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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DECEMBER 15, 2003
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
GOLDEN TELECOM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-27423 51-0391303
(State of incorporation) (Commission File Number) (IRS Employer Identification No.)
REPRESENTATION OFFICE GOLDEN TELESERVICES, INC.
1 KOZHEVNICHESKY PROEZD
MOSCOW, RUSSIA 115114
(Address of principal executive office)
(011-7-501) 797-9300
(Registrant's telephone number, including area code)
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Golden Telecom, Inc. filed a Form 8-K dated December 15, 2003 with regard to the
acquisition of the 100% of the issued and outstanding shares of capital stock of
OAO Comincom without the required financial information. Accordingly, Golden
Telecom, Inc. is filing this Form 8-K/A to include that financial information.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
In August 2003, Golden Telecom, Inc. ("GTI" or the "Company") finalized
the acquisition of 100% of OOO Sibchallenge Telecom ("Sibchallenge"), an
alternative wireline operator in Krasnoyarsk, Russia. Sibchallenge owns 100% of
the ownership interest in ZAO Tel, an Internet services provider, also based in
Krasnoyarsk. The total purchase price of approximately $15.4 million consisted
of cash consideration of $15.0 million and $0.4 million in estimated direct
transaction costs, including an investment banking fee of $0.3 million paid to
Belongers Limited, an affiliate of Alfa Telecom Limited, a shareholder of the
Company. The purchase price was determined through arms' length negotiations
between the Company and the previous shareholders of Sibchallenge. The Company
began consolidating Sibchallenge upon the date of closure.
In August 2003, GTI and wholly-owned subsidiaries of GTI entered into
share exchange agreements with Nye Telenor East Invest AS ("Telenor") to acquire
100% of the issued and outstanding shares of capital stock of OAO Comincom
("Comincom") held by Telenor. Comincom is an Open Joint Stock Company
incorporated under the laws of the Russian Federation. Upon closure, December 1,
2003, Telenor was issued GTI common stock such that Telenor held 19.5% of the
outstanding common shares on the date of closing. For purposes of these
condensed pro forma consolidated financial statements, the assumed closing date
is September 30, 2003 resulting in 6,972,139 shares of GTI common stock assumed
issued in conjunction with this transaction. The purchase price was determined
through arms' length negotiation between the Company and Telenor. For purposes
of this transaction, the 6,972,139 million shares were valued at $28.31 per
share. The estimated total purchase price of approximately $199.3 million
consisted of approximately $197.4 million in GTI common stock and direct
transaction costs of approximately $1.9 million. Pursuant to a Shareholders'
Agreement, Telenor is represented on the Company's Board of Directors. The
Company began to consolidate the financial position and results of operations of
Comincom upon the date of closure. The Company was advised by JP Morgan PLC. On
December 1, 2003, GTI finalized the acquisition of Comincom. The estimated
actual total gross consideration is approximately $193.5 million, excluding
direct transaction costs.
The acquisition of 100% of Comincom further strengthens the Company's
position in the key Moscow and St. Petersburg communications markets, and
positions the Company to realize future operating and cost synergies. Comincom
provides telecommunications services, principally to major hotels, business
offices and mobile communication companies through its telecommunications
network in Russia, including Moscow, St. Petersburg, Voronezh, Samara and
several other major population centers. The Company intends to use the assets of
Comincom in the manner in which they were previously used.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of business acquired:
The balance sheets as of December 31, 2002 and 2001, and the related
statements of income, stockholders' equity, and cash flow for each of the two
years in the period ended December 31, 2002 of OAO Comincom are incorporated
herein by reference from the Company's Definitive Proxy Statement dated October
31, 2003 (Commission File No. 0-27423).
The interim financial statements for the three and six months ended
June 30, 2003 of OAO Comincom are incorporated herein by reference from the
Company's Definitive Proxy Statement dated October 31, 2003 (Commission File No.
0-27423).
(b) Pro forma financial statements:
The accompanying unaudited condensed pro forma consolidated financial
statements give effect to the acquisition by GTI of 100% of Sibchallenge for
approximately $15.4 million in cash consideration, including direct transaction
costs of $0.4 million. In addition, the accompanying unaudited condensed
2
pro forma consolidated financial statements also give effect to the acquisition
by GTI of 100% of Comincom and the related issuance of GTI's common shares and
no cash consideration, except for direct transaction costs. The final purchase
price allocation will be calculated based on the transaction value and the fair
values of Comincom's identifiable assets and liabilities at the date of closure.
