at December 31, 2009), a decrease
of €774 million over December 31, 2009, mainly as
the result of depreciation for the period
(€1,005 million), the impairment losses of the period
(€40 million), disposals (€7 million), the
change in scope of consolidation and other movements
(€654 million).
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-65
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
The change in scope of consolidation is mainly attributable to
ECMS which, starting from September 30, 2010 has been
accounted for using the equity method.
This decrease was partially offset by new investments for the
period (€815 million), the foreign exchange gains
(€117 million). The following table provides an
analysis of the changes in this item for the first nine months
of 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and
|
|
|
Plant and
|
|
|
|
|
|
|
|
|
Assets Under
|
|
|
|
|
|
|
Buildings
|
|
|
Machinery
|
|
|
Equipment
|
|
|
Others
|
|
|
Construction
|
|
|
Total
|
|
|
|
(Millions of euro)
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
151
|
|
|
|
14,252
|
|
|
|
145
|
|
|
|
651
|
|
|
|
1,006
|
|
|
|
16,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restatement of 2009
|
|
|
68
|
|
|
|
(166
|
)
|
|
|
(6
|
)
|
|
|
110
|
|
|
|
(3
|
)
|
|
|
3
|
|
At December 31, 2009 restated
|
|
|
219
|
|
|
|
14,086
|
|
|
|
139
|
|
|
|
761
|
|
|
|
1,003
|
|
|
|
16,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
9
|
|
|
|
292
|
|
|
|
7
|
|
|
|
36
|
|
|
|
471
|
|
|
|
815
|
|
Disposals
|
|
|
(3
|
)
|
|
|
(50
|
)
|
|
|
(1
|
)
|
|
|
(13
|
)
|
|
|
(3
|
)
|
|
|
(70
|
)
|
Change in scope of consolidation
|
|
|
(47
|
)
|
|
|
(1,019
|
)
|
|
|
(3
|
)
|
|
|
(89
|
)
|
|
|
(47
|
)
|
|
|
(1,205
|
)
|
Impairment losses
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(13
|
)
|
|
|
(13
|
)
|
Exchange rate differences
|
|
|
(12
|
)
|
|
|
160
|
|
|
|
1
|
|
|
|
8
|
|
|
|
21
|
|
|
|
178
|
|
Other
|
|
|
1
|
|
|
|
475
|
|
|
|
(2
|
)
|
|
|
25
|
|
|
|
(507
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010
|
|
|
167
|
|
|
|
13,944
|
|
|
|
141
|
|
|
|
728
|
|
|
|
925
|
|
|
|
15,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and Impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
22
|
|
|
|
7,989
|
|
|
|
109
|
|
|
|
508
|
|
|
|
0
|
|
|
|
8,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restatement of 2009
|
|
|
41
|
|
|
|
(106
|
)
|
|
|
(2
|
)
|
|
|
70
|
|
|
|
0
|
|
|
|
3
|
|
At December 31, 2009 restated
|
|
|
63
|
|
|
|
7,883
|
|
|
|
107
|
|
|
|
578
|
|
|
|
0
|
|
|
|
8,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposals
|
|
|
(3
|
)
|
|
|
(47
|
)
|
|
|
0
|
|
|
|
(13
|
)
|
|
|
0
|
|
|
|
(63
|
)
|
Change in scope of consolidation
|
|
|
(10
|
)
|
|
|
(486
|
)
|
|
|
(1
|
)
|
|
|
(54
|
)
|
|
|
0
|
|
|
|
(551
|
)
|
Impairment losses
|
|
|
0
|
|
|
|
26
|
|
|
|
0
|
|
|
|
1
|
|
|
|
0
|
|
|
|
27
|
|
Depreciation
|
|
|
15
|
|
|
|
925
|
|
|
|
10
|
|
|
|
55
|
|
|
|
0
|
|
|
|
1,005
|
|
Exchange rate differences
|
|
|
1
|
|
|
|
55
|
|
|
|
0
|
|
|
|
5
|
|
|
|
0
|
|
|
|
61
|
|
Other
|
|
|
0
|
|
|
|
(8
|
)
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
0
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010
|
|
|
66
|
|
|
|
8,348
|
|
|
|
113
|
|
|
|
575
|
|
|
|
0
|
|
|
|
9,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
156
|
|
|
|
6,203
|
|
|
|
32
|
|
|
|
183
|
|
|
|
1,003
|
|
|
|
7,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010
|
|
|
101
|
|
|
|
5,596
|
|
|
|
28
|
|
|
|
153
|
|
|
|
925
|
|
|
|
6,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The more significant investments for the period relate to radio
links and high frequency equipment, necessary for the
enhancement of the GSM networks of the Group (mainly WIND and
OTH), as well as plant and machinery under construction mainly
relating to development of the 3G mobile technologies of WIND.
The increase in capital expenditure has been partially offset by
the significant decrease in Algeria (-74%), due to the blocking
of imports of equipment and spare parts, and Pakistan (-23%) due
to the delays caused by the flood that hit the country. The
impairment losses, amounting to €40 million, mainly
relate to the impairment losses on equipment in Pakistan
(€13 million), Medcable marine cable
(€19 million) and the WIND Group impairment losses on
property, plant and equipment (approximately equal to
€8 million).
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-66
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
18 INTANGIBLE
ASSETS
At September 30, 2010, Intangible assets amount to
€9,287 million (€10,554 million at
December 31, 2009), a decrease of €1,267 million
over December 31, 2009, due to amortization for the period
(€445 million), impairment losses on goodwill
(€772 million), change in scope of consolidation
(€275 million) and disposals of the period
(€52 million).
The change in scope of consolidation is mainly attributable to
ECMS which, starting from September 30, 2010 has been
accounted for using the equity method (please refer to
note 5).
This decrease was partially offset mainly by the additions of
the period (€194 million), the positive effect of
foreign currency translation differences (€41 million)
and other movements (€40 million).
It should be noted that the amortization charge for the period
was affected by the lengthening of the amortization period of
WIND Customer List, as a result of the restatement by the WIND
management, made in the fourth quarter of 2009, of the criteria
used to estimate its useful economic life involving the
extension of the amortization period from 2015 to 2020, as
previously detailed in note 11.
It should be noted the balance at December 31, 2009 of
Other intangible assets includes the reclassification of about
€66 million, originally recognized in Other
receivables, due to the effect of the different presentation of
some customer acquisition costs adopted by the WIND Group which
details may be found in note 2.1.
The following table provides an analysis of the changes in this
item for the first nine months of 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concessions,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses,
|
|
|
|
|
|
|
|
|
Assets Under
|
|
|
|
|
|
|
Industrial Patents and
|
|
|
Trademarks and
|
|
|
|
|
|
|
|
|
Development and
|
|
|
|
|
|
|
Intellectual Property Rights
|
|
|
Similar Rights
|
|
|
Others
|
|
|
Goodwill
|
|
|
Advances
|
|
|
Total
|
|
|
|
(Millions of euro)
|
|
|
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
1,628
|
|
|
|
6,299
|
|
|
|
1,791
|
|
|
|
5,148
|
|
|
|
88
|
|
|
|
14,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restatement of 2009
|
|
|
(262
|
)
|
|
|
417
|
|
|
|
(166
|
)
|
|
|
0
|
|
|
|
4
|
|
|
|
(7
|
)
|
At December 31, 2009 restated
|
|
|
1,366
|
|
|
|
6,716
|
|
|
|
1,625
|
|
|
|
5,148
|
|
|
|
92
|
|
|
|
14,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
48
|
|
|
|
25
|
|
|
|
73
|
|
|
|
1
|
|
|
|
47
|
|
|
|
194
|
|
Disposals
|
|
|
0
|
|
|
|
(4
|
)
|
|
|
0
|
|
|
|
(1
|
)
|
|
|
(47
|
)
|
|
|
(52
|
)
|
Change in scope of consolidation
|
|
|
0
|
|
|
|
(308
|
)
|
|
|
0
|
|
|
|
(93
|
)
|
|
|
0
|
|
|
|
(401
|
)
|
Impairment losses
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(772
|
)
|
|
|
0
|
|
|
|
(772
|
)
|
Exchange rate differences
|
|
|
0
|
|
|
|
49
|
|
|
|
0
|
|
|
|
7
|
|
|
|
(1
|
)
|
|
|
55
|
|
Other
|
|
|
49
|
|
|
|
(22
|
)
|
|
|
0
|
|
|
|
(4
|
)
|
|
|
(3
|
)
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010
|
|
|
1,463
|
|
|
|
6,456
|
|
|
|
1,698
|
|
|
|
4,286
|
|
|
|
88
|
|
|
|
13,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization and Impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
1,306
|
|
|
|
1,890
|
|
|
|
747
|
|
|
|
457
|
|
|
|
0
|
|
|
|
4,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restatement of 2009
|
|
|
(177
|
)
|
|
|
188
|
|
|
|
(18
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
(7
|
)
|
At December 31, 2009 restated
|
|
|
1,129
|
|
|
|
2,078
|
|
|
|
729
|
|
|
|
457
|
|
|
|
0
|
|
|
|
4,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposals
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Change in scope of consolidation
|
|
|
0
|
|
|
|
(119
|
)
|
|
|
0
|
|
|
|
(7
|
)
|
|
|
0
|
|
|
|
(126
|
)
|
Amortization
|
|
|
65
|
|
|
|
208
|
|
|
|
172
|
|
|
|
0
|
|
|
|
0
|
|
|
|
445
|
|
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-67
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concessions,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses,
|
|
|
|
|
|
|
|
|
Assets Under
|
|
|
|
|
|
|
Industrial Patents and
|
|
|
Trademarks and
|
|
|
|
|
|
|
|
|
Development and
|
|
|
|
|
|
|
Intellectual Property Rights
|
|
|
Similar Rights
|
|
|
Others
|
|
|
Goodwill
|
|
|
Advances
|
|
|
Total
|
|
|
|
(Millions of euro)
|
|
|
|
|
|
Exchange rate differences
|
|
|
1
|
|
|
|
18
|
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
0
|
|
|
|
14
|
|
Other
|
|
|
4
|
|
|
|
(10
|
)
|
|
|
(13
|
)
|
|
|
(1
|
)
|
|
|
0
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010
|
|
|
1,199
|
|
|
|
2,175
|
|
|
|
886
|
|
|
|
445
|
|
|
|
0
|
|
|
|
4,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
237
|
|
|
|
4,638
|
|
|
|
895
|
|
|
|
4,691
|
|
|
|
93
|
|
|
|
10,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010
|
|
|
264
|
|
|
|
4.281
|
|
|
|
812
|
|
|
|
3.841
|
|
|
|
88
|
|
|
|
9.287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill amounting to €3,841 million at
September 30, 2010 is allocated as follows:
|
|
|
|
|
|
|
|
|
Entity
|
|
At September 30, 2010
|
|
|
At December 31, 2009
|
|
|
|
(Millions of euro)
|
|
|
Wind Telecomunicazioni SpA
|
|
|
3,585
|
|
|
|
3,584
|
|
Telecel Globe
|
|
|
76
|
|
|
|
72
|
|
Carthage Consortium
|
|
|
12
|
|
|
|
12
|
|
Oratel International Ltd
|
|
|
115
|
|
|
|
113
|
|
Egyptian Company for Mobile Services
|
|
|
0
|
|
|
|
46
|
|
Mobinil for Telecommunications
|
|
|
0
|
|
|
|
39
|
|
Orascom Tunisia Holding Ltd
|
|
|
13
|
|
|
|
13
|
|
OTV in Sheba Telecom
|
|
|
8
|
|
|
|
7
|
|
Telecel International Limited
|
|
|
12
|
|
|
|
12
|
|
In Touch for Telecommunication
|
|
|
1
|
|
|
|
4
|
|
Pakistan Mobile Communication Ltd
|
|
|
9
|
|
|
|
13
|
|
WIND Hellas
|
|
|
0
|
|
|
|
610
|
|
Q Telecom
|
|
|
0
|
|
|
|
162
|
|
Others
|
|
|
10
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
3,841
|
|
|
|
4,691
|
|
|
|
|
|
|
|
|
|
|
It should be noted that the decrease in goodwill mainly refers
to the impairment losses on goodwill recorded by WIND Hellas
Group in its assets, equal to €772 million.
It should be noted that the recoverable amount of the WIND
Hellas CGU based on its value in use, was determined, at
June 30, 2010, by discounting the future cash flows
generated by the continuing use of the unit.
In particular, cash flows were projected based on past
experience, actual operating results, financial budgets and the
four-year business plan approved by directors which reflects
management’s expectations of revenue growth, operating
costs and margin for the CGU. Cash flows beyond the four-year
period were extrapolated using an estimated growth rate of 0.25%
which takes into account the projected growth rates for the
specific market in which the CGU operates and the current
economic conditions. A discount rate of 13% was applied in
determining the recoverable amount of the WIND Hellas CGU and
was estimated based on the Company’s weighted average cost
of capital.
As a result of the test, the carrying amount of the CGU was
determined to be higher than its value in use and an impairment
loss of €772 million was recognised. The impairment
loss was fully allocated to goodwill. For further details
please refer to note 12.
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-68
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
With reference to the assets recognised in the consolidated
interim financial statements at September 30, 2010, the
Group did not repeat at September 30, 2010 the impairment
testing performed at December 31, 2009 and at June 30,
2010, with reference to the WIND Hellas Group, in the absence of
any new significant indications of impairment.
At September 30, 2010, Financial assets amount to
€1,151 million (€967 million at
December 31, 2009), an increase of €184 million
mainly due to financial receivables (€191 million) and
derivative financial instruments (€12 million),
partially offset by the decrease in financial assets held for
trading (€23 million).
The following table sets out details of Financial assets
at September 30, 2010 and December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010
|
|
|
|
|
|
At December 31, 2009
|
|
|
|
Current
|
|
|
Non Current
|
|
|
Total
|
|
|
Current
|
|
|
Non Current
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(Millions of euro)
|
|
|
|
|
|
|
|
|
Financial assets measured at cost
|
|
|
16
|
|
|
|
9
|
|
|
|
25
|
|
|
|
0
|
|
|
|
12
|
|
|
|
12
|
|
Available for sale
|
|
|
6
|
|
|
|
1
|
|
|
|
7
|
|
|
|
3
|
|
|
|
3
|
|
|
|
6
|
|
Held to maturity
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2
|
|
|
|
0
|
|
|
|
2
|
|
Held for trading
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
23
|
|
|
|
0
|
|
|
|
23
|
|
Derivative financial instruments
|
|
|
9
|
|
|
|
340
|
|
|
|
349
|
|
|
|
32
|
|
|
|
305
|
|
|
|
337
|
|
Deposits
|
|
|
2
|
|
|
|
31
|
|
|
|
33
|
|
|
|
13
|
|
|
|
28
|
|
|
|
41
|
|
Financial receivables
|
|
|
30
|
|
|
|
707
|
|
|
|
737
|
|
|
|
28
|
|
|
|
518
|
|
|
|
546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
63
|
|
|
|
1,088
|
|
|
|
1,151
|
|
|
|
101
|
|
|
|
866
|
|
|
|
967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides a summary of outstanding
derivatives at September 30, 2010 and December 31,
2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010
|
|
|
At December 31, 2009
|
|
|
|
Fair Value (+)
|
|
|
Fair Value (−)
|
|
|
Fair Value (+)
|
|
|
Fair Value (−)
|
|
|
|
(Millions of euro)
|
|
|
Total
|
|
|
349
|
|
|
|
439
|
|
|
|
337
|
|
|
|
639
|
|
– Current
|
|
|
9
|
|
|
|
162
|
|
|
|
32
|
|
|
|
176
|
|
– Non Current
|
|
|
340
|
|
|
|
277
|
|
|
|
305
|
|
|
|
463
|
|
At September 30, 2010, “Financial receivables”
classified as non-current financial assets amounting to
€707 million, show an increase of
€189 million in respect of December 31, 2009
which mainly refers to the change in the loans granted by OTH to
Globalive (€177 million including accrued interest for
€69 million) and North Korea (€5 million).
At September 30, 2010 the loan to Globalive totally amounts
to €625 million.
“Derivative financial instruments” at
September 30, 2010, consist of hedging contracts for
interest rate and currency risks. The derivative financial
assets amounting to €349 million mainly include the
positive fair value of derivative financial instruments and
refer to: hedging derivatives on WIND Group’s financial
liabilities (€56 million), embedded derivatives on
WIND Senior Notes (€135 million) and embedded
derivatives on WAHF SpA’s PIK Proceed Loan Agreement
(€87 million).
Furthermore, the balance includes the positive fair value of
currency swaps hedging derivatives on PMCL loans
(€67 million) and of embedded derivatives on the bond
issued by the subsidiary Orascom Telecom OSCAR
(€4 million). For further details please refer to
note 24.
The fair value of financial instruments listed on active markets
was taken as the market quotation at the end of the reporting
period. In the absence of an active market, fair value was
determined by referring to prices provided
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-69
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
by external operators and using valuation models based mostly on
objective financial variables, as well as by taking into account
where possible prices used in recent transactions and quotations
of similar financial instruments.
The following table sets out changes in the cash flow hedge
reserve.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CFHR Attributable to the Owners of the Parent
|
|
|
CFHR Attributable to Non-Controlling Interests
|
|
|
CFHR
|
|
|
|
Foreign
|
|
|
Interest
|
|
|
|
|
|
Foreign
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
Currency Risk
|
|
|
Rate Risk
|
|
|
Total
|
|
|
Currency Risk
|
|
|
Rate Risk
|
|
|
Total
|
|
|
Total
|
|
|
Balances at January 1, 2009
|
|
|
12
|
|
|
|
(107
|
)
|
|
|
(95
|
)
|
|
|
0
|
|
|
|
(30
|
)
|
|
|
(30
|
)
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value
|
|
|
(173
|
)
|
|
|
(140
|
)
|
|
|
(313
|
)
|
|
|
0
|
|
|
|
8
|
|
|
|
8
|
|
|
|
(305
|
)
|
(Related tax effect)
|
|
|
48
|
|
|
|
37
|
|
|
|
85
|
|
|
|
0
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
84
|
|
Reverse in IS
|
|
|
92
|
|
|
|
33
|
|
|
|
125
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
125
|
|
(Deferred tax effect)
|
|
|
(25
|
)
|
|
|
(7
|
)
|
|
|
(32
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2009
|
|
|
(46
|
)
|
|
|
(184
|
)
|
|
|
(230
|
)
|
|
|
0
|
|
|
|
(23
|
)
|
|
|
(23
|
)
|
|
|
(253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at January 1, 2010
|
|
|
(63
|
)
|
|
|
(168
|
)
|
|
|
(231
|
)
|
|
|
0
|
|
|
|
(21
|
)
|
|
|
(21
|
)
|
|
|
(252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value
|
|
|
216
|
|
|
|
(119
|
)
|
|
|
97
|
|
|
|
0
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
94
|
|
(Related tax effect)
|
|
|
(59
|
)
|
|
|
33
|
|
|
|
(26
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(26
|
)
|
Reverse in IS
|
|
|
(124
|
)
|
|
|
75
|
|
|
|
(49
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(49
|
)
|
(Deferred tax effect)
|
|
|
34
|
|
|
|
(20
|
)
|
|
|
14
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2010
|
|
|
4
|
|
|
|
(200
|
)
|
|
|
(196
|
)
|
|
|
0
|
|
|
|
(23
|
)
|
|
|
(23
|
)
|
|
|
(219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 DEFERRED
TAX ASSETS AND LIABILITIES
At September 30, 2010, Deferred tax assets and
liabilities amount to €394 million and
€1,115 million, respectively, representing a decrease
of €72 million and an increase of €3 million
compared to December 31, 2009.
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-70
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
The following table provides changes of the balances by origin
at September 30, 2010 and December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
(Decrease)
|
|
|
Increase
|
|
|
At September 30, 2010
|
|
|
|
(Millions of euro)
|
|
|
Tax losses carried-forward
|
|
|
128
|
|
|
|
(45
|
)
|
|
|
9
|
|
|
|
92
|
|
Provision for bad debts (taxed)
|
|
|
115
|
|
|
|
(6
|
)
|
|
|
17
|
|
|
|
126
|
|
Provisions for risks (taxed)
|
|
|
56
|
|
|
|
(13
|
)
|
|
|
4
|
|
|
|
47
|
|
Measurement of financial assets and liabilities
|
|
|
22
|
|
|
|
(20
|
)
|
|
|
6
|
|
|
|
8
|
|
Derivative financial instruments
|
|
|
83
|
|
|
|
(30
|
)
|
|
|
2
|
|
|
|
55
|
|
Amortization and depreciation of non current assets
|
|
|
11
|
|
|
|
(3
|
)
|
|
|
17
|
|
|
|
25
|
|
Revenue
|
|
|
9
|
|
|
|
(2
|
)
|
|
|
0
|
|
|
|
7
|
|
Others
|
|
|
42
|
|
|
|
(44
|
)
|
|
|
36
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred tax assets
|
|
|
466
|
|
|
|
(163
|
)
|
|
|
91
|
|
|
|
394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee termination benefits
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
0
|
|
|
|
0
|
|
Accelerated depreciation
|
|
|
102
|
|
|
|
(44
|
)
|
|
|
8
|
|
|
|
66
|
|
Fair value of property, plant and equipment
|
|
|
101
|
|
|
|
(5
|
)
|
|
|
0
|
|
|
|
96
|
|
Fair value of assets following the merger
|
|
|
704
|
|
|
|
(16
|
)
|
|
|
0
|
|
|
|
688
|
|
Measurement of financial assets and liabilities
|
|
|
6
|
|
|
|
(1
|
)
|
|
|
0
|
|
|
|
5
|
|
Others
|
|
|
198
|
|
|
|
(25
|
)
|
|
|
87
|
|
|
|
260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred tax liabilities
|
|
|
1,112
|
|
|
|
(92
|
)
|
|
|
95
|
|
|
|
1,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management takes a prudent approach towards recognizing deferred
tax assets that takes into consideration the likelihood of the
utilization of deferred tax assets, both in relation to the
amount that may be carried forward and the extent to which the
directors believe there is a reasonable certainty that
sufficient profits will be generated in future years against
which the losses may be used within the time limits imposed by
prevailing tax laws and regulations, and the extent to which the
utilization of temporary differences is believed to be
reasonably certain.
At September 30, 2010, Other receivables amount to
€832 million (€463 million at
December 31,2009) with an increase of
€369 million over December 31, 2009.
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-71
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
The following table shows the balances at September 30,
2010 and December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
|
At December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Millions of euro)
|
|
|
Trade prepayments
|
|
|
185
|
|
|
|
164
|
|
Advances to suppliers
|
|
|
51
|
|
|
|
42
|
|
Receivables due from tax authorities
|
|
|
554
|
|
|
|
164
|
|
Receivables due from social securities authority
|
|
|
3
|
|
|
|
3
|
|
Other receivables due from third parties
|
|
|
71
|
|
|
|
135
|
|
(Provision for bad debts)
|
|
|
(32
|
)
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
832
|
|
|
|
463
|
|
|
|
|
|
|
|
|
|
|
The increase of the balance is mainly due to the increase in
receivables due from tax authorities following the payment of
the remaining amount of the Orascom Telecom Algeria tax
assessment for DZD 38,767 million (€381 million
which further details could be found in note 28), to higher
trade prepayments (€21 million) relating to
installments for the lease of telephone circuits and civil and
technical sites, for commissioning costs and for fees for the
use of the radio mobile network infrastructure, and to higher
advances to suppliers (€9 million).
It should be noted that the balance of other receivables at
December 31, 2009 decreased by €66 million
following the reclassification to other intangible assets of the
deferred portion of the customer acquisition cost, now
capitalised by the WIND Group, which details may be found in
note 2.1.
In addition to above, following the implementation of the new
consolidation and reporting system of the Group (as better
described in note 2.1) some balances included in the
balance Other receivables have been reclassified, such as:
decrease in trade prepayments by €13 million, increase
in advances to suppliers by €8 million, increase in
other receivables by €3 million and increase in
provision for bad debts by €2 million.
At September 30, 2010, Cash and cash equivalents
amount to €1,097 million (€1,733 million
at December 31, 2009) with a decrease of
€636 million over the prior year, mainly due to the
repayments by the WIND Group of €363 million of the
Senior Facility Agreement, the early repayment made by
Weather Capital Special Purpose 1 SA of a total consideration
equal to €150 million relating to the Collateralised
Guaranteed Notes. The decrease is also due for about
€194 million to the loans granted to Globalive and
North Korea and for €381 million to the amount paid by
Orascom Telecom Algeria for its tax claim.
At September 30, 2010, the balance includes
€115 million relating to OTA and €22 million
relating to North Korea, both subject to local restrictions
(please refer to note 1.3).
The following table show the balance at September 30, 2010
and December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
|
At December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Millions of euro)
|
|
|
Bank deposits and checks
|
|
|
1,094
|
|
|
|
1,720
|
|
Cash on hand and stamps
|
|
|
3
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,097
|
|
|
|
1,733
|
|
|
|
|
|
|
|
|
|
|
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-72
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
23 EQUITY
Equity at September 30, 2010 consisted of a negative
balance of €288 million, of this balance a negative
amount equal to €1,146 million is attributable to
owners of the Parent and €858 million (positive) to
non-controlling interests.
The negative equity is due to the full impairment of the
goodwill attributable to the WIND Hellas subsidiaries, equal to
a total amount of €2,293 million, of which
€1,521 million recognized at June 30, 2009 and
€772 million recognized at June 30, 2010, as a
consequence of the negative performance of the Greek operation
described in note 1.2.
The following table summarizes the main changes in equity for
the first nine months of 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Attributable to Owners of the Parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves/
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
|
|
|
|
|
|
Retained
|
|
|
Attributable
|
|
|
Non-
|
|
|
|
|
|
|
Issued
|
|
|
Premium
|
|
|
Legal
|
|
|
Earnings/(losses
|
|
|
to Owners of
|
|
|
Controlling
|
|
|
Total
|
|
|
|
Capital
|
|
|
Reserve
|
|
|
Reserve
|
|
|
Carried Forward)
|
|
|
the Parent
|
|
|
Interests
|
|
|
Equity
|
|
|
|
(Millions of euro)
|
|
|
Balances at January 1, 2009
|
|
|
503
|
|
|
|
3,196
|
|
|
|
117
|
|
|
|
(3,519
|
)
|
|
|
297
|
|
|
|
219
|
|
|
|
516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the period:
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(1,902
|
)
|
|
|
(1,902
|
)
|
|
|
111
|
|
|
|
(1,791
|
)
|
- Profit (loss) for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,723
|
)
|
|
|
(1,723
|
)
|
|
|
153
|
|
|
|
(1,570
|
)
|
- Translation differences
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39
|
)
|
|
|
(39
|
)
|
|
|
(50
|
)
|
|
|
(89
|
)
|
- Cash Flow hedge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(135
|
)
|
|
|
(135
|
)
|
|
|
7
|
|
|
|
(128
|
)
|
- Other movements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
1
|
|
|
|
(4
|
)
|
Transactions with equity holders:
|
|
|
62
|
|
|
|
99
|
|
|
|
0
|
|
|
|
(76
|
)
|
|
|
85
|
|
|
|
(38
|
)
|
|
|
47
|
|
- Share capital increase (decrease)
|
|
|
62
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
161
|
|
|
|
|
|
|
|
161
|
|
- Payment into the reserve for future capital increases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(151
|
)
|
|
|
(151
|
)
|
|
|
|
|
|
|
(151
|
)
|
- Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
(48
|
)
|
|
|
(48
|
)
|
- Transactions on OTH’s shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
62
|
|
|
|
30
|
|
|
|
92
|
|
- Other movements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
13
|
|
|
|
(20
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2009
|
|
|
565
|
|
|
|
3,295
|
|
|
|
117
|
|
|
|
(5,497
|
)
|
|
|
(1,520
|
)
|
|
|
292
|
|
|
|
(1,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at January 1, 2010
|
|
|
565
|
|
|
|
3,295
|
|
|
|
118
|
|
|
|
(4,461
|
)
|
|
|
(483
|
)
|
|
|
290
|
|
|
|
(193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the period:
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(606
|
)
|
|
|
(606
|
)
|
|
|
371
|
|
|
|
(235
|
)
|
- Profit (loss) for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(648
|
)
|
|
|
(648
|
)
|
|
|
363
|
|
|
|
(285
|
)
|
- Translation differences
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
(29
|
)
|
|
|
(27
|
)
|
|
|
(56
|
)
|
- Fair value on AFS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
0
|
|
|
|
(1
|
)
|
- Cash Flow hedge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
35
|
|
|
|
(2
|
)
|
|
|
33
|
|
- Other movements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
37
|
|
|
|
37
|
|
|
|
74
|
|
Transactions with equity holders:
|
|
|
0
|
|
|
|
(6
|
)
|
|
|
0
|
|
|
|
(51
|
)
|
|
|
(57
|
)
|
|
|
197
|
|
|
|
140
|
|
- Dividends
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
(50
|
)
|
- Transactions on OTH’s shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
279
|
|
|
|
275
|
|
- Other movements
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
(47
|
)
|
|
|
(3
|
)
|
|
|
(82
|
)
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2010
|
|
|
565
|
|
|
|
3,289
|
|
|
|
118
|
|
|
|
(5,118
|
)
|
|
|
(1,146
|
)
|
|
|
858
|
|
|
|
(288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-73
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
In February 2010, the majority shareholder Weather
Investments II Sàrl transferred to Weather Investments
SpA 13,626,733 shares to two new investors, TNT Holding
Sàrl and Xxxxxxxx Investments Sàrl.
In particular, TNT Holding Sàrl acquired 2,106,805
class A shares for a consideration equal to
€32 million, and 3,564,334 class D shares plus
2,195,630 class E shares, for an overall consideration
equal to USD 20.3 million (roughly equal to
€16.5 million). The new investor Xxxxxxxx Investments
Sàrl acquired 3,564,334 class D shares plus 2,195,630
class E shares, for an overall consideration equal to
USD 20.3 million (roughly equal to
€16.5 million).
At September 30, 2010, the Company’s share capital is
equal to €754,090,920.15 consisting of
754,090,920 shares without nominal amount, held as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Class C
|
|
|
Class D
|
|
|
Class E
|
|
|
Total
|
|
|
|
|
Entity
|
|
Shares
|
|
|
Shares
|
|
|
Shares
|
|
|
Shares
|
|
|
Shares
|
|
|
Shares
|
|
|
%
|
|
|
Weather Investments II Sàrl
|
|
|
360,820,530
|
|
|
|
—
|
|
|
|
65,814,228
|
|
|
|
48,718,023
|
|
|
|
30,010,301
|
|
|
|
505,363,082
|
|
|
|
67.02
|
%
|
WIND Acquisition Holdings Finance SpA
|
|
|
41,297,533
|
|
|
|
7,489,007
|
|
|
|
9,735,708
|
|
|
|
—
|
|
|
|
—
|
|
|
|
58,522,248
|
|
|
|
7.76
|
%
|
APAX Investors
|
|
|
—
|
|
|
|
32,907,115
|
|
|
|
9,872,134
|
|
|
|
23,946,795
|
|
|
|
14,751,225
|
|
|
|
81,477,269
|
|
|
|
10.81
|
%
|
MDCP Investors
|
|
|
—
|
|
|
|
16,453,558
|
|
|
|
4,936,067
|
|
|
|
11,973,397
|
|
|
|
7,375,613
|
|
|
|
40,738,635
|
|
|
|
5.40
|
%
|
TA Investors
|
|
|
—
|
|
|
|
16,453,558
|
|
|
|
4,936,067
|
|
|
|
11,973,397
|
|
|
|
7,375,613
|
|
|
|
40,738,635
|
|
|
|
5.40
|
%
|
Other investors
|
|
|
10,857,262
|
|
|
|
1,586,831
|
|
|
|
2,062,882
|
|
|
|
7,886,185
|
|
|
|
4,857,891
|
|
|
|
27,251,051
|
|
|
|
3.61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
412,975,325
|
|
|
|
74,890,069
|
|
|
|
97,357,086
|
|
|
|
104,497,797
|
|
|
|
64,370,643
|
|
|
|
754,090,920
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
It should be noted that in August 2010, the shareholder Weather
Investments II Sàrl pledged 7,861,636 Class D
shares of Weather in favor of Bank Misr.
The Shareholders approved the annual financial statements as of
and for the year ended December 31, 2009 at the ordinary
general meeting of April 18, 2010, at the same time
approving the carry-forward of the loss for the year of
€745,614,827. At their ordinary general meeting held on
May 29, 2010, the Shareholders of the Parent, approved the
distribution of dividends, through distributable reserves, for
an overall amount equal to €50 million, therefore,
about €0.063 per share. Following such resolution,
€47.5 million has been distributed while
€2.5 million has been allocated to a warrants reserve,
in order to consider the shares the warrant-holders are entitled
to subscribe pursuant to the Regulations of the Weather
Investments SpA Warrants.
It should be noted that according to the Weather Warrants
Regulations, the holders of warrants could have exercised their
warrants to subscribe a certain number of shares of Weather
Investments SpA from April 1, 2006 to August 11,
2010. The warrant exercise period expired with no warrants
holders having exercised their rights for the shares.
Therefore, the warrants reserve created by the March 13,
2007 resolution of the shareholders of Weather Investments SpA
in connection with the exercise of warrants (now equal to
€44 million) has expired, together with the warrants
exercise period. The warrants reserve was initially created
with funds from the share premium reserve. At
September 30, 2010, the warrants reserve has been allocated
back within the share premium reserve pursuant to the
above-mentioned March 13, 2007 shareholders’
resolution.
With reference to transactions on OTH’s shares, it should
be noted that on January 13, 2010, the subsidiary Orascom
Telecom Holding SAE (OTH) announced that it will increase its
share capital to further strengthen the Company’s financial
position and ensure OTH’s liquidity, necessary to meet the
OTH’s Group financial
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-74
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
requirements. This share capital increase occurred in the first
nine months of 2010 as previously detailed in note 1.1.
The following table provides details of income and expense
recognized directly in equity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010
|
|
|
At September 30, 2009
|
|
|
|
Gross
|
|
|
Tax
|
|
|
|
|
|
Gross
|
|
|
Tax
|
|
|
|
|
|
|
Reserve
|
|
|
Effect
|
|
|
Total
|
|
|
Reserve
|
|
|
Effect
|
|
|
Total
|
|
|
|
(Millions of euro)
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange differences on translating foreign operations
|
|
|
(56
|
)
|
|
|
0
|
|
|
|
(56
|
)
|
|
|
(89
|
)
|
|
|
0
|
|
|
|
(89
|
)
|
Available-for-sale
financial assets
|
|
|
(1
|
)
|
|
|
0
|
|
|
|
(1
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Cash flow xxxxxx
|
|
|
45
|
|
|
|
(12
|
)
|
|
|
33
|
|
|
|
(180
|
)
|
|
|
52
|
|
|
|
(128
|
)
|
Other
|
|
|
82
|
|
|
|
(8
|
)
|
|
|
74
|
|
|
|
(4
|
)
|
|
|
0
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income for the period, net of tax
|
|
|
70
|
|
|
|
(20
|
)
|
|
|
50
|
|
|
|
(273
|
)
|
|
|
52
|
|
|
|
(221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The loss for the period attributable to owners of the Parent
amounts to €648 million.
24 FINANCIAL
LIABILITIES
At September 30, 2010, Financial liabilities amount
to €17,376 million (€18,168 million at
December 31, 2009) with a decrease of
€792 million over December 31, 2009.
It should be noted that due to the critical financial situation
WIND Hellas Group is facing, the Group has not met certain of
the minimum covenant/mandatory repayment requirements;
therefore, all affected bonds (€1,583 million) and
bank loans (€252 million) were reclassified as current
financial liabilities under IAS 1 by the WIND Hellas Group.
Furthermore, it should be noted that at December 31, 2009,
the balance Bank loans did not include ECMS figures, for
€315 million, which starting from September 30,
2010, has been accounted for using the equity method, please
refer to note 5.
The following table provides details of the balance at
September 30, 2010 and December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010
|
|
|
At December 31, 2009
|
|
|
|
Current
|
|
|
Non Current
|
|
|
Total
|
|
|
Current
|
|
|
Non Current
|
|
|
Total
|
|
|
|
(Millions of euro)
|
|
|
Bond issues
|
|
|
1,805
|
|
|
|
5,765
|
|
|
|
7,570
|
|
|
|
230
|
|
|
|
7,014
|
|
|
|
7,244
|
|
Shareholder loans
|
|
|
0
|
|
|
|
1,373
|
|
|
|
1,373
|
|
|
|
0
|
|
|
|
1,268
|
|
|
|
1,268
|
|
Bank loans
|
|
|
1,434
|
|
|
|
6,541
|
|
|
|
7,975
|
|
|
|
912
|
|
|
|
8,065
|
|
|
|
8,977
|
|
Loans from others
|
|
|
17
|
|
|
|
2
|
|
|
|
19
|
|
|
|
25
|
|
|
|
15
|
|
|
|
40
|
|
Derivative financial instruments
|
|
|
162
|
|
|
|
277
|
|
|
|
439
|
|
|
|
176
|
|
|
|
463
|
|
|
|
639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,418
|
|
|
|
13,958
|
|
|
|
17,376
|
|
|
|
1,343
|
|
|
|
16,825
|
|
|
|
18,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond
Issues
At September 30, 2010, Bond Issues amount to
€7,570 million (€7,244 million at
December 31, 2009) with an increase of
€326 million.
The change occurred is mainly coming from:
|
|
|
|
•
|
a new amortizing Senior Secured Bond of an amount of
BDT7.07 billion (roughly €74 million) issued by
Orascom Telecom Bangladesh (SHEBA) and due in June 2014. The
carrying amount of this bond is equal to €73 million
at September 30, 2010;
|
|
|
•
|
the accrued finance expense (€110 million) and changes
in foreign exchange rates (€205 million).
|
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-75
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
The following table provides details of “Bond issues”
outstanding at September 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Nominal
|
|
|
Issue
|
|
|
|
|
|
|
|
|
|
|
|
|
Group
|
|
Entity
|
|
Description
|
|
Amount
|
|
|
Amount
|
|
|
Price
|
|
|
Currency
|
|
|
Due Date
|
|
|
Interest Rate
|
|
Price
|
|
|
WAHF Group
|
|
WIND SpA
|
|
Senior Notes 2015 (I tranche Eur)
|
|
|
801
|
|
|
|
825
|
|
|
|
100.00
|
%
|
|
|
EUR
|
|
|
|
12/01/2015
|
|
|
11.00%
|
|
|
105.63
|
%
|
WAHF Group
|
|
WIND SpA
|
|
Senior Notes 2015 (I tranche USD)
|
|
|
356
|
|
|
|
500
|
|
|
|
100.00
|
%
|
|
|
USD
|
|
|
|
12/01/2015
|
|
|
12.00%
|
|
|
106.50
|
%
|
WAHF Group
|
|
WIND SpA
|
|
Senior Notes 2015 (II tranche Eur)
|
|
|
128
|
|
|
|
125
|
|
|
|
106.00
|
%
|
|
|
EUR
|
|
|
|
12/01/2015
|
|
|
11.00%
|
|
|
105.63
|
%
|
WAHF Group
|
|
WIND SpA
|
|
Senior Notes 2015 (II tranche USD)
|
|
|
113
|
|
|
|
150
|
|
|
|
105.50
|
%
|
|
|
USD
|
|
|
|
12/01/2015
|
|
|
12.00%
|
|
|
106.50
|
%
|
WAHF Group
|
|
WIND SpA
|
|
Senior Notes 2017 (Eur)
|
|
|
1,223
|
|
|
|
1,250
|
|
|
|
96.3
|
%
|
|
|
EUR
|
|
|
|
07/15/2017
|
|
|
11.75%
|
|
|
114.50
|
%
|
WAHF Group
|
|
WIND SpA
|
|
Senior Notes 2017 (USD)
|
|
|
1,473
|
|
|
|
2,000
|
|
|
|
97.5
|
%
|
|
|
USD
|
|
|
|
07/15/2017
|
|
|
11.75%
|
|
|
112.00
|
%
|
WAHF Group
|
|
WAHF SA
|
|
PIK Proceeds Loan Agreement (Eur)
|
|
|
356
|
|
|
|
325
|
|
|
|
98.3
|
%
|
|
|
EUR
|
|
|
|
07/15/2017
|
|
|
12.25%
|
|
|
107.75
|
%
|
WAHF Group
|
|
WAHF SA
|
|
PIK Proceeds Loan Agreement (USD)
|
|
|
509
|
|
|
|
625
|
|
|
|
98.3
|
%
|
|
|
USD
|
|
|
|
07/15/2017
|
|
|
12.25%
|
|
|
108.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
WAHF Group
|
|
|
|
|
4,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weather Finance Group
|
|
Hellas III
|
|
Senior Notes
|
|
|
369
|
|
|
|
355
|
|
|
|
100.00
|
%
|
|
|
EUR
|
|
|
|
10/15/2013
|
|
|
9.50%
|
|
|
2.00
|
%
|
Weather Finance Group
|
|
Hellas V
|
|
Senior Secured
Notes-925m
issue
|
|
|
959
|
|
|
|
925
|
|
|
|
100.00
|
%
|
|
|
EUR
|
|
|
|
10/15/2012
|
|
|
3M Euribor + 6%
|
|
|
27.92
|
%
|
Weather Finance Group
|
|
Hellas V
|
|
Senior Secured
Notes-200m
issue
|
|
|
206
|
|
|
|
200
|
|
|
|
100.25
|
%
|
|
|
EUR
|
|
|
|
10/15/2012
|
|
|
3M Euribor + 6%
|
|
|
27.92
|
%
|
Weather Finance Group
|
|
Hellas V
|
|
Senior Secured
Notes-97.25m
issue
|
|
|
101
|
|
|
|
97
|
|
|
|
100.63
|
%
|
|
|
EUR
|
|
|
|
10/15/2012
|
|
|
3M Euribor + 6%
|
|
|
27.92
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
Weather Finance Group
|
|
|
|
|
1,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTH Group
|
|
PMCL
|
|
Euro Bond (Senior Notes)
|
|
|
84
|
|
|
|
112
|
|
|
|
9,690
|
|
|
|
USD
|
|
|
|
11/13/2013
|
|
|
8.625%
|
|
|
|
|
OTH Group
|
|
PMCL
|
|
Pak Oman Investment Company Limited
|
|
|
29
|
|
|
|
3,256
|
|
|
|
3,256
|
|
|
|
PKR
|
|
|
|
05/31/2013
|
|
|
15.1%
|
|
|
|
|
OTH Group
|
|
PMCL
|
|
Allied Bank
Limited-Islamabad
|
|
|
13
|
|
|
|
1,508
|
|
|
|
1,458
|
|
|
|
PKR
|
|
|
|
10/01/2010
|
|
|
13.7%
|
|
|
|
|
OTH Group
|
|
PMCL
|
|
Allied Bank Limited-Karachi
|
|
|
35
|
|
|
|
4,257
|
|
|
|
4,257
|
|
|
|
PKR
|
|
|
|
10/28/2013
|
|
|
14.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total PMCL
|
|
|
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTH Group
|
|
OTF SCA
|
|
Senior Notes
|
|
|
550
|
|
|
|
750
|
|
|
|
750
|
|
|
|
USD
|
|
|
|
08/02/2014
|
|
|
7.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total Orascom Telecom Finance SCA
|
|
|
|
|
|
|
550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTH Group
|
|
SHEBA
|
|
Senior Secured Bonds Due 2014
|
|
|
73
|
|
|
|
7,070
|
|
|
|
—
|
|
|
|
BTD
|
|
|
|
06/30/2014
|
|
|
13.50%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total Sheba
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTH Group
|
|
Orascom Telecom
OSCAR
|
|
Indexed linked notes
|
|
|
193
|
|
|
|
230
|
|
|
|
—
|
|
|
|
USD
|
|
|
|
02/18/2013
|
|
|
5.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total Orascom Telecom OSCAR
|
|
|
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
OTH Group
|
|
|
|
|
976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
7,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-76
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
Shareholder
loans
The balance of €1,373 million (including interest
expense of €288 million, of which
€105 million for the first nine months of
2010) represents the long-term payable due to shareholders
deriving from the obligations arising on the issue of the
class B — C — D and E shares, with the
exception of Weather Investments II Sàrl, the majority
shareholder, which has formally waived all the rights attributed
solely to its class C shares.
Bank
loans
At September 30, 2010, Bank Loans amount to
€7,975 million (€8,977 million at
December 31, 2009) with a decrease of
€1,002 million.
The main changes occurred in the first nine months of 2010 are
the following:
WAHF
Group
|
|
|
|
•
|
on January 12, 2010, the subsidiary WIND Telecomunicazioni
SpA made an early repayment of €336 million
attributable to the A1 tranche of the Credit Facility
Agreement. Consequently, the next deadline for the repayment of
principal is scheduled for December 31, 2011. In addition,
on August 9, 2010 the subsidiary WIND Telecomunicazioni SpA
made an early repayment of an additional €27 million
due under the Credit Facility Agreement for all tranches.
Please refer to note 30 for update on the WAHF Group
financial situation.
|
|
|
|
|
•
|
during March 2010, the subsidiary Weather Capital Special
Purpose 1 SA made two early repayments for a total consideration
equal to €150 million relating to the Collateralised
Guaranteed Notes. In particular, €120 million was
paid on March 8, 2010 and €30 million on
March 22, 2010. At September 30, 2010, the
outstanding amount of the Collateralised Notes, equal to
€389 million has been reclassified to current
financial liabilities and the Group is evaluating possible
option for its refinancing.
|
|
|
|
|
•
|
the subsidiary OTH repaid two instalments of the A1 and A2 term
loan early for a total consideration of USD150 million
(roughly equal to €110 million). Furthermore, OTH
repaid USD200 million (roughly equal to
€147 million) of the Revolving Credit Supplement,
USD38 million (roughly equal to €28 million) to
settle the Audi bank debt and €2 million to pay the
last instalment due to Fortis bank;
|
|
|
•
|
the subsidiary OTA repaid the Citibank bank loan for
DZD12.5 billion (equal to €123 million) and
Caylon bank loan for DZD1.9 billion (equal to
€19 million);
|
|
|
•
|
the subsidiary Telecel Globe reclassified the non current
portion of Powercom financing from banks, amounting to
USD41 million (€30 million) to current portion as
the company was not able to meet the covenants. Please refer to
note 30 for update on the OTH Group financial situation.
|
The bank loans are subject to the Group meeting certain
covenants/mandatory repayments that are:
Covenants
|
|
|
|
•
|
Minimum liquidity
|
|
|
•
|
Interest Cover (the ratio of EBITDA to Total Net Cash Interest
Expense for the twelve-month period ending on each Quarterly
Test Date)
|
|
|
•
|
Net Secured Debt to EBITDA Ratio
|
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-77
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
Mandatory
repayments
|
|
|
|
•
|
An amount of €17.5 million for the Revolving Credit
Facility
|
As described above, considering the critical financial situation
WIND Hellas Group is facing, the Group has not met certain of
the minimum covenant/mandatory repayment requirements;
therefore, all affected bonds (for €1,583 million) and
bank loans (for €252 million) were reclassified as
current financial liabilities under IAS 1 by the WIND Hellas
Group.
