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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________________ TO________________
COMMISSION FILE NUMBER 333-12977
IMPSAT CORPORATION
IMPSAT S.A.
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN ITS CHARTER)
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DELAWARE 52-1910372
ARGENTINA NOT APPLICABLE
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(state or other jurisdiction of incorporation or (IRS employer identification number)
organization)
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ALFEREZ PAREJA 256 (1107)
BUENOS AIRES, ARGENTINA
(5411) 4300-4007
(Address, including zip code, and telephone number, including area code, of
registrants' principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. YES [ X ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANTS.
As of December 31, 1998, IMPSAT Corporation had 100,792,640 shares of Common
Stock, $1.00 Par Value, and 25,000 shares of Series A Convertible Preferred
Stock, liquidation preference $5,400 per share, outstanding.
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TABLE OF CONTENTS
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PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS . . . . . . . . . . . . . . . . . . . 13
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . 13
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
IMPSAT ARGENTINA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . 16
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK . . . . . . . . . . . . . . . 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . . 29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE . . 29
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ITEM 10. DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . 37
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . 38
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K . . . . . . . . . . . . 41
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
POWER OF ATTORNEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
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OUTLOOK AND UNCERTAINTIES
Certain information in this Report contains "forward-looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. All statements other than statements of historical fact are
"forward-looking statements" for purposes of these provisions, including any
projections of earnings, revenues or other financial items, any statements of
the plans and objectives of management for future operations, any statements
concerning proposed new products or services, any statements regarding future
economic conditions or performance, and any statement of assumptions underlying
any of the foregoing. In some cases, forward-looking statements can be
identified by the use of terminology such as "may", "will", "expects", "plans",
"anticipates", "estimates", "potential", or "continue", or the negative thereof
or other comparable terminology. Although IMPSAT Corporation (the "Company")
believes that the expectations reflected in its forward-looking statements are
reasonable, it can give no assurance that such expectations or any of its
forward-looking statements will prove to be correct, and actual results could
differ materially from those projected or assumed in the Company's
forward-looking statements.
-----------------------------
The terms VSAT(R), Dataplus(R), Teledatos(R), Regional Teleport(R), Difusat(R),
Interplus(R), Global Fax(R), Minidat(R), Conexia(R) and Telecampus(R) are
service marks or trademarks of the Company or its subsidiaries that are
registered or otherwise protected under the laws of various jurisdictions.
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PART I
ITEM 1. BUSINESS
GENERAL
The Company is a leading provider of private telecommunications network
services in Latin America. The Company offers tailor-made integrated
telecommunications solutions, with an emphasis on data transmission, for
national and multinational companies, financial institutions, governmental
agencies and other business customers. The Company currently has operations in
Argentina, Colombia, Venezuela, Ecuador, Mexico, Brazil and the United States.
Services are provided through the Company's advanced telecommunications
networks comprised of owned teleports, earth stations, fiber optic and
microwave links, and leased satellite and fiber optic links. The Company
believes that it operates the largest shared hub VSAT network in Latin America,
with 3,639 VSAT microstations installed as of December 31, 1998. In addition,
the Company operates 18 teleports located in seven countries and 12 microwave
and fiber optic metropolitan area networks ("MANs") in 12 cities.
The Company has grown rapidly since the commencement of its operations in
Argentina in 1990. Its business customer base has expanded from 125 customers
in two countries as of December 31, 1992 to 1,467 customers in seven countries
as of December 31, 1998. From 1992 to 1998, total revenues on a consolidated
basis have grown from $20.5 million to $208.1 million, EBITDA (as defined) has
grown from $7.9 million to $63.8 million and property, plant and equipment have
grown from $47.9 million to $330.7 million.
The Company expects continued growth in the demand for private
telecommunications network services in Latin America and anticipates that the
proportionate share of data transmission services will increase more rapidly
than the overall telecommunications sector, as has been the case in the United
States. Continued deregulation of the telecommunications markets in the region
should lead to substantial growth in the telecommunications sector, which
historically has grown less rapidly compared with that of more developed
countries. Future economic growth and integration in Latin America is expected
to add to the demand for telecommunications services in the region and support
greater opportunities for expansion of the Company's regional presence. During
1998, a number of the Latin American countries in which the Company has
operations experienced economic contractions, currency devaluations and other
difficulties. Nevertheless, the Company believes that the Latin American
region will return to a period of economic stability or growth in future years.
The Company believes that its pan-Latin American presence distinguishes it from
its competitors and is a key element in its ability to satisfy a need in Latin
America for "one-stop shopping" in private telecommunications network services.
In addition, upon further deregulation of the telecommunications markets in
Latin America, the Company may consider expansion into new services for its
business customers, including switched international, domestic long distance
and local services.
The Company is a privately-held corporation. Nevasa Holdings Limited
("Nevasa"), which owns 100% of the common stock of the Company ("Common
Stock"), is a holding company controlled largely by the Pescarmona group (a
prominent Argentine industrial group); by Mr. Roberto Vivo, Deputy Chief
Executive Officer of IMPSAT Corporation; and by Mr. Ricardo Verdaguer,
President and Chief Executive Officer of IMPSAT Corporation. In addition, 100%
of the issued and outstanding shares of Series A Convertible Preferred Stock
("Series A Preferred Stock") of the Company is owned by Princes Gate Investors
II, L.P. ("Princes Gate") and Morgan Stanley Global Emerging Markets Private
Investment Fund, L.P. ("MSGEM"), two private equity funds that are affiliates
of Morgan Stanley Dean Witter, and certain other investors affiliated with
Princes Gate and MSGEM (Princes Gate, MSGEM and such other investors being
hereinafter referred to as the "Morgan Stanley Investors").
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The Company's operations commenced in Argentina in 1990 under the name IMPSAT
S.A. ("IMPSAT Argentina"). The Company began operations outside of Argentina
with the establishment of IMPSAT S.A. ("IMPSAT Colombia") in 1991 and the
establishment of Telecomunicaciones IMPSAT S.A. ("IMPSAT Venezuela") in 1992.
New operating subsidiaries were created in Ecuador (IMPSATEL del Ecuador S.A.,
hereinafter, "IMPSAT Ecuador") and Mexico (IMPSAT, S.A. de C.V., hereinafter,
"IMPSAT Mexico") in 1994 and in the United States (IMPSAT USA, Inc.,
hereinafter, "IMPSAT USA") in 1995. On June 1, 1998, the Company acquired from
Nevasa, the Company's parent, 99.9% of the capital stock of IMPSAT Comunicacges
Ltda. ("IMPSAT Brazil"), a Brazilian company. On May 28, 1998, the Company
purchased a 58.5% interest in Mandic BBS Planejamento e Informatica S.A.
("Mandic S.A."), a Brazilian internet access provider, and acquired a further
16.6% interest in Mandic S.A. on November 5, 1998.
The Company utilizes satellite, fiber optic cable and microwave links and
employs state-of-the-art technology in its network systems. Satellite
communication links, which constitute the core of the Company's private network
service infrastructure, are complemented and supported by terrestrial microwave
radio and fiber optic cable systems.
The principal services offered by the Company described below are identified
by their service marks:
VSAT. VSAT is a digital information transmission service which permits
communications between and among many remote locations and a central location
via satellite and a central earth station, known as a Teleport. Teleports are
currently located in Buenos Aires, Argentina; Bogota, Colombia; Caracas,
Venezuela; Quito, Ecuador; Mexico City, Mexico; and Florida, United States. In
addition to the Teleport in Fort Lauderdale, Florida, which commenced
operations in January 1999, IMPSAT USA operates leased teleport facilities in
New Jersey. VSAT generates the largest share of the Company's revenues from
services, accounting for approximately 35.7% and 27.3% of such revenues during
1997 and 1998, respectively. As of December 31, 1998, the Company had 3,639
VSAT microstations installed.
Dataplus. Dataplus is a high capacity digital information transmission
("SCPC") service designed for customers that require speedy transmission of
large quantities of information between relatively few fixed locations.
Dataplus is the second most significant of the Company's private
telecommunications network service offerings in terms of revenue generation.
Dataplus accounted for approximately 23.3% and 22.0% of the Company's revenues
from services in 1997 and 1998, respectively. At December 31, 1998, the Company
had a total of 1,161 Dataplus earth stations installed.