Therefore, the actual goodwill amount, as well as other balance sheet items,
could differ from the preliminary unaudited condensed pro forma consolidated
financial statements presented herein, and in turn affect items in the
preliminary condensed pro forma consolidated statement of operations, such as
intangible asset amortization and income taxes.
The accompanying unaudited condensed pro forma consolidated balance
sheet as of September 30, 2003 and accompanying unaudited condensed pro forma
consolidated statements of operations for the year ended December 31, 2002 and
for the nine month period ended September 30, 2003 were prepared based on the
Company's interpretation of guidance issued by the United States Securities and
Exchange Commission ("SEC") (specifically Section 11.02 of Regulation S-X). The
unaudited condensed pro forma consolidated income statements for the year ended
December 31, 2002 and for the nine month period ended September 30, 2003 give
effect to the acquisitions as if the transactions had occurred on January 1,
2002. The unaudited condensed pro forma balance sheet as of September 30, 2003
gives effect to the Comincom acquisition as if the transaction had occurred on
September 30, 2003.
GTI has presented these unaudited condensed pro forma consolidated
financial statements for illustrative purposes only. The unaudited condensed pro
forma consolidated financial statements are not necessarily indicative of the
actual results of operations or financial position that would have occurred had
the acquisitions occurred on the dates indicated, nor are they necessarily
indicative of future operating results or financial position. No account has
been taken within the unaudited condensed pro forma consolidated financial
statements to any synergy or any severance and restructuring costs that may, or
may be expected to, occur following the acquisition. The unaudited condensed pro
forma consolidated financial statements are only a summary and should be read in
conjunction with the historical consolidated financial statements and related
notes of GTI and Comincom and other information included or incorporated by
reference in this current report.
The estimated total purchase price of Comincom of approximately $199.3
million consists of approximately $197.4 million in GTI's common stock,
representing 6,972,139 newly issued shares and estimated direct transactions
costs of approximately $1.9 million. The estimated value of the common stock was
determined based on the average closing price of the Company's common stock for
the five consecutive trading day's between September 26, 2003 and October 2,
2003 in accordance with the guidance set forth in Emerging Issues Task Force
Technical Bulletin ("EITF") 99-12, "Determination of the Measurement Date for
the Market Price of Acquirer Securities Issued in a Purchase Business
Combination" ("EITF 99-12").
3
GOLDEN TELECOM, INC.
CONDENSED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 2003
(IN THOUSANDS OF US$)
(UNAUDITED)
PRO FORMA
COMBINED
GOLDEN
GOLDEN PRO FORMA TELECOM &
TELECOM COMINCOM ADJUSTMENTS COMINCOM
------------- ------------- ------------- -------------
NOTE 1 NOTE 3
ASSETS
CURRENT ASSETS
Cash and cash equivalents ...................... $ 54,908 $ 5,275 $ (1,900)(A) $ 58,283
Accounts receivable, net ....................... 53,327 17,419 (1,028)(H) 69,718
VAT receivable ................................. 11,539 3,656 -- 15,195
Prepaid expenses ............................... 8,314 873 -- 9,187
Other current assets ........................... 17,030 11,914 (295)(F) 28,649
------------- ------------- ------------- -------------
TOTAL CURRENT ASSETS ............................. 145,118 39,137 (3,223) 181,032
Property and equipment, net ...................... 188,781 84,431 (4,295)(E) 268,917
Goodwill and intangible assets:
Goodwill, net .................................. 71,703 36,499 (36,499)(C) 154,241
-- -- 82,538 (C) --
Intangible assets, net ......................... 62,218 16,459 18,223 (D) 96,900
------------- ------------- ------------- -------------
Net goodwill and intangible assets ........ 133,921 52,958 64,262 251,141
Restricted cash .................................. 1,138 -- -- 1,138
Other non-current assets ......................... 10,019 4,451 (693)(F) 13,777
------------- ------------- ------------- -------------
TOTAL ASSETS ..................................... $ 478,977 $ 180,977 $ 56,051 $ 716,005
============= ============= ============= =============
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses .......... $ 49,635 $ 14,448 $ (1,028)(H) $ 63,055
VAT payable .................................... 8,801 2,774 -- 11,575
Debt maturing within one year .................. 1,250 1,600 -- 2,850
Current capital lease obligation ............... 2,281 899 -- 3,180
Other current liabilities ...................... 15,004 12,125 (2,000)(F) 25,538
-- -- 409 (G) --
------------- ------------- ------------- -------------
TOTAL CURRENT LIABILITIES ........................ 76,971 31,846 (2,619) 106,198
Long-term debt, less current portion ............. 624 3,710 -- 4,334
Long-term capital lease obligation,
less current portion ........................ 4,178 220 -- 4,398
Long-term deferred tax liability ................. 12,357 2,191 4,299 (G) 18,847
Other non-current liabilities .................... 15,874 4,677 (4,677)(F) 15,874
------------- ------------- ------------- -------------
TOTAL LIABILITIES ................................ 110,004 42,644 (2,997) 149,651
Minority interest ................................ 2,468 -- -- 2,468
SHAREHOLDERS' EQUITY
Preferred stock, $0.01 par value ............... -- -- -- --
Common stock, $0.01 par value .................. 288 202 70 (B) 358
-- -- (202)(I) --
Additional paid-in capital ..................... 468,083 100,882 197,311 (B) 665,394
-- -- (100,882)(I) --
Accumulated earnings (deficit) ................. (101,866) 37,249 (37,249)(I) (101,866)
------------- ------------- ------------- -------------
TOTAL SHAREHOLDERS' EQUITY ....................... 366,505 138,333 59,048 563,886
------------- ------------- ------------- -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY .......................... $ 478,977 $ 180,977 $ 56,051 $ 716,005
============= ============= ============= =============
See accompanying notes to unaudited condensed pro forma financial statements.