The following table provides details of “Bank Loans”
outstanding at September 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Nominal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions
|
|
|
(in millions
|
|
|
|
|
Due
|
|
Interest
|
Group
|
|
Entity
|
|
|
|
of euro)
|
|
|
of issuing currency)
|
|
|
Currency
|
|
Date
|
|
rate
|
|
WAHF Group
|
|
WIND SpA
|
|
Credit Facility Agreement-Tranche A1
|
|
|
818
|
|
|
|
825
|
|
|
EUR
|
|
05/26/2012
|
|
Euribor + 2.375%
|
WAHF Group
|
|
WIND SpA
|
|
Credit Facility Agreement-Tranche B1
|
|
|
1,445
|
|
|
|
1,476
|
|
|
EUR
|
|
05/26/2013
|
|
Euribor + 3.125%
|
WAHF Group
|
|
WIND SpA
|
|
Credit Facility Agreement-Tranche B2
|
|
|
54
|
|
|
|
75
|
|
|
USD
|
|
05/26/2013
|
|
Libor + 3.125%
|
WAHF Group
|
|
WIND SpA
|
|
Credit Facility Agreement-Tranche C1
|
|
|
1,440
|
|
|
|
1,476
|
|
|
EUR
|
|
05/26/2014
|
|
Euribor + 4.375%
|
WAHF Group
|
|
WIND SpA
|
|
Credit Facility Agreement-Tranche C2
|
|
|
53
|
|
|
|
75
|
|
|
USD
|
|
05/26/2014
|
|
Libor + 4.375%
|
WAHF Group
|
|
WIND SpA
|
|
Second Lien
|
|
|
541
|
|
|
|
552
|
|
|
EUR
|
|
11/26/2014
|
|
Euribor + 7.250%
|
WAHF Group
|
|
WIND SpA
|
|
Second Lien
|
|
|
129
|
|
|
|
180
|
|
|
USD
|
|
11/26/2014
|
|
Libor + 7.250%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub total WIND Telecom SpA
|
|
|
4,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub total WAHF Group
|
|
|
|
|
4,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wc Group
|
|
Weather Capital Special Purposel
|
|
Collateralized notes
|
|
|
398
|
|
|
|
379
|
|
|
EUR
|
|
04/20/2010
|
|
Euribor 3m + 4.5%
|
Sub-total Weather Capital Group
|
|
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
|
OTH Group
|
|
PMCL
|
|
Citibank N.A-Islamabad-Pakistan
|
|
|
3
|
|
|
|
1.740
|
|
|
PKR
|
|
02/07/11
|
|
6 months KIBOR + 1.25%
|
OTH Group
|
|
PMCL
|
|
Royal Bank of Scotland (Formarly ABN AMRO Bank)-Islamabad-
Pakistan
|
|
|
31
|
|
|
|
3,548
|
|
|
PKR
|
|
12/18/2012
|
|
6 months KIBOR + 1.30%
|
OTH Group
|
|
PMCL
|
|
Habib Bank Limited-Islamabad-Pakistan (2007)
|
|
|
26
|
|
|
|
3,000
|
|
|
PKR
|
|
12/18/2013
|
|
6 months KIBOR + 1.30%
|
OTH Group
|
|
PMCL
|
|
Royal Bank of Scotland, London-Citibank London-ECGD-ECA
|
|
|
7
|
|
|
|
48
|
|
|
USD
|
|
02/28/2012
|
|
6 months KIBOR + 0.4%
|
OTH Group
|
|
PMCL
|
|
Royal Bank of Scotland, London-Citibank London-COFACE Loan-ECA
|
|
|
29
|
|
|
|
125
|
|
|
EUR
|
|
12/30/2011
|
|
6 months KIBOR + 0.8%
|
OTH Group
|
|
PMCL
|
|
Royal Bank of Scotland, London-AB Svensk
ExportKredit-Sweden-Hermes-ECA
|
|
|
4
|
|
|
|
46
|
|
|
EUR
|
|
03/29/2011
|
|
6 months KIBOR + 0.8%
|
OTH Group
|
|
PMCL
|
|
Royal Bank of Scotland, London-The OPEC Fund for International
Development-EPA
|
|
|
4
|
|
|
|
10
|
|
|
EUR
|
|
12/15/2011
|
|
6 months KIBOR + 2.5%
|
OTH Group
|
|
PMCL
|
|
Royal Bank of Scotland, London; Citibank International plc;
Sumitomo Mitsui Banking Corporation Europe Limited-ECGD-ECA
Round II
|
|
|
28
|
|
|
|
70
|
|
|
USD
|
|
02/28/2014
|
|
6 months KIBOR + 0.18%
|
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-78
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Nominal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions
|
|
|
(in millions
|
|
|
|
|
Due
|
|
Interest
|
Group
|
|
Entity
|
|
|
|
of euro)
|
|
|
of issuing currency)
|
|
|
Currency
|
|
Date
|
|
rate
|
|
OTH Group
|
|
PMCL
|
|
Royal Bank of Scotland, London; Citibank International plc;
Sumitomo Mitsui Banking Corporation Europe Limited-COFACE-ECA
Round II
|
|
|
42
|
|
|
|
85
|
|
|
EUR
|
|
12/31/2013
|
|
6 months KIBOR + 0.25%
|
OTH Group
|
|
PMCL
|
|
Royal Bank of Scotland, London; Citibank International plc;
Sumitomo Mitsui Banking Corporation Europe Limited-Hermes-ECA
Round II
|
|
|
29
|
|
|
|
110
|
|
|
EUR
|
|
03/16/2012
|
|
6 months KIBOR + 0.25%
|
OTH Group
|
|
PMCL
|
|
DEG-Germany
|
|
|
15
|
|
|
|
20
|
|
|
EUR
|
|
08/15/2013
|
|
6 months KIBOR + 3%
|
OTH Group
|
|
PMCL
|
|
FMO Netherlands
|
|
|
15
|
|
|
|
20
|
|
|
EUR
|
|
08/15/2013
|
|
6 months KIBOR + 3%
|
OTH Group
|
|
PMCL
|
|
MCB Bank Limited (PKR 22.060 Billion)-Islamabad-Pakistan
|
|
|
193
|
|
|
|
22,060
|
|
|
PKR
|
|
04/01/2014
|
|
6 months KIBOR + 1.30%
|
OTH Group
|
|
PMCL
|
|
SCB Bank Limited STFA (PKR 5.1 Billion)-Islamabad Pakistan
|
|
|
46
|
|
|
|
5,100
|
|
|
PKR
|
|
05/09/2013
|
|
6 months KIBOR + 2.65%
|
OTH Group
|
|
PMCL
|
|
Dubai Islamic Bank (Pakistan) Ltd. Ljara Facility PKR 700 Million
|
|
|
6
|
|
|
|
700
|
|
|
PKR
|
|
05/09/2012
|
|
6 months KIBOR + 2%
|
OTH Group
|
|
PMCL
|
|
Silkbank Limited PKR 400 Million
|
|
|
3
|
|
|
|
400
|
|
|
PKR
|
|
07/30/2015
|
|
1 month KIBOR + 2.25%
|
OTH Group
|
|
PMCL
|
|
HSBC Bank Middle East Limited-Islamabad-Pakistan
|
|
|
1
|
|
|
|
800
|
|
|
PKR
|
|
Within one year
|
|
1 month KIBOR + 1.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub total PMCL
|
|
|
482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTH Group
|
|
XXX
|
|
International Refinancing
|
|
|
21
|
|
|
|
100
|
|
|
EUR
|
|
03/2011
|
|
Euribor + 1%
|
OTH Group
|
|
XXX
|
|
Local Refinancing
|
|
|
15
|
|
|
|
105
|
|
|
TND
|
|
03/2011
|
|
TMM + 2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total XXX
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTH Group
|
|
OTA
|
|
Hermes Loan 2006
|
|
|
33
|
|
|
|
86
|
|
|
USD
|
|
11/15/2012
|
|
LIBOR + 0.6%
|
OTH Group
|
|
OTA
|
|
Coface Loan 2006
|
|
|
5
|
|
|
|
9,724
|
|
|
DZD
|
|
11/15/2012
|
|
BOA + 0.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total OTA
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTH Group
|
|
TWA
|
|
United Bank Limited
|
|
|
1
|
|
|
|
345
|
|
|
PKR
|
|
11/27/2013
|
|
6 months KIBOR + 3%
|
OTH Group
|
|
TWA
|
|
Habib Bank Limited
|
|
|
1
|
|
|
|
252
|
|
|
PKR
|
|
11/27/2013
|
|
6 months KIBOR + 3%
|
OTH Group
|
|
TWA
|
|
Allied Bank Limited
|
|
|
1
|
|
|
|
200
|
|
|
PKR
|
|
11/27/2013
|
|
6 months KIBOR + 3%
|
OTH Group
|
|
TWA
|
|
Askari Bank Limited
|
|
|
1
|
|
|
|
173
|
|
|
PKR
|
|
11/27/2013
|
|
6 months KIBOR + 3%
|
OTH Group
|
|
TWA
|
|
Standard Chartered Bank Pakistan Limited
|
|
|
1
|
|
|
|
173
|
|
|
PKR
|
|
11/27/2013
|
|
6 months KIBOR + 3%
|
OTH Group
|
|
TWA
|
|
Pak Oman Investment Company Limited
|
|
|
1
|
|
|
|
150
|
|
|
PKR
|
|
11/27/2013
|
|
6 months KIBOR + 3%
|
OTH Group
|
|
TWA
|
|
Other
|
|
|
1
|
|
|
|
315
|
|
|
PKR
|
|
11/27/2013
|
|
6 months KIBOR + 3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total TWA
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTH Group
|
|
XXXXX
|
|
Xxxxxx Facility
|
|
|
43
|
|
|
|
120
|
|
|
USD
|
|
07/01/2014
|
|
LIBOR + 1.8%
|
OTH Group
|
|
SHEBA
|
|
USD Commercial Facility
|
|
|
69
|
|
|
|
130
|
|
|
USD
|
|
08/01/2013
|
|
LIBOR + 4.7%
|
OTH Group
|
|
SHEBA
|
|
DFI Facility
|
|
|
20
|
|
|
|
30
|
|
|
USD
|
|
06/15/2014
|
|
LIBOR + 4.85%
|
OTH Group
|
|
SHEBA
|
|
BDTA Facility
|
|
|
11
|
|
|
|
2,520
|
|
|
BDT
|
|
06/30/2012
|
|
Local Money Market Rate
|
OTH Group
|
|
SHEBA
|
|
BDTB Facility
|
|
|
7
|
|
|
|
1,020
|
|
|
BDT
|
|
06/30/2014
|
|
Local Money Market Rate
|
OTH Group
|
|
SHEBA
|
|
Standard Chartered Bank, London
|
|
|
26
|
|
|
|
50
|
|
|
USD
|
|
09/30/2016
|
|
LIBOR + 2%
|
OTH Group
|
|
SHEBA
|
|
Standard Chartered Bank
|
|
|
6
|
|
|
|
1,039
|
|
|
BDT
|
|
03/13/2011
|
|
Local Money Market Rate
|
OTH Group
|
|
SHEBA
|
|
The City Bank
|
|
|
2
|
|
|
|
650
|
|
|
BDT
|
|
10/31/2010
|
|
Local Money Market Rate
|
OTH Group
|
|
SHEBA
|
|
Short Term WCS-SCB-650 mln
|
|
|
7
|
|
|
|
650
|
|
|
BDT
|
|
09/28/2010
|
|
Local Money Market Rate
|
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-79
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Nominal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions
|
|
|
(in millions
|
|
|
|
|
Due
|
|
Interest
|
Group
|
|
Entity
|
|
|
|
of euro)
|
|
|
of issuing currency)
|
|
|
Currency
|
|
Date
|
|
rate
|
|
OTH Group
|
|
SHEBA
|
|
Short Term WCS-SCB-1.21bln
|
|
|
13
|
|
|
|
1,210
|
|
|
BDT
|
|
08/28/2011
|
|
Local Money Market Rate
|
OTH Group
|
|
SHEBA
|
|
Dutch Bangla Bank Limited
|
|
|
3
|
|
|
|
780
|
|
|
BDT
|
|
10/31/2010
|
|
Local Money Market Rate
|
OTH Group
|
|
SHEBA
|
|
Pubali Bank Limited
|
|
|
2
|
|
|
|
750
|
|
|
BDT
|
|
11/30/2010
|
|
Local Money Market Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total SHEBA
|
|
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTH Group
|
|
TELECEL GLOBE
|
|
Nedcapital
|
|
|
16
|
|
|
|
156
|
|
|
NAD
|
|
06/30/2016
|
|
10.45%
|
OTH Group
|
|
TELECEL GLOBE
|
|
Investec bank
|
|
|
16
|
|
|
|
156
|
|
|
NAD
|
|
06/30/2016
|
|
10.45%
|
OTH Group
|
|
TELECEL GLOBE
|
|
Banque de development des etats de l’afrique Central
|
|
|
4
|
|
|
|
2,464
|
|
|
XAF
|
|
06/30/2015
|
|
9.25%
|
OTH Group
|
|
TELECEL GLOBE
|
|
Ecobank CentrAfrique S.A
|
|
|
3
|
|
|
|
3,000
|
|
|
XAF
|
|
08/10/2014
|
|
11.00%
|
OTH Group
|
|
TELECEL GLOBE
|
|
Banque Populaire Maroco Centrafricaine
|
|
|
1
|
|
|
|
850
|
|
|
XAF
|
|
02/28/2012
|
|
12.00%
|
OTH Group
|
|
TELECEL GLOBE
|
|
Commercial Bank Centrafrique
|
|
|
1
|
|
|
|
500
|
|
|
XAF
|
|
12 months revolving
|
|
10.00%
|
OTH Group
|
|
TELECEL GLOBE
|
|
Banque Populaire Maroco Centrafricaine
|
|
|
1
|
|
|
|
300
|
|
|
XAF
|
|
12 months revolving
|
|
12.00%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total TELECEL GLOBE
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTH Group
|
|
MED CABLE
|
|
Export Credit Calyon
|
|
|
2
|
|
|
|
12
|
|
|
EUR
|
|
9/13/2011
|
|
EURIBOR + 0.95%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total MED CABLE
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTH Group
|
|
OTH SAE
|
|
A1 Term Loan Supplemnt
|
|
|
636
|
|
|
|
888
|
|
|
USD
|
|
4/17/2013
|
|
LIBOR + 0.3%
|
OTH Group
|
|
OTH SAE
|
|
A2 Term Loan Supplemnt
|
|
|
331
|
|
|
|
462
|
|
|
USD
|
|
4/17/2013
|
|
LIBOR + 0.3%
|
OTH Group
|
|
OTH SAE
|
|
Revolving Credit Supplemnt
|
|
|
734
|
|
|
|
1,000
|
|
|
USD
|
|
4/17/2013
|
|
LIBOR + 0.3%
|
OTH Group
|
|
OTH SAE
|
|
NSGB-Car Loan
|
|
|
1
|
|
|
|
11
|
|
|
EGP
|
|
2/28/2013
|
|
12.50%
|
OTH Group
|
|
OTH SAE
|
|
NSGB-Car Loan New Ext2
|
|
|
1
|
|
|
|
9
|
|
|
EGP
|
|
3/8/2014
|
|
11.50%
|
OTH Group
|
|
OTH SAE
|
|
NSGB-Car Loan New
|
|
|
1
|
|
|
|
5
|
|
|
EGP
|
|
3/8/2014
|
|
11.50%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total OTH SAE
|
|
|
1,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTH Group
|
|
INTOUCH
|
|
NBAD
|
|
|
1
|
|
|
|
35
|
|
|
EGP
|
|
1/4/2011
|
|
Discount rate + 2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total INTOUCH
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
OTH Group
|
|
|
|
|
2,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weather Finance Group
|
|
Wind Hellas Telecommunications SA
|
|
Loan from National Bank of Greece
|
|
|
2
|
|
|
|
3
|
|
|
EUR
|
|
12/31/2011
|
|
6m Euribor + 1.75%
|
Weather Finance Group
|
|
Wind Hellas Telecommunications SA
|
|
Loan from National Bank of Greece
|
|
|
5
|
|
|
|
10
|
|
|
EUR
|
|
12/31/2011
|
|
6m Euribor + 1.75%
|
Weather Finance Group
|
|
Hellas Telecommunications V SCA
|
|
Revolving Credit Facility
|
|
|
250
|
|
|
|
250
|
|
|
EUR
|
|
04/03/2012
|
|
6m Euribor + 3.25%
|
Weather Finance Group
|
|
Wind Hellas Telecommunications SA
|
|
Derivatives liability from hedging unwinding agreements
|
|
|
39
|
|
|
|
|
|
|
EUR
|
|
11/05/2010
|
|
|
Hellas Group
|
|
Hellas Telecommunications Finance SCA
|
|
Senior PIK Notes
|
|
|
282
|
|
|
|
200
|
|
|
EUR
|
|
7/15/2015
|
|
3M Euribor + 8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
Weather Finance and Hellas
|
|
|
|
|
577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
7,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-80
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
Certain group companies are required to comply with financial
covenants for their bond issues and bank loans. Some of these
covenants are tied to their performance while others are tied to
external factors, such as the stock market price of the Orascom
share. Up to September 30, 2010, there has not been any
breach of the financial covenants, except for that mentioned
above.
At September 30, 2010, Derivative financial instruments
amount to €439 million (€639 million at
December 31, 2009) with a decrease of
€200 million. Changes in the fair value of
derivatives arise mainly from variations in the interest rate
curve and movements in the Euro/USD exchange rate over the
period which is mainly attributable to the WIND Group.
The positive change in fair value of embedded derivatives on the
PIK Proceed Loan Agreement of WIND Acquisition Holdings Finance
SpA is mainly attributable to the significant increase in the
credit rating volatility of the issuer occurred during the
period. The subsidiary enhanced its evaluation model in order
to better represent this value.
The derivative financial liabilities mainly refer to: the cross
currency swaps hedging the currency risk relating to the
tranches of bank loans and bonds denominated in USD (for
€110 million), the plain vanilla interest rate swaps
and plain vanilla forward start interest rate swaps hedging the
interest rate risk of bank loans (for €238 million)
relating to the WAHF Group. Furthermore, the balance includes
the OTH Group derivatives hedging the interest rate risk
relating to the tranches of bank loans and bonds (for
€91 million).
Cash flows from operating activities amounted to
€1,076 million at September 30, 2010, a decrease
of €452 million over the corresponding period of 2009,
mainly relates to the change in working capital due to operating
activities and the deconsolidation of ECMS/Mobil, which has been
accounted for using the equity method starting from the third
quarter of 2010.
Investing activities used cash for a total amount of
€923 million compared to cash of
€1,334 million used in the first nine months of 2009.
The investing activities of the period used cash for the
acquisition of property, plant and equipment primarily as the
result of the expansion of the telecommunications networks by
the operating companies of WIND Group and OTH Group, as well as
plant and machinery under construction mainly relating to
development of the 3G mobile technologies of the WIND Group.
In particular, the more significant investments of the OTH Group
relates to Bangladesh (Banglalink) and Tunisia (Tunisiana) which
have been partially offset by the significant decrease in
Algeria (-74%), due to the blocking of imports of equipment and
spare parts, and Pakistan (-23%) due to the delays caused by the
flood that hit the country, as already described in
note 17. Furthermore, the change of the period includes
the additional financing to Canada (Globalive) and North Korea
(Koryolink) for a total amount of €194 million and the
gain of USD300 million (equal to €234 million) on
the transaction between OTH and France Telecom for the sale of
ECMS/Mobinil.
Net cash used in financing activities amounted to
€789 million compared to €336 million in the
first nine months of 2009. The movements of the period mainly
refer to the changes in bonds issued and bank loans as already
detailed in note 24, to the distribution of dividends
amounting to €44 million and to changes in other
financial assets and liabilities for €9 million.
Transactions on OTH’s shares, amounting to
€275 million, are mainly due to the portion of the OTH
share capital increase subscribed by its minority shareholders.
With reference to the cash flows from discontinued
operations/assets held for sale, please refer to note 5.
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-81
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
26 RELATED
PARTY TRANSACTIONS
Transactions
and balances with related parties
The transactions with related parties described below are those
with Weather Group companies.
Transactions with related parties are entered into as part of
normal business operations and, from an economic point of view,
are negotiated on an arm’s length basis.
Except for WIND Acquisition Holdings Finance SpA, which has a
7.76% interest in the Parent, the other Group companies did not
hold either at September 30, 2010, or at any time during
the period shares of the Parent, either directly or through
trustees, nor shares in any company controlling the Parent.
The following table summarizes the main effects of related party
transactions taking place during the first nine months of 2010
on the income statement and the statement of financial position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Nine-Month Period Ended September 30,
2010
|
|
|
|
Revenue
|
|
|
Expenses
|
|
|
Receivables
|
|
|
Payables
|
|
|
|
(Millions of euro)
|
|
|
Globalive Canada
|
|
|
69
|
|
|
|
0
|
|
|
|
625
|
|
|
|
0
|
|
Orascom Construction
|
|
|
0
|
|
|
|
1
|
|
|
|
0
|
|
|
|
1
|
|
Orascom Trading
|
|
|
0
|
|
|
|
5
|
|
|
|
0
|
|
|
|
1
|
|
Summit Technology Solutions
|
|
|
0
|
|
|
|
3
|
|
|
|
0
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
69
|
|
|
|
9
|
|
|
|
625
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key
management personnel
The members of the Board of Directors of Weather Investments
SpA, the members of the Board of Directors of WIND
Telecomunicazioni SpA, the members of the Board of Directors of
WIND Hellas SA and the general manager and managing director of
Orascom Telecom Holding SAE are considered to be “Key
management personnel”. The compensation due to them
amounts to approximately €3 million for the first nine
months of 2010.
27 CONTINGENT
ASSETS
Former legal entity Xxxxxx filed two lawsuits against OTE in
December 2008 amounting to a total of €6.1 million.
More specifically, the first lawsuit refers to penalties that
Xxxxxx claimed from OTE for delays in delivery of Leased Lines
in the period 2003 to 2006 (€3.9 million) plus
€200 thousand for moral damages. OTE has offered to pay
€0.9 million for this claim under the condition that
Xxxxxx would restrict its claim to this amount. However, Xxxxxx
rejected the offer of OTE and proceeded to file an appeal. The
second lawsuit refers to the retroactive application of
cost-oriented prices in 2003 regarding interconnection rates,
ports and signalling (€1.8 million) plus €200
thousand for moral damages. The NTPC has already imposed a fine
on OTE for not applying said decision retroactively, thus
crediting OLOs for the amounts charged under the interim (non
cost-oriented) rates in 2003 to the extent that they exceed the
cost-oriented rates approved at the end of 2003 by the NTPC.
Both lawsuits scheduled to be heard in Court in September 2010,
have now been rescheduled for March 7, 2013.
The following section provides details of the Group’s
contingent liabilities and main pending legal proceedings at
September 30, 2010; provisions have been recognized for
these in the consolidated interim financial statements at that
date except where it is not possible to estimate the losses, if
any, which may arise from a negative outcome of the proceedings
or where a negative outcome is not deemed probable.
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-82
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
Italy
As regards to those reported in the notes to the consolidated
financial statements as of and for the year ended
December 31, 2009, there have been changes to the Audit by
the Italian Tax Authorities began during 2009 and with reference
to the application for a refund on interest payments made by
WIND to Wind Finance SL SA (the issuer of a second lien note
instrument) for 2005 and part of 2006 and the non payment of
withholding taxes on interest payments made by WIND to Wind
Finance SL SA for the remainder of 2006, 2007 and 2008. The
scope of the audit was expanded to also include the application
for a refund on interest payments made by WIND to WAF SA (the
issuer of high yield bonds) for 2005 and part of 2006 and the
non payment of withholding taxes on interest payments made by
WIND to the Wind Acquisition Finance SA for the remaining part
of 2006 and for 2007 and 2008.
In particular, on May 31, 2010 the findings of the audit
were submitted to WIND in a report confirming the view that
withholding taxes had to be applied and proposing that the tax
authorities impose a 12.5% withholding tax on the investigated
interest payments, for an approximate amount of
€70 million. The tax assessment has not yet been
issued by the tax authorities, and as such no payment obligation
has been realized. Were the Italian tax authorities to confirm
that the withholding tax on the relevant interest payments was
due WIND would be required to pay withholding taxes and possible
interest and penalties, unless WIND contests the assessment
before a tax court. On the basis of insights made, there have
been no provisions made in the financial statements of the
subsidiary at September 30, 2010.
Proceedings are still pending, in particular before the
administrative courts, regarding the installation of base
stations. These are mainly the result of current concerns about
electromagnetic radiation. The claims are of an undeterminable
monetary amount.
Proceedings
with agents
Certain proceedings are still pending at different judicial
stages relating to the termination of agency agreements
(including those with Xxxxxx Xxxxx, I&IA), in which the
agents seek payment from WIND of certain indemnities provided by
Italian legislation; these include the termination indemnity,
the collection indemnity, the indemnity in lieu of notice and
the indemnities pursuant to article 1751 of the Italian
Civil Code.
WIND/ITALGO
SPA
WIND was sued by Italgo SpA (formerly Delta SpA), which on the
declaration of a breach by WIND of certain provisions of an
agreement signed with Delta SpA for the provision of goods and
services (the “Commercial Agreement”) is seeking the
termination of the agreement and other related agreements, the
sentencing of WIND to pay a penalty of €3.3 million,
refund the price of €23 million paid for Delta SpA
shares and pay additional damages (to be quantified during the
proceedings) for the costs which Italgo alleges to have incurred
as the result of WIND’S breaches. Subordinately, the
plaintiff has asked for a reduction in the purchase price agreed
by the parties to be settled by offsetting this amount against
an amount of €9 million payable to WIND. On
March 19, 2010, an injunction was issued by the Court in
Rome ordering WIND to pay a sum total of € 3 million.
WIND appealed the decision, presently a negative outcome is
considered possible.
IOL/RTI
SpA
RTI SpA — Mediaset (“RTI”) initiated a
proceeding against ITALIA ONLINE Srl (“IOL”) before
the Court of Milan on the grounds that IOL continued to make
1,600 videos owned by RTI available on
xxx.xxxxxx.xxxxxxx.xx following the expiry of IOL’s
non-exclusive license for such video content on
December 31, 2008. RTL is claiming economic damages of an
amount of approximately €100 million. However, if the
Court recognizes the responsibility of IOL, it is probable that
the company will be liable for a payment of
€1 million. Following the hearing held on
July 14, 2010 IOL is in the process of filing the defensive
pleadings and the conclusions.
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-83
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
Proceedings
Concerning Crest One SpA
Crest One SpA (“Crest One’’) has initiated
proceedings against WIND for (i) the refund of an amount of
approximately €16 million, previously paid to WIND by
Crest One as value added tax under a distribution agreement
entered into by Crest One and WIND, and (ii) the
compensation for all damage suffered by Crest One (to be
determined following the trial) pursuant to the payment of such
value added tax by Crest One to WIND. The legal action is at
its initial phase and therefore it is not yet possible to
quantify any potential award. The next hearing will be held on
May 16, 2012.
Throughout a writ of summons notified on June 11, 2010,
Terna and Telat sued WIND and Xxxx.Xxx before the Court of Rome
in order to request the termination of three contracts executed
by Terna, Xxxx.Xxx and Telat, alleging the breach by Xxxx.Xxx
under article 1453 of the Italian Civil Code, relating to
contractual statements of review of the fees. In particular,
the contracts concern i) hosting Enel Net’s fiber by
Terna’s insfrastructure ii) the lease of the relevant
industrial sites; and iii) the maintenance of Enel
Net’s fiber cables. The first hearing, scheduled for
February 23, 2011 as indicated in the writ of summons, was
brought forward to January 19, 2011 following a request of
anticipation by Terna and Telat; at the present state of affairs
any losses to be incurred by the Group, while considered
possible, are unable to be determined.
Under legislative decree no. 146/2007, the Italian antitrust
authority has the power to initiate proceedings concerning
unfair commercial practices and misleading advertising and issue
fines of up to €500 thousand for each proceeding. In
particular, many of these proceedings brought against WIND
concerned the advertising of VAS; only one of these proceedings
is pending at the moment.
AGCM started a proceeding on January 5, 2010 against WIND
regarding undue telemarketing activities (i.e. calls to
customers that had not given their acceptance to be contacted).
On September 19, 2009, XXXX served two appeals on the
competent Ministries before the Regional Administrative Court
(the Lazio TAR), claiming for payment of the interest on the
amounts paid as turnover contribution (which amounts were found
to have been illegally assessed and were reimbursed to WIND on
July 12, 2007 and to the former Infostrada on
December 17, 2008).
Following a discussion hearing, as held on December 10,
2009, the Lazio TAR accepted WIND’S appeal, and on
December 17, 2009, the Ministry of the Economy and Finance
paid approximately €4.7 million in interest payments
to WIND. On January 20, 2010, a hearing was held to
discuss the appeal before the Lazio TAR for the repayment of
interest on the contribution paid by the former Infostrada. The
judge received only partially the WIND’S appeal as
successor of the former Infostrada, stating that the amount of
the interest payments started from April 18, 2006 rather
than, as demanded by WIND, from the date of payment of the
concerned amounts.
On May 25, 2010, XXXX filed a claim before the State
Council against the TAR Lazio’s ruling in order to obtain
the entire repayment of the interest payments related to the
amounts paid by the former Infostrada.
With a decision dated August 3, 2007, the Antitrust
Authority closed proceeding no. A/357 by condemning WIND and
Telecom Italia for abuse of their dominant positions in the
wholesale termination market due to the discriminatory
application of economic and technical conditions for
fixed-to-mobile
on net (fixed-mobile calls originating and terminating on the
WIND network) and intercom calls (the calls on the internal
telephone lines of a business customer) in favor of their
respective internal divisions and to the detriment of fixed-line
competitors. WIND was fined a sum of €2 million and
ordered to cease the discriminatory behaviour. WIND appealed
against
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-84
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
the decision by seeking the annulment before the Administrative
Court of Lazio (the Lazio TAR). The hearing was discussed on
January 23, 2008. The Lazio TAR rejected WIND’S
appeal on January 29, 2008 and the related decision was
published on April 7, 2008. On September 17, 2008
WIND filed an appeal before the State Council, seeking the
annulment of the above Lazio TAR’s decision. The related
hearing for the discussion before the State Council originally
scheduled for May 11, 2010 was postponed to
October 12, 2010.
During the hearing the Judge declared the interruption of the
proceedings due to the declaration by one of the interested
parties (Eutelia SpA) of its insolvency procedure. The
scheduling of a new hearing by the Judge is still pending.
Greece
WIND Hellas is involved in a dispute with Cyprus-based Xxxxxxxxx
Ltd (“Xxxxxxxxx”) relating to a September 1996
agreement between Stet Hellas Telecommunications SA (“Stet
Hellas”) (the corporate predecessor of WIND Hellas) and
Delan Cellular Services SA (“Delan”) pursuant to which
Delan agreed to develop and market pre-paid telecommunications
services using WIND Hellas’ network (the “Delan
Agreement”). WIND Hellas terminated the Delan Agreement in
January 1997 because of Delan’s failure to adequately
develop a platform for the pre-paid product in accordance with
the contractual timetable. WIND Hellas subsequently developed
the product. Pursuant to the arbitration clause in the Delan
Agreement, Xxxxx filed an arbitration seated in Greece against
WIND Hellas in February 1998, alleging wrongful termination of
the Delan Agreement and seeking direct damages of approximately
€0.3 million and lost profits of approximately
€79.5 million, plus accrued interest (the “Delan
Arbitration”).
On July 4, 2006, an award was issued in the Delan
Arbitration ordering WIND Hellas to pay Delan
€30.7 million plus interest. WIND Hellas requested
the annulment of the award before the Athens Court of Appeal,
and the Court annulled the award on procedural grounds.
WIND Hellas notified Delan of this decision on September 6,
2007 by sending a letter to Xxxxx’s registered office, as
required by the Greek Rules of Civil Procedure, and Delan failed
to file an appeal within the applicable deadline (one month from
service of the decision).
On October 29, 2007, WIND Hellas’ lawyers applied for
and obtained a certificate from the Court of Appeal that no
appeal had been filed within the applicable deadline, and the
matter was therefore considered closed by company management.
On February 29, 2008, WIND Hellas was notified by Alpha
Satellite Television SA (“Alfa Satellite”) of a
petition filed by it with the Greek Supreme Court in November
2007 with respect to the Delan case. According to the petition,
Alpha Satellite had merged with Delan in February 2007 and
thereby become a full successor to Xxxxx. WIND Hellas had not
been notified of the merger between Alpha Satellite and Delan or
Delan’s change of address. Alpha Satellite claimed that,
due to its merger with Delan, a three-year period was available
to it for appeal against the Court of Appeal’s ruling. The
hearing before the Supreme Court took place on May 5, 2008,
and in October 2008 the Supreme Court ruled in favour of WIND
Hellas and confirmed the annulment of the award rendered in the
Delan Arbitration. Alpha Satellite subsequently apparently
transferred the Delan claim to a third party, the Cyprus-based
Xxxxxxxxx.
On April 15, 2009, Xxxxxxxxx sent WIND Hellas a letter
seeking to reinstate the Delan claim. WIND Hellas responded to
the letter, rejecting Xxxxxxxxx’ arguments. Xxxxxxxxx
replied insisting on its arguments.
On October 14, 2009, Xxxxxxxxx filed a new claim before the
Athens Court of First Instance. The claim is based on the same
facts and raises the same legal arguments as the Delan
Arbitration, but Xxxxxxxxx claims a total of
€271.3 million (the same €0.3 million in
direct damages claimed in the Delan Arbitration, plus increased
lost profits and increased interest) plus interest from the
commencement of proceedings. The hearing of this new claim was
initially scheduled for January 20, 2010, but was postponed
until October 2010. On December 1, 2009, Xxxxxxxxx filed
an application for an interim injunction in order to safeguard
Xxxxxxxxx’ position in the event the Court rules in
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-85
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
Xxxxxxxxx’ favour. The hearing on Xxxxxxxxx’
December 1, 2009 application for an interim injunction was
heard on January 20, 2010 before the Athens Court of First
Instance. The Court denied Xxxxxxxxx’ application on
February 5, 2010. On February 10, 2010, Xxxxxxxxx
notified WIND Hellas of a second application for an interim
injunction against WIND Hellas before the Athens Court of First
Instance. Xxxxxxxxx’ second application was based on the
same grounds as the first application. The hearing date for the
second application was initially scheduled for February 26,
2010 but, by agreement of WIND Hellas and Xxxxxxxxx, was
rescheduled for June 16, 2010.
Also on February 26, 2010, further to Xxxxxxxxx’
verbal request, the Court issued a provisional order prohibiting
a change in the legal and actual status of WIND Hellas’
property up to an amount of €35 million until the
rescheduled hearing date of June 16, 2010.
On March 16, 2010, WIND Hellas filed an application for the
reform of the said provisional order. The hearing took place on
March 23, 2010 and the competent Judge accepted WIND Hellas
petition and amended the provisional order restricting it only
to the company’s property, plant and equipment excluding
real estate assets.
On April 12, 2010, Xxxxxxxxx filled a new application
asking the Court to reform again the provisional order issued on
March 23, 2010. The application was heard on
April 28, 2010 and the competent Judge partially amended
the March 23, 2010, provisional order by including all WIND
Hellas’ assets but by expressly excluding all bank accounts.
Finally, following WIND Hellas’ request for a preferential
hearing of the Carother’s interim injunction application
which was then scheduled for June 16, 2010, the hearing was
brought forward and rescheduled for May 14, 2010. The
Court’s decision is now pending. On the same date, the
Judge extended the provisional order, issued on April 28,
2010 to the day that he will make his Judgement publicly
available. Finally, pursuant to the law of August 2, 2010
(Law no. 6320), the Court rejected the Xxxxxxxxx’ petition
for interim injunction. On June 16, 2010, WIND Hellas in
accordance with Section 9.3 (b) of the April 3,
2005 Stock Purchase Agreement (the “2005 SPA”) between
XXX International NV (subsequently Telecom Italia International
N.V.-“TII NV”) and ACV Finance (of which WIND Hellas
is today the corporate successor), requested TII NV to defend
WIND Hellas in the Delan/Xxxxxxxxx Litigation by taking up the
defence before the merits hearing, which is scheduled for
October 13, 2010. Finally, the hearing was further
postponed to June 1, 2011. At September 30, 2010, no
provision for this litigation is recorded.
In March 2001, Vasilias Communications SA
(“Vasilias”), one of WIND Hellas’ master dealers,
filed suit against WIND Hellas claiming damages of over
€9.2 million for breach of contract. Following the
bankruptcy of Vasilias, WIND Hellas filed a counterclaim
totalling €1.8 million for damages resulting from
Vasilias’ closure of its stores after receiving financial
support from WIND Hellas.
This litigation was heard before all levels of jurisdiction and
reached the Supreme Court. The Supreme Court partially accepted
WIND Hellas’ arguments and ordered WIND Hellas to pay
Xxxxxxxx the sum of €0.4 million plus legal interest.
The amount WIND Hellas paid Xxxxxxxx, following the Supreme
Court’s decision, therefore totals €0.7 million.
In this respect, Xxxxxxxx filed a second claim against WIND
Hellas in February 2005 related to claims similar to those
described above, but for the period following the filing of the
first claim, running from the first quarter of 2001 to the end
of 2001. In this claim, Xxxxxxxx is seeking damages of
approximately €1.9 million for lost profits plus
accrued interest. The hearing on this matter, originally
scheduled for October 2006, was held on January 24, 2008.
The Court of First Instance issued its decision which required
the Company to pay Vasilias an amount of approximately €260
thousand. In October 2009, Xxxxxxxx’ appeal against the
Decision of the Court of First Instance was notified to WIND
Hellas. The appeal was heard on October 20, 2010, before
Athens Court of Appeals but the Court judgement is still pending.
Benroubis SA (“Benroubis”) is a company which, inter
alia, manages retail stores and produces household appliances.
In the past, Xxxxxx had requested the approval of the trademark
“IZI” for a group of new services.
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-86
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
Xxxxxxxxx filed an injunction request before the civil courts
claiming that former legal entity Tellas should refrain from
using this trademark as Benroubis had already registered the
trademark “IZZY” for equipment it produces itself,
including fixed telephone sets. The court granted an injunction
prohibiting the use of the trademark “IZI” by Xxxxxx,
and Xxxxxx immediately withdrew the products bearing this
trademark from the market. The Administrative Trademark
Committee (in charge of the registration of trademarks) accepted
the request of Tellas for the registration of “IZI”,
despite the fact that Xxxxxxxxx SA had intervened and requested
the rejection of Xxxxxx’ application.
Consequently, Xxxxxxxxx filed a law suit claiming
€1 million from Tellas on the grounds of unfair
competition for use of the trademark. Independently of the
outcome of the judicial dispute, Xxxxxx has fully hedge the risk
arising from this case, as the advertising agency used by Xxxxxx
(DDB) has undertaken to reimburse Tellas any amount that Tellas
may be required to pay Benroubis. The hearing, originally
scheduled for October 2009, took place on April 28, 2010
but the Court’s decision is still pending.
In 2005, the Municipality of Evosmos sent a formal notice to
Xxxxxx asserting that the company was under the obligation to
pay to the Municipality €262 thousand in regard to rights
of way and demanding immediate compensation. WIND Hellas filed
several appeals at the competent courts and the case is still
pending. In 2009, the Municipality of Evosmos sent notices to
WIND Hellas again, claiming rights of way for the years 2005 to
2009 up to €1.2 million. The company has once more
appealed to courts, in order to defend its case. As a result,
the total amount claimed by the Municipality is around
€1.5 million. In August 2010, the municipality of
Evosmos initiated judicial proceedings with regard to duties and
fines up to €132 thousand to be inflicted upon WIND Hellas
for rights of way for the year 2009. WIND Hellas is bound to
appeal against the municipality regarding these proceedings
within the legal time limits.
At September 30, 2010, a provision of €488 thousand
was recorded.
On June 3, 2010 a lawsuit by Mr. Xxxxxxxxxx was notified
to WIND Hellas. Mr. Xxxxxxxxxx was one of the arbitrators in
the Delan case and by his lawsuit requests compensation for his
professional services during the arbitration, amounting, as he
claims, to €950 thousand although he has resigned from his
position. The lawsuit was scheduled to be heard on
September 21, 2010, before the Athens Court of First
Instance. On July 13, 2010 a second lawsuit by Mr.
Xxxxxxxxxx was notified to WIND Hellas. By this second lawsuit,
Mr. Xxxxxxxxxx withdraw from his first lawsuit, but restates
his claim for the same amount as in his first lawsuit. This
second lawsuit is scheduled to be heard on October 26,
2010. The case was heard on that date but the Court judgment is
still pending.
On November 14, 2008 a lawsuit by Microdata SA was notified
to WIND Hellas. Microdata was one of WIND’S resellers.
Microdata asks for €1.1 million plus interest accusing
WIND of breaching the contractual terms between the two
companies. The lawsuit was initially scheduled to be heard on
October 7, 2009, but was aborted due to the national
elections. Microdata restated its claim in November 2009, and
the case is now scheduled to be heard on October 27, 2010,
before Athens Court of First Instance. The appeal has been
postponed to September 26, 2012.
Main
legal proceedings of regulatory nature
Greece
In 2006 and 2007 a large number of customers filed complaints
against Tellas with the telecommunications regulator. These
complaints and the replies of Tellas in this connection were
reviewed by the regulator, resulting in
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-87
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
a series of fines. The fines inflicted in 2007 amounted to a
total of €1.85 million. Xxxxxx has appealed against
all the decisions of the regulator regarding such fines. Out of
this amount, €1.05 million has been suspended by the
relevant court injunction. For the rest of the amount and until
the issuance of a final decision, Xxxxxx has paid the fines.
However, Xxxxxx believes that the appeals are based on sound
legal arguments which are likely to result in a significant
reduction of the fines. To date, the administrative court of
appeal has ruled on four appeals. All rulings issued to date
have resulted in the reduction of the fines imposed. Namely, a
fine of €50 thousand was reduced to €15 thousand, a
fine of €500 thousand was reduced to €250 thousand,
two fines of €400 thousand each were reduced to €350
thousand and €300 thousand respectively. Xxxxxx has also
appealed against the court decisions in an effort to further
reduce the fines imposed. In addition, on June 27, 2008,
two additional fines were inflicted by the NTPC amounting to
€0.3 million, both referring to customer complaints
filed in 2007. A further fine of €0.5 million was
inflicted on July 4, 2008. Finally, three other fines
amounting to a total of €0.1 million were imposed by
the Ministry of Development (Consumer Secretariat) for customer
complaints filed in 2007. The Company has appealed against these
decisions, but the court has not ruled on any of these appeals.
Furthermore, in September 2010, following customer complaints in
relation to the provision of LLU services, WIND participated in
a hearing before the NTPC. The NTPC decision in relation to
this hearing is still pending.
An estimate of the cost of these fines was made in determining
provisions for the period of approximately
€0.7 million.
In December 2004, WIND Hellas (at that time under the corporate
name of XXX Hellas), Vodafone Greece and Cosmote were each fined
€20 thousand for not providing the universal service
provider (OTE AE) with subscriber data for a unified telephone
catalogue to be published by OTE. WIND Hellas reviewed and
examined the decision of the NTPC, and lodged an official
petition opposing it in the Administrative Appeal Court on
February 28, 2005. The hearing took place on
September 26, 2007. The Court’s decision (no.
669/2008), which was in favour of WIND Hellas, was officially
notified to the company on July 29, 2008. The court
officially cancelled the decision of the NTPC stating that WIND
Hellas had acted properly in not providing subscriber data to
the universal service provider in the absence of an agreement
between the parties. The NTPC appealed the decision in November
2008. A hearing on this issue scheduled for October 2010, was
postponed to March 29, 2011.
In March 2006, WIND Hellas (at that time under the corporate
name of XXX Hellas), Vodafone Greece and Cosmote were each fined
€1 million for anti-competitive behaviour following an
investigation that was initiated by the NTPC in February 2005
into alleged price fixing of SMS services by WIND Hellas,
Vodafone Greece and Cosmote. WIND reviewed and examined the
Decision of the NTPC and submitted its official petition against
it to the Administrative Appeal Court in April 2006. The
hearing took place on May 15, 2007. The Court’s
Decision (no. 3738/2007), in favour of WIND Hellas, was
officially notified to the company on January 24, 2008.
The court decided that the simultaneous increase of the SMS
service costs cannot be considered as a practice jointly-agreed
by the mobile operators. The NTPC lodged an appeal with the
State Council against this decision on March 17, 2008. The
hearing was originally scheduled for October 2009, and then
rescheduled twice (for January 12, 2010 and April 13,
2010). The hearing scheduled for October 12, 2010, was
finally postponed to March 29, 2011.
On November 20, 2008, WIND Hellas filed an appeal before
Athens’ Administrative Court of Appeals against the
NTPC’s Decision on Mobile Termination Rates (NTPC’s
Resolution no.
498/046/15.10.2008),
based on procedural and substance reasons related to the adverse
impact on the Company’s profitability following the
implementation of the new MTRs. The hearing, initially
scheduled on March 19, 2009 was postponed and rescheduled
twice (for June 11 and July 29, 2009). The case was then
scheduled to be heard before the Administrative Supreme Court,
on April 13, 2010. The hearing was finally postponed for
October 12, 2010.
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-88
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
Meanwhile WIND Hellas was obliged to implement the new MTRs from
January 1, 2009 and on January 1, 2010 decreased its
MTRs to the regulatory provided level of €0.0624/min.
Numbering
On February 18, 2009, WIND Hellas filled an appeal before
Athens’ Administrative Court of Appeals against the
NTPC’s resolution no.
505/056/23.12.2008
that had rejected WIND Hellas’ request to be credited
€100 thousand for false invoicing by NTPC, relating to
numbering fees. The hearing took place on October 13,
2009. No court Decision has been issued yet.
On June 26, 2010, Newsphone, a Greek content provider,
filed a complaint against all three MNOs before the NTPC for
price fixing in the market of Value Added Services on the basis
of joint dominance, illicit competition and collusion. MNOs
submitted to the NTPC their formal opinion/ arguments on the
complaint on September 27, 2010. NTPC shall now schedule a
hearing in the near future.
MTRs
in Bulgaria Case
WIND Hellas submitted to the NTPC (NTPC Ref 9265/5.3.2010) with
notification to the Bulgarian Communications Regulatory
Authority (“Communications Regulation Commission”
(CRC)) and the European Commission Directorate General for
Information Society a complaint for the resolution of a cross
border dispute (Article 21 of Directive 2002/21/EC, as
amended, applies as incorporated in Article 19 of Law
3431/2006) , dated March 1, 2010, against providers of
electronic mobile communications in Bulgaria, including Cosmo
Bulgaria Mobile PLC (Globul), a subsidiary of COSMOTE. The
subject of this dispute was the fact that the Bulgarian mobile
operators do not apply the existing national termination rates,
as regulated by the CRC, for telecommunications traffic
originating from other EU Member — States, rather they
charge rates increased up to 100% of their national MTRs. In
reply, the CRC issued a Decision (978/2.9.2010) rejecting
WIND’S complaint on the grounds that the disputed practice
is lawful according to Bulgarian law. WIND Hellas is currently
in the process of raising the matter before the European
Commission and the Body of European Regulators for Electronic
Communications (BEREC).
WIND Hellas believes the provision of €2.7 million
recognized for all the above cases is sufficient.
The Company is subject to other pending and threatening legal
actions and proceedings. Management believes that the outcome
of such actions and proceedings will not have a material adverse
effect on the financial position or results of operations of the
Company.
Telecom Egypt filed a complaint with the dispute resolution
committee of the National Telecommunication Regulatory (NTRA),
with the purpose of changing its interconnection prices with the
mobile operators, despite the fact that there are existing
contracts with the operators.
In response, ECMS requested the committee to respect the prices
of contracts in effect. The NTRA issued a ruling on the dispute
on September 3, 2008 in favour of Telecom Egypt by changing
the interconnection prices between the fixed and mobile networks
to be effective from that date. ECMS informed the NTRA of
objection and rejection of the decision as it has no legal or
contractual basis and that ECMS intends to bring the matter to
the courts in order to protect its interest. On
November 1, 2008 a law suit against the NTRA was filed in
the Administrative Court at the State Counsel requesting the
staying and nullifying of the NTRA’s decision.
On September 3, 2009 and based on the interconnection
agreement (article 25 first paragraph) ECMS filed an
arbitration against Telecom Egypt in accordance with the rules
of The Cairo Regional Center for International Commercial
Arbitration in order to settle the existing dispute between the
two parties. On October 9, 2009,
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-89
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
Telecom Egypt sent an initial response and a counterparty claim
related to the arbitration notification filed against it.
On January 5, 2010 a letter from the NTRA was received with
the purpose of making new changes in the interconnection prices
between the different operators to be applied retroactively from
September 1, 2009. The letter was based on the
September 3, 2008 decision. On January 14, 2010 ECMS
sent a letter to the NTRA refusing this decision.
On June 5, 2010, the administrative court accepted the
lawsuit filed by the company and therefore ruled:
• First
Staying the implementation of the first appealed decision dated
September 3, 2008 related to items 2, 8, 9 -and all
judicial effects related thereto — that sets the
interconnection tariffs for outgoing calls initiated from
Telecom Egypt terminated on the Mobinil network at 11.3 PT per
minute and setting interconnection tariffs for outgoing calls
initiated from Mobinil terminated on the Telecom Egypt network
at 6.5 PT per minute, and obliged the defendant to pay all the
expenses related to this lawsuit.
• Second
Staying the implementation of the second appealed decision dated
December 31, 2009 — and all judicial effects
related thereto — that was amended by the decision
dated January 14, 2010, which sets interconnection tariffs
for outgoing calls initiated from certain mobile operators
networks (Vodafone Egypt, Etisalat Egypt and also Telecom Egypt)
terminated on the Mobinil network at 8.5 PT per minute
calculated on seconds basis, and setting interconnection tariffs
for outgoing calls initiated from Mobinil terminated on the
Vodafone Egypt network at 10 PT per minute calculated on the
basis of the second, and those terminated on the Etisalat Egypt
network at 11 PT per minute calculated on the basis of the
second and those terminated on Telecom Egypt network by 6.5 PT
per minute calculated on the basis of the second and obliged the
defendant to pay all the expenses related to this lawsuit.
The administrative court has referred the lawsuit to the state
commissioners’ authority to prepare a legal opinion
concerning the request to nullify said decisions.
ECMS and its external legal counsel believe that it has a strong
legal position as the NTRA’s decision does not have legal
or contractual ground, hence we continue to record interconnect
revenue and costs based on the existing agreement with Telecom
Egypt and other mobile operators.
If ECMS had applied this decision based on Telecom Egypt
interpretation, it would have recorded lower interconnection
revenue of EGP168 million (€22 million) and lower
interconnection costs of EGP40 million
(€5 million) for the year ended December 31,
2009, and lower interconnection revenue of EGP181 million
(€23 million) and lower interconnection costs of
EGP45 million (€6 million) for the nine-month
period ended September 30, 2010.
Intouch Group received a tax claim amounting to
DZD205 million (€2 million) in addition to
DZD51 million (€0.5 million) in penalties and
interest. In January 2009, the company paid 20% of the total
tax claim in order to be able to appeal against that claim. The
subsidiary was granted a tax exemption amounting DZD
205 million (roughly €2 million) and the
remaining amount of DZD 51 million (€0.5 million)
was recorded as a provision.
Ring Group received a tax claim amounting to
USD 46 million (roughly €34 million)
relating to the assessment of the period
2005-2008.
The company has provided for a provision for such assessments
with an amount of USD 9 million (€7 million).
PMCL received a tax assessment up to the year 2007. The company
has filed appeals to the appellate authorities against the
re-assessment order. The assessments is equal to Rs
1,921 million (€16 million). The company has
provided for a provision for such assessments with an amount of
Rs 191 million (€1.6 million).
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-90
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
Jordan
The Jordanian Tax Authorities have claimed for JD
49.2 million (€51 million), from Pioneer
Investment Ltd, a wholly-owned subsidiary of OTH, in connection
with the sale of Fastlink (Jordan Mobile Telecommunication
Services) in 2002 to MTC by Pioneer Co. At the present, OTH
does not have sufficient information to quantify any losses
which may arise from this matter.
Iraq
Upon the disposal of its investment in Iraqna for Mobile
Services, Orascom Telecom Iraq provided a warranty to the
purchaser of the investment. No more than USD60 million
(€44 million) of this warranty shall be payable in
relation to tax covenant claims.
Algeria
In April 2009, XXX has received a final tax assessment relating
to the 2004 tax year amounting to DZD3,948 million, plus
DZD584 million in penalties (totally equal to
€45 million). The Company filed an appeal against the
tax authorities after the payment of 20% of the principal tax
assessment amounting to DZD790 million (equal to
€8 million). During 2009, XXX also paid the residual
amount of DZD3,743 million, of which DZD584 million in
penalties (equal to €37 million, of which
€6 million in penalties).
In January 2010, the company received a rejection of its
objection, relating to the 2004 tax assessment and dated June
2009, under the Algerian tax laws and procedures the company has
4 months from date of receipt to re-object to the
rejection. Therefore, the company is now preparing the required
documentation for the re-appeal. Relating to such assessment,
an initial provision with an amount of DZD709 million
(approximately €7 million) was accounted for, then the
company booked a complementary provision amounting to
DZD199 million (€2 million) based on the opinion
of the external expert.
On November 16, 2009, the Tax Department for Large Scale
Companies (DGE) issued to OTA a tax assessment of the years 2005
to 2007, amounting to DZD43,910 million, plus
DZD3,639 million in penalties (totally equal to
€468 million). 85% of the assessed amount is due to a
rejection of XXX’s accounts.
In December 2009, considering that the majority of the
ruling’s remarks assessed are arbitrary and unfounded, XXX
has appealed the assessment after the payment of
DZD8,782 million (€86 million) which represents
20% of the principal amount assessed for
2005-2007.
For this proceeding the company, supported by an independent
expert’s report, already at December 31, 2009 booked a
tax payable of €29 million (equivalent to
DZD3 billion) for the
2005-2007
assessment.
On March 7, 2010, XXX received a notice of the rejection of
its administrative appeal, relating to the
2005-2007
tax assessment, filed in December 2009. In order to file a
second appeal, XXX paid a further 20% of the outstanding balance
of the taxes and penalties assessed by the DGE, with an amount
of DZD8,001 million, of which DZD919 million in
penalties (totally equal to €79 million). During
April 2010, the company paid an additional amount of
DZD30,766 million, of which DZD2,720 million in
penalties (totally equal to €303 million).
At September 30, 2010, XXX paid a total amount of
DZD52,081 million (equal to €512 million) for the
period
2004-2007,
including penalties. An additional amount of
DZD1,768 million (€17 million) has been suspended
until the final assessment of the Administrative Court. All
amounts paid will be recoverable if XXX’s case against the
tax authority is successful.
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-91
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
Years
2008-2009
On September 30, 2010, Orascom Telecom Algeria received a
preliminary assessment from the Algerian DGE in respect of the
years 2008 and 2009, in the amount of approximately DZD
17 billion.
Under the Algerian tax laws and procedures the company has
40 days to respond to the preliminary assessment before
receiving the final reassessment. XXX would then within a
period of 30 days either pay the full amount alleged to be
owed or challenge the reassessment through the local appeal
process, whereby it will be required to pay 20% of the
claim’s principal amount. This preliminary assessment
comes despite the fact that XXX had already paid the taxes due
for the same years. The tax assessment for these years was
immediately initiated in early 2010 following the tax filing for
2009. The preliminary assessment is based primarily on the
unfounded allegation that XXX did not keep proper accounts for
the years 2008 and 2009 notwithstanding the fact that XXX’s
accounts were assessed.
Without prejudice to their rights under the Investments
Agreement, applicable bilateral investment treaties and
applicable laws, OTH and OTA intend to take all necessary legal
steps to challenge the preliminary assessment, considering that
the ruling’s remarks assessed are arbitrary and unfounded.
In addition to the above, Djezzy filed a petition against the
Central Bank of Algeria’s injunction restraining all
Algerian banks making transfers abroad in foreign currency to
Djezzy’s suppliers, and putting on hold any custom
clearance of imported goods.
On June 13, 2010, this petition was rejected by the
Algerian civil court for lack of jurisdiction. XXX also filed a
new petition before the Algerian administrative courts (State
Council) on June 24, 2010. Although this situation
generated a huge challenge for Djezzy to keep the network
operating in spite the ban on importing equipment and spare
parts, Djezzy managed to avoid any major network issues.
During September 2010, the Central Bank of Algeria verbally
presented a complaint against OTA for not respecting foreign
trade transactions. This complaint is under investigation by
the Algerian Authority.
In January 2010, UCOM, a subsidiary of Telecel Globe, received
from the tax authorities a preliminary assessment report
amounting to USD11 million (€8 million). The
company has booked a total provision of USD4 million
(€3 million).
On August 2010, a compromise was signed between U-COM and local
tax authorities, with the company agreeing to pay
USD3.1 million (€2 million) as an advance before
the end of year 2010. The company already paid
USD 1.9 million (€1.3 million) at
September 30, 2010 in order to resolve all pending issues
relating to the tax due relating to financial years 2008 and
2009.
At September 30, 2010, the collateral pledged by Group
companies as security for their debts was as follows:
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•
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a lien on the GDRs of Orascom Telecom Holding SAE held by the
indirect subsidiary Weather Capital Special Purpose 1 SA, equal
to 50.168% of its share capital, in favor of Collateralized
Noteholders in connection with the Guaranteed Collateralized
Notes repayable in 2011;
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•
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a lien granted by Weather Capital Special Purpose 1 SA over its
current bank account at Intesa Sanpaolo SpA in favor of the
lending banks and the holders of the notes issued by the same
company;
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•
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a lien granted by Weather Capital Special Purpose 1 SA over its
current bank account at Bank of New York Melon, Brussels branch
in favor of BNY CORPORATE TRUSTEE LIMITED;
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•
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a lien in favor of the Collateralized Noteholders over the
shares held by the subsidiary Weather Capital Sàrl in
Weather Capital Special Purpose 1 SA, equal to 100% of its share
capital;
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Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-92
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
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•
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a transfer of payables of Weather Capital Special Purpose 1 SA
deriving, inter alia, from the Sales and Purchase
Agreement and the Stock Borrowing Agreement relating to OTH
shares, as security in favor of the holders of the Guaranteed
Collateralized Notes repayable in 2011;
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•
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a pledge over Weather Investments SpA’s shares in WAHF SpA
was granted in favor of the Bank of New York Mellon as
Trustee an BNY Corporate Trustee Services Limited as security of
the Notes released by Wind Acquisition Holding Finance SA;
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•
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a pledge of a bank account held by Weather Finance III Sarl
with Credit Agricole in Luxembourg, in favor of XX Xxxxxx Europe
Limited as Security Agent in connection with the Revolving
Credit Facility, the Senior Secured Floating Rate Notes, issued
by Hellas V, the Senior Notes, issued by Hellas III
and liabilities outstanding under various intra-group corporate
bonds;
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•
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a pledge by Weather Finance III Sarl of its entire holding
of shares of Hellas Telecommunications IV, in favor of XX Xxxxxx
Europe Limited as Security Agent in connection with the
Revolving Credit Facility, the Senior Secured Floating Rate
Notes, issued by Hellas V and certain liabilities outstanding
under various intra-group corporate bonds;
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•
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a pledge by Weather Finance III Sarl of preferred equity
certificates issued by Hellas Telecommunications IV, in favor of
XX Xxxxxx Europe Limited in connection with the Revolving Credit
Facility, the Senior Secured Floating Rate Notes, issued by
Hellas V and certain liabilities outstanding under various
intra-group corporate bonds;
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•
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a deed of assignment of certain intercompany debt between
Weather Finance III Sarl and WIND Hellas Telecommunications
SA or its subsidiaries, in favor of the Revolving Credit
Facility, the Senior Secured Floating Rate Notes, issued by
Hellas V and certain liabilities outstanding under various
intra-group corporate bonds;
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•
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a pledge by Weather Finance III Sarl of its entire holding
of shares in WIND Hellas in favor of X.X. Xxxxxx Europe Limited
as Security Agent in connection with of the Revolving Credit
Facility, the Senior Secured Floating Rate Notes, issued by
Hellas V and certain liabilities outstanding under various
intra-group corporate bonds;
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a pledge by Weather Finance III Sarl of a bank account held
by Weather Finance III Sarl with X X Xxxxxx Xxxxx Bank N A
in New York, in favour of XX Xxxxxx Europe Limited as Security
Agent in connection with the Revolving Credit Facility, the
Senior Secured Floating Rate Notes, issued by Hellas V, the
Senior Notes, issued by Hellas III.
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Moreover, Weather Finance XXX Xxxx succeeded Hellas II
as parent guarantor in relation to the revolving credit facility
as a guarantor of all amounts outstanding under the above
mentioned facility, limited by applicable laws. Further Weather
Finance XXX Xxxx succeeded Hellas II as parent
guarantor under various intra-group corporate bonds, and is
therefore guarantor of the liabilities of WIND Hellas SA under
such documents.
Weather Finance XXX Xxxx succeeded Hellas II as the
parent guarantor in relation to the Senior Notes, issued by
Hellas III and gave a full and unconditional guarantee in
respect of all obligations of Hellas III, as issuer, owed to the
noteholders.
Weather Finance Xxxx XXX succeeded Hellas II as the
parent guarantor in relation to the Senior Secured Floating Rate
Notes, issued by Hellas V and gave a full and unconditional
guarantee in respect of all obligations of Hellas V, as
issuer, owed to the noteholders.
The Security or guarantees granted by Weather Finance II
already outstanding are the following:
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•
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A pledge by Weather Finance II Sàrl of its entire
holding of shares in Weather Finance III Sàrl, in
favor of XX Xxxxxx in connection with the revolving credit
facility, the Senior Notes, issued by Hellas III, the Senior
Secured Floating Rate Notes, issued by Hellas V and certain
intra-group corporate bonds;
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Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-93
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
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•
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A deed of assignment of certain intercompany debt between
Weather Finance II Sàrl and Weather Finance III
Sàrl or its subsidiaries, in favor of XX Xxxxxx in
connection with the Revolving Credit Facility, the Senior
Secured Floating Rate Notes, issued by Hellas V and other
intra-group corporate bonds.
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In addition, at September 30, 2010, Weather Investments SpA
is the guarantor in relation to the Guaranteed Collateralized
Notes, maturing in 2011 (following the extension obtained on
February 16, 2010), originally issued by Weather Capital
Special Purpose 1 SA for a total nominal amount of
€1,200 million (guaranteed up to a maximum of
€2,400 million). As a consequence of the early
repayments made in 2008 and 2009, the total amount currently
outstanding under the notes (principle and interests) is equal
to €398 million. Moreover, a guarantee and indemnity
by Weather Investments SpA of Weather Finance III’s
obligations (as purchaser) under the SPA dated November 27,
2009. Although it is a continuing guarantee, the primary
obligation of Weather Finance III was the payment of the
purchase price.
Despite the encumbrances on the shares, the voting rights at
shareholders’ meetings of the companies are retained by the
pledgor of the shares by express contractual agreement.
At September 30, 2010, the OTH Group pledged the
following guarantees relating to loans and credit facilities:
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Charge on all present and future receivables/collections
(including charge on specific collection accounts) and charge on
present and future movable fixed assets (excluding land,
building, vehicles and handsets) of the company. Debt is also
secured against a guarantee of 75% of the loan granted by
Overseas Private Investment Corporation (OPIC);
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Charge on the Debt Service Account maintained under ECA/DFI
facilities. SBLC issued in favor of Royal Bank of Scotland
(formerly ABN AMRO Bank NV) for securing the debt servicing of
ECA loans for the equivalent amount payable in next six months;
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•
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Charge on vehicles and equipment.
