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Financial Corporation "Sistema"

May 30, 2007

Sistema announces change to Sistema and MTS 2006 reported financial results

Moscow, Russia - May 30, 2007 - Sistema (LSE: SSA), the largest private sector consumer services company in Russia and the CIS, today announced that its subsidiary, Mobile TeleSystems OJSC ("MTS"), will record a charge to non-operating expenses for the year ended December 31, 2006 in relation to a US$ 170 million put option held by Nomihold Securities Inc. ("Nomihold").  Sistema will record a corresponding charge in its financial statements for the year ended December 31, 2006.

As announced previously by the Company, individual shareholders of Sistema have agreed to assist MTS Finance, a wholly owned subsidiary of MTS, in defending its rights in its on-going dispute with Nomihold.  Nomihold is seeking to compel MTS Finance through arbitration proceedings to purchase from Nomihold a 49% stake in Tarino Limited, the former indirect owner of Kyrgyz GSM operator Bitel, for US$ 170 million pursuant to an option agreement. The matter is currently pending, and MTS Finance is vigorously contesting this action and has asked the arbitration tribunal to dismiss Nomihold's claim.  In the event that the arbitration decision regarding the US$ 170 million put option is unfavorable to MTS Finance, shareholders of Sistema have agreed to make a capital contribution to MTS Finance of up to US$ 170 million.

Notwithstanding the guarantee, MTS, in agreement with its auditor, believes that it should presently record the charge and include this as a liability in its financial statements for the year ended December 31, 2006, and provide disclosure pending the resolution of this legal matter. Accordingly, Sistema, in agreement with its auditor, believes that a corresponding charge should be included in its financial statements for the year ended December 31, 2006. The impact on Sistema's financial results for the year ended December 31, 2006 is summarized below.

 

Balance sheet

000's US$

As previously reported
as of December 31,2006

As amended
as of December 31,2006

 

Accrued expenses and other current liabilities

 896,314

 1,066,314

 

Total current liabilities

 5,862,043

 6,032,043

 

Total liabilities

 11,814,034

 11,984,034

 

Minority interests in equity of subsidiaries

 3,626,453

 3,546,740

 

Retained earnings

 2,589,589

 2,499,302

 

Total shareholders' equity

 4,610,997

 4,520,710

 

 

 

 

Statements of operations

000's US$

For the year ended
December 31, 2006

For the three months ended December 31, 2006

 

As previously reported

As amended

As previously reported

As amended

Bitel liability and investments write-off

(150,000)

(320,000)

(150,000)

(320,000)

Income before income tax and minority interests

 2,300,662

 2,130,662

 411,047

 241,047

Income before minority interests

 1,637,027

 1,467,027

 191,010

 21,010

Minority interests

 (733,736)

(654,023)

 (97,806)

 (18,093)

Income from continuing operations before extraordinary gain

903,291

813,004

 93,204

 2,917

Net income

903,291

813,004

 93,204

 2,917

Earnings per share - basic and diluted

94.4

85.0

N/A

N/A

 

 

 

 

 

 

 

 

Statement of cash flows

000's US$

As previously reported for the year ended December 31, 2006

As amended for the year ended December 31, 2006

Net income                                          

 903,291

 813,004

Bitel liability and investments write-off

 150,000

 320,000  

Minority interests

 733,736

 654,023

 

 

 

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