4
GOLDEN TELECOM, INC.
CONDENSED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(IN THOUSANDS OF US$, EXCEPT PER SHARE DATA)
(UNAUDITED)
PRO FORMA
PRO FORMA COMBINED
COMBINED GOLDEN
GOLDEN TELECOM,
GOLDEN PRO FORMA TELECOM & PRO FORMA COMINCOM, &
TELECOM COMINCOM ADJUSTMENTS COMINCOM SIBCHALLENGE ADJUSTMENTS SIBCHALLENGE
-------- --------- ----------- --------- ------------ ----------- ------------
NOTE 1 NOTE 3 NOTE 4
REVENUE:
Telecommunication services ........ $248,153 $ 76,141 $ (1,892)(O) $ 321,079 $ 5,521 $ (776)(O) $ 325,279
-- -- (1,323)(L) -- -- (545)(L) --
Revenue from related parties ...... 1,080 274 -- 1,354 -- -- 1,354
-------- --------- --------- --------- --------- ------- ---------
TOTAL REVENUE ....................... 249,233 76,415 (3,215) 322,433 5,521 (1,321) 326,633
OPERATING COSTS AND EXPENSES:
Access and network services
(excluding depreciation
and amortization) ................ 121,618 28,318 (1,883)(O) 147,850 2,222 (776)(O) 148,918
-- -- (203)(L) -- -- (378)(L) --
Selling, general and administrative
(excluding depreciation and
amortization) .................... 42,587 21,138 (9)(O) 63,716 1,064 -- 64,780
Depreciation and amortization ..... 32,082 10,326 1,537 (J) 43,485 749 597 (J) 44,831
-- -- (460)(K) -- -- -- --
-------- --------- --------- --------- --------- ------- ---------
TOTAL OPERATING COSTS
AND EXPENSES ...................... 196,287 59,782 (1,018) 255,051 4,035 (557) 258,529
-------- --------- --------- --------- --------- ------- ---------
INCOME (LOSS) FROM OPERATIONS ....... 52,946 16,633 (2,197) 67,382 1,486 (764) 68,104
OTHER INCOME (EXPENSE):
Equity in losses of ventures ...... (54) -- -- (54) -- -- (54)
Interest income ................... 859 34 -- 893 -- -- 893
Interest expense .................. (1,760) (563) -- (2,323) (227) -- (2,550)
Foreign currency gains (losses) ... 36 (501) -- (465) (139) -- (604)
Minority interest ................. (342) (173) -- (515) -- -- (515)
-------- --------- --------- --------- --------- ------- ---------
TOTAL OTHER INCOME (EXPENSE) ........ (1,261) (1,203) -- (2,464) (366) -- (2,830)
-------- --------- --------- --------- --------- ------- ---------
Income (loss) before income taxes ... 51,685 15,430 (2,197) 64,918 1,120 (764) 65,274
Income taxes ........................ 14,524 5,825 (527)(M) 19,822 313 (183)(M) 19,952
-------- --------- --------- --------- --------- ------- ---------
NET INCOME (LOSS) ................... $ 37,161 $ 9,605 $ (1,670) $ 45,096 $ 807 $ (557) $ 45,332
======== ========= ========= ========= ========= ======= =========
Basic earnings per share
of common stock:
Net income per share - basic....... $ 1.35 $ 1.31 $ 1.31
======== ========= =========
Weighted average common
shares - basic..................... 27,570 6,972 34,542 34,542
======== ========= ========= =========
Diluted earnings per share of
common stock:
Net income per share - diluted..... $ 1.32 $ 1.28 $ 1.29
======== ========= =========
Weighted average common
shares - diluted................... 28,251 6,972 35,223 35,223
======== ========= ========= =========
See accompanying notes to unaudited condensed pro forma financial statements.