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Charge on property, plant and equipment and intangible assets to
secure bank loans (Fond de commerce and Network equipment).
Lien on OTA’s trade receivables and bank accounts.
Charge on assets up to 1,033 million Pakistani rupees
(€8.8 million). Pledge over TWA shares against TWA
loans.
Lien on the bank accounts. Pledge over Moga shares to OTA
lenders.
Liens on 20,000,000 shares of ECMS, 9,078 shares of
Mobinil, 50,000 ordinary shares and one preferred share in
Orascom Telecom Iraq Corp. Limited, 50,000 shares in
Orascom Tunisia Holding Limited, 50,000 shares in Carthage
Consortium Limited, 166,500,001 shares in Oratel
International Inc. Limited and 2,850,208 shares in Orascom
Telecom Algerie SPA;
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-94
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
Waiver of the Company’s rights for revenue arising from
lines rented to customers for an amount of approximately
11 million Egyptian pounds (€1.14 million) and
OTH ownership not less than 51%.
At September 30, 2010, the Weather Finance I Group
had pledged the following guarantees on its debts:
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a lien on receivables amounting to €50.4 million;
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a lien on cash at banks and time deposits amounting to
€24.1 million;
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a lien on property, plant and equipment amounting to
€604 million;
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a lien on inventories amounting to €8.7 million.
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At September 30, 2010, the collateral pledged by the
WIND Group companies as security for liabilities may be
summarized as follows:
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a special lien pursuant to article 46 of the Consolidated
Banking Law on certain assets, present and future, belonging to
the subsidiary WIND Telecomunicazioni SpA and its subsidiary
Xxxx.Xxx Srl, as specified in the relevant deed, in favor of the
banking syndicate party to the Credit Facility Agreement and
other creditors specified in the relevant deed;
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a lien exists on the subsidiary WIND Telecomunicazioni
SpA’s trademarks and intellectual property rights, as
specified in the relevant deed, pledged in favor of the banking
syndicate party to the Credit Facility Agreement and other
creditors specified in the relevant deed;
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a lien exists on the shares held by the subsidiary WIND
Telecomunicazioni SpA in WIND Finance SL SA, equal to 27% of
share capital, pledged in favor of the subscribers to the Second
Lien Notes;
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a lien exists on 640,000 shares amounting to the entire
share capital held by the subsidiary WIND Telecomunicazioni SpA
in WIND International Services SpA, pledged in favor of the
banking syndicate party to the Credit Facility Agreement and the
subscribers to the Second Lien Notes;
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a lien exists on the shares held by WIND International Services
SpA in WIND INTERNATIONAL SERVICES Sàrl pledged in favor of
the banking syndicate party to the Credit Facility Agreement and
the subscribers to the Second Lien Notes;
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a lien on the shares held by WIND Acquisition Holdings Finance
SpA in WIND Telecomunicazioni SpA, equal to the entire share
capital of that company, in favor of the banking syndicate
pursuant to the Credit Facility Agreement and the subscribers of
the Second Lien Notes and the High Yield Notes.
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Despite the encumbrances on the pledged shares, the voting
rights at shareholders’ meetings of the companies are
retained by the Group by express contractual agreement as an
exception to the provisions of paragraph 1,
article 2352 of the Italian Civil Code.
In addition, the WAHF Group has undertaken, pursuant to the
“Master Security Agreement”, to pledge further
guarantees on certain assets to be acquired by the subsidiary
WIND Telecomunicazioni SpA and its subsidiary Xxxx.Xxx Srl, in
favor of the banking syndicate in the Credit Facility Agreement,
the other creditors specified in the Master Security Agreement
and the subscribers to the Second Lien Notes. In particular,
they have undertaken to pledge as additional collateral the
shares or other equity instruments (whether newly subscribed or
purchased) of significant subsidiaries, property or rights
pursuant to article 2810, paragraphs 1 and 2 of the
Italian Civil Code with a value of at least €1 million
and any VAT receivables acquired or which arise in favor of the
some companies.
Finally, in order to provide a guarantee for its obligations,
the subsidiary WIND Telecomunicazioni SpA has pledged as
security its trade receivables, receivables arising from
intercompany loans and receivables relating to insurance
policies, present and future, as described in the specific
instrument, to the banking syndicate pursuant to the Credit
Facility Agreement and the other lending parties specified in
the respective contract as a guarantee for
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-95
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
and in favor of the subscribers to the Second Lien Notes issued
on September 29, 2005 by the associate WIND Finance SL SA.
Moreover, WIND Acquisition Holdings Finance SpA has pledged as
security its receivables arising from the Sale and Purchase
Agreement and the Put and Call option dated May 26, 2005
with ENEL SpA as described in the relevant deed, to the banking
syndicate in the Credit Facility Agreement and the other lending
parties specified therein as a guarantee for and in favor of the
subscribers to the Second Lien Notes and High Yield Notes
expiring in 2015 and 2017.
A description is provided below of personal guarantees
(sureties) issued mainly by banks and insurance companies on
behalf of the Group and in favor of third parties in respect of
commitments of various kinds.
The total of these, amounting to €127 million at
September 30, 2010 includes:
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sureties totaling €67 million issued by insurance
companies, of which €44 million in favor of the Rome
Tax Revenue Office as security against the Group’s excess
VAT receivable which was offset, in 2008 and in 2009, as part of
the special procedure envisaged by Presidential Decree
no. 633 of October 26, 1972 and subsequent amendments;
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sureties totaling €60 million issued by banks,
relating to operations regarding sponsorship, prize
competitions, events, excavation licenses and property leases.
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Moreover, the subsidiary WIND Telecomunicazioni SpA and its
directly wholly-owned subsidiary WIND International Services SpA
issued personal guarantees in favor of the subscribers to the
Second Lien Notes, High Yield Notes 2015 and 2017.
Furthermore, WIND International Services SpA issued personal
guarantees in favor of the banking syndicate party to the Credit
Facility Agreement while Xxxx.Xxx Srl issued personal guarantees
in favor of the subscribers to the Second Lien Notes.
WIND Acquisition Holdings Finance SpA has been under the
management and coordination of Weather Investments SpA since
July 2007.
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-96
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
In relation to the OTH Group, Orascom Telecom Holding SAE has
entered into agreements as guarantor on behalf of its
subsidiaries as summarized in the following table.
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Covering the
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Maximum Amount
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Med Cable
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Credit facilities from West LB and Calyon Banks
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€2 million plus any interest or costs
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September 13, 2011
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Orascom Telecom Bangladesh (formerly Sheba Telecom-Banglalink)
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Credit facilities with a banking syndacate
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USD254 million (equivalent to €186 million)
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As long as the agreement is valid
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Orascom Telecom Bangladesh (formerly Sheba Telecom-Banglalink)
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Supplier facility agreement with Huawei Tech Investment
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USD28 million (equivalent to €21 million)
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Orascom Telecom Bangladesh (formerly Sheba Telecom-Banglalink
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Supplier facility agreement with Nokia Siemens Networks
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€16 million
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Orascom Telecom Bangladesh (formerly Sheba Telecom-Banglalink
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Credit facilities from standard chartered bank deferral facility
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USD25 million (equivalent to €18 million)
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Orascom Telecom Bangladesh (formerly Sheba Telecom-Banglalink
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Credit facilities from group of financial institutions,
Insurance and other corporate bodies
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Maximum amount €74 million
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Mobilink
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Supplier facility agreement concluded With Alcatel - Lucent
France
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€5 million
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Orascom Telecom Finance
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High Yield Bond
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|
USD 750 million (equivalent to €550 million)
|
|
February 8, 2014
|
Orascom Telecom OSCAR
|
|
Secured Equity Indexed note
|
|
USD230 million (equivalent to €169 million)
|
|
February 18, 2013
|
Ring
|
|
Corporate guarantee provided to Citibank over Ring Obligation
|
|
USD 3 million (equal to €2 million)
|
|
|
Globalive
|
|
Research in Motion Limited
|
|
USD 1 million (equal to €0.7 million)
|
|
|
In addition, at September 30, 2010, OTH Group issued the
following letters of guarantee:
|
|
|
|
•
|
Letter of guarantee provided by ECMS, the Company’s
proportionate share in the guarantees amount to
EGP61 millions (equal to €8 million). This
represents the uncovered amounts of letters of guarantee issued
for the benefit of third parties at September 30, 2010;
|
|
|
•
|
Letters of guarantee, amounting to USD1 million (equal to
€1 million), in favor of NTRA to guarantee Mena
Cable’ execution of its entire obligation related to
constructing, operating and renting sea cable network and its
infrastructure for international communications;
|
|
|
•
|
Letters of guarantee in favor of the Lebanon Ministry of
Telecommunication (ROL) to guarantee OTH in the payment of any
amount due by the selected Participant to ROL amounting to
USD30 million (equal to €22 million);
|
|
|
•
|
Letters of guarantee provided by Orascom Telecom Bangladesh in
favor of Ministry of Post and Telecommunication, the Chief
Controller of Exports and Imports and Power development board
existed amounting to BDT119 million (equal to
€1.25 million);
|
|
|
•
|
Letters of guarantee provided by Ring Egypt for suppliers for an
amount of EGP51.2 million (equal to €6.6 million);
|
|
|
•
|
Letters of guarantee in favor of OTH Canada to guarantee the
obligation of Globalive with RIM. The maximum liabilities
amounted to USD1 million (€1 million);
|
|
|
•
|
Letters of guarantees in favor of Mena Cable to guarantee the
obligation with Gulf Bridge International Inc under the FPA
maximum liabilities amounted to USD97 million
(€71 million).
|
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-97
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
30 SUBSEQUENT
EVENTS
On October 4, 2010, VimpelCom Ltd (“VimpelCom”)
and Weather Investments SpA (“Weather”) signed an
agreement to merge the two groups (the “Transaction”)
creating the world’s fifth largest mobile
telecommunications operator. For further details, please refer
to note 1.1.
On November 12, 2010, the subsidiaries Xxxx.Xxx and
ItaliaOnline merged into their parent WIND Telecomunicazioni SpA.
On November 18, 2010, Wind Acquisition Finance SA (WAF) and
WIND Telecomunicazioni SpA (WIND) announced the pricing of an
offering by WAF of WAF’s €1,750 million
7.375% Senior Secured Notes due in 2018 and
USD1,300 million 7.250% Senior Secured Notes due in
2018.
The notes, guaranteed by WIND and WIND International
Services SpA, will be senior obligations of WAF and the
guarantee by WIND will rank pari passu with WIND’s
obligations under the new Senior Secured Credit Facilities
expected to be entered into on or prior to the issue date of the
notes. WAF and WIND expect the offering to be consummated on
November 26, 2010 (or around such date).
The net proceeds of this offering and the new Senior Secured
Credit Facilities together with cash in hand will be used to
effect the prepayment of all of the outstanding existing Senior
Credit Facilities of WIND, the Second Lien Notes issued by Wind
Finance SL SA and the Senior Notes due 2015 issued by WAF
together with consent fees, costs and administrative expenses,
fees and indemnities in connection with, or otherwise related
to, the closing of certain hedging contracts. The Group is
evaluating accounting effects of the restructuring of such
financial liabilities and the related hedging derivatives.
Following a review of all binding offers received, the Board of
Directors of Weather Finance III selected the “Secured
Senior Notes ad hoc Committee” (the SSN Offer) as the
preferred bid in accordance with the terms of the Standstill
Agreement dated June 30, 2010, conditional on, amongst
other things, the support of 75% of SSN holders being received
for such bid.
On October 18, 2010, the Board of Directors of Weather
Finance III received evidence that SSN holders representing
approximately 77% of the SSNs had signed binding agreements to
support the SSN Offer and to take all necessary steps to
implement this offer. On the same date, the Board of Directors
of Weather Finance III resolved to take all the necessary
steps to implement the SSN Offer as quickly as praticable.
The binding Senior Secured Notes Offer (SSN Offer) has been
underwritten by Mount Xxxxxxx Capital Partners Limited
(Ireland), Taconic Capital Advisers UK LLP (on behalf of certain
funds), Providence Equity Capital Markets LLC (on behalf of
certain funds), Anchorage Capital Group, LLC (on behalf of
certain funds), Xxxxxx Xxxxxx & Co (on behalf of
certain funds) and Eton Park International LLP (on behalf of
certain funds); together these six institutions comprise the SSN
Ad-Hoc Committee. These investors are independent global,
long-term institutional investors with more than
€58 billion of funds under management, owning, in
aggregate, more than 57% of the outstanding principal amount of
the SSNs.
Under the SSN Offer, the total purchase price is approximately
equal to €759 million, with estimated transaction
costs of approximately €18.6 million. An amount of
€420 million (New Money Amount) will be provided on
the closing of the transaction to repay the Revolving Credit
Facility, the hedging derivatives and provide a significant
liquidity injection in WIND Hellas. On the closing of the SSN
Offer, planned by the end of December 2010, WIND Hellas will be
released from guarantee obligations in respect of
€1,225 million SSNs and
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-98
NOTES TO
THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF THE WEATHER
INVESTMENTS GROUP — (Continued)
AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
2010
€355 million Senior Unsecured Notes and will have the
necessary liquidity to support the execution of the WIND Hellas
business plan and improve its market position in the long term.
The SSN Offer will result in the current holders of SSN owning
100% of the share capital of WIND Hellas. The opportunity to
participate in the contribution of €420 million will
be offered to all eligible SSN holders pro rata to their
holdings of SSN. Members of the SSN Ad-Hoc Committee have
underwritten such amount. The SSN Offer is subject to terms and
conditions that are standard for a transaction of this nature.
Considering the uncertainty situation which involved the
subsidiary OTA in Algeria, on November 15, 2010, OTH
launched a waiver request for all its lenders in order to review
some parameters for the calculation of the financial covenants
on its Term Loan Supplement (A1 and A2) and its Revolving Credit
Supplement. The waiver should be obtained by December 20,
2010.
On November 22, 2010, OTH announced that it had executed a
share purchase agreement with Qatar Telecom QSC under which
Orascom would sell its entire shareholdings in Orascom Tunisia
Holdings and Carthage Consortium, two companies through which
Orascom owns 50% of Orascom Telecom Tunisie, for a total cash
consideration of USD1.2 billion. This consideration
represents a multiple of 6.7 times Orascom Telecom
Tunisie’s EBITDA for the year ended December 31,
2009. The transaction should be completed on January 2,
2011.
Notes to the Consolidated
Interim
Financial Statements at September 30, 2010
F-99
INDEX TO
FINANCIAL STATEMENTS
WIND
TELECOM S.p.A.
|
|
|
|
|
Audited Consolidated Financial Statements
|
|
|
F-100
|
|
Audited Consolidated Financial Statements
|
|
|
F-164
|
|
Report of Auditors
|
|
|
F-165
|
|
Consolidated Statement of Financial Position as of
December 31, 2009 and 2008
|
|
|
F-168
|
|
Consolidated Income Statement for the years ended December 31,
2009 and 2008
|
|
|
F-169
|
|
Consolidated Statement of Comprehensive Income for the years
ended December 31, 2009 and 2008
|
|
|
F-170
|
|
Consolidated Cash Flow Statement for the years ended December
31, 2009 and 2008
|
|
|
F-171
|
|
Statement of Changes in Consolidated Equity for the years ended
and as of December 31, 2009 and 2008
|
|
|
F-172
|
|
Notes to the Consolidated Financial Statements
|
|
|
F-173
|
|
F-100
(Translation
from the Italian original which remains
the definitive version)
Weather
Investments Group
Consolidated
financial statements as at
and for the year ended
31 December 2009
(with report of the auditors thereon)
KPMG
S.p.A.
13 April 2010
F-101
WEATHER
INVESTMENTS GROUP
Report on
operations at December 31, 2009
Report on operations
at December 31, 2009
F-102
CONTENTS
|
|
|
|
|
|
|
|
F-104
|
|
|
|
|
F-105
|
|
|
|
|
F-108
|
|
|
|
|
F-111
|
|
|
|
|
F-129
|
|
|
|
|
F-133
|
|
|
|
|
F-150
|
|
|
|
|
F-150
|
|
|
|
|
F-160
|
|
|
|
|
F-160
|
|
|
|
|
F-162
|
|
|
|
|
F-162
|
|
|
|
|
F-163
|
|
|
|
|
F-163
|
|
|
|
|
F-163
|
|
|
|
|
F-163
|
|
Report on operations
at December 31, 2009
F-103
BOARD OF
DIRECTORS AND CORPORATE BODIES OF WEATHER INVESTMENTS
SPA
Board of
Directors
|
|
|
Chairman
|
|
Xxxxxx Xxxx Xxxxxx Xxxxxxx
|
|
|
|
Directors
|
|
Xxxxxx Xxxxxxxx Xxxxx
|
|
|
Xxxxx Xxxxxx
|
|
|
Xxxxx Xxxxxxx
|
|
|
Xxxxxxx Xxxxxxxx
|
|
|
Onsi Xxxxxx Xxxxxxx
|
|
|
Xxxxxxx Xxxx
|
|
|
Xxxxxxx Xxxxxx Xxxx
|
|
|
Xxxxxxx Xxxxx Xxxxxxx
|
|
|
Xxxx Xxxxxxxxx
|
|
|
Xxxxxxxx Xxxxxx Xxxxxxx
|
|
|
|
CEO
|
|
Xxxxxx Xxxxxxx*
|
Board of
Statutory Auditors
|
|
|
Chairman
|
|
Xxxxxxxxx Xxxxx Xxxxxxx
|
Standing auditor
|
|
Xxxxxxx Xxxxxxx
|
Standing auditor
|
|
Xxxxxxxx Xxxxxxx xx Xxxxxxxxx
|
|
|
|
Independent Auditors
|
|
KPMG SpA
|
|
|
|
* |
|
On December 4, 2009, the Board of Directors of Weather
Investments SpA appointed Xxxxxx Xxxxxxx as Chief Executive
Officer of the company. |
Report on operations
at December 31, 2009
F-104
WEATHER
INVESTMENTS GROUP
Weather Investments SpA (hereafter also “Weather”, the
“Parent” or the “Company”) is a joint stock
company with registered office in Xxx xxx Xxx Xxxxxxx, 00 and
administrative offices in Xxx Xxxxxx Xxxxxx Xxxxx 00,
Xxxx, Xxxxx.
At the date of the preparation of these consolidated financial
statements the Company was held as to 68.82% by Weather
Investments II Sàrl, controlled by companies owned by
the Sawiris family, with the subsidiary Wind Acquisition
Holdings Finance SpA holding 7.76%, institutional investors
holding 21.61% and other investors holding 1.81%.
Weather Investments SpA and its subsidiaries (hereafter the
“Group” or the “Weather Group”) operate in
the telecommunications sector, principally in Italy, Greece and
the emerging markets of North Africa, the Middle East and Asia,
through the three
sub-groups
Wind Telecomunicazioni (hereafter the “Wind Group”),
Orascom Telecom (hereafter the “OTH Group”) and
Weather Finance I Group (hereafter the “WF Group”).
More specifically:
|
|
|
|
•
|
the Wind Group operates in Italy in the telecommunications
services sector under the “Infostrada” and
“Wind” brands (fixed-line and mobile telephony
services) and offers internet services through its subsidiaries
ITnet Srl and Italia OnLine Srl under the
“Libero’’ brand. The Wind Group
contributed its “International & national
wholesale” business through the subsidiary Wind
International Services SpA;
|
|
|
•
|
the OTH Group operates mainly in the mobile telecommunication
services sector in the following countries: Egypt (Mobinil),
Algeria (Djezzy), Pakistan (Mobilink), Tunisia (Tunisiana),
Bangladesh (Banglalink), Zimbabwe (Telecel Zimbabwe), Burundi,
the Central African Republic and Namibia (through the subsidiary
Telecel Globe), the Democratic Republic of North Korea
(Koryolink) and Canada (WIND Mobile formerly Globalive);
|
|
|
•
|
the Wind Hellas Group operates in Greece as an integrated
operator in the fixed and mobile telecommunication services
sector and also in internet.
|
At December 31, 2009, the Weather Group recorded a negative
equity of €483 million as a consequence of the loss of
the year equal to €666 million. This loss is mainly
affected by the impairment losses equal to
€1,521 million, recognised following the impairment
test performed on goodwill relating to the acquisition of the
Hellas Group (see paragraph 1.1 of the Notes), higher
income tax for €244 million (see paragraph 35 of
the Notes), only partially offset by the positive effect
deriving from the deconsolidation of Hellas
Telecommunications II SCA for €1,224 million
considering that, on November 26, 2009, Hellas
Telecommunications II SCA entered into pre-pack
administration (see paragraph 32 of the Notes).
Report on operations
at December 31, 2009
F-105
The following chart sets out the structure of the Weather Group
and its three main operating groups at December 31, 2009.
Report on operations
at December 31, 2009
F-106
The following chart sets out the structure of the subgroup
headed by Wind Acquisition Holdings Finance SpA at
December 31, 2009.
The following chart sets out the structure of the subgroup
headed by Orascom Telecom Holdings SAE at December 31, 2009.
Report on operations
at December 31, 2009
F-107
The following chart sets out the structure of the subgroup
headed by Weather Finance I Sàrl at December 31 2009.
The operating and financial data below are based on the
Group’s consolidated financial statements as of and for the
year ended December 31, 2009, prepared in compliance with
the IFRS as endorsed by the European Union.
Income
statement data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
|
|
|
12 Months
|
|
12 Months
|
|
Amount
|
|
%
|
|
|
(Millions of euro)
|
|
Total revenue
|
|
|
10,336
|
|
|
|
10,412
|
|
|
|
(76
|
)
|
|
|
(0.7
|
)%
|
EBITDA*
|
|
|
3,872
|
|
|
|
4,028
|
|
|
|
(156
|
)
|
|
|
(3.9
|
)%
|
Net finance expense
|
|
|
(414
|
)
|
|
|
(1,494
|
)
|
|
|
1,080
|
|
|
|
72.3
|
%
|
Profit (loss) before tax
|
|
|
(16
|
)
|
|
|
398
|
|
|
|
(414
|
)
|
|
|
n.m.
|
|
Profit (loss) for the year
|
|
|
(511
|
)
|
|
|
147
|
|
|
|
(658
|
)
|
|
|
n.m.
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners of the parent
|
|
|
(666
|
)
|
|
|
(44
|
)
|
|
|
(622
|
)
|
|
|
n.m.
|
|
Non-controlling interests
|
|
|
155
|
|
|
|
191
|
|
|
|
(36
|
)
|
|
|
(18.8
|
)%
|
Earnings\Losses per share (euro)
|
|
|
(0.97
|
)
|
|
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Operating income before depreciation and amortization,
reversal/impairment of non-current assets and
gains/losses
on disposal of non-current assets |
Report on operations
at December 31, 2009
F-108
Statement
of financial position data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
At December 31,
|
|
Change
|
|
|
|
|
2009
|
|
2008
|
|
Amount
|
|
%
|
|
|
(Millions of euro)
|
|
Total assets
|
|
|
23,815
|
|
|
|
24,932
|
|
|
|
(1,117
|
)
|
|
|
(4.5
|
)%
|
Net financial indebtedness
|
|
|
15,516
|
|
|
|
16,638
|
|
|
|
(1,122
|
)
|
|
|
(6.7
|
)%
|
Equity
|
|
|
(193
|
)
|
|
|
516
|
|
|
|
(709
|
)
|
|
|
n.m.
|
|
Equity attributable to owners of the parent
|
|
|
(483
|
)
|
|
|
297
|
|
|
|
(780
|
)
|
|
|
n.m.
|
|
2009 was characterized by a marked contraction in the
results of the Wind Hellas Group, caused by the significant
decrease in revenue, mainly due to three factors, namely: a
reduction in prices as a consequence of market competition, the
regulatory reduction in interconnection tariffs and the economic
crisis.
These factors have prevented the Wind Hellas Group from
generating the revenue and cash flows needed to sustain its
operations, meeting its predetermined strategic objectives and
its future interest payments relating to the debt of the Group.
In this situation, the Greek Group needed to restructure its
debt and continue to reduce corporate overhead expenses
to alleviate future potential liquidity restrictions, in order
that the strategic objectives included in the revised business
plan prepared by Directors could be met.
Due to the above issues, the Hellas Group, during the second
quarter of 2009, has initiated a process to restructure its
debt, which was unsuccessful.
On September 1, 2009, a process was initiated to solicit
interest in a potential capital restructuring in order to
generate cash flows for WIND Hellas Telecommunications SA.
29 strategic and financial investors were contacted, who
had to present their non-binding offers by September 28,
2009. The non-binding offers were six and all six parties were
invited to submit a final and binding offer by October 22,
2009. All parties were given the opportunity to perform
extensive due diligence, full access to a Virtual Data-room,
access to management and
follow-up
meetings were provided. Transaction documentation including
other forms of transaction agreements were provided.
On October 22, 2009, final round offers were received from
two parties: Weather Investments SpA and a Committee of
Subordinated Noteholders (collectively the “Final
Offers”). Implementation of both of the Final Offers was
conditional upon consent from, inter alia, 50% of Unsecured
Noteholders, 50% of Secured Noteholders and in certain
circumstances the Super Senior RCF Lenders. A consultation
process was initiated between both parties and the creditors.
The consultation process was to allow both parties the
opportunity to present their plans for the business, allow the
ad hoc committees to evaluate each of the Final Offers and
negotiate the form and terms of consent. In addition, a process,
including input from each of the ad hoc committees of Note
holders and the Super Senior RCF Lenders, to clarify and resolve
outstanding issues including any conditions in relation to both
Final Offers was also initiated.
On November 5, 2009, the Board of Hellas II received
evidence that Noteholders representing approximately 60% of
Senior Unsecured Notes and approximately 55% of Senior Secured
Notes had executed
lock-up
agreements in favor of the offer made by Weather Investments
SpA. At the same time, the Board of Hellas II met to
consider the current operating and liquidity situations in Wind
Hellas Telecommunications SA and both Final Offers. It
determined that steps should be taken to follow up the offer
from Weather Investments SpA.
In relation to the waivers and amendment required under the
Revolving Credit Facility, the requisite level of consents was
also obtained on November 17, 2009.
Consequently, the Board of Hellas II resolved to apply to
the English High Court of Justice for an administration order in
respect of Hellas II.
On November 26, 2009, Hellas II entered a pre-pack
administration procedure and administrators were appointed by
the English High Court of Justice under the provision of
paragraph 13 of Schedule Bl of the
Report on operations
at December 31, 2009
F-109
Insolvency Act 1986. As a consequence, Hellas II is no
longer controlled by the Group and so it has been deconsolidated
with a finance income of €1,224 million.
On November 27, 2009, the sale of Hellas II’s assets
was completed, including its shareholding in WIND Hellas
Telecommunications SA and Hellas Telecommunications IV
Sarl, to Weather Finance III Sarl (a subsidiary of Weather
Investments SpA) for a total consideration of €10 thousand.
As part of the sale, Weather Finance III would make a cash
injection of at least €50 million into WIND Hellas,
which occurred during November 2009.
The obligations of Hellas II as the issuer of the
€960 million and USD 275 million of
Unsecured Subordinated Notes remain with the insolvent Hellas
II, which, in this moment, does not have the sufficient
liquidity to repay these loans. The fact that Hellas
Telecommunications II has entered into a prepack
administration procedure has triggered a default event for the
Unsecured PIK Notes, having a nominal amount equal to
€200 million, held by Hellas Telecommunications
Finance SCA. Considering the Greek Group’s financial
difficulties, also in this case, it is taking the necessary
steps to place Hellas Telecommunications Finance, the holder of
the Unsecured PIK Notes equal to €261 million, and
Hellas Telecommunications I, the guarantor of the Unsecured
PIK Notes, into bankruptcy in Luxembourg. As a consequence of
such default, the non-current portion amounting to
€250 million of the Unsecured PIK Notes has been
reclassified under current financial liabilities.
It should be also noted that, the consolidated financial
statements as of and for the year ended December 31, 2009
have been prepared considering the Hellas Group financial
information (with respect to the companies Hellas
Telecommunications Sarl, Hellas Telecommunications I Sarl,
Hellas Telecommunications Limited and Hellas Telecommunications
Finance SCA) presented on a non-going concern basis. The
relevant decision has been triggered by the fact that Hellas
Telecommunications II SCA entered a pre-pack administration
procedure and sold by way of auction its main assets (the
investments in WIND Hellas Telecommunications SA and Hellas
Telecommunications IV Sarl); in addition, there has also
been uncertainty about the ability to repay the Unsecured PIK
Notes, having a nominal amount equal to €200 million,
held by Hellas Telecommunications Finance SCA.
Hellas Telecommunications IV Sarl and WIND Hellas
Telecommunications Group financial information (“WIND
Hellas Group”, whose subsidiaries are Hellas
Telecommunications III SCA, Hellas Telecommunications V SCA
and Hellas Telecommunications VI Sarl) has been prepared on a
going concern basis, also for consolidation purposes.
As a consequence of the Revised Business Plan
2009-2013
and its updating, during the year, the Weather Investments Group
decided to fully impair the total amount of goodwill acquired on
the purchase of the Hellas Group equal to
€1,521 million and also €38 million
allocated to licenses and trademarks.
At December 31, 2009, the Revised Business Plan
2009-2013
prepared by the WIND Hellas’ Directors confirms the
financial and economic balance and the growth of profitability
in the mid-term, with the consequent recovery of assets recorded
in the December 31, 2009 financial statements of Wind
Hellas Group. Consequently, Directors consider still proper the
going concern basis.
Weather Group considers that no significant expenses will come
out from the Hellas II
winding-up
and the Hellas Telecommunications Finance and Hellas
Telecommunications I possible bankruptcy procedure.
The Parent Weather Investments SpA and the subsidiary Wind
Telecomunicazioni SpA hold put and call options which, if
exercised, would enable Wind Telecomunicazioni SpA to sell and
Weather Investments SpA to buy the entire investment in Hellas
Telecommunications I Sàrl at any time during the five year
period which commenced December 30, 2008.
On October 28, 2009, regarding the sale of Hellas
Telecommunications II’s assets to Weather Finance III
Sarl (the subsidiary of Weather Finance II Sarl), the
subsidiary Wind Telecomunicazioni SpA purchased from the
subsidiary Weather Finance I Sarl 80 shares (equal to 16%)
in the share capital of its wholly owned subsidiary Weather
Finance II Sarl, for a total consideration of €2
thousand.
On December 17, 2009, the Call Option rights granted to
Weather Investments SpA and the Put Option rights granted to
Wind Telecomunicazioni Spa on Hellas Telecommunication I Sarl
shares, have been amended. Under
Report on operations
at December 31, 2009
F-110
this Agreement each Party shall have the right to exercise the
Call or the Put Option on the stake held by Wind in Hellas I or
in any entity or company directly
and/or
indirectly holding the shares
and/or
assets in Wind Hellas Telecommunications SA. Furthermore, the
spread relating to the exercise price of the option has been
increased, from 1.25% to 2.625%.
The Wind Group maintained its option on Hellas
Telecommunications I Sarl which will be exercised in a short
period, as detail in paragraph 42 of the Notes.
Additional
changes in the Group structure
Additional significant changes in the Group structure are
detailed below:
|
|
|
|
•
|
in January 2009, the Group was awarded, for one year renewable
for another year, the management contract of one of the two
Lebanese mobile telecommunications operators (Alfa). The group
will receive management fees from the Republic of Lebanon based
on the performance of the operator as measured by operating
expenditure per active subscriber;
|
|
|
•
|
in the same month the Group, through its subsidiary Telecel
Globe, acquired the mobile telecommunications operator Cell One
in Namibia, the total consideration is approximately
USD59 million in cash, of which USD32 million is
already paid and the rest to be paid by 2010;
|
|
|
|
|
•
|
in February 2009, Hellas Telecommunications approved the
increase of the share capital of the subsidiary Hellas I by
2,965 shares with a nominal amount of €100 each. These
shares were issued to WIND Telecomunicazioni SpA in
settlement of the amount due for the acquisition of the 50%
minus 1 share non-controlling interest in WPH for a
consideration of €179.4 million;
|
|
|
|
|
•
|
on July 17, 2009, following the signing on April 28,
2009 of a framework agreement with 4G Retail Srl, the subsidiary
Mondo WIND Srl completed its acquisition of Phone Srl, which
manages 126 sales points throughout Italy and whose business is
the sale of mobile and fixed telephony products and services.
|
ITALY
In Italy the Group offers Mobile, Fixed-line and
Internet & Data services mainly through Wind
Telecomunicazioni SpA.
Performance
of the mobile telephony market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
12 Months
|
|
|
12 Months
|
|
|
% Change
|
|
|
Revenue (millions of euro)*
|
|
|
3,786
|
|
|
|
3,668
|
|
|
|
3.2
|
%
|
EBITDA (millions of euro)*
|
|
|
1,768
|
|
|
|
1,658
|
|
|
|
6.6
|
%
|
Subscribers (millions of SIM cards)
|
|
|
18.4
|
|
|
|
16.9
|
|
|
|
9.0
|
%
|
Voice traffic (billions of minutes)
|
|
|
35.5
|
|
|
|
32.2
|
|
|
|
10.4
|
%
|
ARPU (€/month)
|
|
|
17.4
|
|
|
|
18.5
|
|
|
|
(5.9
|
)%
|
|
|
|
* |
|
Amounts arising from the subsidiary’s annual financial
statements prepared in accordance with International Financial
Reporting Standards (IFRS) |
Consumer
Voice Offerings
WIND provides a variety of consumer voice offerings tailored to
specific market segments. The voice offerings can be upgraded
with a variety of option plans and VAS. Pre-paid consumer
subscribers can choose
Report on operations
at December 31, 2009
F-111
between different tariff plans to call all national numbers,
from a tariff plan without set up fee to one with a very low
cost per minute subject to a monthly fee.
WIND provides the possibility for its users to customize their
tariff profile through a number of options to call, send SMS and
browse on Internet for a fixed weekly/monthly fee. In the latter
part of the year WIND reinforced its push on subscription bundle
offers, through dedicated advertising on its All Inclusive
products, a series of plans that combine voice minutes, SMS/MMS
and Internet browsing (and in certain cases handsets) for a
fixed monthly fee.
Additional
Consumer Voice Options
WIND strategy continues to focus on the
on-net
offering and options which are designed to build a WIND mobile
“community” encouraging mobile users to subscribe to
WIND services and use their WIND SIM card as their primary one.
These options enable WIND to acquire new subscribers as a result
of the community attraction: people choose WIND because their
friends or family use WIND. In addition to its
on-net
strategy WIND has continued to develop its
off-net
options strategy which allows WIND to be more aggressive in the
market and to reach new segments, also thanks to the inclusion
of SMS bundles. In November, WIND completed the Noi Tutti offers
portfolio with Noi tutti SMS, the option which allows the
customer to send up to 100 SMS/month to all national numbers for
6 euro/month.
Corporate
Voice Offerings
WIND provides corporate voice services to large corporate
customers, small and medium-size enterprises
(“SMEs”) and small office/home offices
(“SOHOs”), with corporate voice offerings. For
large corporate customers, who often solicit tenders for their
mobile telephone requirements on a competitive basis, WIND
offers customized services tailored to their specific
requirements. For SME and SOHO subscribers, WIND offers more
standardized products:
|
|
|
|
•
|
all-inclusive tariff plans that offer customers a set amount of
calling minutes, SMSs and gigabytes of mobile Internet access
for a fixed monthly fee;
|
|
|
•
|
pay per use tariff plans with specific promotions (discount on
monthly fee or traffic, with or without minimum monthly expense).
|
WIND offers a variety of add-on options to standard corporate
voice offerings, available to SME and SOHO subscribers as well
as corporate subscribers on a bespoke basis, including:
|
|
|
|
•
|
Xxxxxxxx Voice and SMS, providing
on-net
benefits to the corporate subscriber base, similar to the Noi
options available for consumers;
|
|
|
•
|
WIND Dual SIM, allowing users to utilise the same
telephone number, functions and price plan, in two separate
handsets thereby catering for those customers that have both a
standard phone for their voice calls and smart phone/mobile
Internet key for their Internet and data connectivity.
|
|
|
b)
|
Consumer
and Corporate Data and VAS Offerings
|
In addition to mobile voice offerings, WIND provides a
comprehensive array of mobile data services and VAS for
telephone and computer to both consumer and corporate
subscribers. The majority of WIND data and VAS offerings are
available over both GSM and UMTS/HSDPA networks, while certain
services, such as video call, are limited to WIND’S UMTS
network.
WIND generally charges for data services either on a time basis
or volume basis. Certain data services and VAS require payment
of an additional
set-up fee
by the subscriber in order to gain access to the service. We
offer the following data services and VAS:
|
|
|
|
•
|
Mobile Internet. WIND mobile subscribers can
connect to the internet via GSM, GPRS or UMTS/HSDPA network
using an internet key or a mobile phone, also as a modem. For
web browsing via GPRS/UMTS/
|
Report on operations
at December 31, 2009
F-112
|
|
|
|
|
HSDPA, in addition to the default time based or volume based
charging, users can subscribe to dedicated bundle offerings on
which WIND is increasingly focusing on through an easy
provisioning and a simple and transparent tariff plan structure.
|
Mobile Internet access for personal computers is available in
both time-based and volume-based plans for consumer subscribers,
and only with time based plans for corporate subscribers. Mobile
Internet access on a mobile telephone handset is only available
through time-based plans for both consumer and corporate
subscribers.
WIND also offers a number of flat/semi-flat mobile Internet
packages to corporate subscribers via its “Xxxxxxxx
Mega” offering, a new time based mobile Internet offer for
business customers available in four different options. The
customers preferring a
pay-per-use
option can choose “Internet Mobile a Tempo”
(2€ per hour excluding VAT for Internet traffic).
|
|
|
|
•
|
BlackBerry. WIND offers its BlackBerry
services to corporate, SME and, more recently consumer
subscribers.
|
|
|
•
|
SMS and MMS. SMS offerings provide users with
information such as news, sports, weather forecasts, horoscopes,
finance and TV programming information, as well as a selection
of games, ring tones, a chat service for our subscribers and
services specifically targeted to students. MMS provides
multimedia (photo, video and sound) content, such as sports
events, news, gossip, music and a chat service.
|
|
|
•
|
WIND WAP Portal and on Web. Our WAP Portal
allow users to purchase ring tones and other options for their
handsets and to surf on many websites, branded or unbranded,
featuring live news, sport and finance, among other services.
Additionally, Libero Internet and Mobile Portals are available
to all mobile subscribers (not only Wind) providing mail box and
other free services with an Advertising-based business model. In
connection with our mobile data and VAS offerings, WIND works
closely with third-party content and application providers such
as Mediaset, RAI, Dada (RCS Group) and Zed I-music, among
others. These third parties provide content using their own
brands and delivering cross-operator services.
|
WIND’S mobile subscribers can use their mobile services,
including SMS, MMS and data services (GPRS, EDGE, 3G, HSDPA)
where supported and launched, while roaming in other countries.
Roaming coverage outside Italy is provided through roaming
agreements with approximately 440 international operators.
|
|
d)
|
Sales
and Distribution
|
WIND sells consumer mobile products and services, including SIM
cards, scratch cards and WIND-branded and unbranded handsets,
through a significant number of
points-of-sale.
Currently there are 152 WIND-owned stores and approximately 368
exclusive franchised outlets operating under the WIND name. The
non-exclusive
points-of-sale
consist of approximately 1,284 WIND dealers, 396 electronic
chain store outlets and approximately 3,250 other
points-of-sale
in smaller towns throughout Italy managed by SPAL S.p.A.,
WIND’S largest distributor in terms of
points-of-sale.
WIND also sells a portion of consumer services online through
the xxx.000.xx website, and sells consumer mobile
activations through additional
points-of-sale
owned by Western Union, as well as scratch cards through small
points-of-sale
(including tobacconists and newsagents).
As part of its strategy to enhance the distribution network,
WIND is extending and improving the quality of its distribution
channels; in order to strengthen its sales structure in parts of
Italy with limited presence and growth opportunities, the
subsidiary Mondo WIND srl acquired Phone srl which has 126
points of sale between July and November 2009, mainly located in
shopping malls and for the most part in the north eastern Italy.
Report on operations
at December 31, 2009
F-113
Performance
of the fixed telephony and internet market
Voice
The following table sets out the key fixed-line indicators:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
12 Months
|
|
12 Months
|
|
% Change
|
|
Revenue (millions of euro)**
|
|
|
1,789
|
|
|
|
1,659
|
|
|
|
7.8
|
%
|
EBITDA (millions of euro)**
|
|
|
296
|
|
|
|
351
|
|
|
|
(15.7
|
)%
|
Fixed-line voice subscribers (thousands of lines)
|
|
|
2,843
|
|
|
|
2,620
|
|
|
|
8.5
|
%
|
of which LLU (thousands)*
|
|
|
2,009
|
|
|
|
1,729
|
|
|
|
16.2
|
%
|
Voice traffic (billions of minutes)
|
|
|
18.9
|
|
|
|
17.4
|
|
|
|
8.6
|
%
|
ARPU (€/month)
|
|
|
35.4
|
|
|
|
37.9
|
|
|
|
(6.7
|
)%
|
|
|
|
* |
|
Including Virtual LLU. |
|
** |
|
Amounts arising from the subsidiary’s annual financial
statements prepared in accordance with International Financial
Reporting Standards (IFRS) |
WIND offers a wide range of direct and indirect fixed-line voice
services, Internet broadband and narrowband
(dial-up),
data services and operates one of Italy’s leading Internet
portals by number of active user accounts and page views. WIND
offers these services to both consumer and corporate subscribers
through the Infostrada (fixed-line voice services and Internet
broadband) and Libero (narrowband
(dial-up)
data services and Internet portal) brands. In response to trends
in the Italian fixed-line telecommunications market, such as
fixed-to-mobile
substitution and migration from narrowband usage to broadband
usage, WIND has focused its efforts in the fixed-line market
primarily on growing its broadband and direct voice subscriber
bases. In addition, WIND is seeking to grow its WLR business in
locations where it does not provide direct access to its network
via LLU.
WIND fixed-line direct and indirect voice customer base totalled
2.843 million subscribers as of December 31, 2009, up
by 8.5% compared to December 31, 2008, mainly due to a rise
in direct voice users who at the end of the reporting period
exceeded 2 million with an increase of 16.2% over the
previous year. At December 31, 2009 WIND has 833 thousand
indirect voice users, of whom 416 thousand are WLR subscribers.
Internet
and Data
The following table sets out the key access indicators:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
12 Months
|
|
|
12 Months
|
|
|
% Change
|
|
|
Internet Customer base (thousands)
|
|
|
1,923
|
|
|
|
1,890
|
|
|
|
1.8
|
%
|
of which Narrowband (thousands)
|
|
|
281
|
|
|
|
535
|
|
|
|
(47.5
|
)%
|
of which Broadband (thousands)
|
|
|
1,643
|
|
|
|
1,355
|
|
|
|
21.2
|
%
|
of which LLU (thousands)
|
|
|
1,340
|
|
|
|
1,038
|
|
|
|
29.2
|
%
|
of which Shared Access (thousands)
|
|
|
29
|
|
|
|
38
|
|
|
|
(23.7
|
)%
|
WIND offers a vast range of Internet and data transmission
services, for both consumer customers and business customers.
WIND had 1.6 million broadband internet customers and
0.3 million narrowband subscribers at December 31,
2009. WIND offers broadband services to direct and indirect
customers. For direct customers WIND leases the “last
mile” of the access network from Telecom Italia, which is
disconnected from Telecom Italia equipment and connected to WIND
equipment in the telephone exchange. WIND pays a monthly lease
instalment to Telecom Italia for this type of service. For the
indirect offering WIND sells on to its customers a service that
it purchases wholesale from Telecom Italia. In addition, WIND
offers bundled fixed-line voice and broadband services through
its “Tuttolncluso” and “Absolute ADSL”
packages.
In the narrowband market, WIND’S primary product is
“Internet Gratis,” which offers a
dial-up
connection through analog and ISDN lines with a web accelerator
that allows for speeds up to 128 Kbps.
Report on operations
at December 31, 2009
F-114
Consumer
Voice Offerings
Throughout Italy, WIND provides traditional analog voice
telephone service (“PSTN access”), digital
fixed-line telephone service (“ISDN access”)
and other services, such as caller ID, voicemail, conference
calls, call restriction, information services and call
forwarding. However, an increasing number of subscribers (67.0%
at December 31, 2009) subscribe to bundled fixed-line
voice and Internet broadband offerings.
Corporate
Voice Offerings
WIND provides PSTN, ISDN and VoIP fixed-line voice services,
data services, VAS and connectivity services to corporate
subscribers, including large corporates, SMEs and SOHOs. WIND is
increasingly targeting the large corporate subscribers segment
to capitalize on its experience with ENEL and its ENEL-specific
service infrastructure, such as our dedicated call center.
For larger corporate subscribers, WIND typically tailors its
offerings to the needs of the subscriber and, where applicable,
to competitive bidding requirements. It also offers its large
corporate subscribers direct access to its network through
microwave links, direct fiber optic connections or, where it
does not offer direct access via LLU, dedicated lines leased
from Telecom Italia. WIND also offers large corporate
subscribers national toll-free and shared-toll and pre-paid and
magnetic strip telephone cards.
For SoHo and SME customers WIND typically offers a suite of
standard “off the shelf” 2P (voice + internet) tariff
plans based on VoIP technology. Tuttolncluso Aziende covers the
range 3-8 voice channels, with ADSL internet access, while the
recently launched Infostrada Impresa covers the range 8-60 voice
channels, with SHDSL internet access. A managed PBX service is
optionally included in Infostrada Impresa: a single monthly fee
per user includes traffic minutes, internet bandwidth, managed
pbx services and ip phones.
The main source of sales to fixed-line consumer voice
subscribers is telephone sales made through the call centers,
both through outbound telephone sales and inbound calls to our
call center. WIND also utilizes outbound sales agencies to
acquire business customers. Call centers deal with inbound call
questions from subscribers and are staffed by individuals who
are trained to recognize subscriber needs and sell products and
services accordingly. Call centers also make outbound calls to
prospective subscribers who are targeted using various business
intelligence tools. WIND’S call centers have been one of
our most efficient channels for new subscriber acquisitions. In
the consumer Internet access market, Libero website portal is a
key distribution channel, enabling subscribers to register for
Internet access over the Internet. WIND utilizes sales agencies,
call centers and a direct sales force to target sales of
fixed-line voice and Internet services to corporate subscribers.
WIND operates an Internet portal under the “Libero”
brand. At December 31, 2009 Libero is the leading Italian
portal based on number of active user accounts and page views
with over 10.2 million monthly unique visitors and more
than 1.8 billion monthly page views. Libero is also one of
Italy’s biggest
e-mail
service providers, with over 7.7 million active
e-mail
accounts at December 31, 2009. Libero also offers a wide
range of content and services, including a search engine, news,
and “vertical” channels (organized in groups such as
finance, automotive, women and travel). Libero also hosts an
online community, “Libero Community”, which had
approximately 4.0 million visitors at December 31,
2009. Libero also acts as a social network (Libero Blog) and was
among the first Italian portals on which customers could share
user-generated content (Libero Video) becoming a fundamental
tool in developing WIND’S web 2.0 strategy and addressing
the relevant market segments.
WIND offers connectivity services to other operators by
leveraging its nationwide presence as well as its
state-of-the-art
network capabilities. In April 2009, following an internal
reorganization process of the “International and National
Wholesale” department, the international services and the
national voice services have been
Report on operations
at December 31, 2009
F-115
contributed into WIND International Services (WIS), a company
wholly owned by WIND. The national wholesale data services,
provided over the Italian territory, remained under WIND’S
responsibility. A recent deal signed by WIS and Melita (Maltese
carrier) has contributed to further strengthen WIND’S and
WIS’ s positioning in the wholesale market as leading
providers in southern Italy and in the Mediterranean basin.
WIND offers wholesale operator services, through which it sells
network capacity to other operators and manages incoming and
outgoing call termination traffic for other national and
international operators. As consideration for managing calls
terminated on its mobile or fixed-line network, WIND receives
revenues from other operators. Similarly, WIND is required to
pay termination fees to other operators for calls terminated on
their mobile or fixed-line networks.
Mobile-to-mobile,
mobile-to-fixed,
fixed-to-mobile,
and
fixed-to-fixed
interconnection rates are regulated by AGCOM.
|
|
e)
|
Bundled
and Convergent Services
|
As a leading provider of mobile, Internet, fixed-line voice and
data services with an integrated infrastructure and network
coverage throughout Italy, WIND is well-positioned to offer
bundled services that combine these products. Dual-Play package
offers Internet broadband and fixed-line voice services and our
Triple-Play package offers Internet broadband, fixed-line voice
and television over DSL (in conjunction with Sky).
WIND uses bundling primarily to expand its direct access and
broadband subscriber base. For example, WIND launched
“Tuttolncluso” bundled offering, which combines
unlimited fixed-line voice calls and unlimited broadband access
for a fixed monthly fee. WIND also offers bundled offerings
combining fixed-line voice and mobile services, including
“Noi 2 Infostrada” and “Noi 3” in the
consumer market and “Azienda Wind” option in SOHO
market which allows free calls to one’s Wind mobile from an
Infostrada fixed-line. In order to leverage the strong demand
for broadband Internet connectivity WIND launched a bundled
offer for the consumer market, “SuperInternet”, that
combines a set number of hours per month of fixed-line broadband
or mobile broadband connectivity for a flat-rate per month.
WIND’S IPTV offering, “Infostrada TV”, is offered
with Internet broadband and fixed-line voice services in a
Triple-play bundled package; the IPTV service includes Video on
Demand, optional Sky TV channels, a personal video recorder, web
programming (through xx.xxxxxx.xx) and multimedia content
sharing with PCs for a
fixed\monthly
fee.
In order to satisfy the growing need for data storage the ADSL
VAS services portfolio for the Consumer market has been enriched
by new services such as Backup Online, which allows data,
e-mails,
photos, etc. to be stored without capacity limits for a monthly
fee.
The ADSL VAS services portfolio for SOHO has been enriched with
new services such as a new Certified
E-mail
service, according to the law, all professionals have to
subscribe to a Certified
E-mail
service.
|
|
f)
|
Customer
Service and Retention
|
WIND customer service efforts are coordinated through its
customer operations unit, which is divided into mobile,
fixed-line (including Internet) and corporate accounts. In order
to provide a tailored customer service to certain key customer
segments, such as the ethnic communities, WIND has opened call
centers in foreign locations such as Romania.
WIND has dedicated call centers in Rome and Ivrea for its
enterprise customers with internal agents assigned to each
customer in order to provide high service levels to key
accounts. WIND also focuses on ensuring that customer-facing
systems are accessible and easy to use, and provides an
integrated billing system for all subscribers plus a system that
allows our corporate clients to pay bills, order supplies and
obtain information electronically. WIND manages dedicated
customer care oriented websites, xxx.xxxx.xx and
xxx.xxxxxxxxxx.xx.
Report on operations
at December 31, 2009
F-116
The customer relationship management (“CRM”) function
helps devise and execute promotional programs intended to
improve customer retention, increase service usage, cross-sell
or up-sell our services and maintain customer loyalty and
satisfaction.
WIND also specifically targets high-value customers in both the
consumer and corporate markets.
These customers are targeted with specific programs based on
recurring contact with the customer, which are aimed at
understanding the customers’ needs and improving their
knowledge of services and offers. In order to maximize customer
satisfaction, these customers are also provided with premium
quality levels of service, and in particular customer care
services, with the establishment of a dedicated expert call
center specifically for corporate customers.
GREECE
(This section should be read in conjunction with paragraph
“main operating and financial data of the Weather
group”).
The most significant part of the Group’s operations in
Greece relates to the supply of mobile and fixed telephony
services through the Weather Finance I Group, which indirectly
controls WIND Hellas and Tellas (merged into WIND Hellas). As
already commented in paragraph Main operating and
financial data of the Weather Group, in November 2009
Weather Finance I Group acquired WIND Hellas from the Hellas
Group.
WIND Hellas is also active in the fixed-line and internet
services sector under the “Tellas” brand. Xxxxxx XX
launched its commercial operation in February 2003 and has been
leading the developments in the Greek telecom market ever since.
Tellas was the first to provide the Greek public with innovative
fixed telephony services, internet access services, combined
services of fixed telephony and internet as well as broadband
services, at competitive rates for all market segments,
residential users, professionals, small enterprises and large
companies. WIND Hellas, benefiting from the merger with Xxxxxx
XX, provides innovative and combined mobile, fixed and internet
services such as “WIND 3 in 1” for customers combining
mobile telephony with fixed telephony & ADSL, offering
discounts on the mobile monthly fee.
The following table shows the main operating and financial data
of the Weather Finance I Group for 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
12 Months
|
|
12 Months
|
|
% Change
|
|
Revenue (millions of euro)*
|
|
|
1,074
|
|
|
|
1,260
|
|
|
|
(14.8
|
)%
|
EBITDA (millions of euro)*
|
|
|
275
|
|
|
|
406
|
|
|
|
(32.2
|
)%
|
Mobile subscribers (millions of SIM cards)
|
|
|
5.0
|
|
|
|
5.2
|
|
|
|
(4.0
|
)%
|
Mobile ARPU (€/month)
|
|
|
14.4
|
|
|
|
18.8
|
|
|
|
(23.4
|
)%
|
Fixed line and internet subscribers (thousands)
|
|
|
896
|
|
|
|
922
|
|
|
|
(2.9
|
)%
|
Fixed line ARPU (€/month)
|
|
|
13.0
|
|
|
|
12.4
|
|
|
|
4.8
|
%
|
|
|
|
* |
|
Amounts arising from the subsidiary’s annual reporting
package prepared in accordance with International Financial
Reporting Standards (IFRS) |
2009 was characterized by a marked contraction in the
revenue of the Wind Hellas Group mainly due to three factors,
namely: a reduction in prices as a consequence of market
competition, the regulatory reduction in interconnection tariffs
and the economic crisis.
The decrease in revenue in 2009 is mainly attributed to the
decrease in mobile segment interconnection traffic revenue as a
result of the decline in interconnection rates that occurred in
February 2008 and in January 2009 combined with the decrease in
incoming traffic and incoming numbers of SMSs.
Furthermore, revenue from telephony services decreased by
€92 million in 2009 compared to 2008 mainly due to the
decline in prepaid and post-paid mobile traffic.
Fixed service revenue increased in 2009 compared to 2008 as a
result of the increase in the LLU customer base and the increase
in wholesale revenue.
Report on operations
at December 31, 2009
F-117
The decrease in EBITDA is primarily due to the decline in
revenue in 2009 compared to 2008, partially offset by lower
interconnection costs due to lower outgoing traffic to other
operators.