Teledatos Networks. Teledatos Networks are microwave and/or fiber optic cable
Metropolitan Area Networks ("MANs"). The Company's first Teledatos network was
established in Buenos Aires, Argentina in 1990. Other Teledatos networks now
exist in Cordoba, Mendoza, Rosario, Mar del Plata and Tucuman, Argentina;
Bogota, Medellin and Cali, Colombia; Caracas, Venezuela; and Curitiba and Sao
Paulo, Brazil. At December 31, 1998, there were a total of 7,671 connections
in service on the Teledatos networks.
Regional Teleports. Regional Teleports are earth stations linking smaller
MANs outside a country's capital to the Teleport in that country via satellite.
The first Regional Teleport was established in Mendoza, Argentina in 1991, and
the Company now has Regional Teleports in Cordoba, Rosario, Tucuman, Mar del
Plata and Neuquen in Argentina; Medellin, Cali and Barranquilla in Colombia;
Guayaquil, Ecuador; and Curitiba and Sao Paulo, Brazil. Customers are
connected to a Regional Teleport through one of the Company's MANs or satellite
links.
Difusat. Difusat is the Company's unidirectional Teleport-to-VSAT broadcast
service whereby a signal received by a Teleport is transmitted to multiple
locations. The source of the information to be broadcast is generally connected
to the Teleport through a Teledatos network. The Teleport transmits the
information to the receive-only VSAT receptors via satellite. At December 31,
1998, the Company had installed 444 Difusat microstations.
Interplus. Interplus is the brand name for the Company's international
private line service which utilizes a combination of fiber optic, microwave or
SCPC satellite circuits to provide a dedicated telecommunications link between
customer
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locations in different countries. The Company currently provides international
integrated data, voice and video transmission services between and among twenty
countries - Brazil, Bolivia, Colombia, Chile, Costa Rica, Curacao, Bonaire,
Ecuador, El Salvador, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay,
Peru, Trinidad & Tobago, Uruguay, Venezuela and the United States - through
Interplus. International private line services such as Interplus are
traditionally provided by local carriers in each country acting as
correspondents and establishing dedicated telecommunications links between
their facilities. Due to its widespread operational presence in Latin America,
the Company is often able to offer its Interplus service using its own
facilities and personnel at both ends of the private line circuit. To date, the
Company has signed Interplus correspondent agreements with carriers in Chile,
Costa Rica, El Salvador, Nicaragua, Paraguay, Uruguay and Trinidad & Tobago.
Internet Access. Since the Company commenced offering its Internet access
service in March 1996, the Company has experienced significant growth in this
service. This growth has been significantly enhanced by the Company's
acquisition of Mandic S.A., the third largest Internet service provider in
Brazil. At December 31, 1998, Mandic S.A. had 48,603 individual customers,
revenues of $8.3 million (since its May 1998 acquisition by the Company) and
Internet access points in 23 Brazilian cities.
The Company recorded approximately $21.1 million in revenues from Internet
access services during 1998 (including Internet access revenues generated by
Mandic S.A. since its acquisition by the Company). In addition to the Mandic
S.A. acquisition, the Company has taken a number of actions regarding its
expansion as a regional Internet access provider of dedicated and dial-up
connections between Latin America and the United States Internet backbone. The
Company directly markets Internet access services to retail customers in
Argentina, Colombia, Venezuela and Ecuador. The Company intends to offer
Internet access services to new and existing customers, including universities,
institutions, governmental agencies and corporations. Services offered include
high-speed ISDN (integrated services digital network) communications capability
and frame relay connectivity, access software, worldwide web browser,
electronic mail, electronic commerce network and worldwide web site
implementation and maintenance. In providing Internet access services, the
Company utilizes Interplus links between its Teleports in Latin America and
IMPSAT USA's teleport facilities in Florida and New Jersey, which then provide
connections to the United States Internet backbone through MCI WorldCom, Sprint
Corporation, Intermedia Communications and UUNET.
At December 31, 1998, the Company (including Mandic S.A.) had 79,441 dial-up
Internet access retail customers and 252 dedicated Internet access corporate
customers. In the future, the Company plans to expand its Internet access
service to include Intranet (private telecommunications within a company via
Internet) and Extranet (private telecommunications between a company's Intranet
and selected persons outside the company via Internet).
Global Fax. Global Fax is a fax store and forward service which receives
facsimile transmissions from customers, temporarily stores the data and then
retransmits it to designated addressees. In Argentina, as of December 31, 1998,
the Company had 445 customers for this service and was handling approximately
182,363 transmission minutes per month.
Newer Services. The Company works closely with its suppliers to keep abreast
of new technologies and evaluates its technology requirements to remain among
the most technologically advanced digital information transmission providers in
Latin America. While the Company relies on its suppliers for hardware and
software upgrades, it devotes significant attention to the identification and
commercialization of new services to meet the changing needs of Latin American
businesses. The principal services and products more recently developed and
commercialized by the Company include Minidat, Conexia and Telecampus.
Minidat represents a lower cost alternative for satellite digital information
transmission for a category of customers that maintain a large quantity of
transmission points but require a lower volume usage of satellite capacity than
is provided by VSAT. Minidat was established to meet the data transmission
requirements of customers operating point of sales systems, automated teller
machines, lottery ticket sales, reservation systems, wholesaler and inventory
control and management
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systems and entertainment facilities (sports arenas, theaters, etc.). Minidat
utilizes USATs (ultra small aperture terminals), which tend to be about half
the size of VSATs, at customer locations. The Company's Minidat service is
provided at lower monthly fee than its VSAT services. The Company provides its
Minidat customers with two pricing options, one in which the customer purchases
the remote terminals required to deliver the service and is charged a basic
monthly fee and one in which the Company provides the equipment (as is the case
for the Company's VSAT and Dataplus services) with the customer paying a higher
monthly fee. As of December 31, 1998, the Company's total installations of
Minidat microstations had grown to 763 from 119 at December 31, 1997. The
Company expects demand for its Minidat services to continue to grow during
1999.
Conexia serves the private electronic transaction requirements of customers
such as health management organizations (HMOs). Through the Conexia service,
HMO customers are able to communicate patient billing, identification,
insurance eligibility and certain medical history information among their
different operating locations (laboratories, supply facilities, clinics and
hospitals) in a real time environment, thereby increasing the efficiency of the
operations. In order to provide the Conexia service, IMPSAT Argentina has
created a dedicated computer center and customer service unit at its Buenos
Aires Teleport facility. Authorized access to centralized information via
Conexia is accomplished by a magnetic card carried by patients covered by
affiliated health plans. In each operating location (e.g., clinics or
hospitals), point of sale ("POS") terminals designed in accordance with the
Company's specifications are installed. The Company currently has three
Conexia customers in Argentina, the Organization of National Civil Personnel
("OSPCN"); the Organization of Direct Services to Executives ("OSDE"); and
Hospital Italiano. OSPCN provides HMO coverage to Argentina's workforce of
public servants. OSDE is a major Argentine private HMO. Hospital Italiano is
a private hospital located in Buenos Aires, Argentina that also offers HMO
services and, in connection with such HMO services, utilizes the Company's
Conexia services. The Conexia service provided to OSPCN by the Company
consists of 2,200 installed POS terminals throughout the Buenos Aires
metropolitan area and its suburbs. OSDE and Hospital Italiano receive the
Company's Conexia service through 184 and 87 installed POS terminals,
respectively.
Telecampus involves the use of video teleconferencing, including interactive
teleconferencing for long-distance educational and training purposes. The
Company contemplates that such services would be provided to governmental,
educational, national and international businesses that desire to utilize
interactive teleconferencing for educational, training and conferencing
purposes. Telecampus may be accessed via VSAT or Dataplus. The Company
currently has four Telecampus customers, the Argentine Institute of Computers
("IAC"), Universidad Satelital Latino Americana ("UNSAT"), Propuesta Pedagogica
S.A., and Universidad Blas Pascal.
Relative to the Company's other services, the potential customer base for
Conexia and Telecampus is narrower and more specialized -- i.e., larger
entities in the fields of health management and education, respectively.
Traditionally, such entities have been relatively slow to integrate new
technologies in their operations and to incur major corporate expenditures for
the contracting of technology-based services. As a result, the Company expects
the pattern of growth in demand for Conexia and Telecampus to be gradual in
comparison to that of its other service offerings.