5
GOLDEN TELECOM, INC.
CONDENSED PRO FORMA STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2002
(IN THOUSANDS OF US$, EXCEPT PER SHARE DATA)
(UNAUDITED)
PRO FORMA
PRO FORMA COMBINED
COMBINED GOLDEN
GOLDEN TELECOM,
GOLDEN PRO FORMA TELECOM & PRO FORMA COMINCOM &
TELECOM COMINCOM ADJUSTMENTS COMINCOM SIBCHALLENGE ADJUSTMENTS SIBCHALLENGE
--------- --------- ----------- --------- ------------ ----------- ------------
NOTE 2 NOTE 3 NOTE 4
REVENUE:
Telecommunication services .......... $ 285,271 $ 83,501 $ (3,319)(O) $ 364,698 $ 5,238 $ (272)(O) $ 368,846
-- -- (755)(L) -- -- (818)(L) --
Revenue from related parties ........ 1,727 653 -- 2,380 -- -- 2,380
--------- --------- --------- --------- --------- ------- ---------
TOTAL REVENUE ........................ 286,998 84,154 (4,074) 367,078 6,870 (1,090) 371,226
OPERATING COSTS AND EXPENSES:
Access and network services
(excluding depreciation and
amortization) .................... 134,467 30,799 (3,319)(O) 161,841 2,906 (272)(O) 163,910
-- -- (106)(L) -- -- (565)(L) --
Selling, general and administrative
(excluding depreciation and
amortization) .................... 58,003 28,472 -- 86,475 812 -- 87,287
Depreciation and amortization ....... 38,872 11,047 2,049 (J) 51,354 802 897 (J) 53,053
-- -- (614)(K) -- -- -- --
--------- --------- --------- --------- --------- ------- ---------
TOTAL OPERATING COSTS AND EXPENSES ... 231,342 70,318 (1,990) 299,670 4,520 60 304,250
--------- --------- --------- --------- --------- ------- ---------
INCOME (LOSS) FROM OPERATIONS ........ 55,656 13,836 (2,084) 67,408 718 (1,150) 66,976
OTHER INCOME (EXPENSE):
Equity in earnings of ventures ...... (4,139) -- -- (4,139) -- -- (4,139)
Interest income ..................... 2,077 190 -- 2,267 -- -- 2,267
Interest expense .................... (4,306) (1,370) -- (5,676) (529) -- (6,205)
Forgiveness of penalties ............ -- 2,002 -- 2,002 -- -- 2,002
Foreign currency gains (losses) ..... (1,792) (215) -- (2,007) 158 -- (1,849)
Minority interest ................... (527) (316) -- (843) -- -- (843)
--------- --------- --------- --------- --------- ------- ---------
TOTAL OTHER INCOME (EXPENSE) ......... (8,687) 291 -- (8,396) (371) -- (8,767)
--------- --------- --------- --------- --------- ------- ---------
Income (loss) before income taxes .... 46,969 14,127 (2,084) 59,012 347 (1,150) 58,209
Income taxes ......................... 10,382 4,945 (500)(M) 14,827 290 (276)(M) 14,841
--------- --------- --------- --------- --------- ------- ---------
Income (loss) before
cumulative effect of change
in accounting principle .......... 36,587 9,182 (1,584) 44,185 57 (874) 43,368
Cumulative effect of change in
accounting principle ............. 974 -- -- 974 -- -- 974
--------- --------- --------- --------- --------- ------- ---------
NET INCOME (LOSS) .................... $ 37,561 $ 9,182 $ (1,584) $ 45,159 $ 57 $ (874) $ 44,342
========= ========= ========= ========= ========= ======= =========
Basic earnings per share of
common stock:
Income before cumulative
effect of a change in
accounting principle ............... $ 1.36 $ 1.32 $ 1.30
Cumulative effect of a change in
accounting principle ............... 0.04 0.03 0.03
--------- --------- ---------
Net income per share - basic ......... $ 1.40 $ 1.35 $ 1.33
========= ========= =========
Weighted average common
shares - basic ..................... 26,748 6,706 33,454 33,454
========= ========= ========= =========
Diluted earnings per share
of common stock:
Income before cumulative effect
of a change in accounting
principle .......................... $ 1.34 $ 1.30 $ 1.28
Cumulative effect of a change in
accounting principle ............... 0.04 0.03 0.03
--------- --------- ---------
Net income per share - diluted ....... $ 1.38 $ 1.33 $ 1.31
========= ========= =========
Weighted average common
shares - diluted.................... 24,163 6,706 33,869 33,869
========= ========= ========= =========
See accompanying notes to unaudited condensed pro forma financial statements.