Performance
of the mobile telephony market
Postpaid
services offer
During 2009, WIND Hellas launched a series of initiatives
offering economy and flexibility in the consumer postpaid market:
|
|
|
|
•
|
WIND/Tellas “in one” promotion, for customers
combining mobile telephony from WIND with fixed
telephony & ADSL from Tellas, offering 20% discount on
the mobile monthly fee forever, 1000 free minutes per month from
WIND mobile towards Tellas fixed line and 200 free minutes per
month from Tellas fixed line towards WIND mobile. The offer was
available up to September 30, 2009 and valid until
December 31, 2009. In September 2009, WIND/Tellas “in
one” promotion was relaunched, offering
€20 discount on the mobile monthly fee forever for
family customers combining mobile telephony from WIND with fixed
telephony & ADSL from Tellas (€10 discount for
single customers);
|
|
|
•
|
promotion for all new and existing customers offering 600 free
minutes to all WIND numbers at €5 per month until
December 31, 2009;
|
|
|
•
|
modification of Hybrid tariff plans, offering extra embedded
usage: €5 per month in Hybrid 25 tariff plan and €8
per month in Hybrid 35 tariff plan;
|
|
|
•
|
promotion for new activations in Hybrid tariff plans, offering
50% extra embedded usage every month until December 31,
2009;
|
|
|
•
|
in June 2009, a promo for at least one new activation in WIND
post-paid tariffs plans was launched, offering 2,000 minutes and
2,000 SMS between 2 WIND numbers for free forever. In August
2009, the offer was extended to existing customers offering
1,000 minutes and 1,000 SMS towards one WIND number at €5
per month.
|
In addition, WIND Hellas modified the charging of selected
tariffs, increasing off-bundle charges in Flexy Zero and Max
Tariffs and increasing SMS rates in Flexy Zero, Max and old
tariffs in order to boost revenue. In July 2009, the SMS rate of
Minute Bundle tariffs was increased by 12% in order to match the
other WIND consumer tariff plans, and the off-bundle rates in
all commercially available tariffs was increased from 9% up to
14%.
On October 5, 2009, following competition, minimum call
duration has been modified from 30 seconds to 45 seconds in
commercially and non commercially available consumer tariff
plans targeting revenue increase. The new minimum call duration
has been applied for
off-net
national voice charges of post-paid consumer tariff plans.
Furthermore, WIND Hellas continued pushing its add-on portfolio
through a promotion offering selected add-on services free of
charge for the first two months for all new activations. WIND
Hellas has also allowed the inclusion of Hybrid tariffs within
its popular family plans.
On October 15, 2009, XXXX responded effectively to the
competition’s recent launches with a differentiating simple
and clear-cut proposition, targeting high value customers. The
new tariff plan “WIND XL” offers 1,000 minutes
for voice calls, 1,000 minutes for video telephony, 1,000 SMS,
1,000 MMS to all national networks and 1,000MB for mobile
internet usage at €90 per month.
Moreover, on November 13, 2009, WIND launched Q post-paid
tariff plan capitalizing on Q’s long-standing notion of
economy to address customers who are aware of their basic needs
and who value a proposition for being simple and easy to
understand. Q post-paid is a zero monthly fee tariff plan
without
12-month
contract commitment offering flexible bundles that can be
activated at any time, providing very low voice charges and low
SMS charges as well as free MB for mobile internet usage with
30 days validity.
Report on operations
at December 31, 2009
F-118
As far as the Business market is concerned, WIND Hellas
continued offering a complete and flexible solution providing
competitive pricing and an enhanced portfolio of add-ons. During
2009, WIND Hellas launched a series of initiatives on cost
control and economy:
|
|
|
|
•
|
a promotion offering the unique Business Talk tariff
incorporating unlimited VPN minutes and unlimited minutes to 2
selected numbers at only €30 per month;
|
|
|
•
|
split billing, a service allowing businesses to completely
control telecommunication costs setting a threshold for each
employee. If the monthly bill exceeds the predefined threshold,
a new bill is issued in the name of the employee;
|
|
|
•
|
a summer promo for BlackBerry, offering the BlackBerry service
for free for 3 months to all new subscribers;
|
|
|
•
|
continued attention to winning new customers in the Business
Segment and launch of a promotion offering selected add-ons free
of charge for two months;
|
|
|
•
|
expansion of existing bulk SMS offering by launching 1 new
tariff plan and 3 new add-on options.
|
In addition, WIND Hellas focused on the environmental issues and
in an effort to reduce the amount of paper used in bill analysis
proceeded to change the default configuration for new customers.
In the prepaid segment, WIND Hellas continued the multi-brand
strategy.
In particular, WIND F2G, with the objective of
accelerating customer acquisition, creating a strong community
and breaking competitors’ communities, launched an
innovative proposition (“Free 2009”) offering
1,000 min and 1,000 SMS to all WIND F2G numbers for all of
2009 upon the condition of a €10 entrance fee and €3
minimum monthly recharge. In addition, when forced by
competition, WIND F2G further enhanced its position as the most
integrated prepaid pack by matching a lower entrance fee of
€1 for “Free 2009” and by complementing it with
off-net
destinations via bonus on recharge mechanism (50 min &
50 SMS with day validity).
Furthermore, in June 2009, WIND F2G introduced an incoming bonus
scheme offering 5 minutes to all national destinations for free
for every 10 minutes received at €1 monthly fee,
aiming to further build on the
off-net
territory and decrease churn. Launch was supported with a zero
monthly fee promo, valid until August 31, 2009.
In August 2009, a WIND branded prepaid tariff plan was launched
addressing top non-Greek segments in Greece, i.e. Albanians,
Romanians, Georgians, Russians, Ukrainians, and Bulgarians,
offering low national rates and competitive international rates
towards selected countries, coupled with a free on-brand minutes
upon recharge promo. The launch was supported with targeted
above the line activities in
foreign-language
media, below the line synergies with foreign press publications,
sampling and outdoor activities.
As of September 2009, a 12% prepaid tax has been applied
following the new tax legislation voted in the Greek parliament
in August 2009 and effective as of September 15, 2009.
According to the new law, a 12% extra tax is applied to the net
amount before VAT. The net amount that the customer has to
consume is the nominal amount divided by 1.12. WIND prepaid has
introduced an opt-in promo offering 12% bonus airtime on
€15 plus scratch cards aiming at encouraging scratch cards
of higher denominations and minimizing usage impact due to the
new extra tax on scratch cards. The promotion was valid until
October 31, 2009.
In November 2009, WIND F2G introduced a multiphase F2G rewards
initiative offering WIND F2G subscribers rewards without any
precondition.
In more detail, in phase 1, WIND F2G rewarded all subscribers
without any preconditions with €5. Moreover, high value
customers were further rewarded, depending on their past
top-up
behaviour. Specifically, customers whose cumulative
top-ups
during the previous three months amounted to
€30 — €60 were granted another
€10 (€5 upon first
top-up of
the month for two months). Similarly, customers whose cumulative
top-ups
during the previous three months amounted to more than €60
were granted another €25 (€5 upon first
top-up of
the month for five months).
Report on operations
at December 31, 2009
F-119
In phase 2, WIND F2G offered all F2G customers 100 SMS to all
national destinations and 100 MB data allowance for mobile
internet, valid for 14 days.
A third reward was introduced in December 2009 offering all WIND
F2G subscribers double airtime on first recharge, valid for
7 days.
All rewards were offered with the IVR opt-in mechanism.
In December 2009, WIND F2G matched the competition by enhancing
existing Non Stop Friends combination to offer 1,200 on-brand
minutes & 1,200 on-brand SMS at an unchanged monthly
fee of €7 for 30 days.
Q card sustained and empowered the momentum of being the
economic prepaid choice and simultaneously attracted new
Non-Greek segments during the first quarter of 2009 by launching
a permanent discounted tariff plan via opt in SMS mechanism. The
new tariff plan offers low national voice tariffs of €0.10
per minute to Q and €0.21 per minute to all other Greek
destinations. Moreover, low charge tariffs are promoted to
specific international destinations (e.g. to Albania fixed lines
at €0.12 per minute and mobile at €0.21 per minute).
As a response to increased competition, Q enhanced the promotion
bonus upon recharge of €10 and €20 and offered 45 free
minutes to any national destination from January 26, 2009
to February 16, 2009. The initial offer initiated on
December 19, 2008 offering 15 minutes upon €10 scratch
cards and 30 minutes upon €20 scratch cards. Finally, in
order to stimulate on brand traffic, WIND Hellas launched a new
promo in middle of March, aiming at ‘building’ a
Q community. Specifically, by using a €6 scratch card,
60 free on brand minutes are offered with five days validity,
while for a €10 scratch card, 100 free minutes are offered
for ten days and with a €20 scratch card 200 free minutes
for thirty days. Starting from May 22, 2009, the above
bonus-on-recharge
promo was enhanced in order to address the broader community of
both Q & WIND customers.
In order to celebrate the 7 years of the Q card since its
launch, two below the line promotions were offered emphasizing
brand value of cheap SMS. The first was offering free SMS from Q
to Q for one week and the second was offering cheap SMS towards
all destinations (€0.02/SMS) via SMS opt-in mechanism. On
July 22, 2009, Q card offered a new and different
bundle of 200 minutes Q to Q with per second charging at a
subscription fee of €3.90. Each customer could subscribe to
this offer via SMS up to 4 times and the free minutes were valid
for 30 days. This promotion was available to all Q
customers -old or new-and it was targeting mainly heavy
community users switching to competition bundles and Non-Greeks
to use the Q card not only for international calls but for
national usage as well.
New scratch cards of €5, €9 and €15 face value
were launched on September 15, 2009, following the
introduction of the 12% prepaid mobile tax. The new higher
denomination cards gradually replaced the old ones of €3,
€6, €10 and €20 to eliminate the expected
negative effect on usage.
WIND Hellas continued focusing on increasing penetration/ usage
of Data Services within the subscriber base and maximizing
Data-Service generated revenue mainly through:
|
|
|
|
•
|
the promotion of ADSM as the innovative proposition for Mobile
Internet via laptops, delivering speeds of up to 7.2 Mbps,
targeting consumers and businesses. WIND ADSM offers the most
complete portfolio of tariffs and products in mobile broadband
including 9 post-paid plans, 6 of which are volume-based
(including an exclusive tariff plan for Greek students) and 3 of
which are time-based. ADSM also offers 2 prepaid plans with
unlimited usage for 2 or 7 days. Mobile Broadband market is
characterized by aggressive acquisition promotions by all
operators offering a free
sub-notebook
at new activations with
24-month
contract;
|
|
|
•
|
user experience and service offering improvements across WAP and
WEB sites of WIND Plus. New releases have been launched (WAP in
April, Web in June) with their main characteristics being new
mobile Internet-related functionalities (e.g. mobile bookmarks
and applications), improved personalization, and new content
discovery capabilities (on-portal search, carousel promos);
|
Report on operations
at December 31, 2009
F-120
|
|
|
|
•
|
introduction of a new family of mobile internet add-on services
under the name “Web ‘n Mail” offering free
bundled data usage for web browsing and push email to make
handsets mobile broadband stand out and distinguish it from
laptop mobile broadband;
|
|
|
•
|
the WAP browsing add-on “WIND Plus Non Stop” became
recurring for prepaid subscribers and a cap of 40MB was imposed
on the off-portal usage bundled in it;
|
|
|
•
|
both mobile browsing add-ons (WIND Plus Non Stop for WAP and Web
‘n Mail for Internet) were modified in September so
that both cover browsing from either GPRS Access Point (GWAP and
GINT) within the bundled off-portal traffic;
|
|
|
•
|
continuation of “Broadband from day 1” promotion to
capitalise the trend of mobile/PC convergence in broadband,
offering unlimited free mobile broadband for 2 months along
with free USB modem and no commitment, to new Tellas Double Play
applicants. Customers have instant access to Internet from day
one, while waiting for their ADSL LLU line to be activated.
After the free two months, subscribers are migrated to ADSM
300MB with a 53% discount on their monthly fee (€8/month);
|
|
|
•
|
a new, exclusive WAP service was launched in July 2009 in
cooperation with Medecins Sans Frontiers (Doctors without
Borders). The service offers information and pictures from MSF
activities around the globe and gives users the opportunity to
donate €2 to MSF by charging their bill or prepaid credit;
|
|
|
•
|
the utilisation of Music, Games and Social Networking services
as the main vehicles for Content revenue generation with a new
Mobile Games site launched in May 2009 and the introduction of
AirG mobile community of more than 30 million international
users online;
|
|
|
•
|
a structured handset customisation programme aimed at maximising
the penetration of such handsets in the portfolio in order to
facilitate user-access to data services hence stimulating usage;
|
|
|
•
|
the “Try before you buy” initiative which is designed
to raise Mobile Internet awareness among the customer base, was
applied for a wide range of mobile internet terminals offering
‘Web ‘n Mail’ free for 3 months.
|
Moreover in the second half of 2009, WIND Hellas announced four
major terminal releases: Nokia N96, LG Crystal and two Android
handsets HTC Magic and Samsung i7500.
The acquisition of OTE by Deutsche Telecom has led to the
formation of a new strategic partnership between Cosmote and
T-Mobile
Group. This has strengthened Cosmote both directly (absorption
of inbound roaming traffic from
T-Mobile
Group and its synergies) and indirectly (increased leverage and
bargaining power of Cosmote regarding discount deals). In
addition, the current world economic crisis and its negative
repercussions on international travel have affected both inbound
and outbound roaming usage.
The third phase of the EU regulation on roaming became effective
on July 1, 2009. Specifically, the new regulated retail
price is €0.43 (excluding VAT) per minute for calls made
and €0.19 (excluding VAT) per minute for calls received.
The principle of per second billing is introduced after the
first 30 seconds for calls made, and from the first second for
calls received. Additionally and for the first time, a retail
SMS price cap is set at €0.11 per event (excluding VAT).
Furthermore, this new phase of the regulation standardizes
wholesale rates at €0.26 per minute for voice, €0.04
per event for SMS and introduces a wholesale cap of €1 per
Mb for data upload/download while roaming within the EU.
For 2010, the new EU regulation phase will further cut down on
prices with the oncoming retail price to be set at €0.39
(excluding VAT) per minute for calls made and €0.15 per
minute (excluding VAT) for calls received. Wholesale rates will
also be set at €0.22 per minute for voice and at €0.80
per Mb for data upload/download with a newly introduced opt-in
customer consent requirement for data traffic exceeding
€50 monthly for the avoidance of bill-shock.
During the summer of 2009, the “Roaming Summer Promo”
add-on service was launched (available July 20 —
August 31 with no activation fee) tendering post-paid customers
with national-level charges for all roaming calls (of unlimited
duration) made within the EU.
Report on operations
at December 31, 2009
F-121
Finally, in terms of commercial agreements with foreign
networks, 12 new agreements were launched during the fourth
quarter of 2009 (11 GPRS Roaming, 1 Camel Prepaid).
Performance
of the fixed-line and internet market
At the beginning of 2009, Xxxxxx offered a promotion on Double
Play Unlimited, which featured a six month discount on the
official monthly fee of €39.90 down to €19.90. This
also led to adoption of the offer by voice oriented customers
bringing the number of acquired promo customers over 18,000. The
promotion was repeated in May and featured similar success.
Tellas also performed a major revamp on the LLU product
portfolio. A €19.90 voice product was launched for the
entry level, while the high end product was updated. Also a new
double play product was launched to fill the gap between the
entry level and the high end one.
Performance in the fourth quarter of 2009 improved with
approximately 15,000 net additions on the residential LLU
customer base. The shift of the LLU customer base continued in
favour of double play which at December 2009 constitutes 68% of
the base vs 51% at December 2008.
Tellas is offering the following double play products:
|
|
|
|
•
|
Tellas Double Play Unlimited at €39.90, which offers
unlimited DSL use at 24Mbps, unlimited National, 38 countries
international fixed and 60 minutes to national mobiles;
|
|
|
•
|
Tellas Double Play No Limit at €32.90, which offers
unlimited DSL use at 24Mbps and unlimited National calls;
|
|
|
•
|
Tellas Double Play Best Price at €22.90 which offers
unlimited DSL use at 24Mbps and pay per time voice calls.
|
All offers are currently the most competitive in the market in
terms of Value for Money.
On the voice only LLU segment, Tellas performed an important
change in the product portfolio. The new Telephony 400 was
launched offering 200 minutes of National calls and 200 minutes
of calls to WIND mobiles at the new entry point of €19.90.
The product was focused on a “converged” direction
addressing WIND mobile owners as well as tempting new customers.
The high end Telephony Unlimited was revamped in May 2009 to
address market needs by adding up to 60 minutes towards national
mobiles to the included unlimited National calls, while the
price was marginally increased to €27.90. Additionally, a
major CRM campaign run in September 2009 to convert all
customers of the “old” Telephony Unlimited to the new
Telephony Unlimited offer which includes ten months more than
the old offer.
No change has been observed in the CS/CPS market offers within
2009. The current trend of a mild decline in customer base
continues, while the market addressed is being shrunk down to
approximately 36% due to the expansion in LLU coverage.
Regarding the traditional narrowband market, the shrinkage
continues, as traditional subscription based offerings are
completely removed from the market and in parallel the
“free-internet” traffic is decreasing at an estimated
level of 60% annually. This market is dominated by Viva internet.
Business
Solutions
The main business products are the following:
|
|
|
|
•
|
Office Voice: subscriptions for the CPS offer addressed to
business customers slightly decreased mostly due to the
competition from OTE and mobile operators through aggressive
SOHO/SME mobile offers. LLU offers for SOHO/SME were revamped in
August 2009 introducing line type options (PSTN or ISDN) and
improved characteristics such as free minutes to mobile,
increase of ADSL speed etc. The previous offer had limited
acceptance mostly due to unavailability of PSTN option and
consideration towards LLU;
|
Report on operations
at December 31, 2009
F-122
|
|
|
|
•
|
Corporate Telephony: Wind offers ISDN PRI telephony services for
the SME & Large enterprise market segment, utilizing
its own access means either wired or wireless (LMDS). There were
a total of 15,313 lines at the end of 2009, representing growth
of 12.1% compared to the end of 2008;
|
|
|
•
|
Corporate Internet: Broadband Internet Access penetration on the
SME & Large enterprise market segment is estimated at
approximately 88%. However, the competitive environment is
intensified with OLOs aiming at the incumbent base that is still
on traditional and expensive access means as well as upgrading
ADSL users seeking symmetric bandwidth. Wind’s Internet
Direct connections increased by 153% compared to the end of 2008;
|
|
|
•
|
Wholesale: Wholesale has achieved a solid performance throughout
2009 with revenue overcoming 2008 revenue by 22%.
|
EMERGING
MARKETS
Algeria
Djezzy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
12 Months
|
|
12 Months
|
|
% Change
|
|
Revenue (millions of US dollars)
|
|
|
1,868
|
|
|
|
2,041
|
|
|
|
(8.5
|
)%
|
Revenue (millions of euro)*
|
|
|
1,339
|
|
|
|
1,386
|
|
|
|
(3.4
|
)%
|
EBITDA (millions of US dollars)
|
|
|
1,067
|
|
|
|
1,290
|
|
|
|
(17.3
|
)%
|
EBITDA (millions of euro)*
|
|
|
765
|
|
|
|
876
|
|
|
|
(12.7
|
)%
|
Subscribers
|
|
|
14,618,166
|
|
|
|
14,108,859
|
|
|
|
3.6
|
%
|
Voice usage (MOU — YTD)
|
|
|
248
|
|
|
|
164
|
|
|
|
51.2
|
%
|
ARPU (US dollars — 3 months)
|
|
|
9.9
|
|
|
|
11.8
|
|
|
|
(16.1
|
)%
|
ARPU (Euro — 3 months)
|
|
|
6.7
|
|
|
|
9.0
|
|
|
|
(25.6
|
)%
|
|
|
|
* |
|
Amounts arising from the subsidiary’s Reporting Package
prepared in accordance with International Financial Reporting
Standards, converted into Euro according to the average USD/EUR
exchange rates of the relevant periods as indicated by the Bank
of Italy. |
Orascom Telecom Algeria (OTA) succeeded in managing a
challenging year in 2009, closing the year with
14.6 million subscribers, maintaining its leadership
position with 59% market share.
Market share witnessed considerable change in the second half of
the year, due to two main reasons: firstly, the interruption of
Djezzy’s operational activities during the 15th,
16th and 17th of November after the Egypt/Algeria
football match in Cairo, which resulted in attacks on
Djezzy’s headquarters, shops, and warehouses, as well as
thefts of SIM and scratch card stocks. Secondly, fierce
competition from both competitors, where one of the competitors
distributed approximately two million SIM cards for free
including free credit. This promotion was launched on
November 15th (the first day after the Egypt/Algeria
match) and continued until January 2, 2010.
Consequently, OTA reacted by launching successful promotions on
recharging (bonus on
top-ups),
free SMS, and 50% discount on
intra-network
calls. In addition, XXX was able to counter the fierce
competition through customer base management and distribution
initiatives. The churn rate has been maintained at 2.4% in Q4 in
respect of 2.5% at the end of third quarter, attaining the
second lowest churn rate for 2009 in December at 2.2%.
On the sales side, OTA continued selling its mobile
telecommunications services through indirect channels
(distributors), as well as OTA-owned shops under the
“Djezzy” brand, while a sales force focused on
distribution in the corporate sector. The eight exclusive
national distributors that cover all the 48 Wilayas distribute
products to over 20,500 authorized points of sale.
From a Communication standpoint, XXX continued to reinforce its
image and its brand in the Algerian social community focusing on
new offers and promotions, pushing forward its 98% network
national coverage.
Report on operations
at December 31, 2009
F-123
In November 2009, XXX had received an official tax notification
from the Algerian Direction des Grandes Entreprises (Tax
Department for Large-Scale Companies) in respect of the years
2005-2007,
in which the DGE has assessed taxes and penalties alleged to be
owed by OTA amounting to DZD44 billion (approximately
equivalent to €422 million). Supported by the opinion
of independent experts, XXX considers the assessment to be
technically unfounded and arbitrary, as well as unrelated to
exempted periods for 2005, 2006, till August 2007. Consequently,
in December 2009, XXX filed an administrative appeal, requiring
it to pay 20% of the reassessment under Algerian law. The
payment has been made under protest and in reservation of all
rights, and will be recoverable if XXX’s appeal is
successful. The appeal process is anticipated to last one year,
with the initial review by the DGE lasting a maximum of
8 months, and the second review by the Central Commission
lasting a maximum of 4 months.
For further details please refer to paragraph 42 of the
Notes to the consolidated financial statements.
Pakistan
Mobilink
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
12 Months
|
|
12 Months
|
|
% Change
|
|
Revenue (millions of US dollars)
|
|
|
1,058
|
|
|
|
1,208
|
|
|
|
(12.3
|
)%
|
Revenue (millions of euro)*
|
|
|
759
|
|
|
|
820
|
|
|
|
(7.4
|
)%
|
EBITDA (millions of US dollars)
|
|
|
385
|
|
|
|
492
|
|
|
|
(21.7
|
)%
|
EBITDA (millions of euro)*
|
|
|
276
|
|
|
|
334
|
|
|
|
(17.4
|
)%
|
Subscribers
|
|
|
30,800,354
|
|
|
|
28,479,600
|
|
|
|
8.1
|
%
|
Voice usage (MOU — YTD)
|
|
|
198
|
|
|
|
172
|
|
|
|
15.1
|
%
|
ARPU (US dollars — 3 months)
|
|
|
2.9
|
|
|
|
3.0
|
|
|
|
(3.3
|
)%
|
ARPU (Euro — 3 months)
|
|
|
2.0
|
|
|
|
2.3
|
|
|
|
(13.0
|
)%
|
|
|
|
* |
|
Amounts arising from the subsidiary’s Reporting Package
prepared in accordance with International Financial Reporting
Standards, converted into Euro according to the average USD/EUR
exchange rates of the relevant periods as indicated by the Bank
of Italy. |
In wake of the prevalent conditions, Mobilink had to take an
aggressive stance in its offerings which helped retain its
market share, increase its subscriber base, control churn, and
stabilize revenues in local currency terms. The ARPU in the
fourth quarter of 2009 increased by 3.2% (in PKR) as compared to
the third quarter of 2009. Churn in the fourth quarter of 2009
decreased by 6.6% as compared to the same period in 2008,
whereas the subscriber base grew by 8.1%, boasting a total
subscriber base of 30.8 million for 2009. Foreseeing the
tough market dynamics, capital and operational expenditures were
curtailed to improve profitability despite rising inflation,
increasing energy costs, and currency devaluation. Capital
expenditure in 2009 reached USD157 million (approximately
equal to €109 million), a decrease of 71% over the
previous year’s figure of USD537 million
(approximately equal to €373 million).
According to internal reporting, Mobilink’s market share
reached 40.5% in 2009. According to the Pakistan
Telecommunication Authority (Regulator), Mobilink’s market
share in the fourth quarter stood at 31.5%. This market share is
based on information disclosed by other operators which use
different subscriber recognition policies.
During 2009, Mobilink invested significantly in initiatives that
helped retain and improve key brand health indicators including
‘intention to buy’, ‘top of Mind awareness’
and ‘brand recommendation’ where Mobilink emerged as a
clear leader among its competitors. 2009 was a year full of
intense competition, introduction of new services and consumer
and operator friendly regulations. The price war going on
between cellular operators greatly benefited consumers who were
being offered attractive new packages and value added services.
Rivals in the industry created waves by launching new packages,
such as smaller pulse packages, low cost SMS bundles, late night
offers etc. while the facility to change network without
changing the mobile number (Mobile Number Portability) has
eliminated the non-cash cost of switching, and pushed the
competition among mobile operators to a boiling point.
Report on operations
at December 31, 2009
F-124
The Government provided relief to the industry by slightly
reducing the General Sales Tax from 21% to 19.5% (which was
increased from 15% to 21% in 2008), activation tax reduction
from PKR500 (approximately equal to €4) to PKR250
(approximately equal to €2) and reducing import duty on
mobile handsets by 66% by cutting it down from PKR750 to PKR250
(from €6 to €2). PTA introduced two new initiatives,
one of which was SIM Activation through dialling at 789, to stop
issuance of unverified mobile connections, the other being SIM
Information System through SMS at 668, to curb fictitious
connections. Being the first country in South Asia to implement
Mobile Number Portability (MNP), Pakistan continued to witness
consistent growth in porting activity with over
1.14 million subscribers having availed of the facility by
June 2009 (as per PTA annual report for
2008-2009).
Mobilink aligned itself in 2009 to protect its market share,
maintain its revenue and decrease its operational costs. With
the market rates dropping, Mobilink decided to decrease its base
rate to PKR0.68 (approximately equal to €0.056) per 30 sec
through the Jazz Budget package in the beginning of the year
which helped reduce churn and bring new subscribers on board.
The acquisition promotion of “1000 + 1000” which
continued for 4.5 months increased the gross additions
significantly. Five dormant revival campaigns were run in 2009
to follow up on Mobilink’s dormant subscribers, and
achieved good results. Bundle offers of voice and SMS were major
revenue enhancers and are ongoing due to the positive results
yielded.
Time and subscription based offers were also introduced with
Xxxxxx Offer catering to the 9 am to 5 pm window and Late Night
Offer attracting customers who make calls in between 12 am and 7
am. Both these offers were received well by customers. Bonus on
Usage and Bonus on Recharge promotions were also run to
encourage customers to increase their spending which yielded
good results.
On the post-paid side, the tariff was revised to make the
service more attractive and competitive. Microsegmentation was a
new initiative in the year 2009 targeted to increase revenue
through BTL promotions of various small value segments present
in the subscriber base.
In the year 2009, Mobilink Value Added Services (VAS) showed
unprecedented growth in revenue and subscribers. Mobilink VAS
continued to lead by launching 33 new VAS services during the
year. In addition, numerous event based services like Hajj
Portal, Ramazan Services, Independence Day Campaign, Eid Offers
etc. were also launched to engage Mobilink subscribers in 2009.
Mobilink also continued to unveil affordable BlackBerry handsets
through new model launches targeting post-paid customers, which
cater to all daily communication needs of customers.
Mobilink pioneered mobile financial services in both the banked
and unbanked space, with launches of Mobilink Genie and Mobile
Money Order respectively. In the fourth quarter of 2009, a
revolutionary branchless banking service was also piloted
successfully and is currently being tested and expanded for a
full scale launch.
Egypt
Mobinil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
12 Months
|
|
|
12 Months
|
|
|
% Change
|
|
|
Revenue (millions of US dollars)**
|
|
|
944
|
|
|
|
891
|
|
|
|
6.0
|
%
|
Revenue (millions of euro)*
|
|
|
677
|
|
|
|
605
|
|
|
|
11.9
|
%
|
EBITDA (millions of US dollars)**
|
|
|
460
|
|
|
|
430
|
|
|
|
7.2
|
%
|
EBITDA (millions of euro)*
|
|
|
330
|
|
|
|
292
|
|
|
|
13.1
|
%
|
Subscribers
|
|
|
25,354,209
|
|
|
|
20,115,377
|
|
|
|
26.0
|
%
|
Voice usage (MOU — YTD)
|
|
|
173
|
|
|
|
165
|
|
|
|
4.8
|
%
|
ARPU (US dollars — 3 months)
|
|
|
6.5
|
|
|
|
7.6
|
|
|
|
(14.5
|
)%
|
ARPU (Euro — 3 months)
|
|
|
4.4
|
|
|
|
5.8
|
|
|
|
(24.1
|
)%
|
|
|
|
* |
|
Amounts arising from the subsidiary’s Reporting Package
prepared in accordance with International Financial Reporting
Standards, converted into Euro according to the average USD/EUR
exchange rates of the relevant periods as indicated by the Bank
of Italy. |
|
** |
|
Proportionate consolidated figures |
Report on operations
at December 31, 2009
F-125
In 2009 Xxxxxxx continued to lead the mobile telecommunications
market in Egypt with 25 million subscribers and almost
5 million net adds.
Revenue grew 6% over the previous year to USD944 million
(approximately equal to €655 million). As a result of
the company’s effectiveness in deploying its cost
optimization plan and its capitalization on the
on-net
strategy, 2009 EBITDA reached USD460 million (approximately
equal to €319 million), representing an increase of
7.2% over the same period of last year reflecting an EBITDA
margin of 49% versus 48% over the same period of last year.
The fourth quarter blended ARPU reached EGP35.5 (approximately
equal to €4.5) with a decline of 16% over the same period
of last year. Blended ARPU for the full year was EGP39
(approximately equal to €5). Global network minutes in 2009
reached 40.8 million minutes representing an increase of
35% versus 2008 while the fourth quarter usage reached
10.3 million minutes with an increase of 24% over the same
period of last year.
Capital expenditure in 2009 reached USD472 million
(approximately equal to €328 million), a reduction of
10% versus the previous year’s figure of
USD524 million (approximately equal to €364).
The market is witnessing aggressive tariff moves that changed
some of the dynamics, and is mainly driven by the third entrant;
especially regarding the cross net rates front, which are
competitive with the on net rates of the two incumbents.
Accordingly, Xxxxxxx had to respond in order to maintain its
leadership position in the market. In the last quarter of 2009,
Xxxxxxx launched El Masry pre-paid promotion during Al-Adha
Bairam which offered the lowest
on-net rate
of 8PT per minute as well as a 19PT
cross-net
rate. Mobinil also launched the new Star 1000 Unlimited which
offered customers unlimited
on-net calls
and 1000 inclusive minutes to any mobile destination for EGP250
per month.
As a promotion for SMS usage, Mobinil offered “Mobinil
Grand Trivia” where customers entered a general knowledge
competition and gained daily, weekly, and monthly prizes.
For the first time in the Egyptian market, Xxxxxxx introduced
three new enterprise pre-paid Tariff plans, where enterprise
clients can now enjoy no monthly bills, control spending and
free minutes to all destinations.
Tunisia
Tunisiana
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
12 Months
|
|
12 Months
|
|
% Change
|
|
Revenue (millions of US dollars)**
|
|
|
357
|
|
|
|
326
|
|
|
|
9.5
|
%
|
Revenue (millions of euro)*
|
|
|
256
|
|
|
|
221
|
|
|
|
15.8
|
%
|
EBITDA (millions of US dollars)**
|
|
|
192
|
|
|
|
189
|
|
|
|
1.6
|
%
|
EBITDA (millions of euro)*
|
|
|
138
|
|
|
|
128
|
|
|
|
7.8
|
%
|
Subscribers
|
|
|
5,210,926
|
|
|
|
4,256,573
|
|
|
|
22.4
|
%
|
Voice usage (MOU — YTD)
|
|
|
171
|
|
|
|
158
|
|
|
|
8.2
|
%
|
ARPU (US dollars — 3 months)
|
|
|
11.6
|
|
|
|
12.7
|
|
|
|
(8.7
|
)%
|
ARPU (Euro — 3 months)
|
|
|
7.9
|
|
|
|
9.7
|
|
|
|
(18.9
|
%)
|
|
|
|
* |
|
Amounts arising from the subsidiary’s Reporting Package
prepared in accordance with International Financial Reporting
Standards, converted into Euro according to the average USD/EUR
exchange rates of the relevant periods as indicated by the Bank
of Italy. |
|
** |
|
Proportionate consolidated figures |
Tunisiana closed the year with an overall market share of 53.4%
and 5.2 million subscribers compared to 51% overall market
share and 4.3 million subscribers at the end of 2008.
To ensure progressive success, Tunisiana has focused its
strategy on developing its post-paid segment, increasing revenue
and reinforcing loyalty by securing its customer base against
the threat of Orange entering the Tunisian market, and the
incumbent Tunisie Télécom’s tactical promotions.
Thus, for residential subscribers,
Report on operations
at December 31, 2009
F-126
Tunisiana highlighted its community offers to increase
on-net
usage. Tunisiana also developed various retention initiatives
towards its high value post-paid and business segments.
To improve retention and ensure revenue growth, Tunisiana
maintained focus on developing
on-net usage
within the base through launching promotions during peak hours,
such as ‘Happy Week’ promotion, and during off peak
hours with ‘Friends and Family’ promotion, offering
unlimited calls towards 1,2 or 3 favorite numbers.
Tunisiana reinforced its strategy regarding community offers. To
expand and bolster its community offer, ‘Amigos’, as
well as to counter the threat from Tunisie
Télécom’s community offer ‘Xxxxxx’,
Tunisiana made ‘Amigos’ subscriptions for free
permanently. Various other promotions were launched and became
permanent, such as unlimited calls per day and during weekends.
Tunisiana launched a further new community offer,
‘Tifosi’, where “subscribers belonging to the
same football team community, and holding annual football
memberships, can profit from special prices to make calls and to
send 15 free SMS every Sunday within their community”. In
order to enhance postpaid and business segment attractiveness
and encourage migration from pre-paid, Tunisiana launched
pricing per second for the first time in Tunisia. Other postpaid
promotions include the option of new and pre-paid migrant
subscribers to benefit from a capped bonus or free bundle
(depending on the type of offer) after 3 billing cycles, with a
validity of one year.
Q4 was also marked by an ongoing BlackBerry launch, as well as
the launch of a business retention program, exclusively
dedicated to the high value business segment, in order for
“the latter to take advantage of discounts on bills and
additional ‘Merci’ points, according to the commitment
chosen by the customer of either 24 or 36 months, and every
6 months of consumption at minimum”.
Tunisiana developed new offers and services tailored to business
segment needs. A new offer ‘Option VPN’ was customized
to companies holding Business offers who do not wish to migrate
to the Business VPN offer. Within this new offer, subscribers
profit from a special package, including GFA Voice, and SMS.
To bolster corporate customer loyalty, Tunisiana developed a new
project ‘Corporate birthday company’ that allows
subscribers to get ‘MERCI points’ according to their
seniority within Tunisiana.
Finally, to boost roaming usage and satisfy roamers’ needs,
Tunisiana launched promotions for postpaid roamers using the SFR
network which allows them to make calls with a significant
rebate on tariffs.
Bangladesh
Banglalink
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
12 Months
|
|
|
12 Months
|
|
|
% Change
|
|
|
Revenue (millions of US dollars)
|
|
|
351
|
|
|
|
288
|
|
|
|
21.8
|
%
|
Revenue (millions of euro)*
|
|
|
252
|
|
|
|
196
|
|
|
|
28.6
|
%
|
EBITDA (millions of US dollars)
|
|
|
117
|
|
|
|
14
|
|
|
|
n.m.
|
|
EBITDA (millions of euro)*
|
|
|
84
|
|
|
|
9
|
|
|
|
n.m.
|
|
Subscribers
|
|
|
13,886,913
|
|
|
|
10,337,128
|
|
|
|
34.3
|
%
|
Voice usage (MOU — YTD)
|
|
|
253
|
|
|
|
256
|
|
|
|
(1.2
|
)%
|
ARPU (US dollars — 3 months)
|
|
|
2.3
|
|
|
|
2.5
|
|
|
|
(8.0
|
)%
|
ARPU (Euro — 3 months)
|
|
|
1.6
|
|
|
|
1.9
|
|
|
|
(15.8
|
)%
|
|
|
|
* |
|
Amounts arising from the subsidiary’s Reporting Package
prepared in accordance with International Financial Reporting
Standards, converted into Euro according to the average USD/EUR
exchange rates of the relevant periods as indicated by the Bank
of Italy. |
Banglalink enjoyed the highest number of net adds in 2009 with
3.6 million subscribers whereas the market leader had net
adds of 2.3 million only. This brings the total subscriber
base of Banglalink to 13.9 million customers at the end of
2009 which is a 34.3% increase compared with 2008. This
achievement was made possible through a strong customer
retention policy.
Report on operations
at December 31, 2009
F-127
Market share at the end of 2009 was 26.8% which is a 3.6%
increase from 23.2% at the end of 2008.
Banglalink’s revenue performance has been impressive with
USD 351 million revenue (approximately equal to
€244 million) in 2009 which is an increase of 22%
compared to 2008 revenue. ARPU remained in line compared to the
same period in 2008, in spite of high subscriber growth, as a
result of revenue enhancement initiatives aimed at the existing
customer base.
Banglalink achieved an EBITDA of USD117 million
(approximately equal to €81 million) representing an
exponential increase compared to the previous year mainly driven
by reduced customer acquisition costs, increase in revenue and
increase in operational efficiency. Banglalink’s EBITDA
margin increased to 33.4% in 2009 compared to a margin of 4.7%
in 2008.
Capital expenditure in 2009 reached USD122 million
(approximately equal to €85 million), a decrease of
70% over the previous year’s figure of USD407 million
(approximately equal to €283 million).
Banglalink Xxxxxxxx (agriculture info service) won the Asia
Mobile Awards 2009 organized by the GSMA for Best Mobile
Enterprise Application Product or Service Category. Banglalink
continued to introduce innovative services such as, ‘Friend
Finder/Field Force Tracking’, ‘Vehicle Tracking’,
and ‘Stock Info’.
Grameen Phone has completed its IPO offering of
Tk4.9 billion (USD384 million, approximately equal to
€267 million). Bharti Airtel from India took control
of Warid Telecom by buying a 70% stake in the company. Major
mobile operators agreed in principle to share passive
infrastructure to reduce capital expenditure requirement for
network expansion.
Democratic
People’s Republic of Korea
Koryolink
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
12 Months
|
|
|
12 Months
|
|
|
% Change
|
|
|
Revenue (millions of US dollars)
|
|
|
26
|
|
|
|
0
|
|
|
|
n.m.
|
|
Revenue (millions of euro)*
|
|
|
19
|
|
|
|
0
|
|
|
|
n.m.
|
|
EBITDA (millions of US dollars)
|
|
|
17.2
|
|
|
|
0
|
|
|
|
n.m.
|
|
EBITDA (millions of euro)*
|
|
|
12
|
|
|
|
0
|
|
|
|
n.m.
|
|
Subscribers
|
|
|
91,704
|
|
|
|
1,694
|
|
|
|
n.m.
|
|
Voice usage (MOU — YTD)
|
|
|
239
|
|
|
|
n.a.
|
|
|
|
n.m.
|
|
ARPU (US dollars — 3 months)
|
|
|
24.5
|
|
|
|
n.a.
|
|
|
|
n.m.
|
|
ARPU (Euro — 3 months)
|
|
|
16.6
|
|
|
|
n.a.
|
|
|
|
n.m.
|
|
|
|
|
* |
|
Amounts arising from the subsidiary’s Reporting Package
prepared in accordance with International Financial Reporting
Standards, converted into Euro according to the average USD/EUR
exchange rates of the relevant periods as indicated by the Bank
of Italy |
Koryolink’s subscriber base has grown to reach 91,704 for
the year ended December 31, 2009. Since its launch in
December 2008, Koryolink has been received very positively in
the market being the first full fledged operator in the DPRK to
offer state of the art mobile services at attractive prices.
Capital expenditure in 2009 reached USD27 million
(approximately equal to €19 million), mainly focusing
on network roll-out and quality improvement nationwide.
During its first year of operation, Koryolink has established
many precedents in the Korean market. Despite the lack of active
marketing and advertising industries, Koryolink succeeded in
creating awareness and educating consumers about its different
products and services through advertising the company’s
launch in major newspapers and radio stations as well as
producing different types of communication material (flyers,
posters, danglers, etc.). Additionally, Koryolink was able to
provide continuous support to its subscribers through
establishing the first of its kind Call Center in the country.
Report on operations
at December 31, 2009
F-128
By the end of 2009, Xxxxxxxxx had embarked upon the realization
of its ambitious expansion plan to cover the entire territory of
DPRK with the 3G mobile service. 2009 witnessed an important
development for Koryolink, the opening of the first sales outlet
outside the capital Pyongyang in Sariwon city. The sales outlet
in Sariwon is the first one in many outlets in various large
cities across the country to be opened as the Koryolink coverage
expands to cover more and more parts of the entire DPRK.
Koryolink had previously kicked off its direct sales network
with one centralized shop in Pyongyang, and by the end of 2009,
two additional sales shops were added. Apart from the sales
shops, Koryolink developed an indirect sales network consisting
of nine outlets located inside KPTC’s post offices
throughout Pyongyang. These outlets helped in increasing the
operator’s footprint and availing its Scratch Cards to
subscribers located in different areas throughout the city.
Koryolink’s network currently has 153 on air base stations
covering Pyongyang as well as 6 cities (Pyongsong, Anju,
Kaechon, Nampo, Sariwon, and Haeju) and 8 highways (Hyangsan,
Sariwan, Tangun tomb, Nampo, Haeju-Sariwon, Sariwon -Kaesong,
Haesong railway and the airport road). The network supports a
variety of services — in addition to voice —
such as video call, SMS, MMS, voice mail, WAP and HSPA.
Canada
Globalive Wireless Management Corp. (“GWMC”),
operating its wireless business under the brand name ‘WIND
Mobile’, successfully launched services in the
Toronto & Calgary on December, 16 and 18 respectively,
after having undergone a protracted legal and regulatory
marathon to establish that it met Canadian ownership and control
requirements. The process culminated with the Government of
Canada effectively approving GWMC as a Canadian Wireless
Operator.
WIND Mobile is aiming to become the fourth national wireless
carrier with its fully enabled HSPA network and offerings of
Voice and Data plans. WIND Mobile introduced new concepts to the
Canadian wireless market through its combination of no
contracts, unlimited plans, Canada wide calling features, and
the redefinition of ‘Home Zones’.
GWMC is on track to launch its service to the public in Ottawa
and Edmonton within the first quarter of 2010, followed by a
Vancouver launch early in the second quarter. GWMC enjoys the
benefit of national and international roaming services through
various partners.
Over 30 outlets were opened by the end of 2009 with the help of
two branded distribution channels: WIND Mobile stores and
kiosks, in addition to a partnership with media retailer
‘Blockbuster’. Ambitious efforts are underway to
expand distribution to 3rd party retailers. The state of
the art in-house call center was fully in service at the time of
WIND Mobile’s launch in December 2009.
WIND Mobile’s subscriber base at the end of 2009 was close
to 5,000 subscribers.
At December 31, 2009, the Group counted
25,872 employees, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
Units
|
|
12 Months
|
|
|
12 Months
|
|
|
Amount
|
|
|
%
|
|
|
Senior management
|
|
|
463
|
|
|
|
375
|
|
|
|
88
|
|
|
|
23.5
|
%
|
Middle management
|
|
|
2,518
|
|
|
|
2,293
|
|
|
|
225
|
|
|
|
9.8
|
%
|
Employees
|
|
|
22,891
|
|
|
|
22,413
|
|
|
|
478
|
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
25,872
|
|
|
|
25,081
|
|
|
|
791
|
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Report on operations
at December 31, 2009
F-129
The following table show the average number of Weather employees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
Average Number of Employees
|
|
12 Months
|
|
|
12 Months
|
|
|
Amount
|
|
|
%
|
|
|
Senior management
|
|
|
429
|
|
|
|
364
|
|
|
|
65
|
|
|
|
17.9
|
%
|
Middle management
|
|
|
2,735
|
|
|
|
2,202
|
|
|
|
533
|
|
|
|
24.2
|
%
|
Employees
|
|
|
24,337
|
|
|
|
22,246
|
|
|
|
2,091
|
|
|
|
9.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
27,501
|
|
|
|
24,812
|
|
|
|
2,689
|
|
|
|
10.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The management of human resources in the three main operating
entities of the Weather Group is described in the following
sections.
Italy
At December 31, 2009, the Italian Group had a workforce of
7,065 employees including those of Weather Investments SpA.
During 2009, in Italy, 171 employees joined the
organization and 222 left, excluding the increase in the number
of Group employees working in Phone Srl (442 persons) and
the WIS Group (97 persons).
In January 2009, the appointment of Xxxxxx Xxxxxxx, XXX’s
Chief Commercial Officer, as WIND’S Chief Operating Officer
was announced, effective from April 1, 2009.
Xxxxxx Xxxxxxx, XXXX’S Chief Operating Officer up to
March 31, 2009, was promoted to take over Weather
Group’s and OTH Group’s Chief Operating Officer
position and subsequently CEO position.
Effective May 2009, WIND announced the new organization of the
Commercial area. Four Business Units focused on different
business segments were established instead of the previous
organization focused on fixed and mobile: BU Consumer WIND, BU
Consumer Infostrada, BU Business and BU Portal and VAS. In July
2009, with the aim of strengthening the retail commercial
presence, the company Phone S.r.l. was acquired. The new company
is focused on the sale of telecommunication services and
products, through 126 own shops in the major domestic shopping
centers.
In December 2009, Xxxx Xxxxxxx has been appointed Xxxx’s
Chief Technology Officer replacing Xxxxxx Xxxxx promoted
Chief Technology Officer of the Weather Group and OTH.
Attention was focused during the year on performance and skill
appraisal processes through the launch of the annual Performance
Appraisal campaign. The Development Center program supporting
the development of managerial skills and involving 81
middle-managers was concluded in the year together with a
360° appraisal involving around 30% of the senior managers.
At the same time, the Italian stage of the Talent Management
Program was concluded; this program is designed to develop the
competences and professional skills of 19 people from
companies of the Weather Investments Group located in different
countries, which include Egypt, Pakistan, Bangladesh, Algeria
and Italy itself.
The first climate survey initiative was launched in December
2009 by means of a questionnaire aimed at all employees and
available on the intranet.
A total of 21,134
man-days of
training were given in 2009, of which 71% relating to the
Technological Innovation & Product Development
projects and realized both as direct training given to the
professional families of
Report on operations
at December 31, 2009
F-130
the Technology Department and as internal training carried out
by the Business Units for sales and customer management.
Institutional training programs continued during the year, such
as:
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the Induction in Wind Program: 55 recently graduated youngsters,
hired during 2008 and 2009, were involved in a project
structured into various training activities; the organization of
these courses was also made possible by the involvement of the
London Business School as the provider of excellence of a
customized Wind Young Professionals Program;
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the managerial skills program dedicated to recently appointed
middle and senior management.
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Other important training programs carried during the year were
as follows:
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A Social-Eco Team Building training project involving the
District Managers of the Sales area of the Business Unit
Business: the aim of the particularly experimental format was to
increase and facilitate business team development and heighten a
sense of role responsibility by involving groups in a practical
social project to be completed during the training;
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the Appraisal & Feedback training project that
involved 111 members of staff from all business areas and was
aimed at transmitting the sensitivity and skills required to
observe and assess the behaviour of employees being supervised;
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the Privacy project, coordinated and managed by the Privacy
function of the Asset Corporate Governance Department, in which
all employees across the business as a whole (2,555 in total)
were involved in an informational seminar.
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In conclusion, the across the board Institutional Master Plan
for Training was set up and the collection of training needs
began at the end of the year.
January 2009 saw the implementation of the procedure, laid down
by Law 428/90, concerning the awarding by Wind Telecomunicazioni
SpA to Wind International Services SpA (a wholly owned
subsidiary of WIND and named until April 15, 2009 “TLC
Servizi SpA”) of its corporate branch consisting of the
International & National Wholesale function, with the
sole exception of the line of business relating to the resale of
transmission capacity that uses WIND’s national
infrastructure.
The procedure ended with the signing of an agreement with the
trade unions, which incorporates the guarantees of the law in
relation to the employees concerned.
During the month of May 2009, in accordance with the National
Labour Contract, the annual meeting with Unions in order to
illustrate business prospects was held. On this occasion WIND
described its business guide-lines for the year 2009.
An agreement was signed in July 2009 to guarantee service in the
Network Management Center in the case of sudden unplanned
absences
In June 2009, Asstel (the association of TLC companies of which
WIND is a member) began talks with the unions over the renewal
of the national labor contract which expired at the end of 2008.
On October 23, 2009 the Unions signed an Agreement
Hypothesis in order to renew the National labour Contract, whose
effectiveness is subjected to the result of meetings with
workers announced by Unions. The draft agreement envisages
changes to the way fixed term contracts are governed at a
regulatory level, the introduction of a new professional
category and the setting up of supplementary health protection
for workers not having company cover, while from an economic
standpoint it provides an increase in salaries in 2010 and 2011
and the recognition of a one-off payment for 2009.
During the year no relevant strikes were carried out.
Report on operations
at December 31, 2009
F-131
Greece
At December 31, 2009, Weather Finance I Group counted
1,592 employees. During the fourth quarter of 2009,
34 employees joined the organization and 238 left.
During the first quarter of 2009, the integration with Xxxxxx
was completed and the new Fixed Business Unit structure was
announced. In addition, the Information Technology, Finance,
Information Security, Legal & Regulatory, Human
Resources, and General Services & Procurement
Departments of Tellas have all been integrated into the
respective Departments of WIND Hellas.
During the second quarter of 2009, the fixed units of Sales,
Customer Service and Network Directions were combined with the
relevant departments of the mobile unit under the management of
the respective executive directors. The exception is Marketing
where both fixed and mobile units remained separate. In
addition, the position of Chief Strategy Officer was created
reporting directly to the CEO.
In October 2009, a major reorganization took place in the CCO
Direction. Main changes included the creation of the following
departments: the Mobile Consumer Marketing & CRM
Department, Business Marketing and Corporate Sales Department,
Fixed Consumer Marketing and Customer Care Fixed &
Service Fulfilment Department and the unification of the Sales
and Customer Service Department under one Executive Director.
During the fourth quarter of 2009, a total of 577.5 man/days of
training were provided.
WIND Hellas training activities are divided into two main areas:
General Training (Leadership, Management, Supervisory Skills,
etc) and Functional Training (i.e. Sales Representatives,
Customer Service, Technical skills training, etc.) which
represented 100% of this quarter’s total.
On March 13, 2009, the new Collective Agreement proposal
was submitted by the Union in order to commence negotiations for
2009. During the second quarter of 2009, negotiations with the
Union continued regarding the Collective Agreement of 2009. The
Union has addressed the matter to the Mediator. The process with
the Mediator commenced during the third quarter of 2009 and was
completed by mid November with the submission of the
Mediator’s proposal.
The company agreed on the Mediator’s proposal while the
Union rejected the proposal. By not reaching an agreement via
the Mediator’s process, the company used its option under
Greek law of terminating the process at that stage and thus no
Collective Agreement was signed for 2009 and 0% increase in
minimum salaries was achieved. During the first week of December
2009 (November 30 — December 4) the company
performed a voluntary exit program which resulted to
121 employees resigning from the company. On
October 15, 2009 and December 3, 2009 two strikes took
place by the Union. One referred to the Collective Agreement and
the other to the voluntary exit program.
Emerging
Markets
At December 31, 2009, the OTH Group counted
17,213 employees, this count was inclusive of both the
company’s GSM and non-GSM operating activities.
The OTH HR department continues to follow a strategy that
enables OTH to sustain its position as a leading organization.
Our aspirations include the continual enhancement of individual
skills, and emphasis in maintaining an appropriate working
culture that supports corporate strategy and aids the group in
achieving its objectives.
During the first half of 2009 the HR department focused on the
development of the Group by launching a number of projects.
These projects have been designed to ensure the Group’s
ability to continue as a going concern through the retention of
key talents and increased reliance on internal resources.
Report on operations
at December 31, 2009
F-132
OTH has increased the investment in our HR reporting system,
given that the reports generated are the primary instruments
used to determine and evaluate our performance as a whole.
OTH has always been, and will continue to be, dedicated to
developing a high standard of customer care by reviewing
staffing in customer services, incentives and control processes.
It is our aim to be rated the ‘number one player’ in
the markets where we operate vis-à-vis customer
satisfaction.
Below is an update on the projects that have been our main area
of focus:
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Headcount Optimization Initiative: Through
this challenging recessionary period, most companies strive to
become or remain as efficient as possible. We in OTH are working
to optimize our headcount without jeopardizing business
performance and the quality of operations.
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The headcount optimization project caters to this purpose by
creating staffing indicators for all the current families of
jobs within our operating companies. This is because staff
numbers are affected by the size of the operation itself. For
example; the number of call center agents is directly correlated
to the number of subscribers, and likewise, the number of
technical engineers is driven by the number of sites in the
network landscape.
As a result, these staffing indicators are being gathered and
analyzed via historical trends in order to produce certain
progression formulas that will ultimately become part of the
integrated headcount business model for each subsidiary of OTH;
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Cost Optimization Project: Its purpose is to
reduce the staff cost without affecting the company’s
performance. We are taking serious steps in ensuring that
operating expenditures are controlled. This is monitored by
monthly reports and video call meetings. All subsidiaries are
fully aware of this project and have been successful in
decreasing their expenditures as a result of its implementation.
An average reduction of 10% (in the OPEX) occurred in the
checked subsidiaries.
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REGULATORY
FRAMEWORK AT DECEMBER 31, 2009
Italy
Telecom
Italia reference offers
In 2009, the AGCOM Commission for Infrastructure and Networks
(Commissione per le Infrastrutture e le
Reti — CIR) approved the Telecom Italia
Reference Offers relating to the following services:
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dedicated capacity transmission services regarding markets 13
and 14 (terminating and trunk circuits, interconnection flows
and central internal links) and wholesale direct circuits and
partial circuits for 2009 (resolution no. 81/09/CIR);
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Bitstream services, market 12, approving in December 2009 the
offer published by Telecom Italia in June 2009 (resolution
no. 71/09/CIR);
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collection, termination and transit services relating to calls
on the fixed public telephone network, markets 8, 9 and 10
(resolution no. 42/09/CIR);
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WLR (Wholesale Line Rental) services (resolution no. 35/09/CIR),
in whose regard the changes to the algorithm for calculating the
2009 Reference Offer assurance penalties were additionally
approved in resolution 51/09/CIR.
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Fixed
access network
• Market
analysis
By means of Resolution no. 731/09/CONS, AGCOM completed its
analysis of the wholesale fixed network access service markets
(markets 4 and 5 of the Recommendation), confirming the
set-up of
all the requirements
Report on operations
at December 31, 2009
F-133
envisaged in the framework regulating Telecom Italia. With the
same resolution AGCOM additionally confirmed Telecom Italia as
being the dominant operator in the fixed network voice access
service retail markets.
By means of resolution no. 478/09/CONS, published on the AGCOM
website on September 24, 2009, the operational guidelines
of “OTA Italia”, the body responsible for setting
disputes of a technical or operational nature between Telecom
Italia and other operators, were approved. In October 2009, with
the signing of the membership agreement, OTA Italia became fully
operational and was able to commence its duties.