IMPSAT 2000. The Company announced in September 1998 plans to construct a
broadband network throughout the principal countries in Latin America. The
program, which the Company has designated as "IMPSAT 2000" is aimed at
developing the Latin American informational highway. Upon its full development
and implementation, IMPSAT 2000 would provide a fiber optic link among the
major urban and surrounding cities in many of the Latin American countries that
the Company currently serves. By integrating the planned IMPSAT 2000 fiber
optic network with its existing fiber optic networks in Argentina and Colombia
as well as its current and planned wireless MANs and access to undersea cables,
the Company seeks to connect all major Latin American cities offering
transmission services never before available in the region. IMPSAT 2000 would
enable the Company to provide a greater array of services for its business
customers, including switched international, domestic long distance and local
services, upon the deregulation of the telecommunications markets in the
countries in which it operates. The Company is currently in the process of
receiving tenders of bids from vendors, suppliers and engineers in connection
with IMPSAT 2000.
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The following table shows the Company's revenue breakdown by service for the
years ended December 31, 1996, 1997 and 1998:
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YEAR ENDED DECEMBER 31,
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SERVICE 1996 1997 1998
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($ IN THOUSANDS)
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VSAT . . . . . . $ 55,680 43.4% $ 57,420 35.7% $ 56,739 27.3%
Dataplus . . . . 29,962 23.3 37,603 23.3 45,714 22.0
Interplus . . . . 4,457 3.5 11,400 7.1 20,587 9.9
Internet . . . . 1,267 1.0 7,850 4.9 21,069 10.1
Other (1) . . . . 37,027 28.8 46,792 29.1 63,980 30.7
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Total . . . . . . $ 128,393 100% $ 161,065 100% $ 208,089 100%
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(1) The figure for "Other" includes revenues from Teledatos networks, Regional
Teleports, Difusat, Global Fax, Minidat, Conexia, Telecampus and equipment
sales.
CUSTOMERS
The Company's customers consist of major governmental agencies, financial
institutions and leading national and multinational corporations and private
sector companies, including YPF, Royal Dutch Shell, Banco de Galicia y Buenos
Aires, Siemens and Reuters. During 1998, the Company's ten largest customers
accounted for approximately 17.3% of the Company's revenues. The percentage of
revenues represented by the Company's ten largest customers for 1997 was
approximately 18.1%.
The Company's ten largest customers as of December 31, 1998 were: Gobierno
de la Provincia de Buenos Aires, the local government of the province of Buenos
Aires; Banco de la Nacion Argentina ("BNA"), a state-owned bank and the largest
bank in Argentina, with over 500 branches throughout Argentina; Banco de
Galicia y Buenos Aires S.A., a private bank with more than 180 branches in
Argentina; Yacimientos Petroliferos Fiscales Sociedad Anonima ("YPF"), which is
engaged in hydrocarbon exploitation and is one of the largest companies in
Argentina; BanColombia S.A., a private bank headquartered in Bogota, Colombia
and the largest commercial bank in Colombia; Integrated Services International,
a telecommunications services company based in Florida, United States; Perez
Companc S.A., an Argentine energy conglomerate; SECAB, the administrator of
government funds for Colombia's National Learning Service; The Mercer
Management Group, Inc., a management consulting firm; and Concasa, one of
Colombia's largest savings and loan corporations.
The Company contract to provide private telecommunications network services
to Direccion General Impositiva ("DGI"), the Argentine tax and revenue
authority, which was the Company's seventh largest customer in 1997, expired in
the third quarter of 1998, and was not renewed. The contract to provide DGI
with private telecommunications network services has been awarded to a
consortium that includes Startel S.A. ("Startel"). Startel is the joint
venture company for data transmission services owned 50% each by Telecom
Argentina Stet-France Telecom S.A. ("Telecom Argentina") and Telefonica de
Argentina S.A. ("Telefonica"), the monopoly public telephony operators in
northern and southern Argentina, respectively. Until the consortium assumes
responsibility for the contract with DGI, IMPSAT Argentina is rendering private
telecommunications network services to DGI generating monthly revenues of
$140,000. IMPSAT Argentina recorded $1.7 million in revenues from its contract
with DGI during 1998.
As of December 31, 1998, the Company's newest operating subsidiary, IMPSAT
Brazil, was providing private network
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telecommunications services in Brazil to a total of 48 business customers,
including Shell do Brasil S.A., Confederacao Nacional de Industrias ("CNI"),
Radio Record S.A., Sony Music Entertainment, and Banco HSBC Bamerindus, through
a total of 34 Dataplus and 9 Interplus earth stations and the outsourcing of a
200 VSAT microstation network for Banco HSBC Bamerindus.
The following table sets forth the Company's customers by country as of the
dates indicated(1):
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NUMBER OF CUSTOMERS
AS OF DECEMBER 31,
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COUNTRY 1997 1998
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<S> <C> <C>
Argentina . . . 439 490
Colombia . . . 524 602
Venezuela . . . 102 140
Ecuador . . . . 96 134
Mexico . . . . 16 28
USA . . . . . . 15 25
Brazil . . . . -- 48
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Total . . . . . 1,192 1,467
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(1) Totals presented do not include customers from the Company's other services
such as Global Fax, Internet, Minidat and Connexia.
SALES, MARKETING AND CUSTOMER SERVICE
The Company applies an integrated approach to its sales, marketing and
customer service functions. The Company's sales, marketing and customer
service professionals are organized into a number of service teams, each
comprised of up to twelve persons and including individuals with backgrounds in
and responsibilities for marketing, operations, engineering, maintenance,
customer service and administration. Each team is jointly responsible for all
aspects of a particular customer's or a group of customers' relationship with
the Company.
In the Company's larger operations, including in Argentina and Colombia, the
Company has established several service teams, with service teams focusing on a
particular type of client. For example, in Argentina, the Company has one
service team devoted to industrial customers, one service team devoted to
financial institutions, another devoted to governmental agencies, a service
team that is devoted to companies with headquarters in the interior of the
country, and a special service team that was established to service the
particular needs of key customers. Within each segment of the Company's market,
the respective service team is responsible both for new sales to potential
customers within such segment as well as for the servicing and follow-up of
existing customers. In addition, each customer is assigned an account manager,
who has overall responsibility for relations with that customer. An important
function of the account manager is to identify new or enhanced services that
can be marketed to the existing customer.
As the first step in the Company's marketing process, after an initial
contact has been established between the Company and a potential customer, the
Company evaluates the customer's telecommunications needs. After the Company
has completed its study, the Company creates a plan for the customer which
includes a description of the Company's proposed tailor-made technological
solution, utilizing and combining those components of the Company's private
telecommunications network services that best serve the customer's particular
needs. With respect to the provision of services to governmental agency
customers, such proposals often are delivered in response to public bid
solicitations and related governmental bidding procedures that govern the
contracting of services by governmental agencies.
8
<PAGE> 9
Following execution of a contract with a new customer, the Company commences
the detailed technical engineering work required to implement the private
telecommunications network system tailored to the customer's needs, including
fine-tuning the customer's software applications, and begins to purchase the
microstations and other equipment to construct the network and connect the
customer to the Company's existing facilities and infrastructure. Depending on
the complexity of the package of services and the network to be provided to the
customer, the period between the date a contract is signed and the customer's
services are operating and generating revenue is typically between 45 days and
four months. Once a customer's system is in operation, the Company provides
customer service to address questions or problems on a 24-hour per day, 365-day
per year basis.
In addition to its salaried sales and marketing personnel, the Company often
utilizes the services of third party sales representatives to assist in
generating sales and managing the contract process between the Company and
potential customers. Such third parties typically receive a commission and
royalties from the Company based on the value of the contract signed. To date
the practice of utilizing third party sales representatives in connection with
the generation and servicing of customer contracts has been employed
predominantly in the case of IMPSAT Argentina, although third party sales
representatives also have been utilized in connection with the Company's
customer generation in Colombia, Venezuela, Ecuador and Mexico. With respect
to the other countries in which the Company currently operates, the Company
principally has utilized its own sales force for the generation and servicing
of customer contracts. The Company anticipates that it will continue to
utilize such third party sales representatives primarily in connection with its
operations in Argentina. As of December 31, 1998, of IMPSAT Argentina's total
customer base of 490, IMPSAT Argentina had entered into contracts with third
party sales representatives for approximately 10.41% of its customer contracts,
including a number of its largest contracts. The financial terms of IMPSAT
Argentina's contracts with the third party sales representatives vary based on
the customers involved and the particular assistance provided by the
representatives. Commissions paid by IMPSAT Argentina to third party sales
representatives totaled approximately 5.6 % of IMPSAT Argentina's total
revenues for 1998.