6
GOLDEN TELECOM, INC.
NOTES TO CONDENSED PRO FORMA FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
NOTE 1 HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF GOLDEN TELECOM, INC.
These columns reflects GTI's historical consolidated statement of
operations for the nine month period ended September 30, 2003 and prepared and
presented in accordance with accounting principles generally accepted in the
United States of America ("US GAAP").
NOTE 2 HISTORICAL PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 2002 OF GOLDEN TELECOM, INC.
In September 2002, subsidiaries of the Company completed the
acquisition of 50% of EDN Sovintel LLC ("Sovintel") that the Company did not
own. This column reflects GTI's historical unaudited pro forma combined results
of operations to give effect to the Sovintel business combination as if it had
occurred on January 1, 2002. The note below summarizes the historical results of
GTI for the year ended December 31, 2002 and the historical results for Sovintel
for the period from January 1, 2002 to September 16, 2003, along with pro forma
adjustments necessary to present pro forma combined results for the year ended
December 31, 2002.
HISTORICAL
---------------------------
PRO FORMA
COMBINED
GOLDEN PRO FORMA GOLDEN
TELECOM SOVINTEL ADJUSTMENTS TELECOM
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue ............................................. $ 198,727 $ 101,261 $ (12,990) $ 286,998
Operating costs and expenses ........................ 167,297 75,386 (11,341) 231,342
------------ ------------ ------------ ------------
Income (loss) from operations ....................... 31,430 25,875 (1,649) 55,656
Other operating income (expense) .................... 2,007 (113) (10,581) (8,687)
------------ ------------ ------------ ------------
Income (loss) before income taxes ................... 33,437 25,762 (12,230) 46,969
Income taxes ........................................ 4,627 6,647 (892) 10,382
Cumulative effect of a change in accounting principle 974 -- -- --
------------ ------------ ------------ ------------
Net income (loss) ................................... $ 29,784 $ 19,115 $ (11,338) $ 37,561
============ ============ ============ ============
Net income per share-basic ......................... $ 1.24 $ 1.40
============ ============
Weighted average common shares-basic ................ 24,102 26,748
============ ============
Net income per share-dilutive ...................... $ 1.21 $ 1.38
============ ============
Weighted average common shares-dilutive ............. 24,517 27,163
============ ============
As described in the Company's 8-K/A dated September 17, 2002, the nature of the
principal pro forma adjustments were to provide (a) amortization of intangible
assets over estimated useful lives; (b) for the effect of purchase accounting to
fixed assets on depreciation; (c) interest expense on debt assumed; (d)
elimination of connection fee revenue and costs; and (e) elimination of
previously recorded equity in earnings of Sovintel.
NOTE 3 HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF OAO COMINCOM
These columns reflect Comincom historical consolidated income
statements for the year ended December 31, 2002 and for the nine months ended
September 30, 2003 and balance sheet as of September 30, 2003 prepared and
presented in accordance with US GAAP.
Certain reclassifications have been made to Comincom's historical
consolidated income statements to conform to the presentation format in these
unaudited condensed pro forma consolidated financial statements. Such
reclassifications have no impact on revenue, income from operations, income
before income taxes and minority interests or net income.
7
GOLDEN TELECOM, INC.
NOTES TO CONDENSED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2003
(UNAUDITED)
Certain reclassifications have also been made to Comincom's historical
consolidated balance sheet to conform to the presentation format in these
unaudited condensed pro forma consolidated financial statements. Such
reclassifications have no impact on total assets or shareholder's equity.
NOTE 4 HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF OOO SIBCHALLENGE
These columns reflect Sibchallenge's historical consolidated income
statements for the year ended December 31, 2002 and for the eight months ended
August 31, 2003 presented in accordance with US GAAP.
The acquisition of Sibchallenge was finalized in August 2003;
therefore the balance sheet of Sibchallenge has been consolidated into the
September 30, 2003 balance sheet of GTI.