In November 2009 the NGN Italia Committee, the body delegated to
coordinate the transition to the new generation networks in
Italy, began its work. This committee has the task of drawing up
proposals and identifying solutions for the development of the
networks, at the same time setting up a minimum set of
regulatory measures — to be proposed to the
Authority’s Board — that enable all players to
work within a well-defined and pro-competition regulatory
framework, by assessing technical and economic questions.
As the result of the access market analysis (of resolution
no. 731/09/CONS), the activities of the NGN Italia
Committee have been refocalized to define guidelines for:
procedures for migration from copper to optic fiber, possible
methods of unbundling fiber access, the means of governing the
offering conditions of fiber bitstream services and conditions
for infrastructure sharing, including installation in
condominiums.
The active involvement of WIND in the activities of ISBUL, the
Broadband and Ultra Broadband Infrastructure and Services
research program promoted by AGCOM, continues. This program is
based on three projects (Technological, Economical and Legal)
and 14
sub-projects
(Work Packages) having the aim of laying the groundwork for the
permanent supervision of the Authority over technological,
regulatory and economic matters relating to the infrastructure
aspects of broadband and ultra broadband new generation networks
(NGNs).
By means of the ACOM communication of December 22, 2009, a
procedure commenced that is aimed at defining a cost model for
determining prices for wholesale access to the fixed network of
Telecom Italia and calculating the WACC (weighted average cost
of capital), as provided by article 73 of resolution
no. 731/09/CONS. This procedure will have a term of
120 days unless extended.
In January 2009 AGCOM began preliminary hearings having the
purpose of arriving at a definition of the new price testing
model, which is currently based on resolution
no. 152/02/CONS and on the results of the broadband
services monitoring unit.
By means of resolution no. 667/09/CONS, published in the Italian
Official Journal of December 17, 2009, AGCOM begun a public
consultation process that is still in progress. At the present
moment WIND is preparing a reply to the consultation process
which will then be sent to AGCOM.
Customer
migration procedures
In October 2009, AGCOM published resolution no. 52/09/CIR
relating to additions and changes connected with the procedures
as per resolution no. 274/07/CONS for the purpose of
implementing the secret code of customers who have requested a
transfer of fixed network usage. The recipient operator must
supply this code as part of the communication of the migration
application to the donating operator.
Report on operations
at December 31, 2009
F-134
Public
consultations of the European Commission and of the
ERG
During the second half of 2009 XXXX replied to European
consultations regarding the following:
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Regulation of access to NGANs (Next Generation Access
Networks): requiring that the development of
these networks be open to all players of the sector in an
effective, transparent and non- discriminatory manner.
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Guidelines for assessing State aid for broadband
development: affirming the need for this aid to
be granted by means of transparent procedures complying fully
with the technological neutrality of the solutions, avoiding any
change to the competitive level and guaranteeing access to the
products of such aid on an equal basis to all parties operating
in the competitive scenario.
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Transforming the digital dividend opportunity into social
benefits and economic growth in Europe: stressing
the importance of this activity in encouraging competition for
the future supply of advanced services.
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Draft CP on NGN Charging Mechanisms/Long-term termination
issues: supporting the need to go into further
detail on economic evaluations relating to the effect on the
market and consumers of changes to the currently used
interconnection model.
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With resolution no. 667/08/CONS, all Italian mobile operators
(Telecom Italia, Vodafone, WIND, H3G) have been identified as
holders of significant market power and transparency, access,
non discrimination, price control and cost accounting
obligations have been put on each of them. More specifically,
article 12 of resolution
no. 667/08/CONS
requires the following glide path for mobile termination rates
to be used as from July 1, 2009.
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As from
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As from
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As from
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As from
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July 1,
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July 1,
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July 1,
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July 1,
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Eurocents/Minute
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2009
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2010
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2011
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2012
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H3G
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11.0
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9.0
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6.3
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4.5
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Telecom Italia
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7.7
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6.6
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5.3
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4.5
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Vodafone
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7.7
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6.6
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5.3
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4.5
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WIND
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8.7
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7.2
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5.3
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4.5
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With relation to this glide path, Article 14 of resolution
no. 667/08/CONS provides for the possibility to review the
decrease path subject to the definition of a new long-run
incremental cost model.
Using the advice of Europe Economics the Authority began
developing the cost model at the beginning of 2009; the results
of this model are not yet known at the present date.
Roaming
regulation
Guidelines for the provision of the international roaming
service between European countries for SMS, MMS and data
services came into effect on July 1, 2009. In particular
these further reduce the price of roaming calls, introducing
‘per second’ billing after the first 30 seconds and
after the first second for calls received from abroad. In
addition, the cost of sending an SMS from abroad has been
reduced and tariffs for browsing the net with a mobile phone
abroad have been brought down through the introduction of a
maximum wholesale price of 1 euro for each MB downloaded. A
locking mechanism has also been introduced for when the bill
reaches 50 euros or another ceiling chosen by the consumer.
National
Numbering Plan
By means of resolutions no. 34/09/CIR and no. 80/09/CIR the
Authority amended and supplemented certain provisions of the
national numbering plan contained in resolution
no. 26/08/CIR. These resolutions basically postponed the
effective date of the new numbering regulations in “decade
4” to February 1, 2010.
Report on operations
at December 31, 2009
F-135
By means of resolution no. 72/09/CIR supplements were made to
resolution no. 26/08/CIR, introducing the possibility of
providing subscriber information services also via SMS/MMS.
Following up on the requirements of the resolution, the ministry
issued a provision of its own regarding the reallocation of the
900 MHz frequencies which may then be re-used for UMTS. The
first stage of the reallocation of the 900 MHz frequencies
was technically completed at the end of 2009.
In addition on March 23, 2009 the Ministry published an
invitation to tender for the allocation of frequencies in the
UMTS 2100 MHz band in issue no. 35 of the Italian
Official Journal (three blocks of 5MHZ were available). Only
three parties made a bid including WIND which was awarded one
block of 5 MHz UMTS at a price of €88,781 thousand
paid on July 6, 2009.
On September 28, 2009 the Ministry notified WIND of a
measure extending the expiry date of its individual license for
third-generation UMTS public mobile communication services by
eight years which details may be found in note 29
“Depreciation and Amortization” to the consolidated
financial statements of Wind Telecomunicazioni SpA at
December 31, 2009.
With resolution no. 78/08/CIR, at the end of December 2008 AGCOM
updated the regulations concerning mobile number portability
(for example by reducing portability time to a maximum of three
days and eliminating interoperator portability costs). The
agreement among operators was signed and resolution 78/08/CIR
came into force on November 23, 2009.
Audiovisual
and multimedia contents
By means of resolution no. 407/09/CONS, published in the Italian
Official Journal of August 17, 2009, AGCOM extends the
terms for the closure of a survey into content producers in the
electronic communications sector, started off by means of
resolution no. 626/08/CONS. The procedure is planned to be
brought to a conclusion by the end of February 2010. By means of
resolution no. 523/09/CONS, in September 2009 AGCOM started
an investigation into features for receiving television programs
digitally and into initiatives for adopting a “single
decoder”. The enquiry is planned to last 180 days.
Operators are expected to provide contributions of an
informational nature at the request of the Authority, with
hearings being a possibility.
Emerging
platforms
By means of resolution no. 665/09/CONS AGCOM identified emerging
platforms (IPTV, Mobile — GSM, GPRS/EDGE and
UMTS/HSDPA, DVB-H) for the purpose of marketing sports
audiovisual rights, pursuant to Legislative Decree no. 9 of
January 9, 2008 and article 10 of the regulation
adopted by means of resolution
no. 307/08/CONS.
Greece
With the 717/2007 EU Roaming regulation, a Eurotariff ceiling
was introduced for calls made and calls received when travelling
within the EU, at retail and at wholesale level. Until
August 29, 2008, the retail ceiling was of €0.49/min
for making calls and €0.24/min for receiving calls
(excluding VAT). From August 30, 2008, these ceilings have
been reduced to €0.46/min for making calls and
€0.22/min for receiving calls. On June 29, 2009, the
revised EU Roaming regulation 544/2009 was published and
entered into force at June 30, 2009 with new lowered price
ceilings: as of July 1, 2009, €0.43/min for calls made
and €0.19/min for calls received, as of July 1, 2010
€0.39/min for calls made and €0.15/min for calls
received, as of July 1, 2011, €0.35/min for calls made
and
€0.11/min
for calls received. Also, the new Roaming regulation introduces
a retail SMS price cap at
Report on operations
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F-136
€0.11 (excluding VAT). It also constrains inter-EU
data roaming charges by introducing a wholesale cap of €1
per megabyte download as of July 1, 2009 (then €0.80
in 2010 and €0.50 in 2011). In addition, the principle of
per second billing is introduced after the first 30 seconds for
calls made. Lastly, in order to avoid bill shocks for consumers,
the regulation lays down new measures to increase transparency
of retail prices for data roaming services, and to provide
roaming customers with new tools to monitor and control their
expenditure while roaming.
Wholesale
mobile voice call termination
Following the Greek NRA’s public consultation and market
analysis for mobile call termination on mobile networks (market
16 of the EU Recommendation), which was conducted in 2006, and
the respective resolution
no. 392/017/2006,
as amended by resolution
no. 410/37/2006,
on June 1, 2007 termination rates for voice call
termination applicable to the WIND Hellas mobile network reached
the cost oriented level set by the public consultation, having
followed the envisaged
10-month
glide path (August 2006 -June 2007). In December 2007, all three
Greek Mobile Network Operators announced a further decrease in
their termination rates, effective as of February 1, 2008.
The termination rates were €0.1041/min for WIND Hellas,
€0.0991/min for Vodafone Greece and €0.0989/min for
Cosmote. On August 4, 2008, NTPC concluded its second
historically market analysis (after the one carried out in
2006) of the wholesale market of voice call termination in
individual mobile networks. On October 15, 2008, NTPC
concluded to its final Decision on Mobile Termination Rates
(NTPC’s Resolution
no. 498/046/15.10.2008)
in which it concluded on the following price caps &
glide path:
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October 2008
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(NTPC’s Proposal)
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(NTPC’s Proposal)
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(NTPC’s Proposal)
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MNO
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(Effective Prices)
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1/1/09
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1/1/10
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1/1/11
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Cosmote
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9.89
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7.86
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6.24
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4.95
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Vodafone
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9.91
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7.86
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6.24
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4.95
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WIND Hellas
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10.41
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7.86
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6.24
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4.95
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(rates in eurocents/min)
On November 20, 2008, WIND Hellas filed an appeal before
Athens’ Administrative Court of Appeals against the
aforementioned NTPC Decision on Mobile Termination Rates (MTRs),
based on procedural and substance reasons related to the adverse
impact on the Company’s profitability following the
implementation of the new MTRs. The hearing, initially scheduled
on March 19, 2009 was postponed and rescheduled for June 11
and July 29, 2009. The case will now be heard before the
Administrative Supreme Court, on April 13, 2010. Meanwhile
WIND Hellas had the obligation to implement the new MTRs from
January 1, 2009 and on January 1, 2010 decreased its
MTRs to the regulatory provided level of €0.0624/min.
In parallel, the European Commission had been working on a draft
Commission Recommendation on Mobile Termination Rates and Fixed
Termination Rates advocating lower and symmetric rates. The
final Recommendation 3359/2009/EC was released on May 7,
2009 setting December 31, 2012 as the deadline by which all
Member States should set symmetric MTRs and symmetric FTRs based
on costs incurred by an efficient operator according to a
bottom-up
“pure” incremental cost model.
In October 2006, WIND Hellas submitted to the Greek NRA its RIO,
which relates strictly to the service of voice call termination
to its mobile network. In February 2008, the NTPC asked for an
updated version of this RIO. Finally, under the resolution
no. 498/046/15.10.2008
provisions, WIND Hellas, submitted again in December 2008, its
updated RIO to the NTPC. Post the issuance of its new Decision
(no. 498/046/15.10.2008),
NTPC asked again for a new revised version of WIND Hellas RIO.
The Company revised and submitted its RIO. On March 19,
2009, NTPC launched a one month long public consultation asking
the entire market to make comments on the XXXx submitted by all
three Mobile Network Operators.
In January 2008, the NTPC conducted a public consultation for
collocation issues on electronic communications infrastructure
that concluded with the issue of the Collocation Regulation
(NTPC’s Resolution
no. 472/171/21.3.2008).
On October 20 and 21, 2008, WIND Hellas submitted numerous
collocation requests
Report on operations
at December 31, 2009
F-137
to OTE, but faced XXX’s refusal to facilitate them. On
December 17, 2008, WIND Hellas filed before the NTPC a
request for amicable resolution of the issue (as provided in the
Regulation). A hearing was held on February 19, 2009 before
the NTPC. By its final Resolution
no. 525/137/2.6.2009,
the NTPC ordered OTE to enter into one month-long negotiations
with WIND Hellas, in order to conclude on a Final Framework
Agreement for collocation services. In the case that the
negotiations will fail, the NTPC has stated that it would
intervene and would outline by itself a Framework Agreement for
both parties. Following NTPC’s Resolution, WIND Hellas
entered into negotiations with OTE, but with no development
until December 2009 when NTPC called WIND Hellas and OTE for an
update hearing in order to evaluate whether OTE has complied
with its Resolution
525/137/2.6.2009.
The hearing took place on December 21, 2009 and the
NTPC’s Resolution is pending. However, OTE, facing the
danger of regulatory remedies/penalties against it, called WIND
Hellas for a new round of negotiations, in order to facilitate
WIND Hellas’s collocation demands. This new round is now
underway, but no estimation of its outcome can be made.
Fixed
Market
Following the Greek NRA’s public consultation and first
round market analysis for call termination on individual public
telephone networks provided at a fixed location (market 3 of the
new EU Recommendation) which was conducted in 2006 and the
respective resolution
no. 406/34/2006,
fixed network termination rates that apply for voice call
termination to the WIND Hellas fixed network would undergo a
2-year glide
path which began on January 1, 2007 and would end on
December 31, 2008, reaching effectively on January 1,
2009, its target rate (which was equal to the fixed
incumbent’s (OTE) single termination rate in 2006). This
glide path was fine tuned by resolution
no. 459/135/2007
of the NTPC, which partially amended the previous resolution
(no. 406/34/2006)
and by resolution
505/058/23.12.2008.
Based on the aforementioned regulatory framework, in the case
that during the glide path -set for the alternative operators-
the fixed incumbent’s cost oriented call termination rate
exceeds the one referring to the alternatives, the NTPC would
amend the cost oriented target (price cap) which is effective
from January 1, 2009 and onwards. OTE’s effective rate
for single termination since January 1, 2009 is
€0.00772/min while WIND’S termination rate has
remained at €0.00892/min, effective since January 1,
2009.
The NTPC published a consultation on the review of the Carrier
Pre-Selection (CPS) regulation, containing an amendment of the
CPS options available to customers. The main change is that a
new option is added enabling not only local, long-distance and
international calls to the fixed and mobile networks but also
calls to non-geographical numbers (e.g. value added services,
shared-cost, free phone numbers, etc). In addition, NTPC amended
the carrier pre-selection regulation in order to facilitate the
deactivation procedure.
Following market analysis which was conducted during 2006 on
markets 1 and 2: “Access to the public telephone network at
a fixed location for residential and non-residential
customers”, market 8: “Call origination on the public
telephone network provided at a fixed location”, market 9:
“Call termination on individual public telephone networks
provided at a fixed location”, market 11: “Wholesale
unbundled access (including shared access) to metallic loops and
sub-loops”,
market 12: “Wholesale broadband access”, market 13:
“Wholesale terminating segments of leased lines” and
market 14: “Wholesale trunk segments of leased lines”
and specific remedies imposed by NTPC, OTE submitted to NTPC its
Wholesale Line Rental Reference Offer (WLR-RO), its Reference
Interconnection Offer (RIO), its Reference Unbundled Offer
(RUO), its Reference Broadband Offer (RBO) and finally its
Reference Leased Lines Offer (RLLO). Out of these offers, the
NTPC approved RIO, RUO, RBO and RLLO in April 2007 (XXX
additionally updated in September 2008), RIO and RBO in June
2007, RLLO in March 2008 and WLR-RO in May 2008. The WLR-RO was
published in June 2008, providing for the launch of the service
in September 2008. However, the draft agreement was sent by XXX
in December 2008, and the service was implemented in 2009. The
retail minus price for the provision of Wholesale Line Rental
was defined by resolution n.
499/92/22.10.2008.
Report on operations
at December 31, 2009
F-138
Following the review of the RBO, NTPC issued resolution
no. 448/206/2007
relating to the pricing of the wholesale broadband access, on a
“retail minus” basis, which was further amended in
December 2007 by resolution
no. 462/176/2007.
In late December 2007, the NTPC launched a public consultation
for the amendment of the fixed telephony incumbent’s RUO
which has led NTPC to apply some changes. The amendments
concerned mainly the improvement of co-location facilities, the
provision of information by OTE to the alternative operators,
the amendment of the fault-management process, the extension of
the deadline for the supply of inactive loops and new procedures
for the submission of activation applications by customers.
In March 2009, the NTPC launched another public consultation to
amend OTE’s RUO which concluded with NTPC’s decision
(May 2009) to make partial amendments. This time, the
amendments concerned the procedure of the on site combined
appointment with OTE for fault resolution, the procedure of
increase, as well as return of racks in physical co-location
rooms and financial clearing, and the procedure of cost
allocation in cases of room expansion of physical co-location
rooms.
In late June 2009, the NTPC conducted a public consultation for
the amendment of OTE’s RLLO and RPPCO (Reference of Partial
Private Circuits Offer), which concluded in NTPC’s decision
(August 2009). The
amendments concern mainly the consolidation of the two
aforementioned reference offers, the transmission
links service, the coupled extension circuit service, the
point-to-point
circuit service and the increase of the leased line trunk nodes.
In November 2009, following the second round market analysis of
Markets 4 and 5 of the revised EC Recommendation on
Relevant Markets, the NTPC conducted public consultations on the
revised RUO, which were concluded in December 2009 and January
2010 respectively.
In February 2009, NTPC refused to approve the retail bundled
offers of OTE, which had been initially submitted to NTPC for
approval in October 2008. The delay in this decision of NTPC was
mainly due to the fact that NTPC had requested additional
information and invited XXX to a hearing in order to review the
offer. The NTPC resolution
no. 512/63/23.02.2009
found that the proposed offers of OTE would lead to price
squeeze, while the overall effect of the offer on competition
could not be assessed given that OTE did not provide the
information that was requested by NTPC.
However, following a new round of hearings and analysis of
additional data submitted by OTE, the NTPC concluded in its
resolution
(no. 531/63/16.06.2009)
of approving some of XXX’s bundled offers. More
specifically, the packages approved consist of provision of
access to PSTN or ISDN BRA network, unlimited local and distant
calls, internet broadband access
and/or
unlimited calls to 46 international destinations. The NTPC did
not approve the inclusion to the aforementioned bundled products
of the provision of 60 minutes free of charge calls to mobile
destinations, on the grounds of leading to price squeeze.
In addition to the aforementioned bundled offers, the NTPC in
its resolution
no. 527/77/16.06.2009
approved the product “ConnX talk 24x7 60F2M
and/or
unlimited calls to 46 international destinations”, which
includes unlimited local and distant calls and 60 minutes free
of charge calls to mobile destinations
and/or
unlimited calls to 46 international destinations, and is
combined obligingly with access to OTE’s public telephone
network and ADSL broadband access.
Furthermore, according to the NTPC’s resolution no.
530/202/16.06.2009,
OTE’s products “OTElite180” and
“OTElite300” have also been approved. The first
includes 180 minutes free of charge local and distant calls and
the second 250 minutes free of charge to local and distant calls
and 50 minutes free of charge to mobile destinations.
Co-location &
LLU Offer
On February 18, 2009, WIND Hellas as well as other
alternative operators and XXX attended a hearing before the NTPC
for resolution of the issue of pricing of electrical power in
physical co-location rooms. The resolution on Interim Measures
no. 1598/610/19.02.09
was published on February 19, 2009 according to which all
payments
Report on operations
at December 31, 2009
F-139
Currently WIND is building a case in order to challenge once
more the amounts charged by XXX from February 2007 to August
2009, based on various arguments, the most important of which is
that the new model which is more correct than the one
retroactively applied under the NTPC’s decision,
demonstrates that the past charges were excessive and do not
comply with XXX’s cost-orientation obligation. Thus, the
NTPC will be requested to acknowledge the ineffectiveness of its
first model and to review it accordingly. In case the model is
not reviewed, XXXX will argue that the charges of September 2009
should be considered at the maximum that could be charged for
any past month and OTE should refund WIND for any charges of
past months exceeding the charges of September 2009.
In April 2009, the NTPC published the resolution no.
519/56/14.04.09
on the cost accounting results regarding OTE for the year 2009
(by taking into consideration data of the year 2007). All
cost-oriented rates that were lower than the ones applicable
until April 2009 applied retroactively from January 1,
2009. Increased prices applied from the date of issuance of the
decision in the Official Journal.
In May 2007, the new National Numbering Plan (NNP) was issued
(Ministerial resolution
no. 26634/924/2007
OJ issue B’ 768/2007). According to the provisions of the
plan, additional secondary regulations were issued on the terms
and conditions for the assignment and use of numbers and short
codes under the NNP (NTPC’s resolution
no. 441/121/2007).
Due to the fact that numerous services (especially SMS/MMS
services) must be rerouted to short codes compatible with the
new numbering plan, in November 2007, NTPC decided (through
resolution
no. 461/059/2007)
to further extend the transitional period to the new numbering
scheme for the SMS/MMS short codes to May 15, 2008 (the
initial deadline was December 31, 2007).
In July 2009, the NTPC launched a public consultation for the
amendment of the National Numbering Plan as well as the
Regulation of Assignment and Management of Numbering Resources
of the NNP. The amendments concerned mainly the use of new
numbering series for mobile communications, the process of
assignment and repeal of numbering series, the charges of calls
towards the 806, 812 and 825 numbering series, the potential of
sending/receiving SMS to/from 806, 812 and 825 numbering series,
the online application system and the routing prefixes. The
final decision is still pending.
By resolution no.
428/13/2007
(OJ issue B’ 638/2007), NTPC introduced into the Greek
telecommunications market a secondary spectrum trading market
that involves spectrum rights originally awarded by NTPC. By
Ministerial resolution no. 39957/1650, a secondary
legislation was introduced into the Greek mobile market that
allows operators to resell partial spectrum rights originally
awarded by NTPC, as well. For FWA licence issues, see below
under “The NTPC clears the Tellas shares acquisition”.
Report on operations
at December 31, 2009
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General
regulations for licenses
With resolution no.
442/068/2007,
the NTPC amended its former resolution
no. 390/3/2006
“General Regulations for Licenses” including new
obligations concerning VoIP, customer care and broadband
services. In October 2007, the NTPC additionally issued,
effective on January 1, 2008, a new code of conduct
regarding the provision of Multimedia Services (INTERNET
services, audiotext/videotext services, SMS/ PSMS/
MMS/ PMMS).
Also, the NTPC issued in July 2008 effective from July 30,
2008, a new code of conduct regarding the provision of the
Electronic Communications at Consumers.
The amended EC “GSM Directive” was adopted and
published on October 20, 2009 (together with the relevant
new Commission Decision 2009/766/EC). Member States are expected
to transpose it into national law by May 9, 2010. The new
Directive paves the way to the coexistence of GSM and UMTS
systems in the 900 MHz and 1800 MHz frequencies band
(in respect of the principle of technological neutrality), by
mid 2010 throughout Europe.
Further spectrum management issues are expected with the
upcoming national implementation of the EU Recommendation
2009/848/EC of October 28 on the Digital Dividend. The aim is to
free and optimize the use of the spectrum released from the
switch from analogue to digital terrestrial broadcasting at EU
level at the latest by January 1, 2012.
In May 2009, the NTPC conducted a public consultation for the
amendment of the Code of Conduct of Providing Multimedia
Information Services which concluded in the NTPC’s decision
(July 2009). The amendments concerned mainly the provision and
debit of multimedia information services on subscription. In
July 2009, the NTPC issued the new code of conduct for the
provision of Multimedia Services (Resolution number
531/67/23-07-2009),
starting as of the end of September 2009.
In June 2009, the NTPC conducted a public consultation on the
amendment of the Regulation of Management and Assignment of
Domain Names gr. The amendments concern mainly the process of
changing registrars, the reasons of rejection and deletion of
domain names and the potential of requesting from the NTPC or
court not only the deletion but also the transfer of domain
names. September 30, 2009 was the last date for submission
of replies to the consultation process.
NTPC
clears Tellas shares acquisition
Following the acquisition by WIND Hellas of a controlling stake
(50% plus 1 share) in the sole shareholder of former legal
entity Tellas, “WIND PPC Holding NV”, in October 2007,
WIND Hellas succeeded becoming the majority shareholder of
Tellas. The transaction was approved by the NTPC (resolution
no. 462/177/14.12.2007)
under the condition that within six months of approval WIND
Hellas and former legal entity Tellas, which hold jointly two
FWA (Fixed Wireless Access) 25GHz licenses, must either sell to
or request the NTPC to recall one of them. This obligation
derives from the implementation of Ministerial resolution
no. 29913/1196/2006,
which limits companies or groups of companies to hold only one
right of use (spectrum) in the 25GHz band. In June 2008, Xxxxxx
signed an agreement with XXXXX Projects Ltd for the sale of its
Fixed Wireless Access license at a price of
€5.25 million. The NTPC cleared the said transaction
in the third quarter of 2009 by its resolution
no. 530/165/2009.
Issues of
consumer interest
In December 2007, the NTPC conducted a public consultation on
the quality of electronic communications services. The relevant
regulation, which was published in June 2008, is intended to
formally inform the customers concerning the quality of the
network and the services that the operators in Greece offer to
subscribers. A series of service quality indices have been
published on the websites of the NTPC and of WIND Hellas, in
accordance with this regulation.
Report on operations
at December 31, 2009
F-141
The Hellenic Authority for the Information and Communication
Security and Privacy (ADAE) issued a new Presidential Decree
no. 2002/1709/2008
amending the Presidential Decree no. 2240/6.12.2006
concerning the single European emergency number 112. According
to the aforementioned regulation, WIND Hellas must ensure that
emergency services are able to establish the location of the
person calling 112 (push procedure), in order for the relevant
Public Authorities to be able to proceed immediately in the case
of emergency.
In August 2009, the YME (Ministry of Transport and
Communications) issued a new Law concerning the prepaid
registration of mobile services (Law 3783/2009). According to
the new Law the mobile operators should register all the
anonymous prepaid subscribers by the end of June 2010. The data
that has to be collected is:
ID/Passport,
Name and Surname and Address. Registration is required before
activation. Current Pre-Paid Value Chain has to be re-engineered
and adopted to the new ‘era’. Subscribers who have not
registered after July 2010 will be disconnected.
Expected
Regulations
In February 2009, the NTPC conducted a new public consultation
on a draft regulation on Fees for Rights of Way. The request of
the market towards the NRA has been to issue the final
regulation on Fees within 2009, even if the Joint Ministerial
Decision on the procedures for the award of Rights of Way has
not been issued yet. NTPC issued its resolution
no. 528/075/23.6.2009
that regulates the fees that public authorities enforce for
awarded rights of way, however the Regulation for rights of way
is still pending.
Emerging
markets
The main elements of the regulatory framework for the
telecommunications sector in Algeria are embodied in the Telecom
Law of August 2000
(No. 2000-03,
August 5, 2000) (the “Algerian Telecommunications
Law”). This statute established general rules pertaining to
the organization of the sector, defined the regulatory framework
for the authorization of telecommunications services and
introduced changes to permit competition between private
operators. The policy set out by the Algerian government is to
continue to liberalize the telecommunications sector and allow
competition to set price levels for the benefit of consumers,
although recently the regulator has been trying to regulate
retail prices.
Under the Algerian Telecommunications Law, the Algerian
telecommunications market is monitored by the Ministry of Post,
Information and Communications Technology (the
“MTIC”), which is responsible for establishing
policies, and regulated by the Autorité de Régulation
de la Poste et des Télécommunications (the
“ARPT”), a body established as an independent and
financially autonomous regulator, which is responsible for
granting telecommunication licenses and monitoring the quality
of services, requested from each operator based on its
respective license. The ARPT also monitors compliance with
existing laws and regulations, assigns and monitors the use of
frequencies, grants numbers to operators and acts as an advisor
to the MTIC, in which role it assists in the preparation of new
regulations relating to the development of the sector. The ARPT
also settles disputes between operators in the event that the
negotiations between the parties do not result in an agreement.
The ARPT requires, in principle, the parties to negotiate
interconnection prices and intervenes only if there is a dispute
between the parties. All interconnection agreements and
interconnection offers must be approved by the ARPT prior to
becoming effective.
Another body, the Competition Counsel, foreseen by the law but
not active so far should be competent for competition matters
although ARPT also regulates this matter.
OTA has valid interconnection agreements with the two fixed
operators and the other two mobile operators in Algeria, as well
as with several VoIP operators. The termination tariffs are
modified annually with reference to the interconnection
catalogue approved by the ARPT. A claim filed by XXX concerning
the ARPT’s criteria for the approval of termination tariffs
was lost.
Report on operations
at December 31, 2009
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Other claims were introduced in 2007 by OTA against ARPT’s
decisions requesting that OTA increase its retail prices. This
is a regulatory decision not allowed by Algerian law in
situations like the current one, nor is it in conformity with
standard regulatory practice. However, these cases were lost.
The ARPT is currently preparing a decision to also regulate the
promotions (number of promotions per year, duration of
promotions, etc.)
There is currently no number portability in Algeria. The
Algerian government has announced official plans to issue 3G
licenses in 2008 but nothing occurred so far. XXX does not
expect there will be significant demand for 3G technology
in Algeria in the near future. During August 2008 a consultation
procedure to show interest in 3G licenses was launched by
the ARPT.
The Minister announced official freezing of the 3G developments.
The provision of domestic roaming services is not required under
the Algerian Telecommunications Law. It is not permitted until
operators have fulfilled their respective roll-out obligations
for the first four years of their license, i.e. in 2008.
There are currently no mobile virtual network operators
(“MVNO”) in Algeria and no regulation exists to
provide for such operators.
Concerning the customer documentation process, the ARPT made a
decision by which customers without correct identification (copy
of ID) will be disconnected on October 10 and that new
sales as from September 15 will be made with de-activated
SIM’s, which will be activated only upon electronic
communication of ID data by the sales points, to be confirmed
within one month by a physical copy of same.
During March 2009, the Algerian Telecom Ministry started a
consultation procedure amongst all the mobile players for a
possible reform in the telecom law.
During the second quarter of 2009, XXXX heavily intervened with
regards to offers and promotions of the mobile market.
During September 2009, the Djezzy interconnection catalogue
2009-2010
including some amendments was published.
The Pakistani telecommunications industry is regulated by the
government of Pakistan, acting through the MoIT (Ministry of
Information Technology) and the PTA (Pakistan Telecommunications
Authority). The government of Pakistan is responsible for
establishing policies relating to telecommunications. Without
prejudice to the policies issued by the government of Pakistan
and the provisions of the Pakistan Telecommunications Act, the
PTA is responsible for regulating the telecommunications
industry, including licensing, tariff regulation, arbitration of
interconnection disputes, developing numbering plans and making
recommendations to the federal government on policies. The
Competition Commission of Pakistan (CCP) was established to
regulate competition in all sectors (including
Telecommunications), while the Frequency Allocation Board (the
“FAB”) was set up to allocate and assign frequencies
on the PTA’s recommendation.
The Telecom Deregulation Policy (July 2003) laid the
foundation of an era of open and de-regulated telecom sector in
Pakistan. Subsequently, a Mobile Cellular Policy (the
“Cellular Policy”) and Broadband Policy were issued by
the Pakistani government in 2004. The five-year life cycle of
these policies is coming to an end and the MoIT is in a process
of consultation with all stake holders before finalization.
Mobilink has forwarded its detailed comments/suggestions on the
deregulation policy. Mobilink spearheaded discussions on changes
envisaged in the Deregulation Policy and sent joint
industry’s recommendations to the MoIT for incorporation in
the revised policy. The MoIT organized an industry forum on
August 21, 2009 for discussion on various aspects of the
policies.
MoIT plans to issue a combined Telecom Policy for the entire
telecom sector instead of separate policies for cellular and
fixed line. The new policy is planned to be finalized in 2010.
MoIT has almost completed the process of hiring the consultant
and hopefully work on formulation of the policy will commence
soon.
Report on operations
at December 31, 2009
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The Pakistan Telecommunications (Re-Organization) Act 1996 (the
“Pakistan Telecommunications Act”), as recently
amended and the rules made there-under, including the Pakistan
Telecommunication Rules 2000 (the “Telecommunication
Rules”), principally regulate mobile telecommunication
networks and services in Pakistan. The objectives of the
Cellular Policy and the Deregulation Policy include promoting
competition, developing infrastructure and increasing investment
in the telecommunications sector.
According to telecommunication rules, an operator whose share of
the relevant market exceeds 25% in terms of revenue shall be
presumed to have a dominant market position and categorized as
Significant Market Power (SMP). Mobilink was determined in
August 2004 as SMP in relation to interconnection and retail
markets and consequently it is subject to increased regulation
by the PTA. For instance, all SMP operators, including Mobilink,
are required to seek the prior approval of the PTA before
changing their tariffs, publish reference interconnection offers
and implement cost accounting. The PTA initiated a consultation
process again to redefine the relevant markets and determine the
SMPs in the relevant markets based on the above criteria. There
is a possibility that one or two more operators will be declared
SMPs both in retail and interconnection markets. The PTA’s
consultation process on this subject continues.
On April 13, 2007, the PTA announced that 3G licensing
would be made available, and issued a draft IM for
stakeholders’ comments. The spectrum for 3G licensing was
made available in 7 blocks of 5 MHz. The winner of the
auction had the choice to select up to a maximum of 3 blocks
from the available blocks. In 2007, all operators recommended
delaying the launch of 3G by 2-3 years since the market in
Pakistan was not fully ripe to accommodate 3G technology. The
Chairman of the PTA agreed with the operators and recommended
the same to the government. In 2008, the PTA seemed determined
to go ahead with the auctioning of the spectrum. A seminar on 3G
was held on April 1, 2008. All operators less Telenor
recommended delaying the launch of 3G or alternatively
allocating 5MHz each to all operators at nominal price instead
of auctioning. Telenor did not support delaying the launch but
supported Mobilink’s recommendation of a nominal price. All
handset vendors recommended the launch of 3G. The chairman of
the PTA clarified that allocation of the spectrum at a nominal
price was not possible and that frequency would be auctioned in
2008. He however agreed that the price should not be exorbitant
and promised to recommend a lower price to the Government. The
PTA also planned two changes in 2008 compared to the Information
Memorandum (IM) published in 2007: spectrum auction open
outside the three existing GSM operators instead of issuing new
licenses and, availability of 30 MHz spectrum for auction
instead of 35 MHz, and that each of the three auction
winners would be allocated 10 MHz. The Cellular industry
sent a joint letter to the Chairman of the PTA re-iterating the
industry’s previous stance of uniform distribution of
5 MHz each to all operators instead of auction. Progress in
relation to 3G was held up in 2008 because of certain decisions
required at the MoIT, which were pending because of continuous
changes in the Ministry’s staff and lack of a permanent
Minister. There is also realization at government level also
that it is not a suitable time to attract foreign investors in
this field. CMTOs (Cellular Mobile Telephone Operators) lobbied
on their part to restrict the auction process to existing
cellular licensees only at an affordable price. MoIT held a
meeting with all CMTOs in February 2009 to discuss times for the
introduction of 3G, spectrum availability, possibility of new
players participating in the auction and infrastructure sharing.
Mobilink recommended delay in the launch of 3G, while Telenor
recommended its early launch. The MoIT asked all operators to
send individual recommendations in writing. Telenor which was
previously lobbying for early launch of 3G also changed its
stance and joined all other operators in recommending delay. The
CMTOs carried out extensive lobbying on this account and CEOs
along with Ambassadors/Diplomats of the respective embassies met
senior government officials including the Minister for
Investment and the new Secretary of the MoIT. Consequent to
effective lobbying by CMTOs, MoIT decided to delay launch of 3G.
The subject of 3G was not included in the agenda for the
industry forum held at Islamabad on August 21, 2009.
However, during the concluding session, the Secretary of the
MoIT, Chairman of the forum, commented in response to a question
on 3G that there are some issues, which need to be taken into
account before deciding the modalities concerning 3G. Lack of
importance was given to this subject in the forum. Currently
there is no further development regarding the 3G subject.
In 2007, Mobilink participated for the first time in the USF
(Universal Services Fund) bidding, and won lot 6 (Sukkur)
of the USF Area on December 14, 2007. On January 15,
2008, Mobilink signed the Services and Subsidy Agreement (SSA)
with USFCo (Universal Services Fund Company) for the
above-mentioned lot. USFCo asked the operators for registration
and submission of bids for the Pishin, Dadu, Bahawalpur and
Mansehra lots. Mobilink
Report on operations
at December 31, 2009
F-144
registered and submitted bids for all the lots, but PTCL won the
Pishin, Dadu and Mansehra lots and Telenor won the Bahawalpur
lot. In July 2008, Mobilink registered for the additional four
lots of Kallat-Mastung, Sibi, DI Khan and Mirpur Khas and won
the bid for Kallat-Mastung in September, 2008. In response to
the USFCo invitation for the Fibre Optics Project in un-served
areas of Sind Province, Link Direct registered in October 2008,
but ultimately did not submit the bid. PMCL won highest bid
(PKR1.95 Billion) for the USF lot of Kalat — Mastung,
but later decided not to go for this lot due to the prevailing
unfavorable security situation and non availability of
contractors to work in the area. We did not sign the SSA
agreement with USFCo.
Mobilink registered with USFCo for the Khuzdar, Kalat and
Mastung-Nushki lots. However, operators approached USFCo
indicating that these lots were not commercially viable under
prevailing financial conditions. USFCo withheld the auction of
these lots and in order to take all registered operators on
board, held an open forum to ascertain the commercial viability.
In the light of operators’ suggestions, USFCo has again
floated the revised tender documents for the Khuzdar, Kalat and
Mastung lots with following requirements: use of Renewable
Energy Solutions as a mandatory source of power for all USF
sites; OPEX subsidy up to three years for backhaul services.
PMCL has again registered for the Khuzdar, Kalat and Mastung
lots.
Due to the prevailing security situation in the country, the
issue of mobile phone customers’ documentation remained in
the lime light until 2007. The MoIT issued its policy directive
on January 14, 2008, based on which the PTA issued a
standing operating procedure (SOP) on February 22, 2008 for
implementation by the cellular operators. The PTA specified a
number of measures to be taken by the operators laying down
strict timelines and threatened legal action against the
defaulting operators and permanent closure of defaulting
franchisees. Upon the aggregate industry request, the PTA
relaxed the timelines. Since April 2008, the PTA has become more
aggressive in its ground checks to ascertain SOP compliance. The
PTA conducted nationwide surveys in September, November and
December 2008 to ascertain compliance of the PTA’s SOP.
Results were unsatisfactory in the case of all operators.
Upon the directive of the GoP (Government of Pakistan), the PTA
issued instructions for the sale of non-active XXXx in October
2008 with effect from February 1, 2009. It is based on sale
of non active XXXx by sales channels and activation of XXXx only
after successful verification of the customer through the
Companies’ call centres. The purpose is to shift the
responsibility for subscriber verification from
franchisees/retailers to the cellular companies. Non agreement
on increased verification rates by the NADRA (National Database
Registration Authority) was the biggest hurdle towards
implementation of the new sales procedure. The PTA used all
tactics to pressurize CMTOs to accept revised NADRA rates. Issue
of Show Cause Notice (SCN) to all CMTOs on the plea of non
adherence to the PTA’s SOP and threats to stop sales were
steps in the same direction. The CMTOs were handicapped from
taking a strong joint industry stand because of the
unwillingness of XX Xxx, who did not want to stop sales at any
cost. Once the CMTOs agreed to new NADRA rates, the PTA took a
lenient view of SCN and facilitated CMTOs in implementation of
new sales procedure. The new sales regime for sale of non-active
XXXx was implemented successfully in February 2009. The PTA
carried out joint surveys to ascertain compliance of the new
procedures. The PTA was generally satisfied on the compliance of
new procedures, but the main emphasis of the survey remained on
physical documentation. All operators sent joint industry
letters and CEOs met the Chairman of the PTA to persuade him to
do away with physical documentation after the successful
implementation of the new regime. The Chairman replied that he
would try to get this done 3-4 months after the start of
the new regime. The PTA also emphasized cleaning up of old
customers’ records. This requirement gained more importance
in view of the prevalent security situation in the country. To
check compliance of the new system, the PTA team visited our
call centre on April 15, 2009 and were completely satisfied
with the working of our call centre. The PTA also carried out
two ground surveys in March 2009 to ascertain compliance of new
SOP by sales outlets. According to the PTA, results of all
operators were unsatisfactory. Consequently, a new Show Cause
Notice (SCN) was issued individually to all operators on May 13
in continuation of the previous SCN of November 25, 2008.
The hearing for the case of Mobilink was held on June 19.
After hearing all cases, the PTA gave all operators 25 days
to improve up to July 30, 2009. Another survey was to be
conducted in August and the final decision is planned to be
given based on the result of new survey. However, the Legal
Departments of the CMTOs opined that remaining silent on this
determination would amount to pleading guilty and that the CMTOs
would lose the opportunity to file an appeal against the
existing procedure comprising dual requirements of online
verification (through “789”) as well as paper
documentation. The CMTOs agreed to go to court against the
PTA’s determination. Accordingly all operators challenged
Report on operations
at December 31, 2009
F-145
the PTA’s order in the form of an appeal to the court on
August 4, 2009. The plan was just to park the appeal
without persuasion in order to keep the opportunity of legal
remedy if required at a later stage. This has provided the
industry a fair chance of negotiating with the MoIT and the PTA,
particularly when, under the law, the PTA is not on solid
footing. In last quarter, the legal departments of the PTA and
the CMTOs interacted on the way forward to close the issue
without any punitive action against the operators.
The PTA, in collaboration with the CMTOs has developed a system
where a customer can find the number of connections issued on
their CNIC (computerized national identity card) through SMS.
This system was commercially launched in October, 2009. Since
then, a large number of customers visited the customer care
centres and franchisees of all CMTOs for correction of their
records.
The cellular operators requested a decrease in the activation
tax on sales of each mobile phone connection. However, the
activation tax was not reduced in the federal budget
2008-2009.
On the other hand, PKR500 as custom duty and PKR250 as
regulatory duty on import of each mobile phone handsets was
levied and General Sales Tax (GST) on calls also increased from
15% to 21% only for the telecom industry. The cellular industry
has been considering passing on the Activation Tax to customers
on sales of new connections, but could not finalize this option
due to non agreement by one operator, XX Xxx. The industry also
considered the option of going to Court against unjust levy of
Activation Tax and discriminatory increase in GST on calls in
2008, but did not take a decision in its favour because of
apprehension of more negative fallout compared to expected
benefits. This year CMTOs carried out their lobbying efforts
more aggressively. CFOs of all CMTOs met the Chairman of the
Federal Board of Revenue (FBR) in April. CEOs met the Minister
for Investment, the Secretary of the MoIT, the Advisor to the
Prime Minister on Finance and finally the Prime
Minister. As a result of these
extensive lobbying efforts, the federal budget
announced in June included a reduction of Activation Tax from
PKR500 to PKR250 and a reduction in General Sales Tax on calls
from 21% to 19.5%. The custom duty on importation of mobile
phone handsets has been reduced from PKR500 to PKR250 and the
regulatory duty of PKR250 abolished. Mobilink has again started
its lobbying efforts for the abolition of Activation Tax and
reduction of General Sales Tax from 19.5% to 16%.
Mobilink had arranged 49 backhaul MW links in 10/11 GHz during
2008. An additional demand of 79 links was placed with the FAB.
PMCL placed a demand for 305 links in 10.5 GHz and 998
links in 23 GHz in March 2010. The evaluation process and
allocation of spectrum for MW links is likely to take about
12 weeks. The other issue was allocation of MW spots for
our LDI WiMAX component. We are supposed to have 6 spots in
22 GHz bands, which were originally allocated to DV Com and
the license subsequently bought by us. Initially, the FAB agreed
to transfer these spots to LDI along with the license, but with
the departure of the then ED of the FAB, this allocation was
cancelled. We contested this action with the PTA and FAB.
Finally as advised by the PTA, Link Direct again applied for the
required spots. The PTA directed the FAB to allocate the
required spectrum. The frequencies of our additional demand of
79 links have been obtained. The FAB has also allocated four
channels of 28 MHz each in 22 GHz range for four
telecommunication regions i.e. Karachi, Lahore,
Islamabad/Rawalpindi and Faisalabad. This allocation is
considered sufficient for the backhauling of WiMAX data at these
locations and the problems stand resolved.
Consumer Protection Regulations — 2009 have been
issued recently by the PTA, effective from July 6, 2009.
They have formulated these regulations on Service Provision,
Interruption & Disconnection and Commercial Practices
with utmost emphasis on devising a mechanism on redress of
consumer grievances. As per regulations, the CMTOs are required
to publish their Code of Commercial Practice and Standard
Contract of Services for the consumers’ information. The
CMTOs are also required to publish their Consumer Protection
Manuals which are to be included with every new sale. We have
taken up the case at the industry forum with the PTA on certain
points having financial implications including the media
campaign. The PTA agreed to all points suggested by the
operators.
On December 17, 2009, the PTA issued Show Cause Notice
(SCN) to all cellular mobile operators on Quality of Service
(QoS) below required standards. Since then cellular mobile
operators have been taking the necessary measures in response to
the PTA.
As far as Interconnection is concerned Mobile termination rates
(fixed and mobile) were fixed through the PTA’s
determination in May 2008 which was gradually reduced till it
reached its final implementation stage in January 2010.
Report on operations
at December 31, 2009
F-146
Egypt
Law 10, issued in February 2003 (the “Egyptian
Telecommunications Law”), regulates the telecommunications
sector in Egypt. Among other things, such legislation stipulates
that a license is needed in order to provide telecommunications
services or operate a telecommunications network and sets out
the terms that each license must contain. It also establishes
general rules relating to the management, licensing and use of
the frequency spectrum.
As part of the liberalization and reform of the Egyptian
telecommunications industry, the Ministry of Communications and
Information Technology (the “MCIT”) was established in
October 1999 to replace the Ministry of Transport and
Telecommunications. As the regulator for the telecommunications
industry, the MCIT is charged with further developing and
improving telecommunications infrastructure and promoting the
development of an information society in Egypt. In 2003, a newly
reorganized National Telecommunications Regulatory Authority
(the “NTRA”) was established under the Egyptian
Telecommunications Law. The NTRA has ample authority to regulate
the Egyptian telecommunications industry and is mandated to
improve and expand the sector’s services to high levels of
technical and technological specifications in order to meet
consumer needs at suitable price levels and encourage national
and international investment in the sector within the framework
of free competition.
Under the Egyptian Telecommunications Law, all
telecommunications tariffs must be approved by the NTRA. The
NTRA validates the tariffs for various telecommunications
services offered by the licensees. The NTRA may elect to
subsidize tariffs through a telecommunications service fund.
Although the relevant decree has not yet been implemented, it is
expected that both Mobinil and Vodafone Egypt will be classified
by the Egyptian competition authority as entities exercising SMP.
Licensees are required to provide interconnection between their
networks by disclosing to each other the technical
specifications of the services provided and either entering into
an interconnection agreement ratified by the NTRA or using an
existing interconnection agreement. In the case of a dispute,
the NTRA is authorized to set the interconnection terms and to
arbitrate between services providers. Xxxxxxx has entered into
an interconnection agreement with Telecom Egypt (for its fixed
lines), as well Vodafone Egypt, and Etisalat Egypt as mobile
carriers. There are currently no disputes in relation to these
interconnection agreements.
After lengthy discussions and negotiations Mobile Number
Portability was launched in April 2008.
The supply of domestic roaming services to competing mobile
operators is not required under the Egyptian Telecommunications
Law, though a domestic roaming agreement exists between the
three operating mobile companies Mobinil, Vodafone Egypt and
Etisalat Egypt. There are presently no MVNOs in Egypt and no
regulations to enable such operators.
There are currently three 3G licenses in Egypt, the most recent
acquired by Xxxxxxx on October 17, 2007. The other two 3G
licenses are held by Etisalat Egypt and Vodafone Egypt. In
addition to these 3G licenses, there are two international
gateway licenses, the first of which is held by Telecom Egypt
for the market as a whole, while the second is held by Etisalat
Egypt and is exclusive to Etisalat customers. Mobinil and
Vodafone Egypt are considering obtaining the same licenses.
In March 2008, the NTRA issued a Request For Proposal for the
award of a license to install and operate a second fixed
telecommunication network to provide fixed telecommunication
services. The NTRA postponed the submission of bid responses to
July 29, 2008. Further delay is due to the fact that the
three mobile operators and Telecom Egypt are currently
negotiating new Interconnection Agreement terms between Mobile
and fixed operators. The negotiation is currently running under
the supervision of the NTRA after Telecom Egypt’s complaint
to the NTRA that they were not able to reach an agreement with
the mobile operators.
Ten years after the launch of commercial activities, Mobinil by
the end of 2009 reached its 25 million customers.
Egypt is to invite bids for two new fixed-line licenses. The
licensees will be entitled to offer cable TV, telephony and
Internet access services. Bids are due by January with
operations to start in 2H10. Communications Minister Xxxxx Xxxxx
said that the new licensees might in the future be allowed to
offer quadruple-play services,
Report on operations
at December 31, 2009
F-147
which would also include mobile. Kamel expects the licenses to
bring USD1 billion of new investment to Egypt over five
years. The licensees will pay 8% of their revenue to the
government.
In October 2009, the NTRA announced plans to issue two new
triple-play licenses. The government does not plan to charge an
upfront payment for the two licences. The NTRA announced during
December 09 that bids for the licences will be due by
March 15, 2010, while it also revealed that 18 interested
parties had purchased bid documents
Within the framework of free competition, the NTRA Board of
Directors agreed to offer the promotional offers and pricing for
free the three mobile Operators starting from January 1,
2010.
In Tunisia there is one fixed voice license held by Tunisie
Telecom, two fixed data licenses held by Tunisie
Telecom and Xxxxxx Telecom
(TT is the only operating company),
two GSM licences held by Tunisie
Telecom and Tunisiana, and two fixed WiMAX licenses (Standard
802.16d, fixed WIMAX version) over the 3.5GhZ spectrum held by
Tunisie Telecom and Xxxxxx Telecom. There was no tender for
these licenses, which were granted to companies who already had
fixed data licenses.
The procedure for issuing a 3rd license was launched in
December 2008. Key issues:
|
|
|
|
•
|
the License is “Technologically Neutral”, i.e.
deployment of different fixed and mobile network technologies is
possible (VoIP, WiMax, 3G, HSDPA, LTE, etc.);
|
|
|
•
|
duration of 15 years, which can be extended for subsequent
durations of 10 years upon the operator’s request;
|
|
|
•
|
operation shall start on January 1, 2010;
|
|
|
•
|
no other fixed license will be issued before January 2013;
|
|
|
•
|
3G licenses for existing operators will be issued approximately
a year after the start of the 3G operation of the third entrant.
|
During June 2009, the France Telecom-Orange and Xxxxxx
consortium was declared a winner of the
15-year
fixed and mobile phone license in Tunisia after submitting
€137.65 million. France Telecom-Orange will own 49% of
the joint venture, the remaining 51% to be held by Xxxxxx.
Consequently, the Regulator (NTT) is currently initiating
national roaming, site sharing and collocation obligations.
Orange Tunisie (third operator) is expected to start its
commercial launch in May 2010.
As far as interconnection is concerned, XXX and Tunisie Telecom
have been engaged in the interconnection negotiation for the
year 2009. The interconnection catalogue 2009 was closed by the
end of February 2009.
The INT issued a tender to designate auditors for analytical
accounting for both Tunisiana and Tunisie Telecom; the period of
the audit is expected to take around 2 years.
The INT issued decision N°41 on October 2, 2009
declaring that National Roaming is subject to commercial
negotiations.
Report on operations
at December 31, 2009
F-148
Bangladesh
The main elements of the regulatory framework for the
telecommunications sector in Bangladesh are embodied in the
Bangladesh Telecommunication Act 2001. This Act establishes
rules relating to the supply of telecommunications services.
The Bangladesh telecommunications market is primarily regulated
by the Bangladesh Telecommunications Regulatory Commission
(“BTRC”), which was established in 2001 as a statutory
body to be independent from the Ministry of Post and
Telecommunications. The BTRC regulates the provision of
telecommunications services and is responsible for granting and
renewing licenses. The BTRC consists of five commissioners
appointed by the government of Bangladesh. The principal
functions and duties of the BTRC include issuing licenses for
telecommunications systems and services, regulating
telecommunication activities and supervising telecommunication
licensees.
The Bangladesh Telecommunications Regulatory Commission handed
over licenses for three international gateways, two
interconnection exchanges and the only international internet
gateway to the representatives of the six companies.
As far as ICX interconnection is concerned, XXXX has signed a
bilateral interconnection agreement with M & H and
GETC in November 2009.
In a recent development, the Telecom Act Amendment 2008 has
provisionally been accepted by the parliament and shall be
placed as a bill in the current parliament.
BTRC had requested all operators to prepare for the
establishment of a CDR analyzer. A meeting was held at BTRC with
the AMTOB members on July 7, 2009 where mobile operators
categorically said that they are not in a position to finance
the project of placing a CDR analyzer. However, if BTRC is
willing to deploy the CDR analyzer or even the O & M
terminal, mobile operators will extend necessary connectivity to
the CDR analyzer/O & M Terminal. BTRC has requested
the AMTOB to record the details of the connectivity submitted by
August 8, 2009.
Bangladesh Police called for a meeting with all operators on
November 16, 2009 stating that they are in process of
setting up a mobile traffic monitoring center at the Police HQ.
BTRC examined the IP Telephony License and many of the ISPs
submitted their application on May 31, 2009. BTRC has
handed over 13 IP Telephony Licenses. It was also mentioned that
connectivity must be established through ICX.
A meeting was held at the Ministry of Internal Affairs in the
presence of the Minister, Heads of all law enforcing agencies
and the CEOs of the operators with a view to curb extortion
through mobile phones. BTRC had appointed a Consultancy Group
for preparing guidelines of “Technical Standardization, QoS
and Performance Monitoring” with consultative process. The
QoS benchmarks have been posted on the BTRC website for public
consultation before finalization of the same. Some level of
development is expected in the early part of 2010.
On September 27, 2009, BTRC arranged for a Workshop and
discussion for Unified licensing guidelines, whereby concerned
officials were present. Accordingly by virtue of the AMTOB
platform, further recommendation and comments would be provided
to BTRC. A second seminar was held by the consultants in
December, 2009 and BTRC is awaiting input from all operators on
the same for the finalization. Multilateral meetings are on the
way under the AMTOB platform.
Grameenphone has announced that its shares will be listed on the
Dhaka and Chittagong stock exchanges in the first week of
October. The company has been seeking a stock market listing for
over a year, and now aims to raise around USD68 million
from the floatation. Following the floatation, Telenor will hold
55.8% of the company, while Grameen Telecom will own 34.2%.
GP’s IPO debuted the bourse with 5 times over subscription
and made a huge wave in the capital market, slowly becoming the
market mover. Bharti Airtel has declared to invest
USD300 million in Abou Dhabi Group owned by Warid Telecom
in Bangladesh.