COMPETITION
The Company's competitors fall into three broad categories. The first
category is comprised of the monopoly providers of public telephony services
("PTOs") in each of the countries in which it operates. The second category of
competitors is comprised of other companies, engaged in essentially the same
business as the Company, that operate competing VSAT and other satellite data
transmission businesses, along with other terrestrial telecommunications links.
The third category is comprised of companies that do not sell data transmission
services, but only the equipment for privately owned networks that are operated
and maintained by the customer. In addition, potential future competitors
include certain of the large international telecommunications carriers which
will be able to enter the local Latin American telecommunications markets in
the coming years as the monopolies granted to the PTOs expire.
Regarding the first group of competitors, the Company's further expansion
into the integrated private telecommunications network systems market, along
with continued deregulation of the telecommunications industry in Latin
America, will bring the Company into greater competition with the PTOs. A
number of PTOs in the countries in which the Company operates have established
and marketed "large customer" or "grand user" business teams in an attempt to
provide dedicated services to the type of customer that represents the
Company's most significant targeted market. The Company believes that by
establishing itself as a reliable, high-quality provider of private
telecommunications network systems it will be able to maintain its current
customers and successfully attract new customers. The Company will consider
strategic alliances and other cooperative ventures with the PTOs in the area of
private telecommunications network services to take advantage of each partner's
relative strengths.
With respect to the second category, i.e., current operators in the data
transmission sector of the telecommunications industry, the Company's
competitors, many of whom operate VSAT systems, include international satellite
providers such as COMSAT Corp. and local data transmission providers.
Regarding these competitors, the Company believes that it is
9
<PAGE> 10
able to compete successfully in data transmission by virtue of having a broad
array of services and of providing high-quality, custom-designed services that
are tailored to meet the specific needs of each customer.
The third category of competitors consists of companies that do not sell data
transmission services, but merely supply the equipment necessary for a customer
to establish and maintain its own private telecommunications network. The
Company believes that, with respect to this category of competitors, the
Company possesses significant competitive advantages by providing comprehensive
telecommunications services that offer the benefits of a private network while
freeing the customers from the burdens of operating and maintaining the
network.
While the PTOs and international telecommunications carriers have in the past
focused on local and long distance telephony services, in the future they may
focus on the private telecommunications network systems segment of the
telecommunications market. Such entities have significantly greater financial
and other resources than the Company, including greater access to financing,
and may be able to subsidize their private telecommunications network
businesses with revenues from public telephony. More recently, global
alliances have been formed by major telecommunications carriers as deregulation
in Latin America and elsewhere opens new market opportunities. For example,
Telefonica SA of Spain and MCI WorldCom have announced the formation of an
alliance to cooperate in Latin America and elsewhere, through joint ventures
and equity holdings in each other's subsidiaries. The Company believes that
increased competition in the coming years will affect its pricing policies.
There can be no assurance that such greater competition will not adversely
affect the Company's financial condition or results of operations.
In addition, there can be no assurance that competing technologies will not
become available that will adversely affect the Company's position, although
the Company believes that it has the flexibility to act quickly to take
advantage of any significant technological development. For example, new
technologies such as asynchronous digital subscriber line technology (ADSL) can
significantly enhance the speed of traditional copper lines. Such technologies
could enable the Company's PTO competitors to offer customers new high-speed
services without undergoing the expense of replacing their existing
twisted-pair copper networks, thereby negating the Company's "last mile"
advantage. The Company's private telecommunications services also are likely
to face future competition from entities using or proposing to use new or
emerging voice and data transmission services or technologies which currently
are not widely available in Latin America, such as spaced based systems
dedicated to data distribution services, generally known as "Little-LEOs" (low
earth orbit satellites) and "Broadband" (Ka-band) systems.
The Company established operations in Brazil in 1998 and expects to face
significant competition in that market. Brazil is by far the largest
telecommunications market in Latin America and is expected to attract numerous
providers, many of whom may be larger and better financed than the Company. At
the end of July 1998, the Brazilian government split Telecomunicacges
Brasileras S.A. ("Telebras"), the Brazilian national telecommunications
company, into twelve holding companies by region and type of provider, and the
twelve companies were privatized. Winning bidders for the twelve operating
companies included STET, MCI WorldCom and Telefonica SA. In addition, numerous
additional concessions to provide telephony and data transmission services are
expected to be granted. Winning bidders and concessionaires are likely also to
focus on parts of the Brazilian market beyond those in which they initially
obtain a concession. The presence of large carriers in Brazil may negatively
affect the Company's prospects in Brazil. As the Brazilian telecommunications
sector is further liberalized and deregulated, competition is likely to
initially come from current telecommunications service providers in that
country, including Empresa Brasileira de Telecomunicacoes S.A. ("Embratel"),
Brazil's former state-owned, monopoly long-distance carrier in which MCI
WorldCom acquired a 52% interest in July 1998 as part of the Telebras
privatization; Promon Eletronica Ltda., one of the largest Brazilian private
telecommunications companies and the local partner of Hughes Network Systems
for the provision of satellite telecommunications networks; COMSAT do Brazil
Ltda.; and GSI Servicos de Informatica Ltda., as well as from other domestic
and international entrants. In January 1999, National Grid PLC, a consortium
that includes Sprint and France Telecom, S.A., received a concession from the
Brazilian government to operate a long-distance service provider; and Global
One, the joint venture of Deutsche Telekom AG, France Telecom S.A. and Sprint,
has received a license to offer
10
<PAGE> 11
international and domestic telecommunications services to corporations in
Brazil. Moreover, other large, well financed international telecommunications
carriers may be expected to enter the Brazilian telecommunications market.
Rates are not regulated in the Company's countries of operation, and the
prices for the Company's services are strongly influenced by market forces.
The Company believes that increased competition in the coming years will result
in increased pricing pressures. Although the Company to date has not suffered
substantial price erosion, the Company has faced and expects to continue to
face declining prices and may experience margin pressure in the future as the
PTOs in the countries in which the Company has operations modernize their
facilities, adapt to a competitive marketplace and place greater emphasis on
data communications and as other companies enter the Latin American
telecommunications market. These price and margin declines may be accelerated
if new competitors enter its markets. The principal barriers to entry for
prospective providers of private telecommunications network services such as
those offered by the Company are the development of the requisite understanding
of customer needs, and the technological and commercial experience and know-how
and infrastructure to provide quality services to meet those needs. The
Company believes that its operating experience as a pioneer in providing shared
hub VSAT services, position as market leader, significant existing network
infrastructure in its markets, and ability to offer a diversity of
cost-efficient networking solutions, create significant competitive advantages.
REGULATION
The Company is subject to regulation by the national telecommunications
authorities of the countries in which it operates, and its operations require
the procurement of permits and licenses from such authorities. While the
Company believes it has received all authorizations from regulatory authorities
that are required for it to offer its services in the countries in which it
currently operates, the current conditions governing the Company's service
offerings may be altered by future legislation or regulation. Such future
legislation or regulation could favorably or unfavorably affect the Company's
business and operations.
Various countries in Latin America have taken initial steps towards
deregulation in the telecommunications market during the last few years.
Several Latin American countries have completely or partially privatized their
national carriers, including Argentina, Brazil, Mexico and Venezuela.
Furthermore, some countries have scheduled the demonopolization of their
dominant telecommunications providers. For example, Argentina and Venezuela
have announced the demonopolization of public telephone services by their PTOs
in 2000. The Company believes that this trend toward deregulation, while
likely to increase competition, will also present significant opportunities for
the Company to expand its private telecommunications network services to, from
and within the region, as well as to present opportunities for the Company in
areas of telecommunications currently permitted to be conducted only by the
PTOs.
EMPLOYEES
As of December 31, 1998, the Company employed a total of 1,018 persons, of
whom 359 were employed by IMPSAT Argentina and 220 were employed by IMPSAT
Colombia. The number of employees of the Company has generally increased and is
expected to continue to increase as a result of the Company's expansion in the
countries in which it operates and into new countries. The Company does not
have any long-term employment contracts with any of its employees, including
management, and none of its employees are members of any union. The Company
believes that its relations with its employees are good.