Certain reclassifications have been made to Sibchallenge's consolidated
income statements to conform to the presentation format in these unaudited
condensed pro forma consolidated financial statements. Such reclassifications
have no impact on revenue, income from operations, income before income taxes
and minority interests or net income.
NOTE 5 ALLOCATION OF PURCHASE PRICE
ACQUISITION OF COMINCOM
The acquisition of 100% of Comincom will be accounted for as a purchase
business combination in accordance with US GAAP. As the transaction will reflect
the acquisition of 100% interest in Comincom, the Company will record the net
assets of Comincom at 100% of their estimated fair values.
The estimated total purchase price of approximately $199.3 million
consists of approximately $197.4 million of GTI's common stock, representing an
estimated 6,972,139 shares and estimated direct transaction costs of
approximately $1.9 million. Under US GAAP, securities issued in a purchase
business combination should be valued at market prices for a reasonable period
before and after the measurement date in determining the fair value of the
securities issued. For the purposes of these unaudited pro forma consolidated
financial statements, the purchase consideration has been estimated using a
closing date of the transaction, the measurement date, of September 30, 2003.
Accordingly, the GTI shares issued in consideration are valued based on the
average closing price of the Company's common stock for the five consecutive
trading days between September 26, 2003 and October 2, 2003, which was $28.31
per share.
8
GOLDEN TELECOM, INC.
NOTES TO CONDENSED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2003
(UNAUDITED)
The following is the actual condensed balance sheet of Comincom as of September
30, 2003 reflecting preliminary purchase price accounting adjustments to the net
assets acquired:
SEPTEMBER 30, 2003
------------------
(IN THOUSANDS)
ASSETS:
Current assets............................................ $ 38,842
Property and equipment.................................... 80,136
Telecommunications service contracts
intangible assets...................................... 14,804
Contract based customer relationship
intangible assets...................................... 19,878
Goodwill.................................................. 82,538
Other assets.............................................. 3,758
-----------
Total assets............................................ $ 239,956
===========
LIABILITIES:
Current liabilities....................................... $ 30,255
Non-current liabilities................................... 10,420
-----------
Net assets.............................................. $ 199,281
===========
Consideration and acquisition costs:
GTI shares consideration.................................. 197,381
Direct transaction costs.................................. 1,900
-----------
Total purchase consideration and acquisition costs.......... $ 199,281
===========
The purchase allocation will be finalized upon closure of the
acquisition by GTI of 100% of the outstanding shares of capital stock of
Comincom and completion of the valuation of certain tangible and intangible
assets. The final purchase price allocation will be calculated based on the
transaction value and the fair values of Comincom's identifiable assets and
liabilities at the date of closure. Therefore, the actual goodwill amount, as
well as other balance sheet items, could differ from the preliminary unaudited
condensed pro forma consolidated financial statements presented herein, and in
turn affect items in the preliminary condensed pro forma consolidated statement
of operations, such as intangible asset amortization and income taxes. The
excess purchase price over the fair value of the net tangible and intangible
assets acquired of approximately $82.5 million has been assigned to goodwill and
is not deductible for tax purposes. In accordance with the Financial Accounting
Standards Board's Statement on Financial Accounting Standard ("SFAS") No. 141,
"Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets",
the Company will not amortize the goodwill recorded in connection with the
acquisition of 100% of Comincom. The goodwill will be tested for impairment at
least annually. The impact of a one dollar change in the average closing price
used to value the shares of common stock for the purpose of this transaction
would result in an increase or decrease in goodwill of approximately $7.0
million.
ACQUISITION OF SIBCHALLENGE
The acquisition of 100% of Sibchallenge was accounted for as a purchase
business combination in accordance with US GAAP. As the transaction reflects the
acquisition of 100% of interest in Sibchallenge, the Company recorded the net
assets of Sibchallenge at 100% of their estimated fair values.
9
GOLDEN TELECOM, INC.
NOTES TO CONDENSED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2003
(UNAUDITED)
The total purchase price of approximately $15.4 million consisted of
cash consideration of approximately $15.0 million and approximately $0.4 million
in direct transaction costs, including an investment banking fee of $0.3 million
paid to Belongers Limited, an affiliate of Alfa Telecom Limited, a shareholder
of the Company.
