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TheStreet Open House

Mobile TeleSystems Announces Financial Results For The Second Quarter Ended June 30, 2012

Stocks in this article: MBT

MOSCOW, August 28, 2012 /PRNewswire/ --

Mobile TeleSystems OJSC ("MTS" - NYSE: MBT), the leading telecommunications provider in Russia and the CIS, today announces its unaudited US GAAP financial results for the three months ended June 30, 2012.

Key Financial Highlights of Q2 2012

  • Consolidated revenues up 3.6% q-o-q to $3,122 million
  • Consolidated adjusted OIBDA [1] up 9.1% q-o-q to $1,374 million with 44.0% OIBDA margin
  • Consolidated net loss [2] of $682 million
  • Free cash-flow [3] positive with $1.1 billion for the six months ended June 30, 2012

Key Corporate and Industry Highlights

  • Obtained license and frequencies to provide LTE telecommunication services in Russia in the FDD (frequency division duplexing) standard
  • Announced the suspension of operating licenses of Uzdunrobita FE LLC ("MTS-Uzbekistan"), MTS's wholly owned subsidiary in Uzbekistan
  • Acquired a 100% stake in Tascom CJSC, a market leader in providing telecommunication services to corporate clients in Moscow and the Moscow region, for $38.3 million [4]
  • Agreed to a memorandum of understanding with other telecommunications operators to jointly lay and operate an underwater fiber-optic cable Sakhalin-Magadan-Kamchatka. Total length of the cable is approximately 2,000 km
  • Signed a shareholders agreement with AFK Sistema to jointly develop and manage the multimedia content portal Stream.ru (formerly Omlet.ru), following the reduction of MTS's stake in LLC Stream from 100% to 45% and subsequent deconsolidation of the asset
  • Completed the dividend payment of RUB 14.71 per ordinary MTS for the 2011 fiscal year, amounting to a total of RUB 30.4 billion
  • Received licenses and agreed upon legal and technical conditions to resume operations in Turkmenistan
  • Repurchased the series 05 ruble-denominated bond in the amount of approximately RUB 13.2 billion and changed the bond's coupon rate from an annual rate of 14.25% to 8.75%
  • Acquired a 100% stake in Elf group of companies, a fixed broadband and pay-TV services provider in Belgorod and the Belgorod region, for RUB 220 million
  • Acquired a 100% stake in LLC "Intercom", a broadband and cable TV provider in the Mari El Republic, for RUB 90 million

Impairment charges related to MTS' operations in the Republic of Uzbekistan

On June 28, 2012, MTS announced that Uzbekistan authorities were conducting audits of the financial and operating activities of MTS-Uzbekistan and that certain MTS-Uzbekistan managers were detained without any legitimate grounds.

On July 17, 2012, MTS-Uzbekistan suspended its operations in Uzbekistan following receipt of an order from the Communications and Information Agency of Uzbekistan ("SACI") informing MTS-Uzbekistan of the temporary suspension of the operating license of MTS-Uzbekistan for a period of 10 business days.

On July 30, 2012, the Tashkent Economic Court granted a petition, which was filed on July 27, 2012 by the SACI, to extend the suspension of the operating of license of MTS-Uzbekistan for an additional period of three months. MTS- Uzbekistan filed an appeal to challenge this decision on August 8, 2012.  On August 17, 2012, this appeal was denied.

On August 8, 2012, MTS announced that from August 6, 2012 through August 7, 2012, 16 regional antimonopoly departments of the Republic of Uzbekistan simultaneously held hearings and declared that MTS-Uzbekistan violated antimonopoly laws, consumer protection laws and laws governing advertisements. In total, the claims of the antimonopoly regulator against MTS-Uzbekistan amounted to approximately $80 million, which was subsequently reduced by the central anti-monopoly authority to approximately $13 million.

On August 9, 2012, MTS announced that the SACI had filed a petition with the Tashkent Commercial Court to withdraw all operating licenses of MTS-Uzbekistan. In addition, numerous claims were asserted against MTS-Uzbekistan on the grounds that it failed to comply with applicable licensing requirements.

On August 13, 2012, the Tashkent Commercial Court granted SACI's petition to withdraw all operating licenses of MTS-Uzbekistan. Subsequently, on August 27, 2012, MTS-Uzbekistan's appeal was denied.  MTS also received the content of 16 findings of tax audits conducted by Uzbekistan tax authorities, which resulted in claims against MTS in excess of $669 million.

MTS maintains that since the acquisition of MTS-Uzbekistan in 2004, it has duly complied with the requirements of the laws of Uzbekistan, a fact which has been confirmed by numerous audits conducted by the SACI and other regulatory bodies of Uzbekistan. Furthermore, in the last two months, in an attempt to clarify the situation and engage the relevant authorities in constructive discussions, MTS has sent numerous letters to the government of the Republic of Uzbekistan, including the President of Uzbekistan, I.A. Karimov. To date, MTS has not received any official response.  

While MTS strongly denies any wrongdoing alleged by the various Uzbekistan authorities and has challenged, and intends to continue to challenge, the legality of their actions, MTS has fully complied with the relevant court decisions described above and has suspended all of its operations in Uzbekistan. Considering the adverse impact of such circumstances on MTS’ ability to conduct operations in Uzbekistan, MTS has determined that a portion of its long-lived assets attributable to Uzbekistan was impaired and has recorded an impairment charge of $579 million in the consolidated statement of operations for the three months ended June 30, 2012. In addition, MTS has provided for tax, anti-monopoly and other liabilities that management believes are probable to result from the various legal proceeding currently ongoing in Uzbekistan in the amount of $500 million. The total effect of impairment charges on MTS’ statement of operations, visible in its US GAAP net income for the three months ended June 30, 2012, is as follows:

    Reconciliation of financial statements for events in Uzbekistan

    USD million                                                                Q2 2012
    Net Operating Income before adjustments attributable to Uzbekistan           794.6
    Impairment of goodwill & long-lived assets in Uzbekistan                     579.0
    Provision for tax and anti-monopoly claims in Uzbekistan                     500.0
    Net Operating Loss                                                          (284.4)

    Net Loss[5]                                                                 (673.4)

In connection with recent developments, MTS is conducting an internal review to evaluate events surrounding MTS-Uzbekistan and its employees, including communications with relevant international and local authorities, as well as correspondence with the General Prosecutor's Office, SACI and anti-monopoly organizations.

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