SATELLITE CAPACITY
As of December 31, 1998, the Company had a total leased capacity of 792.5 MHz
on ten satellites. The Company has satellite leases on the Intelsat 601, 706,
709 and 805 satellites for 0.46 MHz, 105.0 MHz, 256.0 MHz and 72.0 MHz of
capacity, respectively. Various amounts of leased capacity on Intelsat 601,
706, 709 and 805 satellites are scheduled to
11
<PAGE> 12
expire from April 1999 through April 2008, respectively. The Company's
satellite capacity on the Intelsat satellites is leased both directly by the
Company's operating subsidiaries and through subleases with Intelsat
participants, such as Argentina's CNC. The Company also has leased 119.0 MHz
of capacity on Nahuelsat's Nahuel-1 satellite which will expire in January
2002. The Company has leased 78.0 MHz of leased capacity on PanAmSat's PAS-1
satellite until the end of the useful life of the satellite (estimated to be
December 31, 2001). The Company has 72.0 MHz of capacity on PanAmSat's PAS-5
satellite expiring at the end of 2003. The Company also has 23.0 MHz of
capacity on Mexico's Solidaridad-II satellite which expires in January 2002.
The Company has satellite leases on the New Sky Satellite 806 satellite for
31.0 MHz which expires in 2008. In addition, the Company has leased capacity
in Brasilsat for 36.0 MHz, which expires in 2002. The Company's total lease
payments for satellite capacity totaled $19.2 million in 1997, and increased to
approximately $24.5 million in 1998. The Company will contract for additional
leased satellite capacity to the extent that the Company's business so
requires. A portion of the Company's satellite capacity is leased by
International Satellite Capacity Holding, NG ("ISCH"), a wholly-owned
subsidiary of the Company. ISCH's principal function is to lease private
satellite capacity from satellite carriers and then sublease such capacity at
market rates to the Company's operating subsidiaries as required by those
subsidiaries.
RECENT DEVELOPMENT
On March 11, 1999, the Company entered into a definitive agreement with
British Telecommunications plc ("BT") pursuant to which BT would acquire a 20%
stake in IMPSAT. Pursuant to the agreements signed among the Company, BT and
Nevasa, BT will subscribe for 20,158,528 shares of newly issued Common Stock
for a total of $125 million and will purchase 4,031,706 outstanding shares of
Common Stock from Nevasa for $25 million, thereby acquiring a minority interest
in the Company. These transactions are expected to close in the second quarter
of 1999.
ITEM 2. PROPERTIES
Teleports. The Company owns and operates Teleports in Buenos Aires,
Argentina; Bogota, Colombia; Caracas, Venezuela; Quito, Ecuador; Mexico City,
Mexico; and Florida, USA. In addition, IMPSAT USA operates leased teleport
facilities in New Jersey.
Regional Teleports. As of December 31, 1998, the Company was operating a
total of 12 Regional Teleports in major cities in Argentina, Colombia, Ecuador
and Brazil.
Teledatos Networks. The Company has fiber optic and microwave MANs in major
cities in which it operates for connection with the Teleport or Regional
Teleport in such cities. Additionally, the Company manages and operates a fiber
optic network covering 186 route miles in Bogota, Colombia, pursuant to a joint
venture with Empresa de Telecomunicaciones de Santafe de Bogota, the Colombian
PTO that provides local telephone service in the Bogota, Colombia region. The
Teledatos networks, which as of December 31, 1998 were operating in a total of
12 cities, permit efficient connection to the Company's Teleports and Regional
Teleports.
The Company also operates in Argentina a high capacity digital microwave
circuit that provides voice and data telecommunications links between user
sites in Buenos Aires and Mendoza.
Undersea Fiber Optic Cable Networks. The Company is a member of the
Americas-1 and Columbus-II undersea fiber optic cable consortia, and has
purchased an initial total of 2 Mbps capacity on both systems for use in its
Interplus service. Americas-1, which commenced commercial operation in
December 1994, is a 4,960 mile fiber optic cable system connecting Vero Beach,
Florida with the U.S. Virgin Islands, Trinidad, Brazil and Venezuela.
Americas-1 is owned by a consortium of 64 carriers from 42 countries and plans
to extend its links to Curacao and Argentina. Columbus-II, which commenced
service in mid-1994 and is owned by 56 telecommunications administrations in 40
countries, links Mexico, the United States, the U.S. Virgin Islands, Spain,
Portugal and Italy with about 7,440 miles of fiber optic cable. In
12
<PAGE> 13
addition, the Company has reserved up to 18 Mbps, 4 Mbps and 24 Mbps capacity
on the Americas II, Pan American and Arcos I undersea fiber optic cable
networks, respectively.
Pan American, a 7,000 km submarine cable venture among seven companies -- MCI
WorldCom, Telefonica del Peru, Telecom Italia, Ecuador's Andinatel and
Pacifictel, Venezuela's CANTV and Brazil's Embratel -- began operations in
mid-February 1999 and runs between the U.S. Virgin Islands, Aruba, Venezuela,
Colombia, Panama, Ecuador, Peru and Chile. The Americas II submarine cable,
which is being developed by AT&T, MCI WorldCom, Sprint and 37 other
telecommunication companies and other entities, is expected to be in operation
in the third quarter of 1999, is an 8,300 km system that will connect St.
Croix, Puerto Rico, Curacao, Venezuela and Brazil. Arcos I, an 8,000 km cable
system under construction with a planned second quarter 2000 completion date,
is expected connect the United States with numerous Caribbean and Latin
American nations.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in or subject to various litigation and legal
proceedings incidental to the normal conduct of the Company's business,
including with respect to regulatory matters. The Company was not subject to
any pending litigation or legal proceedings required to be disclosed for the
period covered by this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
At a special meeting of stockholders, which was held on December 21, 1998,
the Company's security holders adopted a proposal to establish, effective
December 21, 1998, a benefit plan providing for the grant of stock options,
long-term performance incentives and other stock-based awards to officers,
employees, consultants and certain affiliates of the Company.
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Not Applicable.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial and other data are for the Company on a
consolidated basis and separately for IMPSAT Argentina, in each case in
accordance with U.S. GAAP. The Company's subsidiaries generally use the U.S.
dollar as their functional currency. The Company owns less than a 100% equity
interest in certain of its subsidiaries, including a 95.2% equity interest in
IMPSAT Argentina, a 74.2% equity interest in IMPSAT Colombia, a 75.0% equity
interest in IMPSAT Venezuela and a 99.9% equity interest in IMPSAT Brazil and a
75.1% equity interest in Mandic, S.A.
The fiscal year of the Company and all of its subsidiaries ends on December
31. IMPSAT Argentina has changed its fiscal year end from November 30 to
December 31, effective December 31, 1997. The consolidated statement of
operations and other financial and operating data of the Company for the years
ended December 31, 1994, 1995, 1996, 1997 and 1998 incorporate IMPSAT
Argentina's results for the years ended November 30, 1994, 1995, 1996 and
December 31, 1997 and 1998, respectively. The consolidated balance sheet data
of the Company as of December 31, 1994, 1995, 1996, 1997 and 1998 incorporate
IMPSAT Argentina's balance sheet data as of November 30, 1994, 1995 and 1996
and December 31, 1997 and 1998, respectively.
13
<PAGE> 14
On October 20, 1998, Resis Ingenieria S.A. ("Resis") merged into IMPSAT
Argentina and ceased to exist. The merger, as is the case for transactions
among companies under common control, has been accounted for in a manner
similar to the pooling of interests method of accounting, whereby all assets
and liabilities have been recorded at their historical carrying amounts and the
merger was recorded as if the transaction occurred at the beginning of each
period presented.
The selected financial data for the Company and for IMPSAT Argentina have
been derived from the Company's audited consolidated financial statements and
IMPSAT Argentina's audited financial statements for the respective years.