The following is the actual condensed balance sheet of Sibchallenge as of August
31, 2003, the date GTI began consolidating the financial position and results of
operations of Sibchallenge, reflecting preliminary purchase price accounting
adjustments to the net assets acquired:
AUGUST 31, 2003
---------------
(IN THOUSANDS)
ASSETS:
Current assets........................................ $ 1,792
Property and equipment................................ 7,723
Telecommunications service contracts
intangible assets.................................. 10,509
-------------
Total assets........................................ $ 20,024
=============
LIABILITIES:
Current liabilities................................... $ 1,519
Non-current liabilities............................... 3,121
-------------
Net assets.......................................... $ 15,384
=============
Consideration and acquisition costs:
Cash consideration.................................... 15,000
Direct transaction costs.............................. 384
-------------
Total purchase consideration and transaction costs...... $ 15,384
=============
These unaudited condensed pro forma consolidated financial statements
reflect the preliminary allocation of the purchase price based on a preliminary
fair value assessment of the assets acquired and liabilities assumed, and as
such, the Company has assigned approximately $10.5 million to telecommunications
service contracts intangible assets. These identified intangible assets will be
amortized over a period of 10 years. The purchase price allocation will be
finalized upon the completion of intangible assets valuation. There was no
goodwill recorded as a result of this transaction. The results of operations of
Sibchallenge have been included in the Company's consolidated operations since
August 31, 2003.
NOTE 6 CONDENSED PRO FORMA BALANCE SHEET ADJUSTMENTS
The accompanying unaudited condensed pro forma consolidated balance
sheet includes the adjustments necessary to give effect to the Comincom business
combination as if it had occurred on September 30, 2003 and to reflect the
allocation of the estimated acquisition cost to the estimated fair value of
tangible and intangible assets acquired and liabilities assumed as noted above,
including the elimination of Comincom's equity accounts.
As discussed above, an element of the business combination
consideration for Comincom was paid in the form of GTI shares, and was valued
based upon the guidance of EITF 99-12. Goodwill amounts computed as of the
estimated pro forma September 30, 2003 closing date were a function of both this
share price determination and the resulting tangible and intangible net assets
existing as of September 30, 2003.
10
GOLDEN TELECOM, INC.
NOTES TO CONDENSED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2003
(UNAUDITED)
Adjustments included in the September 30, 2003 pro forma consolidated balance
sheet are summarized as follows:
(A) Direct transaction costs of approximately $1.9 million were paid for
Comincom.
(B) An element of the purchase price of Comincom will be paid in the form
of GTI shares consideration, representing an estimated 6,972,139 shares
with an assigned value of $197.4 million.
(C) The Company recorded approximately $82.5 million in goodwill on the
Comincom transaction and eliminated approximately $36.5 million of
previously recorded goodwill.
(D) The Company has assigned approximately $5.3 million to
telecommunications service contracts intangible assets and
approximately $12.9 million to contract based customer relationship
intangible assets in the Comincom transactions. These identified
intangible assets will be amortized over a weighted-average period of
approximately 9 years, and are non-deductible for Russian tax purposes.
The value assigned to the intangible assets reflects 100% of the
appraised value, corresponding to the 100% of Comincom that will be
purchased.
(E) Property and equipment's estimated fair market value was computed using
the net current replacement cost valuation method. The preliminary
value assigned to property and equipment in the accompanying pro forma
balance sheet represents 100% of these estimated fair values.
(F) The Company has eliminated approximately $6.7 million in previously
recorded Comincom deferred revenues and approximately $1.0 million in
previously recorded Comincom deferred costs. These purchase accounting
adjustments relate to previous connection fee deferrals in accordance
with Staff Accounting Bulletin No. 101 ("SAB 101"). The purchase price
accounting adjustments were made under the guidance provided by EITF
01-03, "Accounting in a Business Combination for Deferred Revenue of an
Acquiree".
(G) For Comincom, the Company has recorded a pro forma adjustment to
deferred taxes which consists of the following:
(IN THOUSANDS)
Property and equipment adjustment - Note 6 (E)............. $ (4,295)
Deferred revenue and cost adjustment - Note 6 (F).......... 5,689
Intangible asset adjustment - Note 6 (D)................... 18,223
----------
Total adjustments to timing differences.................... 19,617
Russian statutory tax rate................................. 24%
----------
Pro forma deferred tax liability adjustment................ $ 4,708
==========
11
GOLDEN TELECOM, INC.
NOTES TO CONDENSED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2003
(UNAUDITED)
(H) Elimination entries related to operational activity between Comincom
and the Company.
(I) Elimination of Comincom's equity accounts upon consolidation.
NOTE 7 CONDENSED PRO FORMA STATEMENTS OF OPERATIONS ADJUSTMENTS
The unaudited condensed pro forma statements of operations include
adjustments necessary to give effect to the merger as if it had occurred on
January 1, 2002.