BTRC awarded three WiMAX licenses by the end of September in a
bid to reduce the digital divide and to revive the
country’s internet broadband market. Augere launched the
first WiMax for Dhaka in October, immediately followed by
Banglalion in December.
Report on operations
at December 31, 2009
F-149
MAIN
PENDING LEGAL PROCEEDINGS AT DECEMBER 31, 2009
For information about main pending legal proceedings at
December 31, 2009, please refer to paragraph 40 of the
Notes to the Consolidated financial statements.
CONSOLIDATED
FINANCIAL AND PERFORMANCE DATA
Earnings
performance of the Weather Group in 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
12 Months
|
|
|
12 Months
|
|
|
Amount
|
|
|
%
|
|
|
|
(Millions of euro)
|
|
|
Revenue
|
|
|
10,143
|
|
|
|
10,176
|
|
|
|
(33
|
)
|
|
|
(0.3
|
)%
|
Other revenue
|
|
|
193
|
|
|
|
236
|
|
|
|
(43
|
)
|
|
|
(18.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
10,336
|
|
|
|
10,412
|
|
|
|
(76
|
)
|
|
|
(0.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and services
|
|
|
(5,366
|
)
|
|
|
(5,378
|
)
|
|
|
12
|
|
|
|
(0.2
|
)%
|
Other operating costs
|
|
|
(392
|
)
|
|
|
(340
|
)
|
|
|
(52
|
)
|
|
|
15.3
|
%
|
Personnel expenses
|
|
|
(706
|
)
|
|
|
(666
|
)
|
|
|
(40
|
)
|
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
3,872
|
|
|
|
4,028
|
|
|
|
(156
|
)
|
|
|
(3.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(1,872
|
)
|
|
|
(1,910
|
)
|
|
|
38
|
|
|
|
(2.0
|
)%
|
Reversal of impairment losses/(impairment losses) on non-current
assets
|
|
|
(1,583
|
)
|
|
|
(33
|
)
|
|
|
(1,550
|
)
|
|
|
n.m.
|
|
Gains (losses) on disposal of non-current assets
|
|
|
(3
|
)
|
|
|
56
|
|
|
|
(59
|
)
|
|
|
(105.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating result
|
|
|
414
|
|
|
|
2,141
|
|
|
|
(1,727
|
)
|
|
|
(80.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance income
|
|
|
1,492
|
|
|
|
243
|
|
|
|
1,249
|
|
|
|
n.m.
|
|
Finance expense
|
|
|
(1,906
|
)
|
|
|
(1,737
|
)
|
|
|
(169
|
)
|
|
|
9.7
|
%
|
Share of profit (losses) of equity accounted investees
|
|
|
(34
|
)
|
|
|
(2
|
)
|
|
|
(32
|
)
|
|
|
n.m.
|
|
Foreign exchange gains (losses), net
|
|
|
18
|
|
|
|
(247
|
)
|
|
|
265
|
|
|
|
(107.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) before tax
|
|
|
(16
|
)
|
|
|
398
|
|
|
|
(414
|
)
|
|
|
(104.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
|
(495
|
)
|
|
|
(251
|
)
|
|
|
(244
|
)
|
|
|
97.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) from continuing operations
|
|
|
(511
|
)
|
|
|
147
|
|
|
|
(658
|
)
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (Loss) from discontinued operations
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) for the year
|
|
|
(511
|
)
|
|
|
147
|
|
|
|
(658
|
)
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
155
|
|
|
|
191
|
|
|
|
(36
|
)
|
|
|
(18.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) for the year attributable to owners of the
parent
|
|
|
(666
|
)
|
|
|
(44
|
)
|
|
|
(622
|
)
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (in euro)
|
|
|
(0.97
|
)
|
|
|
(0.08
|
)
|
|
|
(0.89
|
)
|
|
|
n.m.
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
(0.97
|
)
|
|
|
(0.08
|
)
|
|
|
(0.89
|
)
|
|
|
n.m.
|
|
Discontinued operations
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Report on operations
at December 31, 2009
F-150
Revenue
Revenue
decreased
by €33 million compared with 2008.
The following table provides details of this item and changes
with respect to 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
12 Months
|
|
|
12 Months
|
|
|
Amount
|
|
|
%
|
|
|
|
(Millions of euro)
|
|
|
Revenue from sale
|
|
|
358
|
|
|
|
337
|
|
|
|
21
|
|
|
|
6.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— Telephone services
|
|
|
7,579
|
|
|
|
7,371
|
|
|
|
208
|
|
|
|
2.8
|
%
|
— Interconnection traffic
|
|
|
1,825
|
|
|
|
2,089
|
|
|
|
(264
|
)
|
|
|
(12.6
|
)%
|
— International roaming
|
|
|
181
|
|
|
|
215
|
|
|
|
(34
|
)
|
|
|
(15.8
|
)%
|
— Judicial authorities services
|
|
|
9
|
|
|
|
9
|
|
|
|
0
|
|
|
|
0.0
|
%
|
— Other revenue from services
|
|
|
190
|
|
|
|
131
|
|
|
|
59
|
|
|
|
45.0
|
%
|
— Construction contract
|
|
|
1
|
|
|
|
24
|
|
|
|
(23
|
)
|
|
|
(95.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue from services
|
|
|
9,785
|
|
|
|
9,839
|
|
|
|
(54
|
)
|
|
|
(0.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,143
|
|
|
|
10,176
|
|
|
|
(33
|
)
|
|
|
(0.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease of €33 million is mainly driven by the
negative growth in Wind Hellas (-15.7%), the stable performance
in Euro of OTH Group (+0.24%), offset by a positive performance
of Wind Group (+4.7% with an increase in the mobile and fixed
segments).
In particular, the increase in revenue from telephone services
achieved by the Wind Group (€224 million) is
essentially attributable to a growth in both the mobile and
fixed-line segments. Mobile revenue rose for both voice and data
services as a consequence of a growth in the customer base,
driven by the consumer segment. The rise in fixed-line revenue
is mainly the result of growth in the customer base which, also
due to tariff policies, resulted in an increase in revenue from
fixed charges and contributions for both voice and internet data
services. Starting from January 1, 2009, revenue does not
include traffic towards content providers holding non-geographic
numbers, since, starting from that date, the Group only provides
the handling and transport services for these calls.
In the OTH Group, the rise of €78 million in telephone
service revenue, compared to the previous year, is attributable
mainly to positive performance of the subsidiaries Mobinil,
Banglalink, Telecel Globe and CHEO Technology JV Company
(operating as Koryolink). This increase has been offset by the
exclusion from the consolidation scope of the two subsidiaries
Oraslnvest and M-Link (the latter has been included in the Wind
Group consolidation scope), the devaluation of the currency in
Algeria, Pakistan and Tunisia, leading to a stable revenue trend
in euro.
The considerable decline in Wind Hellas telephone service
revenue (-€92 million over 2008) is mainly due to
mobile contract and prepaid outgoing revenue decline.
The decrease in revenue from interconnection traffic
(-€264 million over 2008), is mainly due to:
|
|
|
|
•
|
lower termination revenue from the mobile and fixed network
caused by the reduction in unit charges, which was only
partially offset by an increase in incoming fixed, mobile and
wholesale traffic;
|
|
|
•
|
the decrease in interconnection revenue from narrowband internet
traffic following a general shift in the direction of broadband
technology;
|
|
|
•
|
a reduction in tariffs for national interconnection revenue
arising from voice, SMS and MMS value added services only
partially offset by the increase in the volumes of SMS value
added services.
|
The decrease in revenue from international roaming is due to the
general reduction in roaming tariffs on international markets
and a reduction of the voice component of roaming volumes,
decreases which were not sufficiently offset by the increase in
the volumes of the data component.
Report on operations
at December 31, 2009
F-151
Operating
costs
2009 operating costs amounted to €6,464 million
(€6,384 million in 2008).
Purchases
and services
The following table provides details of this item and changes
with respect to 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
12 Months
|
|
|
12 Months
|
|
|
Amount
|
|
|
%
|
|
|
|
(Millions of euro)
|
|
|
Interconnection traffic
|
|
|
2,073
|
|
|
|
2,266
|
|
|
|
(193
|
)
|
|
|
(8.5
|
)%
|
Purchases of raw materials,consumables, supplies and goods
|
|
|
516
|
|
|
|
515
|
|
|
|
1
|
|
|
|
0.2
|
%
|
Customer acquisition costs
|
|
|
398
|
|
|
|
393
|
|
|
|
5
|
|
|
|
1.3
|
%
|
Lease of local access network
|
|
|
365
|
|
|
|
292
|
|
|
|
73
|
|
|
|
25.0
|
%
|
Lease of civil and technical sites
|
|
|
334
|
|
|
|
304
|
|
|
|
30
|
|
|
|
9.9
|
%
|
Maintenance and repair
|
|
|
324
|
|
|
|
273
|
|
|
|
51
|
|
|
|
18.7
|
%
|
Advertising and promotional services
|
|
|
318
|
|
|
|
340
|
|
|
|
(22
|
)
|
|
|
(6.5
|
)%
|
Utilities
|
|
|
179
|
|
|
|
174
|
|
|
|
5
|
|
|
|
2.9
|
%
|
Consultancies and professional services
|
|
|
166
|
|
|
|
111
|
|
|
|
55
|
|
|
|
49.5
|
%
|
Outsourced services
|
|
|
143
|
|
|
|
150
|
|
|
|
(7
|
)
|
|
|
(4.7
|
)%
|
Lease of telecommunication circuits
|
|
|
135
|
|
|
|
121
|
|
|
|
14
|
|
|
|
11.6
|
%
|
Other leases and use of third party assets
|
|
|
81
|
|
|
|
78
|
|
|
|
3
|
|
|
|
3.8
|
%
|
National and international roaming
|
|
|
46
|
|
|
|
50
|
|
|
|
(4
|
)
|
|
|
(8.0
|
)%
|
Bank and postal charges
|
|
|
30
|
|
|
|
33
|
|
|
|
(3
|
)
|
|
|
(9.1
|
)%
|
Transport and storage costs
|
|
|
17
|
|
|
|
18
|
|
|
|
(1
|
)
|
|
|
(5.6
|
)%
|
Variation in inventories
|
|
|
(11
|
)
|
|
|
9
|
|
|
|
(20
|
)
|
|
|
n.m.
|
|
Other services
|
|
|
252
|
|
|
|
251
|
|
|
|
1
|
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,366
|
|
|
|
5,378
|
|
|
|
(12
|
)
|
|
|
(0.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in Purchases and services is mainly
attributable to increased charges for leases, mainly relating to
the lease of the local network which rose as a consequence of
the increase in the number of LLU customers, and of civil and
technical sites which increased as a consequence of the increase
in the equipment and the number of technical sites required for
the improvement of the mobile network.
Increase in “Consultancies and professional services”,
mainly due to the one-off expenses related to the restructuring
of Greek Group, and increase in “Maintenance and
repair” costs due to the higher volume of mobile equipment
installed by Group companies.
These changes are partly offset by a decrease in
“Interconnection traffic” costs, as a result of the
decrease in fixed and mobile termination tariffs, despite the
increase in national and international fixed and mobile retail
traffic volumes, and a decrease in “Advertising and
promotional services” costs as the result of a decrease in
advertising and marketing activities, mainly relating to OTH and
Wind Hellas.
Other
operating costs
The increase in Other operating costs, amounted to
€52 million, is due principally to the increase in the
write-down of trade receivables and current assets as the result
of collection performance. This increase was partially offset by
the significant reduction in the gifts given by the OTH Group.
The balance includes unusual items, amounting to
€9 million, related to the damage incurred by the
Algerian mobile operator. Following the football match
Egypt/Algeria, disputed in Cairo during the month of November
2009, riots impacted OTA and Ring premises (offices, shops,
warehouses) causing damage as well as thefts of
Report on operations
at December 31, 2009
F-152
handset and SIM and scratch card stocks. The amount of damage is
approximately equal to €13 million partially offset by
an insurance policy for an amount equal to €4 million.
Personnel
expenses
Personnel expenses amounted to €706 million in 2009,
an increase of €40 million compared to 2008. The main
reason for this increasing trend is the higher number of
employees (+791 units) mainly coming from OTH and WIND,
partially offset by a decrease in Wind Hellas.
Weather Group’s operating income before depreciation and
amortization, impairment losses and reversal of impairment
losses on non-current assets, gains and losses on disposal of
non-current assets (EBITDA) came to €3,872 million in
2009, representing a decrease of €156 million, or
3.8%, over 2008 due to the combined effect of the decrease in
revenue and the net increase in operating costs
(€80 million).
Operating income for 2009 came to €414 million, a
decrease of €1,727 million over 2008 mainly due to the
impairment losses equal to €1,521 million, recognised
following the impairment test performed on goodwill relating to
the acquisition of the Hellas Group and €38 million
relating to licenses, trademarks and the customer list of the
Wind Hellas Group, as further detailed in note 1.1 on the
Notes.
The decrease in “Depreciation and amortization”
(-€38 million), mainly due to the completion of
amortization and depreciation of Wind Group assets acquired in
previous years together with the lengthening of the amortization
period of the UMTS license as a result of the decision taken by
the Ministry for Economic Development to grant an eight year
extension to the license term (to December 31, 2029). This
extension led to a decrease of €49 million in the
amortization and depreciation charge for the year. This will
also lead to an annual positive effect of €49 million
on the results and equity until 2021, at gross of tax effect,
subsequently counter-balanced by an annual negative effect of
€80 million until 2029, relating to the amortization
and depreciation of the year
Moreover, the decrease is attributable to the Customer List of
Wind Group as a result of the restatement by the management of
the criteria used to estimate its useful economic life involving
the extension of the amortization period from 2015 to 2020
(lower amortization for €43 million). This will also
lead to an annual positive effect of €43 million on
the results and equity until 2015, at gross of tax effect,
subsequently counter-balanced by an annual negative effect of
€53 million until 2020.
These decreases were partly offset by the significant
investments made by companies of the OTH Group for the expansion
and the modernization of their telecommunications networks.
The Operating income also includes the effect related to
the recent vandalism that took place after the football match
Egypt/Algeria, which hit OTA’s headquarters, several of its
retail outlets, some of its technical sites, as well as
Ring’s shop furniture and equipments, caused significant
damage to the companies’ operations. The amount of damage
on OTA and Ring fixed assets is approximately equal to
€17 million. An amount approximately equal to
€6 million will be covered by the insurance company.
Net
finance expense
In 2009, Net finance expense came to
€414 million (€1,494 million in 2008).
The net increase in Finance income of
€1,.249 million was mainly due to:
|
|
|
|
•
|
gain of €1,224 million from the deconsolidation of
Hellas II SCA;
|
|
|
•
|
income of €81 million resulting from the repurchase,
through Turtle Finance SP 1 SA and Turtle Finance SP 2 SA (now
Weather Finance I Sarl and Weather Finance II Sarl,
respectively), and subsequent extinguishment by confusion, of
the share of the Pik loan held by the subsidiary Wind
Acquisition Holdings Finance SA having a nominal amount of
€255 million;
|
Report on operations
at December 31, 2009
F-153
|
|
|
|
•
|
income of about €16 million (including the negative
effect of about €7 million arising from the closing of
the related derivative hedging agreements) related to the
repurchase, by PMCL, of notes at a price of USD730 (€507)
for each USD1,000 of nominal amount (€694), thereby
reducing its debt by USD138 million (€96 million)
by making a payment of USD101 million
(€70 million);
|
|
|
•
|
income of €14 million resulting from the repurchase
for €1 million and subsequent extinguishment by
confusion of the share of the Unsecured PIK Notes held by the
subsidiary Hellas Telecommunications Finance SCA having a
nominal amount of €15 million;
|
|
|
•
|
income of €10 million relating to interest accrued on
the amounts unduly paid by the subsidiary Wind Telecomunicazioni
SpA and by Infostrada SpA as a Turnover Contribution (Law
no. 448/1998), for which a refund has been requested
through two notices to pay served on March 31, 2009.
|
These positive effects are partially offset by the decrease in
the fair value gain on non hedging derivatives of about
€70 million and lower interest on bank accounts of
€19 million.
The net increase in Finance expense of
€169 million was mainly due to:
|
|
|
|
•
|
the increase of €300 million in interest expense on
bonds, mainly due to the effect of the placing by the Luxembourg
subsidiary Wind Acquisition Finance SA on July 13, 2009 of
the new bond maturing in 2017 which consists of two separate
tranches of €1,250 million and USD2,000 million
and bears a coupon of 11.75% and the effect of the finance
expense related to the Guaranteed Secured Exchangeable Bond,
repaid in advance by the subsidiary Weather Capital Finance in
September 2009. The increase is additionally due to the interest
payable on the index-linked bond issued by the subsidiary OTH in
February 2009;
|
|
|
•
|
the negative effects from derivative contracts of
€123 million relates mainly to the expense resulting
from the measurement at fair value of them including the full
impairment of Klarolux derivatives (€28 million);
|
|
|
•
|
the interest increase of €77 million on financial
payables relates to the long-term amount due to shareholders
represented by class B — C — D and E
shares (with the exception of the majority shareholder Weather
Investments II Sàrl which has specifically waived all
the rights attributed to its class C shares);
|
|
|
•
|
other finance expense, increased by €123 million,
mainly due to: €44 million of interest on the
derivative contracts of Hellas Group; €36 million of
consent fees to notes holders paid by WF Group;
€19 million of losses deriving from the sale of OTH
shares, and €10 million of fees for the early
repayment of financial liabilities.
|
These negative effects are partially offset by a decrease in
interest on bank loans (approximately €460 million)
mainly due to:
|
|
|
|
•
|
the lower interest arising from the Senior Credit Agreement,
relating to the subsidiary Wind Telecomunicazioni SpA following
a repayment of €412 million made at the end of 2008,
the contractually provided reduction of the spread applicable to
tranches A and B of the same financing and the decrease in the
average Euribor rate applicable to the unhedged portion of debt;
|
|
|
•
|
the total repayment of the Pik Loan by Wind Acquisition Holdings
Finance SA, in July 2009 (€385 million) and the
partial repayment of the Collateralized Notes of Weather Capital
Special Purpose I SA occurred in 2008 (€80 million).
|
The share of profit (loss) of equity accounted investees
amounted to €34 million in 2009
(€2 million in 2008), representing the share of the
loss attributable to the group arising from the investment of
OTH in the Canadian company Globalive.
The change of the year in current taxes, increased by
€186 million, is mainly due to an increase in Wind
Group’s taxable income of the year and the utilization of
deferred tax assets in 2008 (which were unrecognized or
Report on operations
at December 31, 2009
F-154
written down in prior years), the negative effect on OTH Group
of the introduction in of a minimum tax of 0.5% of revenue
together with a tax provision in Algeria of USD50 million
(equal to €35 million) connected with the tax
notification from the Algerian Direction des Grandes Entreprises
in respect of the years
2005-2007.
Loss
for the year attributable to owners of the Parent
2009 closed with a loss of €666 million, compared
to a loss of €44 million in 2008. This negative
change, notwithstanding the positive trend in operating income,
is mainly due to the impairment losses equal to
€1,521 million, recognised following the impairment
test performed on goodwill relating to the acquisition of the
Hellas Group and €38 million relating to licenses,
trademarks and the customer list of Wind Hellas Group, partially
offset by the gain of €1,224 million arising from the
deconsolidation of Hellas II, that entered a pre-pack
administration procedure on November 2009, higher finance
expense for €169 million and higher income tax for
€244 million. For further details please refer to
paragraphs 32 and 35 of the notes to the Consolidated
Financial Statements.
Statement
of consolidated financial position at December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
At December 31,
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
|
(Millions of euro)
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
7,577
|
|
|
|
7,720
|
|
|
|
(143
|
)
|
|
|
(1.9
|
)%
|
Intangible assets
|
|
|
10,488
|
|
|
|
12,269
|
|
|
|
(1,781
|
)
|
|
|
(14.5
|
)%
|
Financial assets
|
|
|
866
|
|
|
|
517
|
|
|
|
349
|
|
|
|
67.5
|
%
|
Deferred tax assets
|
|
|
466
|
|
|
|
588
|
|
|
|
(122
|
)
|
|
|
(20.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
19,397
|
|
|
|
21,094
|
|
|
|
(1,697
|
)
|
|
|
(8.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
77
|
|
|
|
101
|
|
|
|
(24
|
)
|
|
|
(23.8
|
)%
|
Trade receivables
|
|
|
1,796
|
|
|
|
1,738
|
|
|
|
58
|
|
|
|
3.3
|
%
|
Financial assets
|
|
|
111
|
|
|
|
124
|
|
|
|
(13
|
)
|
|
|
(10.5
|
)%
|
Current tax assets
|
|
|
104
|
|
|
|
98
|
|
|
|
6
|
|
|
|
6.1
|
%
|
Other receivables
|
|
|
519
|
|
|
|
580
|
|
|
|
(61
|
)
|
|
|
(10.5
|
)%
|
Cash and cash equivalents
|
|
|
1,733
|
|
|
|
1,196
|
|
|
|
537
|
|
|
|
44.9
|
%
|
Non current assets held for sale
|
|
|
78
|
|
|
|
1
|
|
|
|
77
|
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
4,418
|
|
|
|
3,838
|
|
|
|
580
|
|
|
|
15.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
23,815
|
|
|
|
24,932
|
|
|
|
(1,117
|
)
|
|
|
(4.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity and Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued capital
|
|
|
565
|
|
|
|
503
|
|
|
|
62
|
|
|
|
12.3
|
%
|
Share premium
|
|
|
3,295
|
|
|
|
3,196
|
|
|
|
99
|
|
|
|
3.1
|
%
|
Legal reserve
|
|
|
118
|
|
|
|
117
|
|
|
|
1
|
|
|
|
0.9
|
%
|
Reserves and Retained earnings or losses carried forward
|
|
|
(4,461
|
)
|
|
|
(3,519
|
)
|
|
|
(942
|
)
|
|
|
26.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity attributable to owners of the parent
|
|
|
(483
|
)
|
|
|
297
|
|
|
|
(780
|
)
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
290
|
|
|
|
219
|
|
|
|
71
|
|
|
|
32.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
|
(193
|
)
|
|
|
516
|
|
|
|
(709
|
)
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Report on operations
at December 31, 2009
F-155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
At December 31,
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
|
(Millions of euro)
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
16,825
|
|
|
|
17,697
|
|
|
|
(872
|
)
|
|
|
(4.9
|
)%
|
Employee benefits
|
|
|
68
|
|
|
|
69
|
|
|
|
(1
|
)
|
|
|
(1.4
|
)%
|
Provisions
|
|
|
215
|
|
|
|
189
|
|
|
|
26
|
|
|
|
13.8
|
%
|
Other non-current liabilities
|
|
|
78
|
|
|
|
161
|
|
|
|
(83
|
)
|
|
|
(51.6
|
)%
|
Deferred tax liabilities
|
|
|
1,112
|
|
|
|
1,217
|
|
|
|
(105
|
)
|
|
|
(8.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
18,298
|
|
|
|
19,333
|
|
|
|
(1,035
|
)
|
|
|
(5.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
1,343
|
|
|
|
747
|
|
|
|
596
|
|
|
|
79.8
|
%
|
Trade payables
|
|
|
2,926
|
|
|
|
2,935
|
|
|
|
(9
|
)
|
|
|
(0.3
|
)%
|
Other payables
|
|
|
1,255
|
|
|
|
1,109
|
|
|
|
146
|
|
|
|
13.2
|
%
|
Tax payables
|
|
|
148
|
|
|
|
292
|
|
|
|
(144
|
)
|
|
|
(49.3
|
)%
|
Liabilities directly associated with non-current assets
classified as held for sale
|
|
|
38
|
|
|
|
0
|
|
|
|
38
|
|
|
|
n.m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
5,710
|
|
|
|
5,083
|
|
|
|
627
|
|
|
|
12.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
24,008
|
|
|
|
24,416
|
|
|
|
(408
|
)
|
|
|
(1.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity and Liabilities
|
|
|
23,815
|
|
|
|
24,932
|
|
|
|
(1,117
|
)
|
|
|
(4.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
assets
Non-current assets amounted to €19,397 million, a
decrease of €1,697 million over December 31, 2008.
Property, plant and equipment amounted to
€7,577 million, down €143 million compared
with December 31, 2008, mainly as the result of
depreciation (€1,367 million), negative changes in the
foreign exchange rate between the euro and the currencies of
emerging countries (€212 million) and the effect of
reclassifying certain assets as held for sale
(€33 million). This decrease was partially offset by
new investments for the year (€1,518 million) and the
inclusion in the consolidation scope of the new mobile operator
in Namibia (€23 million).
Intangible assets amounted to €10,488 million,
a decrease of €1,781 million over December 31,
2008, mainly due to the impairment loss of
€1,571 million, of which €1,521 million
refers to the goodwill acquired on the purchase of the Hellas
Group and €38 million relating to licenses, trademarks
and customer list of the Wind Hellas Group, amortization for the
year of €505 million, the negative effect of exchange
differences amounting to €52 million, the effect of
reclassifying certain assets as held for sale amounting to
€21 million and the disposal of the year equal to
€5 million. These decreases were partially offset
mainly by the acquisitions of the year amounting to
€286 million, change in scope of consolidation of
€76 million, in particular in connection with the
goodwill recognized on the inclusion of the new mobile operator
in Namibia within the OTH Group (€31 million) and the
inclusion of Phone Sri in the Wind Group (€29 million)
and other movements and
write-up of
€11 million.
Non current financial assets amounted to
€866 million, an increase of €349 million
over December 31, 2008 mainly due to an increase of
€159 million in the shareholders’ loan granted by
OTH to Globalive now amounting to €448 million, an
increase of €7 million in the shareholders’ loan
granted by OTH to North Korean subsidiary CHEO now
amounting to €17 million, an increase of
€145 million in fair value of derivative financial
instruments and the deferment of hedging costs, equal to
€46 million, incurred by WAHF following the issuance
of the new bond maturing in 2017.
Current
assets
Current assets amounted to €4,418 million at
December 31, 2009, an increase of €580 million
over December 31, 2008.
Report on operations
at December 31, 2009
F-156
The change is mainly due to the increase in Cash and cash
equivalents, equal to €537 million, following the
inclusion of €266 million (USD383 million)
representing the undistributed dividends at Orascom Telecom
Algeria and Mobinil (USD243 million) and the remaining
agreed amount not to be repatriated until the Algerian tax
authority “DGE” issue a clearance certificate in
relation to the tax position of OTA (USD140 million).
Other receivables decreased by a net amount of
€61 million during the year mainly due to the
collection of outstanding amounts equal to €52 million
related to the residual amount of the Iraqna receivable and
€45 million related to the residual amount of the
Orasinvest receivable. This decrease was partially offset by an
increase in receivables due from tax authorities, equal to
€108 million, mainly related to amounts paid by the
subsidiary to the Algerian tax authorities and regarding the OTA
dispute. For further details please refer to the
“Subsequent events” paragraph.
Equity at December 31, 2009 consisted of a deficit
of €193 million; of this balance,
€483 million is attributable to owners of the Parent
and €290 million (positive) to non-controlling
interests. The negative balance is mainly a reflection of the
loss for the year.
Net
financial indebtedness
Net financial indebtedness amounted to
€15,516 million, a decrease of
€1,122 million compared to December 31, 2008.
The following table shows the composition of net financial
indebtedness at December 31, 2009, and the changes with
respect to December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Change
|
|
Net Financial Indebtedness
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
|
%
|
|
|
|
(Millions of euros)
|
|
|
FINANCIAL LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds
|
|
|
7,014
|
|
|
|
5,610
|
|
|
|
1,404
|
|
|
|
25.0
|
%
|
Financing from shareholders
|
|
|
1,268
|
|
|
|
1,139
|
|
|
|
129
|
|
|
|
11.3
|
%
|
Financing from banks
|
|
|
8,065
|
|
|
|
10,695
|
|
|
|
(2,630
|
)
|
|
|
(24.6
|
)%
|
Financing from other lenders
|
|
|
15
|
|
|
|
20
|
|
|
|
(5
|
)
|
|
|
(25.0
|
)%
|
Derivative financial instruments
|
|
|
463
|
|
|
|
233
|
|
|
|
230
|
|
|
|
98.7
|
%
|
Current financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds
|
|
|
230
|
|
|
|
126
|
|
|
|
104
|
|
|
|
82.5
|
%
|
Financing from banks
|
|
|
912
|
|
|
|
495
|
|
|
|
417
|
|
|
|
84.2
|
%
|
Financing from other lenders
|
|
|
24
|
|
|
|
25
|
|
|
|
(1
|
)
|
|
|
(4.0
|
)%
|
Derivative financial instruments
|
|
|
176
|
|
|
|
100
|
|
|
|
76
|
|
|
|
76.0
|
%
|
TOTAL GROSS FINANCIAL INDEBTEDNESS(A)
|
|
|
18,167
|
|
|
|
18,443
|
|
|
|
(276
|
)
|
|
|
(1.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank deposits
|
|
|
28
|
|
|
|
31
|
|
|
|
(3
|
)
|
|
|
(9.7
|
)%
|
Financial receivables
|
|
|
505
|
|
|
|
299
|
|
|
|
206
|
|
|
|
68.9
|
%
|
Derivative financial instruments
|
|
|
305
|
|
|
|
160
|
|
|
|
145
|
|
|
|
90.6
|
%
|
Current financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank deposits
|
|
|
10
|
|
|
|
60
|
|
|
|
(50
|
)
|
|
|
(83.3
|
)%
|
Financial receivables
|
|
|
38
|
|
|
|
16
|
|
|
|
22
|
|
|
|
137.5
|
%
|
Derivative financial instruments
|
|
|
32
|
|
|
|
43
|
|
|
|
(11
|
)
|
|
|
(25.6
|
)%
|
Cash and cash equivalents
|
|
|
1,733
|
|
|
|
1,196
|
|
|
|
537
|
|
|
|
44.9
|
%
|
TOTAL FINANCIAL ASSETS(B)
|
|
|
2,651
|
|
|
|
1,805
|
|
|
|
846
|
|
|
|
46.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET FINANCIAL INDEBTEDNESS(A-B)
|
|
|
15,516
|
|
|
|
16,638
|
|
|
|
(1,122
|
)
|
|
|
(6.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Report on operations
at December 31, 2009
F-157
The increase in bonds is mainly due to a new index-linked bond
for USD230 million (approximately €171 million)
issued by OTH, a new High Yield bond issued by the subsidiary
Wind Acquisition Finance SA in two separate tranches of
€1,250 million and USD2,000 million
(approximately €1,431 million), a new High Yield bond
issued by the subsidiary Wind Acquisition Holdings Finance SA in
two separate tranches of €325 million and
USD625 million (approximately €434 million),
partially offset by the repayment of the Guaranteed Secured
Exchangeable bond issued by Weather Capital Finance SA having a
nominal amount of €825 million, the positive
conclusion during the second quarter of 2009, of the tender
offer launched by the subsidiary PMCL to repurchase a portion of
the Senior Notes reducing its debt of USD138 million
(approximately €96 million) and deconsolidation of the
€960 million and USD275 million of unsecured
subordinated notes, having a total carrying amount of
€1,141 million, following the admission of
Hellas II into a pre-pack administration procedure on
November 2009.
The decrease in financing from banks is mainly due to the
advanced repayment, in July 2009, of the outstanding PIK Loan
issued by Wind Acquisition Holdings Finance SpA in the amount of
€2,289 million which followed the repurchase, in March
2009, of part of it, through Turtle Finance SP 1 SA e Turtle
Finance SP 2 SA (now Weather Finance I Sarl and Weather
Finance II Sarl, respectively), for a nominal amount of
€255 million.
The fact that Hellas II has entered into a pre-pack
administration procedure has also triggered a default event for
the Unsecured PIK Notes, having a nominal amount equal to
€200 million, that are held by Hellas
Telecommunications Finance SCA. Considering the Greek
Group’s financial difficulties, it is taking the necessary
steps to place Hellas Telecommunications Finance SCA, the holder
of the Unsecured PIK Notes liability, and Hellas I, the
guarantor of the Unsecured PIK Notes, into bankruptcy in
Luxembourg. As a consequence of such default, the non-current
portion amounting to €250 million of the Unsecured PIK
Notes has been reclassified under current financial liabilities.
It should be noted that, according to the debt restructuring,
also a portion of the Revolving Credit Facility equal to
€35 million has been reclassified under current
financial liabilities.
Consolidated
cash flow statement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
12 Months
|
|
|
12 Months
|
|
|
Amount
|
|
|
%
|
|
|
|
(Millions of euro)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (Loss) from continuing operations
|
|
|
(511
|
)
|
|
|
147
|
|
|
|
(658
|
)
|
|
|
n.m.
|
|
Adjustments to reconcile the profit/(loss) for the year with
the cash flows from/(used in) operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and impairment losses (reversal of
impairment Losses) on non-current assets
|
|
|
3,455
|
|
|
|
1,943
|
|
|
|
1,512
|
|
|
|
77.8
|
%
|
Deconsolidation of Hellas Telecommunications II SCA
|
|
|
(1,224
|
)
|
|
|
0
|
|
|
|
(1,224
|
)
|
|
|
n.m.
|
|
(Gains) losses from repurchase of financial liabilities
|
|
|
(122
|
)
|
|
|
0
|
|
|
|
(122
|
)
|
|
|
n.m.
|
|
Exchange rate differences
|
|
|
202
|
|
|
|
461
|
|
|
|
(259
|
)
|
|
|
(56.2
|
)%
|
Net change in provisions and employee benefits
|
|
|
24
|
|
|
|
(23
|
)
|
|
|
47
|
|
|
|
n.m.
|
|
(Gains) Losses on disposal of non-current assets
|
|
|
3
|
|
|
|
(56
|
)
|
|
|
59
|
|
|
|
(105.4
|
)%
|
Changes in current assets
|
|
|
159
|
|
|
|
(102
|
)
|
|
|
261
|
|
|
|
n.m.
|
|
Changes in current liabilities
|
|
|
17
|
|
|
|
(172
|
)
|
|
|
189
|
|
|
|
(109.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from (used in) operating activities
|
|
|
2,003
|
|
|
|
2,198
|
|
|
|
(195
|
)
|
|
|
(8.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property, plant and equipment
|
|
|
(1,518
|
)
|
|
|
(1,889
|
)
|
|
|
371
|
|
|
|
(19.6
|
)%
|
Proceeds from sale of property, plant and equipment
|
|
|
33
|
|
|
|
87
|
|
|
|
(54
|
)
|
|
|
(62.1
|
)%
|
Acquisition of intangible assets
|
|
|
(286
|
)
|
|
|
(419
|
)
|
|
|
133
|
|
|
|
(31.7
|
)%
|
Acquisition of investments in Group companies from minority
shareholders
|
|
|
71
|
|
|
|
(879
|
)
|
|
|
950
|
|
|
|
(108.1
|
)%
|
Advances and loans made to associates and other parties
|
|
|
(166
|
)
|
|
|
(300
|
)
|
|
|
134
|
|
|
|
(44.7
|
)%
|
(Acquisition)/Disposal of financial assets
|
|
|
(48
|
)
|
|
|
(88
|
)
|
|
|
40
|
|
|
|
(45.5
|
)%
|
Proceeds from sale of financial assets
|
|
|
0
|
|
|
|
1,419
|
|
|
|
(1,419
|
)
|
|
|
(100.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from (used in) investing activities
|
|
|
(1,914
|
)
|
|
|
(2,069
|
)
|
|
|
155
|
|
|
|
(7.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Report on operations
at December 31, 2009
F-158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
12 Months
|
|
|
12 Months
|
|
|
Amount
|
|
|
%
|
|
|
|
(Millions of euro)
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in loans and bank facilities
|
|
|
529
|
|
|
|
(320
|
)
|
|
|
849
|
|
|
|
n.m.
|
|
Proceeds from capital increase
|
|
|
10
|
|
|
|
426
|
|
|
|
(416
|
)
|
|
|
(97.7
|
)%
|
Repurchase of warrants
|
|
|
0
|
|
|
|
(4
|
)
|
|
|
4
|
|
|
|
(100.0
|
)%
|
Dividends paid
|
|
|
(52
|
)
|
|
|
(267
|
)
|
|
|
215
|
|
|
|
(80.5
|
)%
|
Changes in other financial assets and liabilities
|
|
|
(39
|
)
|
|
|
(21
|
)
|
|
|
(18
|
)
|
|
|
85.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from (used in) financing activities
|
|
|
448
|
|
|
|
(186
|
)
|
|
|
634
|
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows for the year
|
|
|
537
|
|
|
|
(57
|
)
|
|
|
594
|
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the year
|
|
|
1,196
|
|
|
|
1,254
|
|
|
|
(58
|
)
|
|
|
(4.6
|
)%
|
Cash and cash equivalents of discontinued operations
|
|
|
0
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
(100.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the year
|
|
|
1,733
|
|
|
|
1,196
|
|
|
|
537
|
|
|
|
44.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities amounted to
€2,003 million in 2009, a decrease of
€195 million over 2008 mainly due to the negative
performance of certain subsidiaries of the group.
Investing activities used cash for a total amount of
€1,914 million compared to cash of
€2,069 million used in 2008. The latter includes the
effect of the sale, by OTH, of its remaining stake in HTIL,
which led to proceeds of €629 million in 2008, the
collection of the receivable arising on the sale of Iraqna,
which led to the receipt of two installments of
€683 million and the collection of the receivable
arising on the sale of Orasinvest of €64 million. The
investing activity of the year used cash for the acquisition of
property, plant and equipment primarily as the result of the
expansion of their telecommunications networks by the
Group’s operating companies (in particular the more
significant investments relate to the following companies of OTH
Group: Mobinil in Egypt, PMCL in Pakistan, Banglalink in
Bangladesh and OTA in Algeria); the cash used for the
acquisition of intangible assets mainly relate to the
acquisition, by Wind, of an additional 5 Mhz in the
2100 MHz band.
As of December 31, 2009, the amount related to loans made
to associates, equal to €166 million, has been
classified from financing activities to investing activities, in
accordance with IAS 7, paragraph 16 (e), consequently, the
corresponding amount related to December 31, 2008, equal to
€300 million, has been reclassified. In addition, the
acquisitions of the year, attributable to the mobile operator in
Namibia and Phone srl, required the use of cash of
€48 million.
Net cash from financing activities amounted to
€448 million compared to outflows of
€186 million in 2008.
In addition, the cash inflow for the year is mostly due to the
placement of a new bond by the subsidiary Wind Telecomunicazioni
SpA having a carrying amount of €2,693 million, the
new bond issued by the subsidiary Wind Acquisition Holdings
Finance Sa having a carrying amount of €767 million
and the new bond issued by the subsidiary OTH having a carrying
amount of €176 million. The cash outflow for the year
mainly relates to the early repayment of the Pik Loan Agreement
by Wind Acquisition Holdings Finance SA for the amount of
€2,289 million, the repayment of the Guaranteed
Secured Exchangeable Bond by the subsidiary Weather Capital
Finance SA for the amount of €832 million and the
repayment made by PMCL of €70 million for its senior
notes. OTH paid dividends to shareholders for an amount of
€52 million; Weather received cash from shareholders
for an amount of €10 million following the capital
increase resolved in January 2009.
Report on operations
at December 31, 2009
F-159
SUMMARIZED
FINANCIAL STATEMENTS OF THE PARENT WEATHER INVESTMENTS
SPA
The income statement and statement of financial position figures
below relate to the separate financial statements of the Parent
Weather Investments SpA as of and for the year ended
December 31, 2009, prepared in accordance with the
provisions of the Italian Civil Code governing financial
statements (Articles 2423 et seq.), as interpreted and
supplemented by the accounting standards issued by the national
councils of the Italian accounting profession setter (the
Xxxxxxxxx Nazionali dei Dottori Commercialisti e dei
Ragionieri), and modified by the Italian Accounting Board
(the Organismo Italiano di Contabilità — OIC),
and by literature issued by the OIC.
Summarized
income statement for the year ended December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
12 Months
|
|
|
12 Months
|
|
|
|
(Millions of euro)
|
|
|
Value of production
|
|
|
11
|
|
|
|
14
|
|
Operating loss
|
|
|
(41
|
)
|
|
|
(16
|
)
|
Net finance income (expense)
|
|
|
(189
|
)
|
|
|
27
|
|
Profit (Loss) before taxes
|
|
|
(829
|
)
|
|
|
8
|
|
Profit (Loss) for the year
|
|
|
(746
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Summarized
statement of financial position at December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
At December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Millions of euro)
|
|
|
Total assets
|
|
|
6,255
|
|
|
|
6,168
|
|
Equity
|
|
|
5,152
|
|
|
|
5,887
|
|
Total liabilities
|
|
|
1,103
|
|
|
|
281
|
|
|
|
|
|
|
|
|
|
|
For the comments on the operating and financial performance of
Weather Investments SpA, please refer to the notes to the
financial statements of the Company.
SUBSEQUENT
EVENTS
On March 7, 2010 Orascom Telecom Holding announces that its
Algerian subsidiary Orascom Telecom Algérie
(“OTA”) received a rejection on its submitted
administrative appeal (réclamation contentieuse) filed on
December 27, 2009 against the notice of assessment dated
16 November 2009 received from the Algerian Direction des
Grandes Entreprises (Tax Department for Large-Scale Companies or
“DGE”) in respect of the tax years 2005, 2006 and 2007
(the “Assessment”). XXX’s administrative appeal
in relation to the 2004 tax assessment has also been rejected.
Pending appeal before the Central Commission, OTA is not
required to pay the full amount of the assessment. In order to
file its appeal, however, Algerian law requires OTA to pay
another 20% of the remaining balance of the taxes and penalties
alleged to be owing in order to appeal the decision before the
Commission Central, this amounts to approximately
$110 million and was paid by XXX from its own resources.
Without prejudice to its rights under the Investment Agreement,
applicable bilateral investment treaties and applicable laws,
OTA has the option to appeal the assessment into the State
Counsel (Administrative court in Algeria) as an alternative to
the appeal to the Central Commission. The amount paid will be
recoverable if XXX’s appeal is successful. On March 9,
2010 XXX filed to the Central Commission an appeal against the
assessment on tax years 2005, 2006 and 2007. On the other hand,
OTH is exploring all its other strategic options.
On February 4, 2010, Orascom Telecom Holding (OTH) was
awarded an extension to the management contract of Alfa with the
Republic of Lebanon, for a period of 6 months ending on
July 31, 2010. Under this contract, OTH receives a monthly
sum of USD2.5 million in addition to 8.5% of total revenue.
Out of these amounts, OTH is liable to
Report on operations
at December 31, 2009
F-160
cover all the operating expense (OPEX) of the network and is
entitled to keep the remainder as management fees. The Republic
of Lebanon is fully responsible for the CAPEX during the
contract period.
On January 14, 2010, Orascom Telecom Holding announced that
the Administrative Court (Investment Division) has granted OTH
an injunction to stay the decision of the Egyptian Financial
Supervisory Authority to accept the publication of the mandatory
purchase offer submitted by Orange Participation, an affiliate
of France Telecom (“FT”), for the acquisition of 100%
of the shares of Egyptian Company for Mobile Services
(“ECMS”) at a price of 245 LE per share (equal to
€31), which was issued on December 10, 2009. The
purchase offer was planned to expire on January 14, 2010
but has been declared null and void by the court.
A determination of the substantive issues will be made after a
judicial committee has presented recommendations on the case to
the court, which examined such recommendations on
February 13, 2010. The court’s ruling confirms
XXX’s position that there is no valid justification for a
price differential between the price offered in the FT mandatory
tender offer and the price of the sale stipulated in the
arbitration award, pursuant to which FT should have presented a
mandatory tender offer by latest April 15, 2009 at a price
of 273 LE per ECMS share pursuant to Egyptian Capital market law.
On January 13, 2010, Orascom Telecom Holding SAE announced
that it will be conducting a rights issue (the “Right
issue”) to further strengthen the Company’s financial
position, ensure OTH’s liquidity including financing needs
for the Group in the case where there is no immediate resolution
of the previously announced tax dispute in Algeria and for
general corporate purposes.
The Company offered up to 4,356,590,515 new ordinary shares
including up to 871,318,103 new Global Depositary Receipts. The
subscription price was 1 EGP per new share. The subscription
period started January 31, 2010 until March 1, 2010.
On March 4, 2010 OTH issued a notice to the existing
shareholders regarding subscription results for the first round
of the Right issue. According to the notice, a total number of
4,342,083,487 ordinary shares were subscribed.
Following the approval of the Egyptian Financial Services
Authority, on March 6, 2010 OTH announced the terms of the
over-subscription for the remaining unsubscribed ordinary shares
equal to 14,507,028. The new subscription period started on
March 7, 2010 until March 10, 2010.
On March 15, 2010 OTH issued a notice to the existing
shareholders announcing the successful completion of the
remaining unsubscribed shares.
On January 21, 2010, Orascom Telecom Holding SAE announced
that it has obtained Majority Senior Secured Lenders consent on
the proposed permanent waiver related to the existence of a
material tax claim under its USD2.5 billion credit
agreement (equal to €1,735 million). The waiver
obtained is specific to the Algerian tax claim against Orascom
Telecom Algeria in respect of years 2004 to 2007. The waiver is
conditional to the successful completion of a forthcoming
capital increase of OTH with a minimum take up of
USD700 million out of the USD800 million proposed
Rights Issue.
On February 17, 2010, Orascom Telecom Holding SAE received
a non interest bearing loan of USD225 million from its
shareholder, Weather Capital Special Purpose 1 SA. This loan was
converted into GDRs by way of participation in the OTH right
issue.
During January 2010, Egyptian mobile telephone operator,
Egyptian Company for Mobile Services (ECMS) issued
1.5 billion Egyptian pounds (USD273.3 million) in
5-year bonds
with a fixed annual yield of 12.25% payable once every six
months starting mid January. ECMS will use the bonds to finance
the expansion of its network. Such bonds are divided into two
tranches, one values 1.4 billion of Egyptian pounds and
allocated for private offering and institutions while the other
tranche of 0.1 billion of Egyptian pounds will be allocated
for public offering.
On March 8, 2010, OTH and Orascom Telecom Bangladesh have
signed an agreement with Standard Chartered Bank, London (as
intercreditor agent) to issue an amortising senior secured bond
of an amount of BDT7.5 billion (equivalent to
€75 million) due in 2014.
In March 2010, at their meeting, the Shareholders of Orascom
Telecom Tunisie approved the starting of an IPO procedure for
the company.
Report on operations
at December 31, 2009
F-161
During the fourth quarter of 2009, U-Com, an indirect subsidiary
of OTH through Telecel Globe, was subject to a tax audit
performed by local authorities for the financial year 2008.
During the first quarter of 2010, the tax authorities
communicated to U-Com their preliminary conclusions stating an
assessment amounting to USD11 million (approximately equal
to €8 million), mainly due to under declared revenue.
The tax assessment concerns tax on transactions, corporate tax,
and withholding taxes related to foreign services. To date the
assessment remains non definitive and the company is not in the
position to assess the related effects.
WAHF
Group
On January 12, 2010, the subsidiary Wind Telecomunicazioni
SpA made an early repayment of €336 million
attributable to the Al tranche of the Senior Facility Agreement.
Consequently, the next deadline for the repayment of principal
is scheduled for December 31, 2011.
On March 17, 2010, the Wind’s Board of Directors
resolved the partial exercise of the Put option on the
investment held in Hellas Telecommunications I Sàrl, for an
amount not lower than Euro 70 million within
June 30, 2010.
Weather
Finance I Group
With reference to the Delan dispute, the Xxxxxxxxx hearing on
December 1 2009 for the application for an interim injunction,
was heard on January 20 2010 before the Athens Court of First
Instance. The Court denied Xxxxxxxxx’ application on
February 5, 2010. On February 10, 2010, Xxxxxxxxx
notified WIND Hellas of a second application for an interim
injunction against WIND Hellas before the Athens Court of First
Instance. Xxxxxxxxx’ second application was based on the
same grounds as the first application. The hearing date for the
second application was initially scheduled for February 26,
2010 but, by agreement of WIND Hellas and Xxxxxxxxx, it was
rescheduled on February 26, 2010 for June 16, 2010.
Also on February 26, 2010, further to Xxxxxxxxx’
verbal request, the Court issued a provisional order prohibiting
a change in the legal and actual status of WIND Hellas’
assets up to an amount of €35 million until the
rescheduled hearing date of June 16, 2010.
WIND Hellas considers that:
|
|
|
|
•
|
these proceedings are without foundation; and
|
|
|
•
|
even if any claim were to be successful, WIND Hellas should be
entitled to recover the bulk of any losses it might suffer from
a former owner of WIND Hellas under a contractual indemnity.
|
WIND Hellas is currently working with its legal advisors to
consider the position and seek the appropriate relief from the
provisional order granted.
Weather
Capital Group
On February 16, 2010, the subsidiary Weather Capital
Special Purpose 1 SA elected to extend, in accordance with
conditions 8(ii) of the Trust Deed, the final maturity date
of the Euro 1,200,000,000 Floating Rate Collateralised
Guaranteed Notes due in 2010 to April 4, 2011. The maturity
extension was obtained on February 16, 2010.
In addition, during March 2010, Weather Capital Special Purpose
1 SA made two repayments for a total consideration equal to
€150 million, in particular, €120 million
was paid on March 8, 2010 and €30 million on
March 22, 2010.
During the ordinary course of its business the Weather Group is
exposed to financial and non financial risks. These risks are
managed by defining guidelines and general objectives,
monitoring the identified risks and excluding the use of
financial instruments for speculative purposes.
For details, refer to paragraph 2.6 of the notes to the
consolidated financial statements and to paragraph 12.2 to
the separate financial statements of Weather Investments Spa.
RELATED
PARTY TRANSACTIONS
The transactions with related parties described below are those
with Weather Group companies.
Transactions with related parties are entered into as part of
normal business operations and, from an economic point of view,
are negotiated on an arm’s length basis.
Report on operations
at December 31, 2009
F-162
Other than Wind Acquisition Holdings Finance SpA, which has a
7.76% interest in the Parent Company, Group companies did not
hold either at December 31, 2009, or at any time during the
year shares of the Parent, either directly or through trustees,
nor shares in any company controlling the Parent.
The disclosure on related party transactions is presented in
note 38 of the consolidated financial statements and to
note 33 of the separate financial statements of Weather
Investments Spa at December 31, 2009.
The protection of personal data in Italy is governed by
Legislative Decree no. 196 of June 30, 2003, the
“Personal Data Protection Code”, whose scope is to
ensure that the rights, basic liberties and dignity of the
individuals involved are respected when personal data is
processed, with specific emphasis being placed on
confidentiality, integrity and the right to have access to
personal data.
In this context, in March 31, 2009 the Parent Weather
Investments SpA approved the Data Protection Document
(Documento Programmatico sulla Sicurezza dei Dati —
DPS), which sets out all the security measures taken to
safeguard the data processed by the Parent as data controller.
The law requires this document to be updated on an annual basis.
The DPS is updated to March 31, 2010. In preparing it an
inquiry was carried out aimed at identifying in detail the data
that is processed within the business, following which the risk
and gap analyses for security measures were reviewed. In
addition, the Parent has appointed data processors pursuant to
article 29 of Legislative Decree
no. 196/03
and persons in charge of processing pursuant to article 30
of Legislative Decree no. 196/03 and has prepared operating
instructions in this respect.
In 2009, the Parent also completed its personal data protection
training sessions for all persons in charge of processing. The
training process involved almost all of Xxxxxx’s personal,
excluding only those who do not process personal data.
The Group’s tax position and the way it is presented for
accounting purposes incorporate the effects arising from the
national tax consolidation procedure in which the Company and
certain subsidiaries have elected to take part, following the
formalization of a specific Group regulation. More specifically,
Weather Investments SpA, Wind Acquisition Holdings Finance SpA,
Wind Telecomunicazioni SpA, ITnet Srl, Italia OnLine Srl, Enel
Net Srl, Mondo Wind Srl and Rain Srl all elected to take part in
the procedure signing, on March 23, 2009 a new Group
regulation (the Regulation). For further details, refer to
paragraph 2.3 of the notes to the consolidated financial
statements.
The Group delivered operating results in 2009 almost in line
with the trend recorded in recent periods, despite 2009 having
being characterized by conflicting trends in the various
entities, including the negative performance of the Greek
segment.
Our directors’ aim is to continue working on improving the
profitability of all the entities, enhancing the quality of
services delivered to the market and proactively managing the
debt position of the Group.
ALLOCATION
OF THE LOSS FOR THE YEAR OF THE PARENT WEATHER INVESTMENTS
SPA
2009 ended with a loss of €746 million.
The board of directors recommends that the shareholders approve
the financial statements as of and for the year ended
December 31, 2009, and suggest allocating to “Retained
earning/(Losses) carried forward” the loss for the year.
Report on operations
at December 31, 2009
F-163
WEATHER INVESTMENTS GROUP
Consolidated financial statements as of and for the
year ended December 31, 2009
(Translation from the Italian original which remains the
definitive version)
F-164
(Translation
from the Italian original which remains the definitive
version)
Report of
the auditors in accordance with
article 2409-ter
of the Italian Civil Code (now article 14 of Legislative
decree no. 39 of 27 January 2010)
To the shareholders of
Weather Investments S.p.A.
1. We have audited the consolidated financial statements
comprising the statement of financial position, income
statement, statement of comprehensive income, cash flow
statement, statement of changes in equity and notes thereto of
the Weather Investments Group as at and for the year ended
31 December 2009. The parent’s directors are
responsible for the preparation of these financial statements in
accordance with the International Financial Reporting Standards
endorsed by the European Union. Our responsibility is to express
an opinion on these financial statements based on our audit.
2. We conducted our audit in accordance with the auditing
standards issued by the Italian Accounting Profession and
recommended by Consob (the Italian Commission for Listed
Companies and the Stock Exchange). Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free of
material misstatement and are, as a whole, reliable. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by directors. We believe that our
audit provides a reasonable basis for our opinion.
We carried out our audit of the consolidated financial
statements as at and for the year ended 31 December 2009 in
compliance with legislation ruling during the year.
Reference should be made to the report dated 24 April 2009
for our opinion on the prior year consolidated financial
statements, which included the corresponding figures presented
for comparative purposes that have been restated to reflect the
changes in the presentation of financial statements introduced
by IAS 1.
3. In our opinion, the consolidated financial statements of
the Weather Investments Group as at and for the year ended
31 December 2009 comply with the International Financial
Reporting Standards endorsed by the European Union. Therefore,
they are clearly stated and give a true and fair view of the
financial position of the Weather Investments Group as at
31 December 2009, the results of its operations and its
cash flows for the year then ended.
F-165
|
|
|
|
|
Weather Investments Group
Report of the auditors
31 December 2009
|
4. We bring your attention to the following disclosures:
4.1 As disclosed by the directors in note 1 to the
consolidated financial statements, the Weather Investments Group
recorded a deficit of €483 million at 31 December
2009 as a consequence of the loss for the year of
€666 million. Such loss is mainly due to the
impairment loss of €1,521 million, recognised
following the impairment test performed on goodwill relating to
the acquisition of the Hellas Group, and higher income tax of
€244 million, only partially offset by the positive
effect (€1,224 million) deriving from the
deconsolidation of the indirect subsidiary Hellas
Telecommunications II S.C.A. following its entry into
temporary receivership on 26 November 2009.