THE COMPANY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(U.S.$ THOUSANDS, EXCEPT FOR RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues from services . . . . . . . . . $ 77,679 $ 105,641 $ 128,393 $ 161,065 $ 208,089
Costs and expenses:
Variable cost of services . . . . . . . . (12,770) (18,818) (21,494) (27,333) (36,369)
Satellite capacity . . . . . . . . . . . . (7,734) (10,973) (13,925) (19,230) (24,507)
Salaries, wages and benefits . . . . . . . (13,528) (22,220) (25,561) (29,109) (38,198)
Selling, general and administrative. . . . (19,148) (26,094) (23,030) (33,356) (45,199)
Depreciation and amortization . . . . . . (12,874) (20,653) (26,318) (28,673) (36,946)
------- ------- ------- ------- -------
Operating income . . . . . . . . . . . . . . 11,625 6,883 18,065 23,364 26,870
Other income (expenses):
Interest expense, net . . . . . . . . . . (8,231) (15,677) (23,185) (24,272) (44,698)
Net gain (loss) on foreign exchange. . . . 1,352 1,838 910 (276) 675
Other income (expenses), net . . . . . . . 599 511 1,035 (151) 760
--- --- ----- ----- ---
Income loss before income taxes and minority
interest . . . . . . . . . . . . . . . . . . 5,345 (6,445) (3,175) (1,335) (16,393)
Benefit from (provision for) income taxes . . 3,155 740 (3,542) (5,263) (3,805)
----- --- ------- ------ ------
(Loss) income before cumulative effect and
minority interest . . . . . . . . . . . . . . 8,500 (5,705) (6,717) (6,598) (20,198)
Cumulative effect of change in accounting
principle, net of tax . . . . . . . . . . . . -- -- -- -- (1,269)
Income attributable to minority interest. . . (5,464) (1,712) (1,766) (993) (2,502)
------ ------ ------ ---- ------
Dividends on redeemable preferred stock . . . -- -- -- -- (10,018)
--------- ---------- ----------- ---------- ---------
Net (loss) income attributable to common
shareholders . . . . . . . . . . . . . . . . $ (3,036) $ 7,417 $ (8,483) $ (7,591) $ (34,513)
========= ========== ========== ========= =========
OTHER FINANCIAL DATA:
EBITDA (1) . . . . . . . . . . . . . . . . . $ 24,499 $ 27,536 $ 44,383 $ 52,037 $ 63,816
Ratio of earnings to fixed charges (2). . . . 1.38x -- -- -- --
Ratio of EBITDA to interest expense . . . . . 2.90x 1.67x 1.76x 1.99x $ 1.20x
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(U.S.$ THOUSANDS, EXCEPT FOR OPERATING DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents . . . . . . $ 32,135 $ 6,216 $ 28,895 $ 10,439 $ 90,021
Total current assets .. . . . . . . . 57,948 36,906 68,304 65,015 159,099
Net property, plant and equipment . . 152,909 199,701 227,086 255,422 330,726
Total assets . . . . . . . . . . . . 222,684 249,095 315,230 339,916 527,218
Total current liabilities . . . . . . 68,984 128,813 78,126 103,438 97,910
Total short-term debt and current
portion of long-term debt. . . . . . 48,047 97,510 42,874 60,375 40,400
Total long-term debt, net . . . . . . 59,437 30,200 156,230 159,677 379,292
Minority interest . . . . . . . . . . 24,893 28,476 30,242 10,398 3,446
Redeemable preferred stock . . . . . -- -- -- -- 135,018
Stockholders' equity (deficit). . . . 62,780 55,363 46,880 63,389 (101,519)
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
VSAT microstations installed. . . . . 1,925 2,841 3,476 3,585 3,639
Dataplus earth stations installed . . 271 443 704 908 1,161
Satellites linked . . . . . . . . . . 4 4 6 6 10
Leased satellite capacity (MHz) . . . 128.4 198.3 253.0 412.6 792.5
Teleports . . . . . . . . . . . . . . 3 4 5 5 6
Regional Teleports . . . . . . . . . 9 10 10 10 12
Teledatos Networks . . . . . . . . . 12 12 12 12 12
Customers . . . . . . . . . . . . . . 445 656 907 1,192 1,467
</TABLE>
15
<PAGE> 16
IMPSAT ARGENTINA
<TABLE>
<CAPTION>
YEAR ENDED MONTH ENDED YEAR ENDED
-------------------------------------------- ----------- ----------
NOVEMBER 30, DECEMBER 31, DECEMBER 31,
-------------------------------------------- ------------ ------------
1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ----
(U.S.$ THOUSANDS, EXCEPT FOR RATIOS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues from services ..................... $ 63,999 $ 80,346 $ 87,093 $ 91,641 $ 8,130 $100,541
Costs and expenses:
Variable cost of services..................... (11,040) (11,083) (14,695) (14,606) (1,590) (17,919)
Satellite capacity ........................... (5,902) (8,358) (9,503) (9,614) (944) (10,629)
Salaries, wages and benefits ................. (9,567) (15,735) (15,799) (15,823) (1,086) (16,342)
Selling, general and administrative........... (12,885) (20,950) (13,167) (20,905) (1,045) (20,357)
Depreciation and amortization................. (10,719) (16,117) (18,970) (18,033) (1,562) (20,515)
-------- -------- -------- -------- ------- --------
Operating income................................. 13,886 9,917 14,959 12,660 1,903 14,779
Other income (expenses):
Interest expense, net......................... (4,556) (10,404) (12,527) (12,617) (976) (12,801)
Other income, net............................. (83) 506 624 9 4 16
-------- -------- -------- -------- ------- --------
Income before income taxes and minority
interest......................................... 9,247 19 3,056 52 931 1,994
Benefit from (provision for) income taxes ....... 3,220 -- (3,963) (3,247) (311) --
-------- -------- -------- -------- ------- --------
Income before minority Interest ................. 12,467 19 (907) (3,195) 620 1,994
(Income) loss attributable to minority interest . (3) 6 3 -- -- --
-------- -------- -------- -------- ------- --------
Net income....................................... $ 12,464 $ 25 $ (904) $ (3,195) $ 620 $ 1,994
======== ======== ======== ======== ======= ========
OTHER FINANCIAL DATA:
EBITDA(1) ....................................... $ 24,605 $ 26,034 $ 33,929 $ 30,693 $ 3,465 35,294
Ratio of earnings to fixed charges(2) ........... 2.92x -- 1.2x 1.03x 1.95x 1.05x
Ratio of EBITDA to interest expense ............. 5.17x 2.60x 3.2x 2.3x 3.4x 2.4x
</TABLE>
<TABLE>
<CAPTION>
AS OF NOVEMBER 30, AS OF DECEMBER 31,
-------------------------------------------- --------------------
1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ----
(U.S.$ THOUSANDS, EXCEPT FOR OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents . . . . $ 514 $ 1,712 $ 1,882 $ 5,843 $ 6,169 $ 13,489
Total current assets . . . . . . 22,169 20,368 28,823 38,147 40,475 50,810
Net property, plant and equipment 118,024 140,588 143,430 148,786 147,431 167,653
Total assets . . . . . . . . . . 144,504 167,747 174,239 196,850 197,820 234,844
Total current liabilities . . . . 54,331 103,527 45,038 71,999 72,771 168,015
Total short-term debt and current 37,275 70,998 25,512 40,570 43,644 77,694
portion of long-term debt . . . .
Total long-term debt, net . . . . 39,609 14,949 4,270 63,338 63,029 1,802
Long-term advances from parent -- -- 69,719 -- -- --
company . . . . . . . . . . . . .
Minority interest . . . . . . . . 9 3 -- -- -- --
Stockholders' equity . . . . . . 43,964 49,268 51,457 60,017 60,637 63,542
</TABLE>
<TABLE>
<CAPTION>
AS OF NOVEMBER 30, AS OF DECEMBER 31,
------------------ ------------------
1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
VSAT microstations installed . . 1,462 1,951 2,111 2,446 2,446 2,401
Dataplus earth stations installed 236 355 398 465 465 513
Satellites linked . . . . . . . . 4 4 6 5 5 5
Leased satellite capacity (MHz) . 96.0 148.0 148.0 186.6 186.6 405.8
Regional Teleports . . . . . . . 6 6 6 6 6 6
Teledatos Networks . . . . . . . 7 7 7 7 7 7
Customers . . . . . . . . . . . . 292 319 358 436 439 490
</TABLE>
- - -----------------------
(1) EBITDA consists of operating income (loss) plus depreciation and
amortization and income taxes. EBITDA is presented because it is a measure
commonly used in the industry and to enhance an understanding of the
Company's operating results and is not intended to represent or be a
substitute for cash flow under generally accepted accounting principles
("GAAP"). Because EBITDA is not calculated under GAAP principles, it is not
necessarily comparable to similarly titled measures of other companies.