Adjustments included in the condensed pro forma consolidated statement
of operations are summarized as follows:
(J) Amortization of intangible assets over estimated useful lives (average
9 years for Comincom and 10 years for Sibchallenge).
(K) Effect of purchase accounting adjustments to fixed assets on
depreciation expense.
(L) Elimination of connection fee revenues and costs associated with the
deferred revenue and cost adjustment referenced in Note 6 (F) above.
(M) The following is a pro forma tax computation based on a Russian
statutory rate of 24% applied to the incremental variation of reported
net earnings for pro forma combined GTI and Comincom, exclusive of the
following implied permanent differences:
FOR THE FOR THE
TWELVE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, 2002 SEPTEMBER 30, 2003
----------------- ------------------
(IN THOUSANDS)
Combined pre-tax net income,
previously reported................................. $ 61,096 $ 67,115
Pro forma combined pre-tax net income,
reported herein..................................... 59,012 64,918
------------ ------------
Net change in reported pre-tax income ................ $ 2,084 $ 2,197
============ ============
Less - permanent taxation differences:
Transactions costs, deductible in USA.............. $ 1,900 $ --
Valuation allowance, transaction costs............. (1,900) --
------------ ------------
Net change in taxable items........................... $ 2,084 $ 2,197
============ ============
Russian statutory tax rate............................ 24% 24%
------------ ------------
Incremental reduction in taxes........................ $ 500 $ 527
============ ============
12
GOLDEN TELECOM, INC.
NOTES TO CONDENSED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2003
(UNAUDITED)
The following is a pro forma tax computation based on a Russian statutory rate
of 24% applied to the incremental variation of reported net earnings for pro
forma combined GTI and Sibchallenge, exclusive of the following implied
permanent differences:
FOR THE FOR THE
TWELVE MONTHS EIGHT MONTHS
ENDED ENDED
DECEMBER 31, 2002 AUGUST 31, 2003
----------------- ---------------
(IN THOUSANDS)
Combined pre-tax net income (loss),
previously reported..................................... $ 47,316 $ 52,805
Pro forma combined pre-tax net income (loss),
reported herein......................................... 46,166 52,041
------------ -----------
Net change in reported pre-tax income .................... $ 1,150 $ 764
============ ===========
Less - permanent taxation differences:
Transactions costs, deductible in USA.................. $ 384 $ --
Valuation allowance, transaction costs................. (384) --
------------ -----------
Net change in taxable items............................... $ 1,150 $ 764
============ ===========
Russian statutory tax rate................................ 24% 24%
------------ -----------
Incremental reduction (increase) in taxes................. $ 276 $ 183
============ ===========
(O) Elimination entries related to operational activity between Comincom
and the Company, Sibchallenge and the Company and Comincom and
Sibchallenge.
13
(c) Exhibits
DESIGNATION DESCRIPTION OF EXHIBIT
----------- ----------------------
99.4* Share Exchange Agreement dated August 19, 2003 by and
among Golden Telecom, Inc., SFMT-CIS, Inc. (a
wholly-owned subsidiary of Golden Telecom, Inc.) and
Nye Telenor East Invest AS.
99.5* Registration Rights Agreement dated as of August 19,
2003 between and among Golden Telecom, Inc., Alfa
Telecom Limited, Nye Telenor East Invest AS, OAO
Rostelecom, Capital International Global Emerging
Markets Private Equity Fund, L.P., Cavendish Nominees
Limited, and First NIS Regional Fund SICAV
99.6* Standstill Agreement dated as of August 19, 2003
between and among Alfa Telecom Limited, Nye Telenor
East Invest AS, OAO Rostelecom, Capital International
Global Emerging Markets Private Equity Fund, L.P.,
Cavendish Nominees Limited, First NIS Regional Fund
SICAV and Golden Telecom, Inc.
99.7* Shareholders Agreement dated as of August 19, 2003
between and among Alfa Telecom Limited, Nye Telenor
East Invest AS, OAO Rostelecom, Capital International
Global Emerging Markets Private Equity Fund, L.P.,
Cavendish Nominees Limited, First NIS Regional Fund
SICAV and Golden Telecom, Inc.
----------
* Incorporated by reference to the correspondingly numbered Exhibit to
the Company's current report on Form 8-K dated August 19, 2003
(Commission File 0-27423).
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GOLDEN TELECOM, INC.
(Registrant)
By: /s/ DAVID STEWART
-----------------------------------------
Name: David Stewart
Title: Chief Financial Officer and Treasurer
Date: January 30, 2003
15