4.2 As disclosed by the directors in note 1.1 to the
consolidated financial statements, the entry of Hellas
Telecommunications II S.C.A. into temporary receivership
triggered a default event for the Unsecured PIK Notes
issued by Hellas Telecommunications Finance S.C.A., amounting to
€261 million at 31 December 2009. Therefore, the
non-current portion (€250 million) was reclassified
under current financial liabilities at such date. Considering
such financial difficulties, the directors will take the
necessary steps to start bankruptcy proceedings in Luxembourg
for Hellas Telecommunications Finance S.C.A. and Hellas
Telecommunications I S.a.r.l. as the underwriter of the
Unsecured PIK Notes. The directors of the Weather Investments
Group believe that the liquidation procedure of Hellas
Telecommunications II S.C.A. and the proposed bankruptcy
proceedings of Hellas Telecommunications Finance S.C.A. and
Hellas Telecommunications I S.a.r.l. will not lead to any
material liabilities for the Weather Investments Group.
4.3 As disclosed by the directors in notes 40 and 42,
on 16 November 2009, the Direction des Grandes Enterprises
(tax department for large-scale companies or “DGE”)
served the indirect subsidiary Orascom Telecom Algeria S.p.A.
(“OTA”) an assessment report for the 2005, 2006 and
2007 tax years amounting to DZD44 billion (approximately
€422 million), including penalties, which the company
appealed against considering most of the findings of the tax
assessment arbitrary and unfounded. The company made a provision
therefor of €29 million at 31 December 2009,
supported by the opinion of an independent expert.
5. The directors of Weather Investments S.p.A. are
responsible for the preparation of a report on operations in
accordance with the applicable laws. Our responsibility is to
express an opinion on the consistency of the report on
operations with the financial statements to which it refers, as
required by the law. For this purpose, we have performed the
procedures required by the Italian Standard on Auditing 001
issued by the Italian Accounting Profession and recommended by
Xxxxxx. In our opinion, the report on operations is consistent
with the consolidated financial statements of the Weather
Investments Group as at and for the year ended 31 December
2009.
Rome, 13 April 2010
KPMG S.p.A.
(signed on the original)
Xxxxxxxx Xxxxxxxxxx
Director of Audit
F-166
CONTENTS
|
|
|
|
|
|
|
|
F-168
|
|
|
|
|
F-169
|
|
|
|
|
F-170
|
|
|
|
|
F-171
|
|
|
|
|
F-171
|
|
|
|
|
F-172
|
|
|
|
|
F-173
|
|
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|
|
F-173
|
|
|
|
|
F-179
|
|
|
|
|
F-204
|
|
|
|
|
F-207
|
|
|
|
|
F-210
|
|
|
|
|
F-211
|
|
|
|
|
F-217
|
|
|
|
|
F-220
|
|
|
|
|
F-222
|
|
|
|
|
F-222
|
|
|
|
|
F-224
|
|
|
|
|
F-224
|
|
|
|
|
F-226
|
|
|
|
|
F-226
|
|
|
|
|
F-226
|
|
|
|
|
F-230
|
|
|
|
|
F-230
|
|
|
|
|
F-238
|
|
|
|
|
F-239
|
|
|
|
|
F-240
|
|
|
|
|
F-240
|
|
|
|
|
F-241
|
|
|
|
|
F-242
|
|
|
|
|
F-243
|
|
|
|
|
F-244
|
|
|
|
|
F-244
|
|
|
|
|
F-245
|
|
|
|
|
F-246
|
|
|
|
|
F-247
|
|
|
|
|
F-248
|
|
|
|
|
F-248
|
|
|
|
|
F-249
|
|
|
|
|
F-251
|
|
|
|
|
F-251
|
|
|
|
|
F-252
|
|
|
|
|
F-252
|
|
|
|
|
F-254
|
|
|
|
|
F-254
|
|
|
|
|
F-255
|
|
|
|
|
F-255
|
|
|
|
|
F-264
|
|
|
|
|
F-270
|
|
Notes to the Consolidated
Financial Statements at December 31, 2009
F-167
STATEMENT
OF CONSOLIDATED FINANCIAL POSITION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
At December 31,
|
|
|
|
Note
|
|
2009
|
|
|
2008
|
|
|
|
(Millions of euro)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
5
|
|
|
7,577
|
|
|
|
7,720
|
|
Intangible assets
|
|
6
|
|
|
10,488
|
|
|
|
12,269
|
|
Financial assets
|
|
7
|
|
|
866
|
|
|
|
517
|
|
Deferred tax assets
|
|
8
|
|
|
466
|
|
|
|
588
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
|
|
19,397
|
|
|
|
21,094
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
9
|
|
|
77
|
|
|
|
101
|
|
Trade receivables
|
|
10
|
|
|
1,796
|
|
|
|
1,738
|
|
Financial assets
|
|
7
|
|
|
111
|
|
|
|
124
|
|
Current tax assets
|
|
11
|
|
|
104
|
|
|
|
98
|
|
Other receivables
|
|
12
|
|
|
519
|
|
|
|
580
|
|
Cash and cash equivalents
|
|
13
|
|
|
1,733
|
|
|
|
1,196
|
|
Non-current assets classified as held for sale
|
|
14
|
|
|
78
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
4,418
|
|
|
|
3,838
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
23,815
|
|
|
|
24,932
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity and Liabilities
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
15
|
|
|
|
|
|
|
|
|
Issued capital
|
|
|
|
|
565
|
|
|
|
503
|
|
Share premium reserve
|
|
|
|
|
3,295
|
|
|
|
3,196
|
|
Legal reserve
|
|
|
|
|
118
|
|
|
|
117
|
|
Reserves and Retained earnings or losses carried forward
|
|
|
|
|
(4,461
|
)
|
|
|
(3,519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Equity attributable to owners of the parent
|
|
|
|
|
(483
|
)
|
|
|
297
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
|
|
290
|
|
|
|
219
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
|
|
|
(193
|
)
|
|
|
516
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
17
|
|
|
16,825
|
|
|
|
17,697
|
|
Employee benefits
|
|
18
|
|
|
68
|
|
|
|
69
|
|
Provisions
|
|
19
|
|
|
215
|
|
|
|
189
|
|
Other non-current liabilities
|
|
20
|
|
|
78
|
|
|
|
161
|
|
Deferred tax liabilities
|
|
8
|
|
|
1,112
|
|
|
|
1,217
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
|
|
18,298
|
|
|
|
19,333
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
17
|
|
|
1,343
|
|
|
|
747
|
|
Trade payables
|
|
21
|
|
|
2,926
|
|
|
|
2,935
|
|
Other payables
|
|
22
|
|
|
1,255
|
|
|
|
1,109
|
|
Tax payable
|
|
23
|
|
|
148
|
|
|
|
292
|
|
Liabilities directly associated with non-current assets
classified as held for sale
|
|
14
|
|
|
38
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
5,710
|
|
|
|
5,083
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
24,008
|
|
|
|
24,416
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity and Liabilities
|
|
|
|
|
23,815
|
|
|
|
24,932
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to the Consolidated
Financial Statements at December 31, 2009
F-168
CONSOLIDATED
INCOME STATEMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Note
|
|
12 Months
|
|
|
12 Months
|
|
|
|
(Millions of euro)
|
|
|
Revenue
|
|
24
|
|
|
10,143
|
|
|
|
10,176
|
|
Other revenue
|
|
25
|
|
|
193
|
|
|
|
236
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
|
|
10,336
|
|
|
|
10,412
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and services
|
|
26
|
|
|
(5,366
|
)
|
|
|
(5,378
|
)
|
Other operating costs
|
|
27
|
|
|
(392
|
)
|
|
|
(340
|
)
|
Personnel expenses
|
|
28
|
|
|
(706
|
)
|
|
|
(666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before depreciation and amortization,
reversal of impairment losses/ impairment losses on non-current
assets and gains/losses on disposal of non-current assets
|
|
|
|
|
3,872
|
|
|
|
4,028
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
29
|
|
|
(1,872
|
)
|
|
|
(1,910
|
)
|
Reversal of impairment losses (impairment losses) on non-current
assets
|
|
30
|
|
|
(1,583
|
)
|
|
|
(33
|
)
|
Gains (losses) on disposal of non-current assets
|
|
31
|
|
|
(3
|
)
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
|
414
|
|
|
|
2,141
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance income
|
|
32
|
|
|
1,492
|
|
|
|
243
|
|
Finance expense
|
|
32
|
|
|
(1,906
|
)
|
|
|
(1,737
|
)
|
Share of profit (losses) of equity accounted investees
|
|
33
|
|
|
(34
|
)
|
|
|
(2
|
)
|
Foreign exchange gains (losses), net
|
|
34
|
|
|
18
|
|
|
|
(247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) before tax
|
|
|
|
|
(16
|
)
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
35
|
|
|
(495
|
)
|
|
|
(251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) from continuing operations
|
|
|
|
|
(511
|
)
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) from discontinued operations
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) for the year
|
|
|
|
|
(511
|
)
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
|
|
|
|
155
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) for the year attributable to owners of the
parent
|
|
|
|
|
(666
|
)
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share (in euro)
|
|
16
|
|
|
(0.97
|
)
|
|
|
(0.08
|
)
|
Basic
|
|
|
|
|
(0.97
|
)
|
|
|
(0.08
|
)
|
Continuing operations
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to the Consolidated
Financial Statements at December 31, 2009
F-169
STATEMENT
OF CONSOLIDATED COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
12 Months
|
|
|
12 Months
|
|
|
|
|
|
(Millions of euro)
|
|
|
Profit (Loss) for the year
|
|
|
|
|
(511
|
)
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
Exchange differences on translating foreign operations
|
|
|
|
|
(62
|
)
|
|
|
267
|
|
Available-for-sale
financial assets
|
|
|
|
|
(1
|
)
|
|
|
(3
|
)
|
Cash flow xxxxxx
|
|
7
|
|
|
(178
|
)
|
|
|
(361
|
)
|
Other
|
|
|
|
|
(3
|
)
|
|
|
13
|
|
Income tax relating to components of other comprehensive income
|
|
15
|
|
|
53
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income for the year, net of tax
|
|
|
|
|
(191
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the year
|
|
|
|
|
(702
|
)
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income attributable to:
|
|
|
|
|
|
|
|
|
|
|
Owners of the Parent
|
|
|
|
|
(834
|
)
|
|
|
(142
|
)
|
Non-controlling interests
|
|
|
|
|
132
|
|
|
|
290
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to the Consolidated
Financial Statements at December 31, 2009
F-170
CONSOLIDATED
CASH FLOW STATEMENT
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
12 Months
|
|
|
12 Months
|
|
|
|
(Millions of euro)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Profit (loss) from continuing operations
|
|
|
(511
|
)
|
|
|
147
|
|
Adjustments to reconcile profit (loss) for the year with the
cash flows from (used in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation, amortization and impairment losses (reversal of
impairment losses) on non-current assets
|
|
|
3,455
|
|
|
|
1,943
|
|
Deconsolidation of Hellas Telecommunications II SCA
|
|
|
(1,224
|
)
|
|
|
0
|
|
(Gains) losses from repurchase of financial liabilities
|
|
|
(122
|
)
|
|
|
0
|
|
Exchange rate differences
|
|
|
202
|
|
|
|
461
|
|
Net change in provisions and employee benefits
|
|
|
24
|
|
|
|
(23
|
)
|
(Gains) losses on disposal of non-current assets
|
|
|
3
|
|
|
|
(56
|
)
|
Changes in current assets
|
|
|
159
|
|
|
|
(102
|
)
|
Changes in current liabilities
|
|
|
17
|
|
|
|
(172
|
)
|
|
|
|
|
|
|
|
|
|
Net cash from (used in) operating activities
|
|
|
2,003
|
|
|
|
2,198
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Acquisition of property, plant and equipment
|
|
|
(1,518
|
)
|
|
|
(1,889
|
)
|
Proceeds from sale of property, plant and equipment
|
|
|
33
|
|
|
|
87
|
|
Acquisition of intangible assets
|
|
|
(286
|
)
|
|
|
(419
|
)
|
Acquisition/Disposal of investments in Group companies from
minority shareholders
|
|
|
71
|
|
|
|
(879
|
)
|
Advances and loans made to associates and other parties
|
|
|
(166
|
)
|
|
|
(300
|
)
|
(Acquisition) disposal of financial assets
|
|
|
(48
|
)
|
|
|
(88
|
)
|
Proceeds from sale of financial assets
|
|
|
0
|
|
|
|
1,419
|
|
|
|
|
|
|
|
|
|
|
Net cash from (used in) investing activities
|
|
|
(1,914
|
)
|
|
|
(2,069
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Changes in loans and bank facilities
|
|
|
529
|
|
|
|
(320
|
)
|
Proceeds from capital increase
|
|
|
10
|
|
|
|
426
|
|
Repurchase of warrants
|
|
|
0
|
|
|
|
(4
|
)
|
Dividends paid
|
|
|
(52
|
)
|
|
|
(267
|
)
|
Changes in other financial assets and liabilities
|
|
|
(39
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
Net cash from (used in) financing activities
|
|
|
448
|
|
|
|
(186
|
)
|
|
|
|
|
|
|
|
|
|
Net cash flows for the year
|
|
|
537
|
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the year
|
|
|
1,196
|
|
|
|
1,254
|
|
Cash and cash equivalents of discontinued operations and assets
held for sale at the end of the year
|
|
|
0
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the year
|
|
|
1,733
|
|
|
|
1,196
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL
INFORMATION ON THE CONSOLIDATED CASH FLOW STATEMENT
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
12 Months
|
|
|
12 Months
|
|
|
|
(Millions of euro)
|
|
|
Income tax paid
|
|
|
524
|
|
|
|
450
|
|
Interest expense paid
|
|
|
1,320
|
|
|
|
1,356
|
|
Interest received on hedging derivative instruments
|
|
|
171
|
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
Notes to the Consolidated
Financial Statements at December 31, 2009
F-171
STATEMENT
OF CHANGES IN CONSOLIDATED EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Attributable to Owners of the Parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves/
|
|
|
Attributable
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
|
|
|
|
|
|
Retained
|
|
|
to Owners
|
|
|
Non-
|
|
|
|
|
|
|
Issued
|
|
|
Premium
|
|
|
Legal
|
|
|
Earnings/(Losses
|
|
|
of the
|
|
|
Controlling
|
|
|
Total
|
|
|
|
Capital
|
|
|
Reserve
|
|
|
Reserve
|
|
|
Carried Forward)
|
|
|
Parent
|
|
|
Interests
|
|
|
Equity
|
|
|
|
(Millions of euro)
|
|
|
Balances at January 1, 2008
|
|
|
585
|
|
|
|
4,064
|
|
|
|
117
|
|
|
|
(3,348
|
)
|
|
|
1,418
|
|
|
|
839
|
|
|
|
2,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the year:
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(139
|
)
|
|
|
(139
|
)
|
|
|
287
|
|
|
|
148
|
|
— Profit (loss) of the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44
|
)
|
|
|
(44
|
)
|
|
|
191
|
|
|
|
147
|
|
— Translation differences
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145
|
|
|
|
145
|
|
|
|
122
|
|
|
|
267
|
|
— Fair value on AFS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
— Cash Flow hedge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(244
|
)
|
|
|
(244
|
)
|
|
|
(29
|
)
|
|
|
(273
|
)
|
— Other movements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
|
|
4
|
|
|
|
9
|
|
Transactions with equity holders:
|
|
|
(82
|
)
|
|
|
(868
|
)
|
|
|
0
|
|
|
|
(32
|
)
|
|
|
(982
|
)
|
|
|
(907
|
)
|
|
|
(1,889
|
)
|
— Payment into the reserve for future capital increases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151
|
|
|
|
151
|
|
|
|
|
|
|
|
151
|
|
— Dividends
|
|
|
|
|
|
|
(120
|
)
|
|
|
|
|
|
|
(98
|
)
|
|
|
(218
|
)
|
|
|
(49
|
)
|
|
|
(267
|
)
|
— Transactions on OTH’s shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(68
|
)
|
|
|
(68
|
)
|
|
|
(812
|
)
|
|
|
(880
|
)
|
— Other movements
|
|
|
(82
|
)
|
|
|
(748
|
)
|
|
|
|
|
|
|
(17
|
)
|
|
|
(847
|
)
|
|
|
(46
|
)
|
|
|
(893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
|
503
|
|
|
|
3,196
|
|
|
|
117
|
|
|
|
(3,519
|
)
|
|
|
297
|
|
|
|
219
|
|
|
|
516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at January 1, 2009
|
|
|
503
|
|
|
|
3,196
|
|
|
|
117
|
|
|
|
(3,519
|
)
|
|
|
297
|
|
|
|
219
|
|
|
|
516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the year:
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(837
|
)
|
|
|
(837
|
)
|
|
|
135
|
|
|
|
(702
|
)
|
— Profit (loss) for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(666
|
)
|
|
|
(666
|
)
|
|
|
155
|
|
|
|
(511
|
)
|
— Translation differences
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
(34
|
)
|
|
|
(28
|
)
|
|
|
(62
|
)
|
— Fair value on AFS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
— Cash Flow hedge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(135
|
)
|
|
|
(135
|
)
|
|
|
9
|
|
|
|
(126
|
)
|
— Other movements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
Transactions with equity holders:
|
|
|
62
|
|
|
|
99
|
|
|
|
1
|
|
|
|
(105
|
)
|
|
|
57
|
|
|
|
(64
|
)
|
|
|
(7
|
)
|
— Share capital increase (decrease)
|
|
|
62
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
161
|
|
|
|
|
|
|
|
161
|
|
— Payment into the reserve for future capital increases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(151
|
)
|
|
|
(151
|
)
|
|
|
|
|
|
|
(151
|
)
|
— Legal Reserve
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
0
|
|
— Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
(52
|
)
|
|
|
(52
|
)
|
— Transactions on OTH’s shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
48
|
|
|
|
23
|
|
|
|
71
|
|
— Other movements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(34
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2009
|
|
|
565
|
|
|
|
3,295
|
|
|
|
118
|
|
|
|
(4,461
|
)
|
|
|
(483
|
)
|
|
|
290
|
|
|
|
(193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to the Consolidated
Financial Statements at December 31, 2009
F-172
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS GROUP
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
1 WEATHER
INVESTMENTS GROUP
Weather Investments SpA (hereafter also “Weather”, the
“Parent” or the “Company”) is a joint stock
company with registered office in Vix xxx Xxx Xxxxxxx, 00 xnd
administrative offices in Vix Xxxxxx Xxxxxx Xxxxx 00, Xxxx,
Xxxxx.
At the date of the preparation of these consolidated financial
statements the Company was held as to 68.82% by Weather
Investments II Sàrl, controlled by companies owned by
the Sawiris family, with the subsidiary Wind Acquisition
Holdings Finance SpA Holding 7.76%, institutional investors
holding 21.61% and other investors holding 1.81%.
Weather Investments SpA and its subsidiaries (hereafter the
“Group” or the “Weather Group”) operate in
the telecommunications sector, principally in Italy, Greece and
the emerging markets of North Africa, the Middle East and Asia,
through the three
sub-groups
Wind Telecomunicazioni (hereafter the “Wind Group”),
Orascom Telecom (hereafter the “OTH Group”) and Wind
Hellas Telecommunications (hereafter the “Wind Hellas
Group”).
More specifically:
|
|
|
|
•
|
the Wind Group operates in Italy in the telecommunications
services sector under the “Infostrada” and
“Wind” brands (fixed-line and mobile telephony
services) and offers internet services through its subsidiaries
ITnet Srl and Italia OnLine Srl under the “Libero”
brand. The Wind Group contributed its
“International & national wholesale”
business through the subsidiary Wind International Services SpA;
|
|
|
•
|
the OTH Group operates mainly in the mobile telecommunication
services sector in the following countries: Egypt (Mobinil),
Algeria (Djezzy), Pakistan (Mobilink), Tunisia (Tunisiana),
Bangladesh (Banglalink), Zimbabwe (Telecel Zimbabwe), Burundi,
the Central African Republic and Namibia (through the subsidiary
Telecel Globe), the Democratic Republic of North Korea
(Koryolink) and Canada (WIND Mobile formerly Globalive);
|
|
|
•
|
the Wind Hellas Group operates in Greece as an integrated
operator in the fixed and mobile telecommunication services
sector and also in internet.
|
At December 31, 2009, the Weather Group recorded a negative
equity of €483 million as a consequence of the loss of
the year equal to €666 million. This loss is mainly
due to the impairment losses equal to €1,521 million,
recognised following the impairment test performed on goodwill
relating to the acquisition of the Hellas Group
(see note 1.1), and higher income tax of
€244 million (see note 35), only partially offset
by the positive effect deriving from the deconsolidation of
Hellas Telecommunications II SCA for
€1,224 million considering that, on November 26,
2009, Hellas Telecommunications II SCA entered into
pre-pack administration (see note 32).
Notes to the Consolidated
Financial Statements at December 31, 2009
F-173
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
The following chart sets out the structure of the Weather Group
and its three main operating groups at December 31, 2009.
Notes to the Consolidated
Financial Statements at December 31, 2009
F-174
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
The following chart sets out the structure of the subgroup
headed by Wind Acquisition Holdings Finance SpA at
December 31, 2009.
The following chart sets out the structure of the subgroup
headed by Orascom Telecom Holdings SAE at December 31, 2009.
Notes to the Consolidated
Financial Statements at December 31, 2009
F-175
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
The following chart sets out the structure of the subgroup
headed by Weather Finance I Sarl and Hellas Telecommunications
Sàrl at December 31, 2009.
2009 was characterized by a marked contraction in the
results of the Wind Hellas Group caused by the significant
decrease in revenue due to three factors, namely: a reduction in
prices as a consequence of market competition, the regulatory
reduction in interconnection tariffs and the economic crisis.
These factors have prevented the Wind Hellas Group from
generating the revenue and cash flows needed to sustain its
operations, meeting its predetermined strategic objectives and
its future interest payments relating to the debt of the Group.
In this situation, the Greek Group needed to restructure its
debt and continue to reduce corporate overhead expenses
to alleviate future potential liquidity restrictions, in order
that the strategic objectives included in the revised business
plan prepared by Directors could be met.
Due to the above issues, the Hellas Group, during the second
quarter of 2009, has initiated a process to restructure its
debt, which was unsuccessful.
On September 1, 2009, a process was initiated to solicit
interest in a potential capital restructuring in order to
generate cash flows for WIND Hellas Telecommunications SA.
29 strategic and financial investors were contacted, who had to
present their non-binding offers by September 28, 2009. The
non-binding offers were six and all six parties were invited to
submit a final and binding offer by October 22, 2009. All
parties were given the opportunity to perform extensive due
diligence, full access to a Virtual Data-room, access to
management and
follow-up
meetings were provided. Transaction documentation including
other forms of transaction agreements were provided.
Notes to the Consolidated
Financial Statements at December 31, 2009
F-176
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
On October 22, 2009, final round offers were received from
two parties: Weather Investments SpA and a Committee of
Subordinated Noteholders (collectively the “Final
Offers”). Implementation of both of the Final Offers was
conditional upon consent from, inter alia, 50% of Unsecured
Noteholders, 50% of Secured Noteholders and in certain
circumstances the Super Senior RCF Lenders. A consultation
process was initiated between both parties and the creditors.
The consultation process was to allow both parties the
opportunity to present their plans for the business, allow the
ad hoc committees to evaluate each of the Final Offers and
negotiate the form and terms of consent. In addition, a process,
including input from each of the ad hoc committees of Note
holders and the Super Senior RCF Lenders, to clarify and resolve
outstanding issues including any conditions in relation to both
Final Offers was also initiated.
On November 5, 2009, the Board of Hellas II received
evidence that Noteholders representing approximately 60% of
Senior Unsecured Notes and approximately 55% of Senior Secured
Notes had executed
lock-up
agreements in favor of the offer made by Weather Investments
SpA. At the same time, the Board of Hellas II met to
consider the current operating and liquidity situations of the
companies. It determined that steps should be taken to follow up
the offer from Weather Investments SpA.
In relation to the waivers and amendment required under the
Revolving Credit Facility, the requisite level of consents was
also obtained on November 17, 2009.
Consequently, the Board of Hellas II resolved to apply to
the English High Court of Justice for an administration order in
respect of Hellas II.
On November 26, 2009, Hellas II entered a pre-pack
administration procedure and administrators were appointed by
the English High Court of Justice under the provision of
paragraph 13 of Schedule Bl of the Insolvency Act
1986. As a consequence, Hellas II is no longer controlled
by the Weather Group and so it has been deconsolidated with a
finance income of €1,224 million.
On November 27, 2009, the sale of Hellas II’s assets
was completed, including its shareholding in WIND Hellas
Telecommunications SA and Hellas Telecommunications IV
Sarl, to Weather Finance III Sarl (a subsidiary of Weather
Investments SpA) for a total consideration of €10 thousand.
As part of the sale, Weather Finance III would make a cash
injection of at least €50 million into WIND Hellas,
which occurred during November 2009.
The obligations of Hellas II as the issuer of the
€960 million and USD 275 million of
Unsecured Subordinated Notes remain with the insolvent Hellas
II, which, in this moment, does not have the sufficient
liquidity to repay these loans.
The fact that Hellas Telecommunications II has entered into
a pre-pack administration procedure has triggered a default
event for the Unsecured PIK Notes, having a nominal amount equal
to €200 million, held by Hellas Telecommunications
Finance SCA. Considering the Greek Group’s financial
difficulties, also in this case, it is taking the necessary
steps to place Hellas Telecommunications Finance, the holder of
the Unsecured PIK Notes equal to €261 million, and
Hellas Telecommunications I, the guarantor of the Unsecured
PIK Notes, into bankruptcy in Luxembourg. As a consequence of
such default, the non-current portion amounting to
€250 million of the Unsecured PIK Notes has been
reclassified under current financial liabilities.
It should be also noted that, the consolidated financial
statements as of and for the year ended December 31, 2009
have been prepared considering the Hellas Group financial
information (with respect to the companies Hellas
Telecommunications Sarl, Hellas Telecommunications I Sarl,
Hellas Telecommunications Limited and Hellas Telecommunications
Finance SCA) presented on a non-going concern basis. The
relevant decision has been triggered by the fact that Hellas
Telecommunications II SCA entered a pre-pack administration
procedure and sold by way of auction its main assets (the
investments in WIND Hellas Telecommunications SA and Hellas
Notes to the Consolidated
Financial Statements at December 31, 2009
F-177
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
Telecommunications IV Sarl); in addition, there has also
been uncertainty about the ability to repay the Unsecured PIK
Notes, having a nominal amount equal to €200 million,
held by Hellas Telecommunications Finance SCA.
Hellas Telecommunications IV Sarl and WIND Hellas
Telecommunications Group financial information (“WIND
Hellas Group”, whose subsidiaries are Hellas
Telecommunications III SCA, Hellas Telecommunications V SCA
and Hellas Telecommunications VI Sarl) has been prepared on a
going concern basis, also for consolidation purposes.
As a consequence of the Revised Business Plan
2009-2013
and its updating, during the year, the Weather Investments Group
decided to fully impair the total amount of goodwill acquired on
the purchase of Wind Hellas equal to €1,521 million
and also €38 million allocated to licenses and
trademarks.
At December 31, 2009, the Revised Business Plan
2009-2013
prepared by the WIND Hellas’ Directors confirms the
financial and economic balance and the growth of profitability
in the mid-term, with the consequent recovery of assets recorded
in the December 31, 2009 financial statements of Wind
Hellas Group. Consequently, Directors consider still proper the
going concern basis.
Weather Group considers that no significant expenses will come
out from the Hellas II
winding-up
and the Hellas Telecommunications Finance and Hellas
Telecommunications I possible bankruptcy procedure.
The Parent Weather Investments SpA and the subsidiary Wind
Telecomunicazioni SpA hold put and call options which, if
exercised, would enable Wind Telecomunicazioni SpA to sell and
Weather Investments SpA to buy the entire investment in Hellas
Telecommunications I Sàrl at any time during the five year
period which commenced December 30, 2008.
On October 28, 2009, regarding the sale of Hellas
Telecommunications II’s assets to Weather Finance III
Sarl (the subsidiary of Weather Finance II Sarl), the
subsidiary Wind Telecomunicazioni SpA purchased from the
subsidiary Weather Finance I Sarl 80 shares (equal to 16%)
in the share capital of its wholly owned subsidiary Weather
Finance II Sarl, for a total consideration of €2
thousand.
On December 17, 2009, the Call Option rights granted to
Weather Investments SpA and the Put Option rights granted to
Wind Telecomunicazioni Spa on Hellas Telecommunication I Sarl
shares, have been amended. Under this Agreement, each Party
shall have the right to exercise the Call or the Put Option on
the stake held by Wind in Hellas I or in any entity or company
directly
and/or
indirectly holding the shares
and/or
assets in Wind Hellas Telecommunications SA. Furthermore, the
spread relating to the exercise price of the option has been
increased, from 1.25% to 2.625%.
The Wind Group maintained its option on Hellas
Telecommunications I Sarl which will be exercised in a short
period, as detail in note 42.
|
|
a)
|
Change in
the share capital of Weather Investments SpA
|
In accordance with the agreements entered into by the Parent
Company with the majority shareholder Weather
Investments II Sàrl and the private equity funds APAX,
MDCP and TA on November 28, 2008 (“Subscription
Agreement”) and January 28, 2009 (“Umbrella
Agreement”), at their extraordinary meeting held on
January 28, 2009 the shareholders of Weather Investments
SpA adopted a resolution for an increase in share capital
through the issue of 104,497,797 new class D preferred
shares and 64,370,643 new class E shares, in both cases
with the shares not having nominal amount. Further details of
this may be found in note 15.
Following the increase, fully subscribed in the amount of
€436 million (€168 million as share capital
and €268 million as share premium), the Company’s
share capital is now equal to €754,090,920.15 consisting of
754,090,920 shares without nominal amount.
Notes to the Consolidated
Financial Statements at December 31, 2009
F-178
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
The capital increase of €436 million was carried out
in the following manner:
|
|
|
|
•
|
shareholders waived receivables of €262 million
(including interest accrued through November 26,
2008) deriving from loan agreements entered into with the
Company in October and November 2008 and made a cash payment of
an amount of €164 million in the Company’s favor;
|
|
|
•
|
cash payments were made to the Company for the balance of
€10 million, of which €7 million coming from
the majority shareholder Weather Investments II Sarl and
€3 million from minority investors.
|
Given the features of the newly issued class D and
class E shares issued by the Company in January 2009, and
the resulting obligations arising for the Company, a portion of
equity represented by these amounting to €276 million
(€107 million from share capital and
€169 million from the share premium reserve) has been
classified as financial liabilities, in accordance with IAS 32.
Additional details relating to the composition of and changes to
the Company’s equity may be found in note 15.
As part of the Weather Group debt management and optimization
plan, on September 24, 2009, the Luxembourg subsidiary
Weather Capital Finance SA made early repayment in the amount of
€832 million, including interest and expenses, of the
Guaranteed Secured Exchangeable Bond which had a nominal amount
of €825 million and maturity date February 2013.
At the same time, Weather Capital Finance SA sold its 100%
investment in OTH, consisting of 53,204,601 shares (GDRs),
to its parent Weather Capital Sàrl for
€1,147 million.
At the same date, the OTH shares were the subject of two further
transactions. Under the first transaction, Weather Capital
Sàrl transferred 50,125,000 OTH shares for
€1,081 million to its subsidiary Weather Capital
Special Purpose 1 SA, by way of a subscription to the capital
increase of that company. Under the second transaction,
2,230,000 OTH shares were transferred for €48 million
to Citigroup Global Market Limited through the subsidiary
Weather Capital Special Purpose 2 SA as performance of a share
forward contract.
Following the above-mentioned transactions and considering the
transactions occurred in the last quarter of 2009 (in which
Weather Capital Sàrl bought 2,950,000 OTH shares and sold
772,801 OTH shares), the share package representing a majority
holding of 51.89% in the OTH Group is held by the Luxembourg
subsidiary Weather Capital Special Purpose 1 SA as to 50.22% and
Weather Capital Sàrl as to 1.67%.
On October 12, 2009, the subsidiary Weather Capital Finance
SA was wound up.
The consolidated financial statements of the Weather Investments
Group as of and for the year ended December 31, 2009 have
been prepared on a going concern basis and in accordance with
the International Financial Reporting Standards
(“IFRS”) endorsed by the European Union.
The term IFRS includes all the International Financial Reporting
Standards, all the International Accounting Standards
(“IAS”), all the interpretations of the International
Financial Reporting Interpretations Committee
(“IFRIC”) and all the interpretations of the Standing
Interpretations Committee (“SIC”) that as of the
present date have been endorsed by the European Union and are
contained in published EU Regulations.
During the year no exceptional events occurred such to require
the waivers provided by IAS 1.
Notes to the Consolidated
Financial Statements at December 31, 2009
F-179
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
These consolidated financial statements as of and for the year
ended December 31, 2009 are presented in euros, which is
the functional currency of the countries in which the Group
operates, while all amounts shown in the tables and in the notes
are expressed in millions of euros unless otherwise stated.
For presentation purposes, the current/non-current distinction
has been used for the statement of financial position, while
expenses are analyzed in the income statement using a
classification based on their nature. The indirect method has
been selected to present the cash flow statement.
For the purposes of comparison, balances in the statement of
financial position and income statement and the detailed tables
in the notes are reclassified where necessary. These
reclassifications are not relevant and do not affect the
Group’s profit for the year or equity.
These consolidated financial statements were approved by the
Parent Company’s Board of Directors on March 30, 2010.
These consolidated financial statements include the financial
statements of Weather Investments SpA and those entities over
which that company exercises control, both directly or
indirectly, from the date of acquisition to the date when such
control ceases. Control may be exercised through direct or
indirect ownership of shares with majority voting rights, or by
exercising a dominant influence expressed as the direct or
indirect power, based on contractual agreements or statutory
provisions, to determine the financial and operational policies
of the entity and obtain the related benefits, regardless of any
equity relationships. The existence of potential voting rights
that are exercisable or convertible at the end of the reporting
period is also considered when determining whether there is
control or not.
The financial statements used in the consolidation process are
those prepared using local accounting standards by the
individual Group entities as of and for the year ended
December 31, 2009, the reporting date for these
consolidated financial statements, restated in accordance with
the IFRS used by the Parent in drawing up these statements.
Financial statements prepared using a currency different from
the Euro are translated into the presentation currency as
follows:
|
|
|
|
•
|
assets and liabilities are translated at the exchange rate at
the end of reporting period;
|
|
|
•
|
income and expenses are translated at the average exchange rate
for the year;
|
|
|
•
|
the “translation reserve” contains the exchange rate
differences generated by translating the income statement and
opening equity at rates different from that used at year end;
|
|
|
•
|
goodwill and fair value adjustments arising on the acquisition
of a foreign entity are treated as assets and liabilities of the
foreign entity and are translated at the closing exchange rate;
|
|
|
•
|
in the preparation of the consolidated cash flow statement, the
cash flows of foreign subsidiaries are translated at the average
exchange rate for the year.
|
Subsidiaries whose inclusion in the scope of consolidation would
not be material either in qualitative or quantitative terms for
the purposes of giving a fair presentation of the Group’s
financial position, results and cash flows are excluded from
line-by-line
or proportionate basis consolidation.
The consolidation procedures used are as follows:
|
|
|
|
•
|
the assets and liabilities and income and expenses of
consolidated subsidiaries are included on a
line-by-
line basis, allocating to non-controlling interests, where
applicable, the share of equity and profit or loss for the
|
Notes to the Consolidated
Financial Statements at December 31, 2009
F-180
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
|
|
|
|
|
year that is attributable to them. The resulting balances are
presented separately in consolidated equity and the consolidated
income statement;
|
|
|
|
|
•
|
the purchase method of accounting is used to account for
business combinations in which the control of an entity is
acquired. The cost of an acquisition is measured as the fair
value at the acquisition date of the assets acquired,
liabilities incurred or assumed and equity instruments issued,
plus all other costs directly attributable to the acquisition.
The excess of the cost of acquisition over the fair value of the
assets and liabilities acquired is recognized as goodwill. If
the cost of acquisition is less than the fair value of the net
assets of the subsidiary acquired, the difference is recognized
directly in the income statement after first verifying that the
fair values attributed to the acquired assets and liabilities
and the cost of the acquisition have been measured correctly;
|
|
|
•
|
business combinations in which all of the combining entities or
businesses are ultimately controlled by the same party or
parties both before and after the business combination are
considered business combinations involving entities under
common control. In the absence of an accounting standard guiding
the treatment of these operations the Group applies IAS 8,
accounting for the difference between the cost incurred for the
acquisition and the respective share of equity acquired directly
in equity;
|
|
|
•
|
the purchase of equity holdings from minority holders in
entities where control is already exercised is not considered a
purchase but an equity transaction. Therefore the difference
between the cost incurred for the acquisition and the respective
share of equity acquired is recognized directly in equity;
|
|
|
•
|
any options to purchase non-controlling interests outstanding at
the end of the year are treated as exercised and are recognized
as a financial liability or in equity depending on whether the
transaction is to be settled in cash or through the exchange of
equity instruments;
|
|
|
•
|
unrealized gains and losses on transactions carried out between
companies consolidated on a
line-by-line
basis and the respective tax effects are eliminated, as are
corresponding balances for receivables and payables, income and
expense, and finance income and expense;
|
|
|
•
|
gains and losses arising from the sale of investments in
consolidated entities are recognized in the income statement as
the difference between the selling price and the corresponding
portion of consolidated equity sold.
|
Interests in joint ventures are consolidated using the
proportionate method under which the assets and liabilities and
income and expenses of the joint venture are consolidated on a
line-by-line
basis in proportion to the share held by the Group in the
venture. The carrying amount of the consolidated investment is
then eliminated against the respective portion of equity.
Transactions, balances and any unrealized gains and losses on
intercompany transactions are proportionately eliminated.
Notes to the Consolidated
Financial Statements at December 31, 2009
F-181
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
Financial information relating to joint ventures, investments
consolidated using the proportionate method and investments
consolidated using equity, for which no adjustments have been
made for the percentage held by the Group are summarized in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation
|
|
%
|
|
|
Current
|
|
|
Current
|
|
|
Total
|
|
|
Current
|
|
|
Current
|
|
|
Total
|
|
|
|
|
|
|
|
|
Profit
|
|
|
|
Method
|
|
Ownership
|
|
|
Assets
|
|
|
Assets
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Liabilities
|
|
|
Liabilities
|
|
|
Revenue
|
|
|
Costs
|
|
|
(Loss)
|
|
|
|
(Millions of euro)
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobinil For
Telecommunication
SAE
|
|
Proportionate
|
|
|
34.66
|
%
|
|
|
261
|
|
|
|
1,622
|
|
|
|
1,883
|
|
|
|
800
|
|
|
|
577
|
|
|
|
1,377
|
|
|
|
1,380
|
|
|
|
1,143
|
|
|
|
237
|
|
Orascom Telecom
Tunisie SA
|
|
Proportionate
|
|
|
50
|
%
|
|
|
163
|
|
|
|
459
|
|
|
|
622
|
|
|
|
255
|
|
|
|
62
|
|
|
|
317
|
|
|
|
508
|
|
|
|
390
|
|
|
|
118
|
|
Globalive Investments holding Corp
|
|
Equity
|
|
|
65.40
|
%(1)
|
|
|
44
|
|
|
|
529
|
|
|
|
573
|
|
|
|
136
|
|
|
|
501
|
|
|
|
637
|
|
|
|
34
|
|
|
|
100
|
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
468
|
|
|
|
2,610
|
|
|
|
3,078
|
|
|
|
1,191
|
|
|
|
1,140
|
|
|
|
2,331
|
|
|
|
1,922
|
|
|
|
1,633
|
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobinil For
Telecommunication SAE
|
|
Proportionate
|
|
|
34.66
|
%
|
|
|
207
|
|
|
|
1,573
|
|
|
|
1,780
|
|
|
|
683
|
|
|
|
780
|
|
|
|
1,463
|
|
|
|
1,303
|
|
|
|
1,046
|
|
|
|
257
|
|
Orascom Telecom Tunisie SA
|
|
Proportionate
|
|
|
50
|
%
|
|
|
170
|
|
|
|
493
|
|
|
|
663
|
|
|
|
243
|
|
|
|
122
|
|
|
|
365
|
|
|
|
488
|
|
|
|
384
|
|
|
|
104
|
|
Globalive Investments Holding Corp
|
|
Equity
|
|
|
65.40
|
%(1)
|
|
|
268
|
|
|
|
1
|
|
|
|
269
|
|
|
|
291
|
|
|
|
0
|
|
|
|
291
|
|
|
|
0
|
|
|
|
20
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
645
|
|
|
|
2,067
|
|
|
|
2,712
|
|
|
|
1,217
|
|
|
|
902
|
|
|
|
2,119
|
|
|
|
1,791
|
|
|
|
1,450
|
|
|
|
341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Group holds 65.4% of the share capital of Globalive and
directly holds 33.2% of the voting rights. For that reason, the
Group has significant influence over this investment but does
not have control over the financial and operating activities of
Globalive. |
The following table provides a summary of the Group’s
equity investments showing the criteria used for consolidation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Scope
|
|
|
|
|
|
% Ownership
|
|
|
Consolidation Method
|
|
of Consolidation
|
|
|
Share/Quota
|
|
|
At December 31.
|
|
|
At December 31.
|
|
|
At December 31.
|
|
At December 31.
|
|
at December 31.
|
|
|
Capital
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
2008
|
|
2009
|
|
|
(In thousands of euro)
|
|
Weather Investments SpA (Holding)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Klarolux Investments Sarl
|
|
|
—
|
|
|
|
100
|
%
|
|
|
—
|
|
|
Full
|
|
—
|
|
x
|
Weather Capital Sarl (Lux Holding)
|
|
|
32
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Orascom Telecom Holding
|
|
|
2,894,202
|
|
|
|
51.89
|
%
|
|
|
52.07
|
%
|
|
Full
|
|
Full
|
|
|
Arpu +
|
|
|
—
|
|
|
|
99
|
%
|
|
|
—
|
|
|
|
|
Full
|
|
|
Orascom Telecom CS (Cortex Maltal)
|
|
|
348
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Orascom Telecom CS (Cortex Egypt)
|
|
|
316
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Carthage Consortium LTD
|
|
|
35
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Consortium Algerian deTelecom
|
|
|
—
|
|
|
|
50
|
%
|
|
|
50
|
%
|
|
Proportionate
|
|
Proportionate
|
|
|
ECDMIV
|
|
|
5.574
|
|
|
|
10.46
|
%
|
|
|
10.46
|
%
|
|
Available for sale
|
|
Available for sale
|
|
|
Egyptian Co. for Mobile Services
|
|
|
126,490
|
|
|
|
20
|
%
|
|
|
20
|
%
|
|
Proportionate
|
|
Proportionate
|
|
|
Orascom Telecom Eurasia
|
|
|
106,209
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Intouch for Telecommunication Company
|
|
|
68.026
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
International Wireless Pakistan Limited
|
|
|
60.375
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
International Télécommunication Consortium
|
|
|
—
|
|
|
|
50
|
%
|
|
|
50
|
%
|
|
—
|
|
Proportionate
|
|
|
MedCable
|
|
|
828
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Notes to the Consolidated
Financial Statements at December 31, 2009
F-182
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Scope
|
|
|
|
|
|
% Ownership
|
|
|
Consolidation Method
|
|
of Consolidation
|
|
|
Share/Quota
|
|
|
At December 31.
|
|
|
At December 31.
|
|
|
At December 31.
|
|
At December 31.
|
|
at December 31.
|
|
|
Capital
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
2008
|
|
2009
|
|
|
(In thousands of euro)
|
|
M-Link
|
|
|
2,439
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Mobinil
|
|
|
40
|
|
|
|
28.75
|
%
|
|
|
28.75
|
%
|
|
Proportionate
|
|
Proportionate
|
|
|
Moga Holding
|
|
|
34,842
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Orascom Iraq Holding
|
|
|
35
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Xxxxxx
|
|
|
1
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Orascom Telecom Alqeria
|
|
|
398,251
|
|
|
|
96.80
|
%
|
|
|
96.80
|
%
|
|
Full
|
|
Full
|
|
|
Orascom Telecom Iraq
|
|
|
35
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Orascom Telecom Tunisia
|
|
|
189,997
|
|
|
|
50
|
%
|
|
|
50
|
%
|
|
Proportionate
|
|
Proportionate
|
|
|
Orascom Tunisia Holding LTD
|
|
|
55,363
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Oratel Internation LTD
|
|
|
116,023
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Orascom Telecom ESOP
|
|
|
1
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Orascom Telecom Services Europe
|
|
|
330
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Orascom Telecom Ventures Company
|
|
|
35
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Orascom Telecom WIMAX
|
|
|
2
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Orascom Telecom, Wireless Europe
|
|
|
37
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Pakistan Mobile comunication Limited
|
|
|
257,820
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Pioneers Investment Company
|
|
|
55
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Ring Distribution Company
|
|
|
632
|
|
|
|
99
|
%
|
|
|
99
|
%
|
|
Full
|
|
Full
|
|
|
Sheba Telecom
|
|
|
247,767
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Telecel International LTD
|
|
|
78,882
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Telecel SA
|
|
|
52
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Transworld Associates [Pvt] Ltd
|
|
|
(35
|
)
|
|
|
51
|
%
|
|
|
51
|
%
|
|
Full
|
|
Full
|
|
|
TMGL
|
|
|
1
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Orascom Telecom Asia LTD
|
|
|
1
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Orascom Telecom Sarl
|
|
|
12
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Orascom Telecom Finance Sea
|
|
|
29
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Cheo co.
|
|
|
16,479
|
|
|
|
75
|
%
|
|
|
75
|
%
|
|
Full
|
|
Full
|
|
|
MenaCable
|
|
|
6,968
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
OTH Canada Limited
|
|
|
1
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Orascom telecom holding Canada
|
|
|
—
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Globalive investment hoding Corp.
|
|
|
0.09
|
|
|
|
48
|
%
|
|
|
48
|
%
|
|
Equity
|
|
Equity
|
|
|
Globalive Canada holding Corp.
|
|
|
0.01
|
|
|
|
65
|
%
|
|
|
65
|
%
|
|
Equity
|
|
Equity
|
|
|
Globalive telecom holding Corp.
|
|
|
0.00
|
|
|
|
65
|
%
|
|
|
65
|
%
|
|
Equity
|
|
Equity
|
|
|
Globalive wireless management
|
|
|
0.01
|
|
|
|
65
|
%
|
|
|
65
|
%
|
|
Equity
|
|
Equity
|
|
|
OIIH
|
|
|
878
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Weather Capital Finance Sa
|
|
|
31
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
Full
|
|
x
|
Weather Capital SP I Sa
|
|
|
31
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Weather Capital SP 2 Sa
|
|
|
31
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Wind Acquisition Holdings Finance SpA (Ita Holding)
|
|
|
43,162
|
|
|
|
99,996
|
%
|
|
|
99,996
|
%
|
|
Full
|
|
Full
|
|
|
Wind Telecomunicazioni SpA
|
|
|
147,100
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Enel Net Srl
|
|
|
21,135
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Italia Online Srl
|
|
|
1,400
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Itnet Srl
|
|
|
1,004
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Mondo Wind Srl
|
|
|
7,638
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Wind International Services Sarl
|
|
|
1,065
|
|
|
|
100
|
%
|
|
|
—
|
|
|
Full
|
|
|
|
x
|
Wind International Services SA
|
|
|
1,265
|
|
|
|
100
|
%
|
|
|
—
|
|
|
Full
|
|
|
|
x
|
Wind International Services SpA
|
|
|
640
|
|
|
|
100
|
%
|
|
|
—
|
|
|
Full
|
|
|
|
x
|
Wind Finance SL SA
|
|
|
31
|
|
|
|
27
|
%
|
|
|
27
|
%
|
|
Full
|
|
Full
|
|
|
Notes to the Consolidated
Financial Statements at December 31, 2009
F-183
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Scope
|
|
|
|
|
|
% Ownership
|
|
|
Consolidation Method
|
|
of Consolidation
|
|
|
Share/Quota
|
|
|
At December 31.
|
|
|
At December 31.
|
|
|
At December 31.
|
|
At December 31.
|
|
at December 31.
|
|
|
Capital
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
2008
|
|
2009
|
|
|
(In thousands of euro)
|
|
Wind Acquisition Finance SA
|
|
|
31
|
|
|
|
27
|
%
|
|
|
27
|
%
|
|
Full
|
|
Full
|
|
|
Wind Acquisition Finance II SA
|
|
|
31
|
|
|
|
27
|
%
|
|
|
27
|
%
|
|
Full
|
|
Full
|
|
|
Wind Acquisition Holdings Finance SA
|
|
|
31
|
|
|
|
27
|
%
|
|
|
27
|
%
|
|
Full
|
|
Full
|
|
|
Wind Acquisition Holdings Finance II SA
|
|
|
31
|
|
|
|
27
|
%
|
|
|
27
|
%
|
|
Full
|
|
Full
|
|
|
Phone srl
|
|
|
1,019
|
|
|
|
100
|
%
|
|
|
—
|
|
|
Full
|
|
—
|
|
x
|
Hellas Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hellas Telecommunications Sarl
|
|
|
1,577
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Hellas Telecommunications I
|
|
|
1,873
|
|
|
|
84
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Hellas Telecommunications II
|
|
|
—
|
|
|
|
—
|
|
|
|
100
|
%
|
|
—
|
|
Full
|
|
x
|
Hellas Telecommunications Finance SCA
|
|
|
31
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Hellas Telecommunications Limited (UK)
|
|
|
0
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
Hellas Telecommunications Sarl (Luxembourg)
|
|
|
13
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
—
|
|
Full
|
|
|
Hellas Telecommunications (Luxembourg) III
|
|
|
31
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
—
|
|
Full
|
|
|
Hellas Telecommunications IV Sarl
|
|
|
13
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
—
|
|
Full
|
|
|
Hellas Telecommunications (Luxembourg) V
|
|
|
31
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
—
|
|
Full
|
|
|
WIND Hellas Telecommunications
|
|
|
218,600
|
|
|
|
|
|
|
|
100
|
%
|
|
—
|
|
Full
|
|
x
|
Weather Finance Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weather Finance I Sarl
|
|
|
13
|
|
|
|
100
|
%
|
|
|
—
|
|
|
Full
|
|
—
|
|
|
Weather Finance II Sarl
|
|
|
13
|
|
|
|
100
|
%
|
|
|
—
|
|
|
Full
|
|
—
|
|
|
Weather Finance III Sarl
|
|
|
13
|
|
|
|
100
|
%
|
|
|
—
|
|
|
Full
|
|
—
|
|
|
Hellas Telecommunications Sarl (Luxembourg) VI
|
|
|
13
|
|
|
|
100
|
%
|
|
|
—
|
|
|
Full
|
|
|
|
|
Hellas Telecommunications (Luxembourg) III
|
|
|
31
|
|
|
|
100
|
%
|
|
|
—
|
|
|
Full
|
|
—
|
|
|
Hellas Telecommunications IV Sàrl
|
|
|
13
|
|
|
|
100
|
%
|
|
|
—
|
|
|
Full
|
|
—
|
|
|
Hellas Telecommunications (Luxembourg) V
|
|
|
31
|
|
|
|
100
|
%
|
|
|
—
|
|
|
Full
|
|
—
|
|
|
WIND Hellas Telecommunications (“ ”)
|
|
|
218,600
|
|
|
|
100
|
%
|
|
|
—
|
|
|
Full
|
|
—
|
|
|
Rain Srl
|
|
|
2,710
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Full
|
|
Full
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The non-controlled equity investments consolidated on a
line-by-line
basis consist of the special purpose entities formed to raise
funds for the Group on the financial market.
The principal accounting policies adopted in preparing the
consolidated financial statements are set out below.
• Property,
plant and equipment
Property, plant and equipment are stated at purchase cost or
production cost, net of accumulated depreciation and any
impairment losses. Cost includes expenditure directly
attributable to bringing the asset to the location and condition
necessary for use and any dismantling and removal costs which
may be incurred as a result of contractual obligations which
require the asset to be returned to its original state and
condition. Borrowing costs for loans directly associated with
the purchase or construction of property, plant and equipment
are capitalized as part of the asset only if it is probable that
these will lead to future economic benefits and if they can be
reliably determined.
Notes to the Consolidated
Financial Statements at December 31, 2009
F-184
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
Costs incurred for ordinary and cyclical repairs and maintenance
are charged directly to the income statement in the year in
which they are incurred. Costs incurred for the expansion,
modernization or improvement of the structural elements of owned
or leased assets are capitalized to the extent that they have
the requisites to be separately identified as an asset or part
of an asset, in accordance with the “component
approach”. Under this approach each asset is treated
separately if it has an autonomously determinable useful life
and value. Depreciation is charged systematically on a
straight-line basis at rates calculated over their estimated
useful lives from the date the asset is available and ready for
use.
The useful lives of property, plant and equipment and their
residual values are reviewed and updated, where necessary, at
least at the end of each reporting period. Land is not
depreciated. When a depreciable asset is composed of separately
identifiable components whose useful lives vary significantly
from those of other components of the asset, depreciation is
calculated for each component separately, applying the
“component approach”.
The useful lives estimated by the Group for the various
categories of property, plant and equipment are as follows.
|
|
|
Buildings
|
|
50 years
|
Plant and machinery
|
|
5-20 years
|
Planning and development costs of fixed-line
and mobile telephone network
|
|
Residual term of respective licenses
|
Equipment
|
|
4-10 years
|
Other assets
|
|
3-10 years
|
Gains or losses arising from the sale or disposal of assets are
determined as the difference between the selling price and the
carrying amount of the asset sold or disposed and are recognized
in the income statement under “Gains (losses) on the
disposal of non-current assets”.
Finance leases are leases that substantially transfer all the
risks and rewards incidental to the ownership of assets to the
Group. Property, plant and equipment acquired under finance
leases are recognized as assets at their fair value or, if
lower, at the present value of the minimum lease payments,
including any amounts to be paid for exercising a purchase
option. The corresponding liability due to the lessor is
recognized as part of financial liabilities. An asset acquired
under a finance lease is depreciated over the shorter of the
lease term and its useful life.
Lease arrangements in which the lessor substantially retains the
risks and rewards incidental to ownership of the assets are
classified as operating leases. Lease payments under operating
leases are recognized as an expense in the income statement on a
straight-line basis over the lease term.
Intangible assets are identifiable non-monetary assets without
physical substance which can be controlled and which are capable
of generating future economic benefits. Intangible assets are
stated at purchase
and/or
production cost including any expenses that are directly
attributable to preparing the asset for its intended use, net of
accumulated amortization for assets being amortized and
impairment losses. Borrowing costs accruing during and for the
development of the asset are capitalized as part of the asset
only if it is probable that these will lead to future economic
benefits and if they can be reliably determined. Amortization
begins when an asset becomes available for use and is charged
systematically on the basis of the residual possibility of
utilization of the asset.
|
|
|
|
•
|
Industrial patents and intellectual property rights
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Costs for the purchase of patents and intellectual property
rights, concessions, licenses, trademarks and similar rights are
capitalized. Amortization is charged on a straight-line basis
such as to write off the cost incurred for the acquisition of a
right over the shorter of the period of its expected use and the
term of the underlying agreement,
Notes to the Consolidated
Financial Statements at December 31, 2009
F-185
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
starting from the date on which the acquired right may be
exercised. Trademarks are not amortized as they are considered
to have an indefinite useful life.
Software costs relating to the development and maintenance of
software programs are expensed as incurred. Unique and
identifiable costs directly related to the production of
software products which are controlled by the Group and which
are expected to generate future economic benefits for a period
exceeding one year are accounted for as intangible assets.