(2) The ratio of earnings to fixed charges is computed by dividing operating
income before fixed charges (other than capitalized interest), by fixed
charges. Fixed charges consist of interest charges and amortization of debt
expense and discount or premium related to indebtedness. Earnings of the
Company were insufficient to cover fixed charges by approximately $9.6
million, $7.1 million, $2.2 million and $22.5 million, for the years ended
December 31, 1995, 1996, 1997 and 1998, respectively. Earnings of IMPSAT
Argentina were insufficient to cover fixed charges by approximately $0.5
million for the year ended November 30, 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
16
<PAGE> 17
OVERVIEW
Forward Looking Statements. This Management's Discussion and Analysis of
Financial Condition and Results of Operations contains forward-looking
statements that involve significant risks and uncertainties. Such
forward-looking statements are based upon current expectations, and actual
results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, the effect of changing economic conditions in the
countries in which the Company operates, business conditions and growth in the
telecommunications industry in Latin America, the Company's ability to maintain
its lending arrangements, or if necessary, access additional sources of capital
and accurately forecast capital requirements, new technological developments,
changes in tax and other governmental rules and regulations applicable to the
Company, changes in the competitive environment in which the Company operates,
and dependence on key management. Certain of these factors are described in
the description of the Company's business, operations and financial condition
contained in this Report and in the "Risk Factors" section of the Company's
final prospectus dated September 29, 1998, as filed with the U.S. Securities
and Exchange Commission. Assumptions relating to budgeting, marketing, product
development and other management decisions are subjective in many respects and
thus susceptible to interpretations and periodic revisions based on actual
experience and business developments, the impact of which may cause the Company
to alter its marketing, capital expenditure or other budgets, which may in turn
affect the Company's financial position and results of operations. The Company
does not undertake to publicly update or revise its forward looking statements
even if experience or future changes make it clear that any projected results
(expressed or implied) will not be realized.
Revenues. The Company provides services to its customers pursuant to
contracts which typically range from six months to five years but generally are
for three years. The customer generally pays an installation charge at the
beginning of the contract and a monthly fee based on the quantity and type of
equipment installed. The fees stipulated in the contracts are generally
denominated in U.S. dollar equivalents. Services (other than installation
fees) are billed on a monthly, predetermined basis, which coincide with the
rendering of the services. The Company reports net revenues which are after
deductions for sales taxes.
The Company recently has experienced, and anticipates that it will continue
to experience, downward pressure on its prices as it continues to expand its
customer base and as competition for private telecommunications network
services grows. In addition, as the Company's business in a particular country
matures, its rate of growth in that country tends to slow. In particular, this
has occurred in Argentina and, to a lesser extent, in Colombia. To compensate
for slower growth in maturing markets, the Company seeks to expand into new
countries and to provide new services.
The Company anticipates that its geographic diversification provides some
protection against economic downturns in any particular country, although there
can be no assurance in this regard. However, a substantial majority of the
Company's revenues are derived from Argentina and Colombia. Many of the
countries in which the Company operates have experienced political and economic
volatility in recent years. It is impossible to predict whether such events,
circumstances or conditions will occur, recur or worsen, or what effect any
such events, circumstances or conditions, which are entirely outside the
control of the Company, will have on the countries in which the Company
operates or upon the Company. Such conditions and events may have adverse
effects on the business, results of operations and financial condition of the
Company.
Costs and Expenses. The Company's costs and expenses include principally (i)
variable costs of services, (ii) lease payments for satellite transponder
capacity, (iii) salaries, wages and benefits, (iv) selling, general and
administrative expenses and (v) depreciation and amortization. The principal
items comprising variable cost of services are installation (and
de-installation) costs, sales commissions paid to third-party sales
representatives and maintenance costs. Selling, general and administrative
("SG&A") expenses for the Company consist principally of publicity and
promotion costs; provisions for doubtful accounts; fees and other
remunerations; travel and entertainment; rent; and plant services and telephone
and energy expenses.
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<PAGE> 18
Currency Risks. The Company's contracts with its customers generally provide
for payment in U.S. dollars or for payment in local currency linked to the
exchange rate at the time of invoicing between the local currency and the U.S.
dollar. Accordingly, inflationary pressures on local economies in the
Company's countries of operations did not have a direct effect on the Company's
revenues during 1998. Inflation has in the past, and could in the future,
adversely affect the economies of certain of the Company's countries of
operations by, among other things, increasing the cost of local capital and
capital inflows from the United States and elsewhere. Moreover, given that the
exchange rate is generally set at the date of invoicing and that the Company in
some cases experiences substantial delays in collecting receivables, it is
exposed to exchange rate risk. Furthermore, pursuant to Brazilian law, the
Company's contracts with customers in Brazil cannot be linked to the exchange
rate between the Brazilian real and the U.S. dollar. The Company's expansion
in Brazil therefore will increase the Company's exposure to exchange rate
risks.
During the second week of January 1999, the Central Bank of Brazil introduced
changes in its exchange rate policies. These changes eliminated the exchange
rate band whereby the fluctuation of exchange rates between the Brazilian Real
and the U.S. Dollar was managed and permitted the market to freely set the rate
of exchange between the Real and the Dollar. The Real has lost approximately
40% of its value in relation to the U.S. dollar as compared to the prevailing
exchange rate as of December 31, 1998. Based on the balances of monetary
assets and liabilities of the Company denominated in Brazilian Reales at
December 31, 1998, the Company estimates that it has realized approximately
$3.3 million in foreign exchange losses through the end of February 1999. This
loss will be reflected in the first quarter of 1999.
Ecuador has also experienced a devaluation of its currency, the Sucre,
against the U.S. dollar since December 31, 1998. Based on the balances of its
monetary assets and liabilities denominated in Sucres at December 31, 1998, the
Company estimates that it has realized approximately $74,000 in foreign
exchange losses through the end of February 1999. This loss will be reflected
in the first quarter of 1999. Ecuador's currency devaluation is symptomatic of
an ongoing economic crisis in that country. The economic crisis has been
fueled by high levels of inflation, billions of dollars of damage from floods
during 1998 and low world prices for oil (Ecuador's major export). In response
to the crisis, in early March 1999 the Ecuadorian government announced economic
austerity measures and shut down the country's banks to prevent panic
withdrawals. These measures spurred a general strike, rioting and the
government's declaration of a state of emergency. Further economic decline and
social unrest in Ecuador is possible and would have a material adverse effect
on the Company's business and results of operations in Ecuador.
The Company's operations in Brazil and Ecuador will have exposure to further
currency exchange risks.
The continued Asian and Russian economic crises have had an adverse effect on
the economies of a number of other Latin American countries, including
Colombia, Mexico and Venezuela. Such effects in turn have led to pressures on
local interest rates as the countries have adopted monetary policies to attempt
to bolster their currencies. Continued pressures on the local currencies in
the countries in which the Company operates are likely to have an adverse
effect on many of the Company's customers, which could adversely affect the
Company. Such events also have had an adverse effect on the ability of the
Company and many other entities located in the countries in which the Company
currently operates, including certain of its customers, to gain access to the
international capital markets for necessary financing and refinancing.
Continued closure of international capital sources to emerging market borrowers
could have an adverse effect on the Company and many of its customers.
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<PAGE> 19
RESULTS OF OPERATIONS
The following table presents the Company's results of operations as a
percentage of revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1996 1997 1998
---------------------- ------------------ ---------------------
(U.S.$ THOUSANDS AND % OF CONSOLIDATED REVENUES)
<S> <C> <C> <C> <C> <C> <C>
$128,393 100.0% $161,065 100.0% $208,089 100.0%
Revenues . . . . . . . . . . .
Variable costs of services . . 21,494 16.7 27,333 17.0 36,369 17.5
Satellite capacity cost . . . . 13,925 10.8 19,230 11.9 24,507 11.8
Salaries, wages and benefits . 25,561 19.9 29,109 18.1 38,198 18.4
Selling, general and
administrative expenses . . . . 23,030 17.9 33,356 20.7 45,199 21.7
Depreciation and amortization . 26,318 20.5 28,673 17.8 36,946 17.8
Interest expense, net . . . . . 23,185 18.1 24,272 15.1 44,698 21.5
Net gain (loss) on foreign
exchange . . . . . . . . . . . 910 0.7 (276) (0.2) 675 0.3
Provision for income taxes . . (3,542) (2.8) (5,263) (3.3 ) (3,805) (1.8)
Net loss . . . . . . . . . . . (8,483) (6.6) (7,591) (4.7) (33,987) (16.3)
</TABLE>
1998 COMPARED TO 1997
Revenues. Revenues for 1998 totaled $208.1 million compared to $161.1
million for 1997. This represents an increase of $47.0 million (or 29.2%) from
revenues for 1997. Revenues at IMPSAT Argentina for 1998 totaled $100.5
million, representing an increase of $8.9 million (or 9.7%) from IMPSAT
Argentina's revenues for 1997. This increase was primarily attributable to
increased revenues from Internet services, as described below. IMPSAT
Argentina's revenues for 1998 include intercompany revenue of $1.5 million
relating to certain management services provided by IMPSAT Argentina to the
Company's other operating subsidiaries. Prior to October 20, 1998, such
management services were provided to the Company's operating subsidiaries by
Resis.