Direct costs — where identifiable and
measurable — include the cost of employees who develop
the software, together with a share of overheads as appropriate.
Amortization is charged over the useful life of the software
which is estimated as 5 years.
Goodwill represents the excess of the cost of an acquisition
over the interest acquired in the fair value at the acquisition
date of the assets and liabilities of the entity or business
acquired. Goodwill relating to investments accounted for using
the equity method is included in the carrying amount of the
investment. Goodwill is not systematically amortized but is
rather subject to periodic tests to ensure that the carrying
amount in the statement of financial position is adequate
(“impairment test”). Impairment tests are carried out
annually or more frequently when events or changes in
circumstances occur that could lead to an impairment losses on
the cash generating units (“CGUs”) to which the
goodwill has been allocated. An impairment loss is recognized
whenever the recoverable amount of goodwill is lower than its
carrying amount. The recoverable amount is the higher of the
fair value of the CGU less costs to sell and its value in use,
which is represented by the present value of the cash flows
expected to be derived from the CGU during operations and from
its disposal at the end of its useful life. The method for
calculating value in use is described in the paragraph
“Impairment losses”. Once an impairment loss has been
recognized on goodwill it is not reversed.
Whenever an impairment loss resulting from the above testing
exceeds the carrying amount of the goodwill allocated to a
specific CGU, the residual amount is allocated to the assets of
that particular CGU in proportion to their carrying amounts. The
carrying amount of an asset under this allocation is not reduced
below the higher of its fair value less costs to sell and its
value in use as described above.
The customer list as an intangible asset consists of the list of
customers identified on allocating the goodwill arising on
acquisitions carried out by the Group. Amortization is charged
on the basis of the respective estimated useful lives, which
range from 5 to 15 years. It should be noted that the
estimated useful lives of the mobile customer list have changed
during the course of the year on the basis of an assessment
carried out by management. In particular, the useful life of
these types of costs has been extended from 10 to 15 years;
the effect of this change in the accounting estimates relating
to the useful lives of this category of investments has been
reflected using the prospective method, in accordance with the
provisions of IAS 8 at paragraph 36.
At the end of each reporting period, property, plant and
equipment and intangible assets with finite lives are assessed
to determine whether there is any indication that an asset may
be impaired. If any such indication exists, the recoverable
amount of the asset concerned is estimated and any impairment
loss is recognized in the income statement. Intangible assets
with an indefinite useful life are tested for impairment
annually or more frequently when events or changes in
circumstances occur that could lead to an impairment loss. The
recoverable amount of an asset is the higher of its fair value
less costs to sell and its value in use, which is represented by
the present value of its estimated future cash flows. In
determining an asset’s value in use the estimated future
cash flows are discounted using a pre-tax rate that reflects the
market’s current assessment of the cost of money for the
investment period and the specific risk profile of the asset. If
an asset does not generate independent cash flows its
recoverable amount is
Notes to the Consolidated
Financial Statements at December 31, 2009
F-186
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
determined in relation to the cash-generating unit (CGU) to
which it belongs. An impairment loss is recognized in the income
statement when the carrying amount of an asset or the CGU to
which it is allocated exceeds its recoverable amount. If the
reasons for previously recognizing an impairment loss cease to
exist, the carrying amount of an asset other than goodwill is
increased to the carrying amount of the asset that would have
been determined (net of amortization or depreciation) had no
impairment loss been recognized for the asset, with the reversal
being recognized in the income statement.
Investments in non-consolidated subsidiaries are stated at cost.
Investments in companies where the Group exercises a significant
influence (“associates”), which is presumed to exist
when the Group holds between 20% and 50%, are accounted for
using the equity method. The equity method is as follows:
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the Group’s share of the profit or loss of an investee is
recognized in the income statement from the date when
significant influence or control begins up to the date when that
significant influence or control ceases. Where the investee
accounted for using the equity method has a deficit as the
result of losses, its carrying amount is reduced to zero and any
excess attributable to the Group in the event that it has legal
or constructive obligations on behalf of the investee or in any
case to cover the losses is recognized in a specific provision.
Equity changes in investees accounted for using the equity
method that do not result from profit or loss are recognized
directly in equity reserves;
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unrealized gains and losses generated from transactions between
the Parent or its subsidiaries and its investees accounted for
using the equity method are eliminated on consolidation for the
portion pertaining to the Group; unrealized losses are
eliminated unless they represent an impairment loss;
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investments in other companies are measured at fair value with
any changes in fair value being recognized in the income
statement; if fair value cannot be reliably determined an
investment is measured at cost. This value is adjusted for
impairment losses if necessary, as described in the paragraph
“Impairment losses”. If the reasons for an impairment
loss no longer exist, the carrying amount of the investment is
reversed up to the extent of the loss with the related effect
recognized in the income statement. Any risk arising from losses
exceeding the carrying amounts of investments is accrued in a
specific provision to the extent of the Group’s legal or
constructive obligations on behalf of the investee or in any
case to the extent that it is required to cover the losses.
Investments held for sale or to be wound up in the short term
are classified as current assets and stated at the lower of
their carrying amount and fair value less costs to sell.
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• Financial
instruments
Financial instruments consist of financial assets and
liabilities whose classification is determined on their initial
recognition and on the basis of the purpose for which they were
purchased. Purchases and sales of financial instruments are
recognized at their settlement date.
• Financial
assets
Financial assets are initially recognized at fair value,
classified in one of the following four categories and
subsequently measured as described:
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Financial assets at fair value through profit or loss: this
category includes financial assets purchased primarily for sale
in the short term, those designated as such upon initial
recognition, provided that the assumptions exist for such
classification, i.e. the fair value option may be exercised, and
financial derivatives except for the effective portion of those
designated as cash flow xxxxxx. These assets are measured at
fair value; any change in the year is recognized in the income
statement. Financial instruments included in this category are
classified as current assets if they are held for trading or
expected to be disposed of within
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Notes to the Consolidated
Financial Statements at December 31, 2009
F-187
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
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twelve months from the end of the reporting period. Derivatives
are treated as assets or liabilities depending on whether their
fair value is positive or negative; positive and negative fair
values arising from transactions with the same counterparty are
offset if this is contractually provided for.
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Financial receivables: these are non-derivative financial
instruments, mostly relating to trade receivables, which are not
quoted on an active market and which are expected to generate
fixed or determinable repayments. They are included as current
assets unless they are contractually due more than twelve months
after the end of the reporting period, in which case they are
classified as non-current assets. These assets are measured at
amortized cost using the effective interest method. If there is
objective evidence of factors which indicate an impairment loss,
the asset is reduced to the discounted value of future cash
flows. The impairment loss is recognized in the income
statement. If in future years the factors which caused the
impairment loss cease to exist, the carrying amount of the asset
is reinstated up to the amount that would have been obtained had
amortized cost been applied.
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Held-to-maturity
investments: these are fixed maturity non-derivative financial
instruments having fixed or determinable payments which the
Group has the intention and ability to hold until maturity.
These assets are measured at amortized cost using the effective
interest method, adjusted as necessary for impairment losses. In
the case of impairment the policies used for financial
receivables apply.
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Available-for-sale
financial assets: these are non-derivative financial instruments
which are either specifically included in this category or
included here because they cannot be classified in the other
categories. These assets are measured at fair value and any
related gain or loss is recognized directly in an equity reserve
and subsequently recognized in the income statement only when
the asset is actually sold or, if there are cumulative negative
changes, when it is expected that the losses recognized in
equity cannot be recovered in the future. For debt securities,
if in a future period the fair value increases due to the
objective consequence of events occurring after the impairment
loss has been recognized in the income statement, the original
value of the instrument is reinstated with the corresponding
gain recognized in the income statement. Additionally, the
yields from debt securities arising from the use of the
amortized cost method are recognized in the income statement in
the same manner as foreign exchange differences, whereas foreign
exchange differences relating to
available-for-sale
equity instruments are recognized in the specific equity
reserve. The classification as current or non-current assets is
the consequence of strategic decisions regarding the estimated
period of ownership of the asset and its effective
marketability, with those which are expected to be realized
within twelve months from the end of the reporting period being
classified as current assets.
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Financial assets are derecognized when the right to receive cash
flows from them ceases and the Group has effectively transferred
all risks and rewards related to the instrument and its control.
• Financial
liabilities
Financial liabilities consisting of loans, trade payables and
other obligations to pay are measured at amortized cost using
the effective interest method. When there is a change in
expected cash flows which can be reliably estimated, the value
of the loans is recalculated to reflect such change based on the
present value of expected cash flows and the originally
determined internal rate of return. Financial liabilities are
classified as current liabilities except where the Group has an
unconditional right to defer payment until at least twelve
months after the end of the reporting period.
Financial liabilities are derecognized when settled and the
Group has transferred all the related costs and risks relating
to the instrument.
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Derivative financial instruments
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When a contract is entered into the instrument is initially
recognized at fair value, with subsequent changes in fair value
being recognized as a financial component of the income
statement. Where instead it has been decided to
Notes to the Consolidated
Financial Statements at December 31, 2009
F-188
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
use hedge accounting, meaning in those situations in which the
hedging relationship is identified, subsequent changes in fair
value are accounted for in accordance with the following
specific criteria. The relationship between each derivative
qualifying as a hedging instrument and the hedged item is
documented to include the risk management objectives, the
strategy for undertaking the hedge and the means by which the
hedging instrument’s effectiveness will be assessed. An
assessment of the effectiveness of each hedge is made when each
derivative financial instrument becomes active and throughout
the hedge term.
In the case of a fair value hedge, i.e. the hedge refers to a
recognized asset or liability, the changes in the fair value of
the hedging instrument and those of the hedged item are both
recognized in the income statement. If the hedge is not fully
effective, meaning that these changes are different, the
non-effective portion is treated as finance income or expense
for the year.
For a cash flow hedge, the fair value changes of the derivative
are subsequently recognized, limited to the effective portion,
in a specific equity reserve (the “cash flow hedge
reserve”). A hedge is normally considered highly effective
if from the beginning and throughout its life the changes in the
expected cash flows for the hedged item are substantially offset
by the changes in the fair value of the hedging instrument. When
the economic effects deriving from the hedged item are realized,
the related gains or losses in the reserve is reclassified to
the income statement together with the economic effects of the
hedged item. Whenever the hedge is not highly effective, the
non-effective portion of the change in fair value of the hedging
instrument is immediately recognized as a financial component of
the income statement for the year. Cash flow xxxxxx also include
xxxxxx of the currency risk for transactions carried out in US
dollars. These obligations are translated at the year-end
exchange rate and any resulting exchange gains and losses are
offset in the income statement against the change in the fair
value of the hedging instrument.
When hedged forecast cash flows are no longer considered highly
probable during the term of a derivative, the portion of the
“cash flow hedge reserve” relating to that instrument
is reclassified as a financial component of the income
statement. If instead the derivative is transferred or no longer
qualifies as an effective hedging instrument, the “cash
flow hedge reserve” recognized to date remains as a
component of equity and is reclassified to the income statement
in accordance with the criteria of classification described
above when the originally hedged transaction takes place.
Quotations at the end of the reporting period are used to
determine the fair value of financial instruments listed on
active markets. In the absence of an active market, fair value
is determined by referring to prices supplied by third-party
operators and by using valuation models based primarily on
objective financial variables and, where possible, prices in
recent transactions and market prices for similar financial
instruments.
Income tax is recognized on the basis of taxable profit for the
year and the applicable laws and regulations, using tax rates
prevailing at the end of the reporting period.
Deferred taxes are calculated on temporary differences arising
between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements at the
tax rates that are expected to apply for the years when the
temporary differences will be realized or settled and the tax
losses carried forward will be utilized. An exception to this
rule regards the initial recognition of goodwill and temporary
differences arising from investments in subsidiaries when the
Group is able to control the timing of the reversal of the
temporary difference or when it is probable that the difference
will not reverse.
Taxes, for the portion that is not offset by deferred taxes, are
recognized to the extent that it is probable that future taxable
profit will be available against which deductible temporary
differences may be utilized.
Current and deferred taxes are recognized in the income
statement, except for those arising from items taken directly to
equity; in such cases the tax effect is recognized directly in
the specific equity item.
Notes to the Consolidated
Financial Statements at December 31, 2009
F-189
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
Tax assets and liabilities, including those regarding deferred
taxation, are offset when they relate to income taxes levied by
the same taxation authority on the same taxable entity and when
the entity has a legally enforceable right to offset these
balances and intends to exercise that right. In addition current
tax assets and liabilities are offset in the case that different
taxable entities have the legally enforceable right to do so and
when they intend to settle balances on a net basis.
The Group’s tax position and the way it is presented for
accounting purposes incorporate the effects arising from the
national tax consolidation procedure in which the Company and
certain subsidiaries have elected to take part, following the
formalization of a specific Group regulation. More specifically,
Weather Investments SpA, Wind Acquisition Holdings Finance SpA,
Wind Telecomunicazioni SpA, ITnet Srl, Italia OnLine Srl, Enel
Net Srl, Mondo Wind Srl and Rain Srl all elected to take part in
the procedure signing, on March 23, 2009 a new Group
regulation (the Regulation).
The Regulation rules, starting from January 1, 2008, on
economic and financial relations among the parties deriving from
the subscription of the national tax consolidation procedure,
considering the recent changes in the tax laws. At the same
time, the parties expressed their intention for the renewal of
the Regulation for the following three years 2009/2011. The
joint renewal of the Regulation was communicated to the Tax
Department on June 15, 2009. On the same date, it was
communicated to the Tax Department the option of the subsidiary
Wind International Services SpA relating to the mentioned
Regulation.
On January 13, 2010 the Company submitted to the Tax
Department a new Regulation following the amendment to include
the subsidiary Phone Srl for the years 2010/2011. The rules of
the tax consolidation procedure require the consolidating entity
to calculate a single income for the purposes of corporate
income tax (Imposta sul Reddito delle
Società — 1RES) consisting of the sum of the
incomes of the controlling company and those of its subsidiaries
involved in the procedure; the controlling company then settles
the balance by either making a single payment or recognizing a
single tax receivable for which a refund may be requested or
which may be carried forward.
Inventories are stated at the lower of purchase cost or
production cost and estimated net realizable value. Cost is
determined using the weighted average cost method for fungible
goods or goods held for resale. When necessary, provisions are
made for slow-moving and obsolete items.
Cash and cash equivalents are recognized at fair value and
consist of short-term highly liquid investments (generally not
exceeding three months) that are readily convertible to known
amounts of cash and which are subject to an insignificant risk
of changes in value.
• Assets
held for sale and assets in disposal groups
Assets held for sale consist of non-current assets (or disposal
groups) whose carrying amount will be recovered principally
through a sale transaction rather than through continuing use.
Assets held for sale are recognized in the income statement at
the lower of their carrying amount and fair value less costs to
sell, representing the estimated realizable value. No further
depreciation is charged from the time that a depreciable asset
is reclassified to this caption. Gains or losses arising from
discontinued operations or from assets held for sale are
reported as a separate item in the income statement, net of any
tax effects.
Notes to the Consolidated
Financial Statements at December 31, 2009
F-190
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
Provisions are recognized for a loss or expense of a specific
nature that is certain or probable to arise but for which the
timing or amount cannot be precisely determined. Provisions are
only recognized when the Group has a present legal or
constructive obligation arising from past events that will
result in a future outflow of resources, and when it is probable
that this outflow of resources will be required to settle the
obligation. The amount provided represents the best estimate of
the present value of the outlay required to meet the obligation.
The interest rate used in determining the present value of the
liability reflects current market rates and takes into account
the specific risk of each liability.
Risks for which the likelihood of a liability arising is only
possible are disclosed in the notes under “Contingent
assets and liabilities” and no provision is made.
• Employee
benefits
Short-term benefits are recognized in the income statement in
the year when an employee renders the related service.
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Post-employment benefits
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Post-employment benefits may be divided into two categories:
1) defined contribution plans and 2) defined benefit
plans. Contributions to defined contribution plans are charged
to the income statement when incurred, based on their nominal
amount. For defined benefit plans, since benefits are
determinable only after the termination of employment, costs are
recognized in the income statement based on actuarial
calculations.
Defined benefit plans, which include the Italian employees’
leaving entitlement (TFR) which are due in accordance with the
provisions of article 2120 of the Italian Civil Code (only
for the Wind Group), are based on an employee’s working
life and the compensation received during service. The related
liability is projected forwards to calculate the probable amount
payable at the termination date and is then discounted to
present value using the Projected Unit Credit Method, to take
account of the passage of time before the actual payment of the
benefit.
The measurement of the liability recognized in the statement of
financial position is carried out by actuaries. The calculation
is made for services already rendered and is based on actuarial
assumptions which relate mainly to the discount rate, which
should reflect market yields on the high quality corporate bonds
having a term consistent with the expected term of the
obligation, future increases in salaries and employee turnover.
Following the introduction of Law no. 296 of December 27,
2006 (the 2007 Finance Act) and subsequent decrees and
regulations, the employees’ leaving entitlement accruing
from January 1, 2007 are considered to be part of a defined
contribution plan and are accounted for in the same manner as
other defined contribution plans. This date holds if the amounts
are transferred to treasury funds of the national social
security organization (INPS), but becomes June 30, 2007 or
the date of employee election, if earlier, if the amounts are
transferred to private pension plans. Employees’ leaving
entitlement accrued up to these dates remains a defined benefit
plan, with the related actuarial calculations excluding any
assumptions regarding increases in salaries as previously. The
difference arising from this change was recognized as a
curtailment in the consolidated income statement for the year
ended December 31, 2007.
At the end of the reporting period, actuarial gains and losses,
defined as the difference between the carrying amount of the
liability and the present value of the Group’s obligation
at year end, which arise from changes in the actuarial
assumptions referred to above, are recognized using the
“corridor approach”, meaning only when the gains or
losses exceed 10% of the present value of the Group’s
obligation at the end of the previous reporting period. Any
amount in excess of 10% is charged against future income over a
period consistent with the average remaining working life of
employees, starting with the first period subsequent to that in
which it arises.
Notes to the Consolidated
Financial Statements at December 31, 2009
F-191
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
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Termination benefits and redundancy incentive schemes
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Benefits due to employees on the termination of employment
contracts are treated as a liability when the Group is
demonstrably committed to terminating these contracts for a
single employee or group of employees before the normal
retirement or to granting severance indemnities in order to
facilitate voluntary resignations of surplus employees following
a formal proposal. These employee benefits do not create future
economic advantages to the Group and the related costs are
therefore immediately recognized in the income statement.
The Group recognizes additional benefits to certain members of
personnel through stock option plans. The cost of these plans,
classified as personnel expenses with a counter-entry to a
specific equity reserve, consists of the fair value of the
option at the grant date determined on the basis of models which
take account of factors and elements prevailing at the end of
the reporting period, such as the exercise price of the option,
the option term, the current price of the underlying shares, the
expected volatility of the share price, expected dividends and
the interest rate payable for a zero risk investment over the
option term. If the option right may be exercised after a
certain period of time or on the occurrence of certain
performance conditions (the “vesting period”) the
total value of the options is recognized on a straight-line
basis over the vesting period. The estimate of the number of
options which are expected to vest is updated at the end of each
reporting period while the fair value determined on granting the
options is neither reviewed nor updated. At the end of the
vesting period the balance in equity is reclassified to the
“Share premium reserve” for those options exercised
and to “Retained earnings (losses carried forward)”
for those not exercised.
• Translation
of items in non euro currencies
Transactions in foreign currencies are translated into euros at
the exchange rate prevailing at the date of the transaction.
Exchange gains and losses arising on the settlement of
transactions and those arising on the translation at year-end
exchange rates of monetary assets and liabilities expressed in
currencies other than the functional currency are recognized in
the income statement.
Reference should be made to the paragraph “Financial
instruments” for foreign currency transactions whose
currency risk is hedged by derivatives.
• Treasury
shares
Treasury shares are accounted for as a deduction from equity.
The original cost of treasury shares and revenue from any
subsequent sales are recognized as changes in equity.
• Revenue
recognition
Revenue is recognized at the fair value of the consideration
received, net of rebates and discounts. Revenue from the sale of
goods is recognized when the Group transfers the risks and
rewards of ownership of the goods to the purchaser. Revenue from
services is recognized in the income statement by reference to
the stage of completion and only when the outcome can be
reliably estimated.
More specifically, the criteria followed by the Group in
recognizing ordinary revenue are as follows:
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revenue arising from post-paid traffic, interconnection and
roaming is recognized on the basis of the actual usage made by
each subscriber and telephone operator. Such revenue includes
amounts paid for access to and usage of the Group network by
customers and other domestic and international telephone
operators;
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revenue from the sale of prepaid cards and
top-ups is
recognized on the basis of the prepaid traffic actually used by
subscribers during the year. The unused portion of traffic at
year end is recognized as “Other payables —
Prepaid traffic”;
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Notes to the Consolidated
Financial Statements at December 31, 2009
F-192
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
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revenue from the sale of mobile phones and fixed-line phones and
related accessories is recognized at the time of sale;
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one-off revenue from landline and mobile (prepaid or
subscription) activation
and/or
substitution, prepaid
top-up fees
and the activation of new services and tariff plans is
recognized for the full amount at the moment of activation
independent of the period in which the actual services are
rendered by the Group. In the case of promotions with a
cumulative plan still open at year end, the activation fee is
recognized on an accruals basis so as to match the revenue with
the year in which the service may be used;
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one-off fees received for the granting of rights to use owned
fiber optic cables are recognized at the time of the transfer of
the underlying right and, therefore, of the related risks and
rewards.
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Work in progress consists of specific projects commissioned by
customers that are still in progress at the end of the reporting
period. For projects whose outcome can be reliably estimated,
the contractual revenue and related costs are recognized using
the percentage of completion method based on the stage of the
work being performed. For projects whose outcome cannot be
reliably estimated, contractual revenue is recognized to the
extent of the costs incurred when it is probable that these
costs will be recovered.
Dividends are recognized when the shareholder is entitled to
receive payment.
Government grants are recognized when a formal decision of the
disbursing body has been taken, with revenue being directly
matched to the costs to which a grant relates. Grants related to
income are credited to “Other revenue” in the income
statement, while grants relating to property, plant and
equipment are recognized as deferred revenue and taken to the
income statement on a straight-line basis over the useful life
of the asset to which the grant directly relates.
Interest is recognized on an accruals basis using the effective
interest method, meaning at the interest rate that renders all
cash inflows and outflows linked to a specific transaction
financially equivalent.
Basic earnings per share are calculated by dividing the profit
or loss for the year attributable to owners of the Parent by the
weighted average number of the ordinary shares of the Parent
outstanding during the year.
Diluted earnings per share are calculated by dividing the profit
or loss for the year attributable to owners of the Parent by the
weighted average of the number of ordinary shares of the Parent
outstanding during the year where, compared to basic earnings
per share, the weighted average number of shares outstanding is
adjusted for the effects of all dilutive potential shares, while
the profit or loss for the year is adjusted for the effects of
such conversion net of taxation. Diluted earnings per share are
not calculated when there are losses, as any dilutive effect
would improve earnings per share.
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2.4
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New
accounting standards and interpretations
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The Group has adopted all the newly issued and amended standards
of the IASB and interpretations of the IFRIC, approved by the
European Union, applicable to its transactions and effective for
financial statements for years beginning on or after
January 1, 2009.
Notes to the Consolidated
Financial Statements at December 31, 2009
F-193
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
The new accounting standards and interpretations adopted by the
Group in the preparation of these consolidated financial
statements as of and for the year ended December 31, 2009
are briefly described below:
The Interpretation addresses accounting by entities that grant
loyalty award credits to customers who buy other goods or
services. Specifically, it explains how such entities should
account for their obligations to provide free or discounted
goods or services (‘awards’) to customers who redeem
award credits.
This interpretation, effective from July 1, 2008, has had
no effect on the Group’s consolidated financial statements
at December 31, 2009.
This standard, effective from January 1, 2009, supersedes
IAS 14 Segment Reporting. IFRS 8 places particular
emphasis on internal reports that are regularly reviewed by the
entity’s chief operating decision maker, requiring entities
to prepare segment reporting on the basis of the elements used
by management to take operating decisions.
The introduction of IFRS 8 has led to a change in the way in
which the Group presents this information, superseding the
previous way of reporting this by primary segment
(geographically) and secondary segment (by business). This has
been done in order to present the data relating to the main
groups which provide telephony services in a combined manner,
providing details of their geographical location (Italy, Greece,
Algeria, Pakistan, Egypt, Tunisia, Bangladesh, the Central
African Republic and the Democratic People’s Republic of
North Korea), as compared to the Group companies (belonging to
OTH) which provide other services connected with and linked to
the telephony business.
The main change introduced with the revised version of IAS 23 is
the removal of the option of immediately recognizing as an
expense borrowing costs that relate to assets that take a
substantial period of time to get ready for use or sale.
These changes, effective from January 1, 2009, have had no
effect on the Group’s consolidated financial statements at
December 31, 2009.
The changes introduced, effective from January 1, 2009,
provide for the presentation of all changes in equity resulting
from transactions with owners in the statement of changes in
equity and the presentation, either in the income statement or
in a separate reconciliation, of the detail of income and
expenses recognized directly in equity (these latter forming the
“Other comprehensive income”).
This amendment clarifies the definition of “vesting
conditions” and specifies the cases in which a condition
that is not satisfied will result in the recognition of a
cancellation of the award granted.
The amendment, effective from January 1, 2009, has had no
effect on the Group’s consolidated financial statements at
December 31, 2009.
Notes to the Consolidated
Financial Statements at December 31, 2009
F-194
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
|
|
•
|
Amendments
to IAS 32 and IAS 1 — Puttable Financial Instruments
and Obligations Arising on Liquidation
|
The amendments to IAS 32 require, when certain conditions are
met, that certain puttable financial instruments or obligations
arising only on liquidation should be classified as equity. The
amendments to IAS 1 require disclosure of specific information
about those instruments.
These amendments, effective from January 1, 2009, have had
no effect on the Group’s consolidated financial statements
at December 31, 2009.
The amendments to IFRS 1 allow entities that adopt IFRS for the
first time in their separate financial statements and that
measure investments in subsidiaries, jointly controlled
companies and associates at cost to measure those investments at
deemed cost, represented by the fair value or the carrying
amount under previous accounting principles.
The amendments to IAS 27 remove the definition of the “cost
method” and introduce an entity’s obligation to
recognize dividends from a subsidiary, jointly controlled entity
or associate in the income statement in its separate financial
statements once its right to receive the dividends is
established.
These amendments, effective from January 1, 2009, have had
no effect on the Group’s consolidated financial statements
at December 31, 2009.
|
|
•
|
IFRIC12 —
Service concession arrangements
|
IFRIC 12 gives guidance on the accounting by operators for
infrastructure subject to service concession arrangements. It
also distinguishes between the different stages of a service
concession arrangement (construction/operation phases) and gives
guidance on how revenue and expenses should be recognized in
each case.
This interpretation, effective from January 1, 2008,
governs situations and circumstances that are not present in the
Group.
|
|
•
|
IFRIC
16 — Xxxxxx of a Net Investment in a Foreign
Operation
|
The interpretation provides general guidance on accounting for
the hedge of a net investment in a foreign operation in an
entity’s consolidated financial statements.
This interpretation, effective from October 1, 2008,
governs situations and circumstances that are not present in the
Group.
On January 23, 2009, the European Union approved the
amendments to IFRS (“Improvements”) issued by the IASB
on May 22, 2008. Details are provided in the following
paragraphs of those identified by the IASB as resulting in
accounting changes for presentation, recognition and measurement
purposes, leaving out amendments regarding changes in
terminology or editorial changes which are likely to have
minimal effects on accounting and improvements that relate to
matters not applicable to the Group.
Notes to the Consolidated
Financial Statements at December 31, 2009
F-195
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
|
|
|
|
|
for sale, regardless of whether the entity will retain a
non-controlling interest in its former subsidiary after the sale.
|
|
|
|
|
•
|
IAS 1 — Presentation of Financial Statements
(revised 2007): this amendment, effective from
January 1, 2009, requires an entity to classify assets and
liabilities arising from financial instruments that are not
classified as held for trading between current and non-current
assets and liabilities.
|
|
|
•
|
IAS 19 — Employee Benefits: this
amendment, effective from January 1, 2009, clarifies the
definition of positive/negative past service costs and states
that in the case of a curtailment only the effect of the
reduction for future service will be recognized immediately in
the income statement, while the effect arising from past service
periods will be considered a negative past service cost. The
Board also revised the definition of short-term employee
benefits and other long-term employee benefits and the
definition of a return on plan assets, stating that this amount
should be net of any costs for administering the plan (other
than those included in the measurement of the defined benefit
obligation).
|
|
|
•
|
IAS 23 — Borrowing Costs: this
amendment, applicable from January 1, 2009, revises the
definition of borrowing costs.
|
|
|
•
|
IAS 28 — Investments in
Associates: this amendment, applicable from
January 1, 2009, requires that for investments accounted
for using the equity method a recognized impairment loss should
not be allocated to any asset (and in particular goodwill) that
forms part of the carrying amount of the investment in the
associate, but to the carrying amount of the investment overall.
Accordingly any reversal of that impairment loss is recognized
in full.
|
|
|
•
|
IAS 36 — Impairment of Assets: this
amendment, effective from January 1, 2009, requires
additional disclosures to be made in the case in which an entity
determines the recoverable amount of a cash-generating unit
using discounted cash flows.
|
|
|
•
|
IAS 38 — Intangible Assets: this
amendment, effective from January 1, 2009, requires
expenditure on advertising and promotional activities to be
recognized in the income statement. Further, it states that in
the case expenditure is incurred to provide future economic
benefits to an entity, but no intangible asset is recognized, in
the case of the supply of goods the entity recognizes such
expenditure as an expense when it has the right to access the
goods. In the case of the supply of services, an entity
recognizes the expenditure as an expense when it receives the
services. Moreover, the standard has been revised in order to
allow entities to use the diminishing balance method and the
unit of production method for determining the amortization
charge for an intangible asset with a finite useful life. This
amendment has had no effect on the Group’s consolidated
financial statements.
|
|
|
•
|
IAS 39 — Financial Instruments: Recognition and
Measurement: this amendment, effective from
1 January 2009, clarifies: i) how to calculate the
revised effective interest rate on ceasing fair value hedge
accounting and ii) that the prohibition on the
reclassification of financial instruments into or out of the
fair value through profit or loss category after initial
recognition should not prevent a derivative from being accounted
for at fair value through profit or loss when it does not
qualify for hedge accounting and vice versa. Finally, in order
to eliminate conflict with IFRS 8 — Operating
Segments, it removes the reference to designating and
documenting xxxxxx at sector level. This amendment has had no
effect on the Group’s consolidated financial statements at
December 31, 2009.
|
|
|
•
|
IFRIC
15 — Agreements for the Construction of Real
Estate
|
This interpretation, effective from January 1, 2009,
provides guidance on how to determine whether an agreement for
the construction of real estate is within the scope of IAS 11
Construction Contracts or IAS 18 Revenue and when
revenue from the construction should be recognized.
Notes to the Consolidated
Financial Statements at December 31, 2009
F-196
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
|
|
•
|
Amendments
to IAS 39 and IFRS 7 — Reclassification of Financial
Assets — Effective Date and Transition.
|
This amendment, introduced in November 2008 and effective
starting July 1, 2008, provides guidance on the effective
date of the amendments to IAS 39 and IFRS 7 introduced in
October 2008.
The amendments, effective from January 1, 2009, are aimed
at improving the disclosure requirements about fair value
measurements and reinforce existing principles for disclosures
about the liquidity risk associated with financial instruments.
|
|
•
|
Amendments
to IFRIC 9 and IAS 39 — Embedded
Derivatives.
|
The amendments, which are required to be applied for annual
periods ending on or after June 30, 2009, clarify the
accounting treatment of embedded derivatives for entities that
have used the option of reclassifying financial instruments
introduced by the IASB in October 2008.
|
|
•
|
New
standards and interpretations not yet effective
|
The following standards and interpretations had been issued at
the date of these notes but were not yet effective for the
preparation of these consolidated financial statements at
December 31, 2009.
Notes to the Consolidated
Financial Statements at December 31, 2009
F-197
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
|
|
|
|
|
Standard/Interpretation
|
|
IASB Effective Date
|
|
EU Endorsement
|
|
IFRS 3 — Business Combinations (revised January 2008)
|
|
Annual financial statements beginning on or after July 1, 2009
|
|
Endorsed
|
IFRS 1 — First-time Adoption of IFRS (revised November
2008)
|
|
First IFRS financial statements for a period beginning on or
after July 1, 2009
|
|
Endorsed
|
Amendment to IAS 39 — Financial Instruments:
Recognition and Measurement (Eligible Hedged Items)
|
|
Annual financial statements beginning on or after July 1, 2009
|
|
Endorsed
|
Amendment to IAS 27 — Consolidated and Separate
Financial Statements
|
|
Annual financial statements beginning on or after July 1, 2009
|
|
Endorsed
|
IFRIC 17 — Distribution of Non-cash Assets to Owners
|
|
Annual financial statements beginning on or after July 1, 2009
|
|
Endorsed
|
IFRIC 18 — Transfers of Assets from Customers
|
|
Annual financial statements beginning on or after July 1, 2009
|
|
Endorsed
|
Improvements to IFRSs (April 2009)
|
|
Effective dates between July 1, 2009 and January 1, 2010
(or subsequent)
|
|
Not endorsed
|
Amendments to IFRS 2 — Group Cash-settled Share-based
Payment Transactions
|
|
Annual financial statements beginning on or after January 1, 2010
|
|
Not endorsed
|
Amendments to IAS 32 — Classifications of rights issues
|
|
Annual financial statements beginning on or after February 1,
2010
|
|
Endorsed
|
IFRIC 19 — Extinguishing Financial Liabilities with
Equity Instruments
|
|
Annual financial statements beginning on or after July 1, 2010
|
|
Not endorsed
|
Amendments to IFRIC 14 — Prepayment of a minimum
Funding Requirement
|
|
Annual financial statements beginning on or after January 1, 2011
|
|
Not endorsed
|
Revised IAS 24 — Related Party Disclosures
|
|
Annual financial statements beginning on or after January 1, 2011
|
|
Not endorsed
|
IFRS 9 — Financial Instruments (completion of first
part of the three-part project to replace IAS 39 Financial
Instruments: Recognition and Measurement with a new standard)
|
|
Annual financial statements beginning on or after January 1, 2013
|
|
Not endorsed
|
The Group is currently assessing any impact the new standards
and interpretations may have on the financial statements for the
periods in which they become effective.
The preparation of these consolidated financial statements
requires management to apply accounting policies and
methodologies that are based on complex, subjective judgments,
estimates based on past experience and assumptions determined
from time to time to be reasonable and realistic given the
related circumstances. The use of these estimates and
assumptions affects the amounts reported in the statement of
financial position, the income statement and the cash flow
statement as well as the notes. If in future, such estimates
based on management valuation, should differ from real events,
such estimates would be corrected so to reflect the change of
the period. Certain measurement processes, in particular the
more complex of these such as the assessment of any impairment
losses for non-current assets, are generally carried out in a
more detailed manner only during the preparation of the annual
financial statements, when all the information that may be
required is available, excluding situations in which there is an
indication that an asset may be impaired when an immediate
calculation of any impairment losses needs to be made.
Notes to the Consolidated
Financial Statements at December 31, 2009
F-198
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
The accounting policies requiring a higher degree of subjective
judgment in making estimates and for which changes in the
underlying conditions could significantly affect the
consolidated financial statements are briefly described below.
|
|
|
|
•
|
Goodwill: goodwill is tested for
impairment at least on an annual basis to determine whether any
impairment losses have arisen that should be recognized in the
income statement. More specifically, the test is performed by
allocating the goodwill to a cash generating unit and
subsequently estimating the unit’s fair value; should the
fair value be lower than the carrying amount of the CGU, an
impairment loss is recognized for the allocated goodwill. The
allocation of goodwill to cash generating units and the
determination of the fair value of a CGU require estimates to be
made that are based on factors that may vary over time and that
could as a result have an impact on the measurements made by
management which might be significant.
|
|
|
•
|
Impairment losses on non-current
assets: non-current assets are reviewed to
determine whether there are any indications that it may be
difficult to recover the carrying amount of these assets and
that they have suffered an impairment loss that needs to be
recognized. In order to determine whether any such elements
exist it is necessary to make subjective measurements, based on
information obtained within the Group and from the market and
past experience. When a potential impairment loss emerges it is
estimated by the Group using appropriate valuation techniques.
The identification of the elements that may determine a
potential impairment loss and the estimates used to measure such
loss depend on factors which may vary over time, thereby
affecting estimates and measurements.
|
|
|
•
|
Depreciation of non-current assets: the
cost of property, plant and equipment is depreciated on a
straight-line basis over the useful lives of the assets. The
useful lives of property, plant and equipment are determined
when the assets are purchased and are based on the past
experience of similar assets, market conditions and forecasts
concerning future events which may affect them, amongst which
are changes in technology. The actual useful lives may therefore
differ from estimates. The Group regularly reviews technological
and business sector changes, dismantling costs and recoverable
amounts in order to update residual useful lives. Such regular
updating may entail a change to the depreciation period and
consequently a change to the depreciation charged in future
years.
|
|
|
•
|
Deferred tax assets: the recognition of
deferred tax assets is based on forecasts of future taxable
profit. The measurement of future taxable profit for the
purposes of determining whether or not to recognize deferred tax
assets depends on factors which may vary over time and which may
lead to significant effects on the measurement of this item.
|
|
|
•
|
Provisions: in provisions the Group
recognizes the probable liabilities that may arise from disputes
with employees, suppliers and third parties and, in general,
from the losses it may be required to incur as a result of past
obligations. The determination of such provisions entails making
estimates based on currently known factors which may vary over
time and which could actually turn out to be significantly
different from those taken into consideration in preparing the
financial statements.
|
During the ordinary course of its business the Weather Group is
exposed to financial and non financial risks. These risks are
managed by defining guidelines and general objectives,
monitoring the identified risks and excluding the use of
financial instruments for speculative purposes.
The means by which the various types of risk are managed and the
sensitivity analysis performed on these risks are described
below.
The Group’s credit risk is associated with both trade and
financial receivables.
Notes to the Consolidated
Financial Statements at December 31, 2009
F-199
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
The Group manages the credit risk associated with trade
receivables in advance by carrying out a preventive credit check
process, which ensures that all customers requesting new
products and services or additions to existing services are
reliable and solvent, giving preference to contracts which
provide for the use of automatic payment methods with the aim of
reducing the underlying credit risk, and subsequently by
monitoring overdue receivables. The exposure of trade
receivables to credit risk is represented by their realizable
value, which amounted to €2,315 million (including
other receivables) at December 31, 2009. In general, there
is a limited concentration of receivables due to the
diversification of products and services offered to customers.
More specifically, receivables are to a slight extent
concentrated in transactions between the Weather Group and other
operators (relating to interconnection and roaming traffic) and
authorized dealers (relating to the sale of mobile and
fixed-line handsets and
top-up
cards). As a result, the Group is exposed to minimal losses on
receivables mainly due to prepaid customers. The Group’s
credit risk associated with financial receivables (essentially
deposits, current accounts and hedging derivative contracts) is
managed by prudent criteria. In order to limit the credit risk
prime financial institutions are used for agreements for
short-term investments and derivatives. The exposure to credit
risk on derivative contracts is represented by their realizable
value, which is their fair value when positive. The fair value
of derivative contracts at December 31, 2009 was a positive
€337 million, while the fair value of the entire
portfolio was a negative €303 million.
The OTH Group is exposed to specific credit risk arising from
one-off transactions. More specifically:
|
|
|
|
•
|
OTH sold its investment in Orasinvest in November 2008. The
total receivable from the sale prior to price adjustments
amounted to USD180 million. At December 31, 2008, an
amount of USD90 million was still outstanding, prior to
price adjustments. During 2009, USD65 million were
collected (equal to €45 million), the residual
receivable will be collected in 2010;
|
|
|
•
|
OTH entered two loans agreements in 2008 to provide a total
amount of USD423 million (equal to €294 million)
to Globalive Wireless Management Corp (“GWMC”), a
subsidiary of the associate Globalive Investment Holdings Corp.
|
During 2009 a new loan was issued for USD131 million (equal
to €91 million). A total of USD645 million (equal
to €448 million) was still outstanding at
December 31, 2009 under these agreements. The loans were
provided to GWMC to acquire spectrum licenses in Canada. The
licenses were awarded to GWMC on a final basis in March 2009 by
the Canadian Industry Ministry. In December 2009, following a
decision of the Canadian Government, GWMC entered the Canadian
wireless market under the name of WIND Mobile. Based on business
plan projections it is expected that GWMC will be able to repay
the loan received when it is fully operational.
The Group is financed partly by equity and partly by debt. Debt
consists of short-term and long-term loan agreements and bonds
placed in part with private institutions and in part on the open
market with both floating and fixed interest rates. Agreements
may contain clauses that require repayment upon the occurrence
of certain events.
It should be noted that on September 24, 2009, the
Guaranteed Secured Exchangeable Bond issued by Weather Capital
Finance SA, for a nominal amount of €825 million and
maturity February 2013, was repaid early for a total of
€832 million, including accrued interest and cost.
Contracts containing payment commitments over the term of the
agreement are entered for loans of this nature to hedge interest
rate and currency risks; in the event of early repayment or a
negative fair value these may cause a financial commitment to
arise. Certain loan agreements contain financial covenants which
the Group must respect over the term of the loan.
Except for that indicated for the Hellas Group in note 1.1,
at December 31, 2009 there has not been any breach of the
financial covenants.
Notes to the Consolidated
Financial Statements at December 31, 2009
F-200
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
Liquidity risk is managed through prudent funding, the use of
short-term securities and the availability of adequate committed
credit facilities. Each operating company is responsible for its
own cash flow management, under the supervision of the
sub-holdings
which monitor liquidity forecasts on the basis of expected cash
flows and available credit facilities. The management of
liquidity risk is guided by criteria whose aim is to hold an
adequate level of treasury funds which are readily available to
meet financing requirements. Up to December 31, 2009, the
liquidity available to the Group allowed it to amply cover its
short-term financial liabilities.
The contractual due dates for financial liabilities, including
those for interest payments, at December 31, 2009 and 2008,
are set out in the following tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount at
|
|
|
Contractual
|
|
|
Within
|
|
|
1-5
|
|
|
More than
|
|
|
|
December 31, 2009
|
|
|
Cash-Flows
|
|
|
1 Year
|
|
|
Years
|
|
|
5 Years
|
|
|
|
|
|
|
(Millions of euro)
|
|
|
|
|
|
|
|
|
Non-derivative financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing from banks
|
|
|
8,853
|
|
|
|
10,218
|
|
|
|
1,580
|
|
|
|
8,623
|
|
|
|
15
|
|
Bonds
|
|
|
7,244
|
|
|
|
12,417
|
|
|
|
672
|
|
|
|
4,931
|
|
|
|
6,814
|
|
Bank overdraft
|
|
|
117
|
|
|
|
122
|
|
|
|
122
|
|
|
|
0
|
|
|
|
0
|
|
Financing from others
|
|
|
39
|
|
|
|
48
|
|
|
|
23
|
|
|
|
10
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
16,253
|
|
|
|
22,805
|
|
|
|
2,397
|
|
|
|
13,564
|
|
|
|
6,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inflows
|
|
|
106
|
|
|
|
3,981
|
|
|
|
280
|
|
|
|
1,317
|
|
|
|
2,383
|
|
Outflows
|
|
|
(639
|
)
|
|
|
(4,695
|
)
|
|
|
(468
|
)
|
|
|
(1,677
|
)
|
|
|
(2,549
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(533
|
)
|
|
|
(714
|
)
|
|
|
(188
|
)
|
|
|
(359
|
)
|
|
|
(166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount at
|
|
|
Contractual
|
|
|
Within
|
|
|
1-5
|
|
|
More than
|
|
|
|
December 31, 2008
|
|
|
Cash-Flows
|
|
|
1 Year
|
|
|
Years
|
|
|
5 Years
|
|
|
|
|
|
|
(Millions of euro)
|
|
|
|
|
|
|
|
|
Non-derivative financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing from banks
|
|
|
11,147
|
|
|
|
(15,130
|
)
|
|
|
(762
|
)
|
|
|
(11,298
|
)
|
|
|
(3,070
|
)
|
Bonds
|
|
|
5,006
|
|
|
|
(7,466
|
)
|
|
|
(441
|
)
|
|
|
(3,468
|
)
|
|
|
(3,557
|
)
|
Convertible bonds
|
|
|
730
|
|
|
|
(988
|
)
|
|
|
(39
|
)
|
|
|
(949
|
)
|
|
|
0
|
|
Bank overdraft
|
|
|
45
|
|
|
|
(48
|
)
|
|
|
(48
|
)
|
|
|
0
|
|
|
|
0
|
|
Financing from others
|
|
|
45
|
|
|
|
(46
|
)
|
|
|
(23
|
)
|
|
|
(23
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
16,973
|
|
|
|
(23,678
|
)
|
|
|
(1,313
|
)
|
|
|
(15,738
|
)
|
|
|
(6,627
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inflows
|
|
|
28
|
|
|
|
3,222
|
|
|
|
819
|
|
|
|
1,597
|
|
|
|
806
|
|
Outflows
|
|
|
(333
|
)
|
|
|
(3,163
|
)
|
|
|
(807
|
)
|
|
|
(1,439
|
)
|
|
|
(917
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(305
|
)
|
|
|
59
|
|
|
|
12
|
|
|
|
158
|
|
|
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Group is exposed to market risk as a result of changes in
interest rates and fluctuations in exchange rates in the markets
in which it operates and as a consequence of bond issues. The
Group’s strategy to manage interest rate and currency risks
is aimed at both managing and controlling such financial risks.
More specifically, this strategy is
Notes to the Consolidated
Financial Statements at December 31, 2009
F-201
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
aimed wherever possible at eliminating currency risk, optimizing
debt cost and managing derivatives in compliance with the
policies and strategies defined within the Group, taking into
consideration the different effects that these instruments could
have on the income statement and the statement of financial
position as a function of their classification and accounting
treatment. In particular, the Group has entered into a certain
number of agreements for derivative financial instruments to
manage its exposure to interest rate and currency risk,
including for example currency swaps to manage the currency risk
associated with bonds denominated in foreign currencies,
currency forward contracts to manage currency risk and interest
rate swaps to mitigate the risk of a rise in interest rates.
The Group’s loans generally bear interest at variable
rates. The basic strategy for hedging interest rate risk is to
balance the debt load with an appropriate mixture of fixed and
variable interest rate borrowings based on the Group’s
expectations of future interest rate movements. The risk is
monitored by comparing the effect of a change in the benchmark
variable rate on the Group’s finance expense.
More specifically, an interest rate sensitivity analysis was
carried out at December 31, 2009 taking an increase of
100 basis points in the euro interest rate yield curve with
respect to the Group’s exposure, and this would have led to
a rise in finance expense of approximately €4 million
at that date.
Group subsidiaries are encouraged to obtain funding in their
functional currency in order to achieve a natural hedging of the
currency risk for such funding. However since certain
transactions are carried out in foreign currency, the Group may
in any case be exposed to the risk of exchange rate
fluctuations. As a result, certain agreements have been entered
into hedge this risk.
More specifically, the OTH Group is exposed to the risk of
changes in the exchange rates connected with its investing,
financing and operating activities: the main currencies for
which the OTH Group has an exposure are the US dollar, CAD and
euro. The risk monitored regards loans, trade payables and
expected dividends. At December 31, 2009, the Group’s
financial liabilities included loans of USD4,232 million
and €248 million which in certain cases are covered by
hedging agreements. In particular, at December 31, 2009,
Pakistan Mobile Communication Limited (PMCL) had loans of
USD177 million and €190 million fully hedged by
cross currency swap agreements in respect of which the repayment
of capital and the payment of interest are regulated in Pakistan
rupees.
The OTH Group performed sensitivity analyses in the event of an
appreciation of 10% in the euro and US dollar against its
functional currency; in these cases there would have been an
increase in foreign exchange losses of €257 million in
the case of the appreciation of US dollar and
€42 million in the case of the appreciation of Euro.
Considering that the total of loans and bonds outstanding at
December 31, 2009 amounted to €16,273 million,
the fixed to floating ratio was as follows at that date.
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
|
|
Rate at
|
|
|
December 31, 2009
|
|
December 31, 2009
|
|
|
(Millions of euro)
|
|
At fixed rate
|
|
|
14,318
|
|
|
|
88
|
%
|
At floating rate
|
|
|
1,955
|
|
|
|
12
|
%
|
For fair value measurement recognized in the statement of
financial position, IFRS 7 requires an entity to classify fair
value measurements on the basis of a fair value hierarchy, with
the following levels, by reference to the significance of the
inputs used in making measurement:
|
|
|
|
•
|
Level 1 — quoted prices (unadjusted) in
active markets for identical assets or liabilities;
|
|
|
•
|
Level 2 — inputs other than quoted prices
included within Level 1 that are observable for the assets
or liability, either directly (as prices) or indirectly (derived
from prices) on the market;
|
|
|
•
|
Level 3 — inputs for the asset or
liability that are not based on observable market data.
|
Notes to the Consolidated
Financial Statements at December 31, 2009
F-202
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
The following table analyses financial instruments carried at
fair value, by valuation method, at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(Millions of euro)
|
|
|
Assets at fair value
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held for trading
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
Available for sale
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
231
|
|
|
|
106
|
|
|
|
337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
29
|
|
|
|
231
|
|
|
|
106
|
|
|
|
366
|
|
Liabilities at fair value
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
570
|
|
|
|
69
|
|
|
|
639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
|
|
570
|
|
|
|
69
|
|
|
|
639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2009 there were no transfers neither from Level 1 to
Level 2 or vice versa nor from Level 3 to other levels
or vice versa.
|
|
•
|
Political
and economic risk in emerging countries
|
A substantial part of the OTH Group’s operations is carried
out in Algeria, Pakistan, Egypt, and Tunisia. The operating
results of the OTH Group are and will be affected by the current
and future economic and political developments in these
countries and, especially, by the level of economic activity
taking place there. In particular, the operations carried out by
the OTH Group in those countries and its ability to ensure
continuity could be adversely affected by weaknesses in the
local economies and potentially harmful changes in the political
structure. These changes could also have an unfavorable impact
on financial conditions, performance and business prospects. In
this respect the political, economic and financial difficulties
of Pakistan, together with the significant devaluation of the
Pakistan rupee, have had an affect on the Group’s financial
and economic performance.
|
|
•
|
Specific
regulatory risk in emerging countries
|
The various jurisdictions in which the OTH Group operates could
amend and change laws and regulations in such a way as to cause
an unfavorable effect on the Group’s financial position.
For example, laws, regulations or administrative practices
relating to taxation (including the current tendency to withhold
tax on the dividends of subsidiaries in these countries and
grant tax relief for certain operations) could change, as could
exchange rates or other factors. All of these changes could
cause unfavorable effects on the financial activities of the OTH
Group and on its ability to receive funds from its subsidiaries.
|
|
•
|
Risk
associated with exchange rates, devaluations and the inability
to obtain funding abroad
|
Revenue generated by the majority of the foreign subsidiaries
within the OTH Group is expressed in local currency. The OTH
Group expects to receive most of this revenue from its
subsidiaries and therefore it relies on their ability to
transfer funds. The laws and regulations of certain of the
countries in which the mobile telephone subsidiaries of the OTH
Group operate could reduce their ability to pay interest and
dividends and to repay loans, credit instruments and securities
expressed in foreign currency through the export of currency. In
addition, in some countries it could be difficult to convert
large amounts of foreign currency owing to the strict rules
imposed by central banks. Moreover, no assurance can be given
that central banks will not introduce measures in the future
limiting the exchange of foreign currency and, accordingly, no
guarantee can be given that the ability of the OTH Group to
receive funds from its subsidiaries will not be restricted.
Notes to the Consolidated
Financial Statements at December 31, 2009
F-203
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
The fact that each subsidiary within the OTH Group earns its
revenue and incurs its operating expenses mostly in local
currency leads to exchange rate fluctuations and devaluations.
The operating results of the OTH Group companies are presented
in US dollars before being consolidated in Weather Investments
SpA and are therefore subject to exchange rate fluctuations
between the US dollar and the local currencies, which include
the euro, the Algerian dinar, the Egyptian pound, the Tunisian
dinar, the Pakistan rupee, the Bangladesh taka and the Canadian
Dollar.
In periods when there were significant devaluations of local
currencies against the US dollar, the OTH Group was able to
increase its prices expressed in local currency to partially
compensate for the change in the exchange rate. The Group may
not be able to repeat such practice in the future. Moreover,
investment expenditure incurred by the OTH Group is denominated
partly in euros and partly in US dollars and is generally funded
by operating cash flows and loans expressed in local currency.
This implies that the Group has to incur an increase in the cost
(in local currency) to finance such investments whenever the
local currency is devalued with respect to the US dollar or euro.
The OTH Group attempts to hedge the exchange rate exposure with
respect to the euro or the US dollar for entities having
receipts denominated in either of those currencies and not in
local currency even if in certain cases the subsidiary’s
local currency market is not sufficiently developed. As a
consequence, the fluctuation of the local currency exchange rate
with the US dollar or the euro could lead to losses. The OTH
Group seeks to reduce its exposure to currency risks arising
from transactions through a policy of matching assets and
liabilities, where possible. Despite this, the ability of the
OTH Group to reduce currency risk exposure could be limited by
restrictions on obtaining loans denominated in local currencies.
In general, the OTH Group cannot guarantee its ability to reduce
its exposure to exchange rate fluctuations through its local
currency exposure. The potential inflation in certain local
economies may reduce a customer’s ability to pay for the
services provided by the OTH Group and moreover undermine or
have an adverse effect on the stability of the
telecommunications industry in those countries. The ability of
the OTH Group to operate depends strictly on the market
economies of the countries in which its subsidiaries are
located. These countries are characterized by economies that are
in various stages of development or are undergoing structural
reform; some of these countries are experiencing rapid
fluctuations in terms of retail prices, employment rates, gross
domestic product, and interest and foreign exchange rates. The
OTH Group may be exposed to such fluctuations in the local
economies and to their effects on the ability of its customers
to pay for the services provided. Moreover, these fluctuations
could affect the market’s ability to sustain the OTH
Group’s existing interest in the telecommunications sector
or growth of any kind in that sector. It is also possible that a
period of high inflation in any of the markets in which the OTH
Group is present could have an unfavorable effect on its costs
and financial conditions.
Segments have been identified by taking into consideration the
Group’s organizational structure and its system of internal
reporting. More specifically, the segments to which these
disclosures relate are operating segments or aggregations of
operating segments which are regularly reviewed by management.
The format selected provides information on the results,
financial position and cash flows of the main companies of the
Group providing telephony services (fixed and mobile), analyzed
by their geographical location (Italy, Greece, Algeria,
Pakistan, Egypt, Tunisia, Bangladesh, the Central African
Republic and the Democratic
Notes to the Consolidated
Financial Statements at December 31, 2009
F-204
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE WEATHER INVESTMENTS
GROUP — (Continued)
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2009
People’s Republic of North Korea) and summarized
information for the other Group companies which provide services
connected with and linked to the telephony business and the
holding companies.
SEGMENT
INFORMATION: BUSINESS
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
12 Months
|
|
|
12 Months
|
|
|
|
(Millions of euro)
|
|
|
Products and services:
|
|
|
|
|
|
|
|
|
Mobile
|
|
|
6,006
|
|
|
|
6,143
|
|
Fixed — line and Internet
|
|
|
4,065
|
|
|