IMPSAT Colombia's revenues for 1998 totaled $59.9 million. This represents an
increase of $10.4 million (or 21.0%) from IMPSAT Colombia's revenues for 1997.
Revenues at IMPSAT Venezuela totaled $14.9 million for 1998, an increase of
$6.3 million (or 72.3%) over IMPSAT Venezuela's revenues for 1997. Revenues at
IMPSAT Ecuador totaled $9.8 million for 1998, an increase of $4.3 million (or
78.1%) compared to 1997. The Company's net revenues for 1998 also include
revenues of $8.3 million recorded by Mandic S.A. (since its May 1998
acquisition by the Company) and $3.6 million recorded by IMPSAT Brazil.
Excluding Internet and Global Fax customers, the Company had a total of 1,467
customers at December 31, 1998, compared to 1,192 customers at December 31,
1997.
During the latter half of 1998, the Company commenced the development of its
operations in Brazil. At December 31, 1998, IMPSAT Brazil had a total of 48
customers, compared to 21 customers at the end of the second quarter of 1998.
In October 1998, IMPSAT Brazil entered into a five-year contract to provide
private telecommunications network services to Confederacag Nacional da
Industria ("CNI"), Brazil's national association of private industrial
companies. Upon its full implementation, the CNI contract contemplates monthly
revenues to IMPSAT Brazil of $0.7 million. Also in that month, IMPSAT Brazil
completed the construction and commenced operation of a Regional Teleport
located in Curitiba. The Sao Paulo, Brazil Regional Teleport commenced
operation in August 1998.
The increase in the Company's net revenues for 1998 is derived principally
from growth in the Company's services other than its VSAT based service
offerings. The Company anticipates that the percentage, and absolute amount,
of total revenues represented by non-VSAT based service offerings (i.e., SCPC,
value-added and terrestrial services) will continue to grow at a faster rate
than its VSAT based service offerings. Revenues from VSAT services during 1998
totaled $56.7 million, a decrease of $0.7 million (or 1.2%) from revenues from
VSAT services for the corresponding period in 1997. As a percentage of the
Company's net revenues, revenues from VSAT services declined to 27.3% for 1998
from
19
<PAGE> 20
35.7% for the corresponding period in 1997, reflecting downward pressure on the
prices for the Company's VSAT services. Revenues from Dataplus services for
1998 totaled $45.7 million, an increase of $8.1 million, (or 21.6%), compared
to Dataplus revenues for 1997. Many of the Company's customers have
supplemented or replaced their VSAT services with Dataplus services over time
as they have increased the amount of band width required for the private
telecommunications network services contracted with the Company, and the
Company expects this trend to continue.
In addition, the Company's revenues from newer service offerings, such as
Internet and Minidat, recorded significant increases during 1998. Internet
service revenues during 1998 totaled $21.1 million, as compared to $7.9 million
for 1997. At December 31, 1998, the Company had in excess of 79,441 retail
dial-up access Internet customers and 252 corporate dedicated access Internet
customers, compared to 19,057 retail Internet customers and 45 corporate
Internet customers at December 31, 1997. Mandic S.A.'s net revenues from
Internet services for 1998 (after its acquisition by the Company) totaled $8.3
million. IMPSAT Argentina's net revenues from Internet services for 1998
totaled $6.3 million, an increase of $1.8 million (or 41.4%) compared to 1997.
Revenues from Minidat services for 1998 totaled $2.3 million compared to
revenues of $17,000 in 1997. At December 31, 1998, the Company had installed
763 Minidat microstations compared to installations of 119 Minidat
microstations at December 31, 1997.
Competitive pressures, including lower pricing, have resulted in relatively
flat revenues from Argentina's non-value added service offerings during 1998.
IMPSAT Argentina's revenues from VSAT and Dataplus services for 1998 totaled
$37.6 million and $23.5 million, respectively, an increase of $1.7 million (or
4.7%) and a decrease of $0.1 million (or 0.6%) compared to 1997.
As part of net revenues, the Company recorded revenues of $4.7 million from
certain equipment sales during 1998, as compared to revenues from such sales of
$3.1 million during 1997.
Variable Cost of Services. The Company's variable cost of services for 1998
totaled $36.4 million, an increase of $9.0 million (or 33.1%) from the
Company's variable cost of services for 1997. Of total variable cost of
services for 1998, $17.9 million related to the operations of IMPSAT Argentina,
and $8.2 million related to the operations of IMPSAT Colombia (compared to
variable cost of services of $14.6 million at IMPSAT Argentina and $7.3 million
at IMPSAT Colombia for 1997).
The principal items comprising total variable cost of services are
maintenance and installation (including de-installation) costs, and sales
commissions paid to third-party sales representatives.
Maintenance costs for the Company totaled $10.3 million during 1998. This
represents an increase of $0.1 million over maintenance costs incurred by the
Company for 1997. Maintenance costs include maintenance services contracted by
the Company from outside providers and interconnection and access charges
incurred by the Company in completing telecommunications through the networks
of other telecommunications carriers.
Installation costs totaled $7.6 million for 1998 compared to $4.7 million for
1997. The Company contracts equipment installation services from outside
providers.
Sales commissions paid to third party sales representatives totaled $6.8
million for 1998. In comparison, sales commissions paid to third party sales
representatives totaled $5.7 million for 1997. Sales commissions paid to
third-party sales representatives by IMPSAT Argentina totaled $5.6 million for
1998, compared to $5.0 million for 1997. Sales commissions increased during
1998 compared to 1997 as a result of certain new private telecommunications
network services contracts that were obtained by the Company during 1998
through the use of third-party sales representatives.
In addition, the Company incurred costs of equipment sold during 1998 of $3.7
million, as compared with costs of equipment sold during 1997 of $3.1 million.
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<PAGE> 21
Salaries, Wages and Benefits. Salaries, wages and benefits paid by the
Company for 1998 totaled $38.2 million, an increase of $9.1 million (or 31.2%)
over the Company's expenses for salaries, wages and benefits during 1997. The
Company increased salaries, wages and benefits of its personnel to match market
rates and increases in cost of living. The increase in salaries, wages and
benefits also reflects the acquisitions during the second quarter of 1998 of
IMPSAT Brazil and Mandic S.A., which had 107 and 67 employees, respectively, at
December 31, 1998. Salaries, wages and benefits paid by the Company with
respect to IMPSAT Brazil and Mandic S.A. for 1998 totaled $3.6 million and $1.1
million, respectively. The Company maintained a total of 1,018 employees at
December 31, 1998, compared to 748 employees at December 31, 1997. Of the
Company's total employees at December 31, 1998, 28 individuals were assigned to
the IMPSAT 2000 project. Salaries, wages and benefits for 1998 relating to
IMPSAT 2000 totaled $0.5 million.
IMPSAT Argentina paid salaries, wages and benefits totaling $16.3 million
in 1998 compared to $15.8 million during 1997.
Satellite Capacity Cost. The Company's satellite lease payments for 1998
totaled $24.5 million, an increase of $5.3 million (or 27.4%) over satellite
lease payments for 1997. IMPSAT Argentina's satellite lease payments for 1998
totaled $10.6 million, an increase of $1.0 million (or 10.6%) over satellite
lease payments for 1997. The Company had approximately 792.5 MHz and 412.6 MHz
of leased satellite capacity at December 31, 1998 and 1997, respectively. The
expansion of the Company's satellite capacity during 1998 compared to 1997 is
attributable primarily to contractually scheduled increases in satellite
capacity to match anticipated growth in the total number of Dataplus earth
stations to be installed by the Company over time which, because of their
greater transmission capacity and bandwidth requirements compared to VSAT,
utilize larger amounts of satellite capacity. Increases in the Company's
utilization of satellite capacity have not been matched by proportionate
increases in revenues from its satellite-based services. As discussed above in
"Business - Competition," the Company recently has experienced, and anticipates
that it will continue to experience, downward pressure on its prices as it
continues to expand its customer base and as competition for private
telecommunications network services grows. Upon the renewal and/or expansion
of its contracts with existing customers, the prices charged to such customers
have generally declined, resulting in a lower revenues per unit of satellite
capacity utilized relative to prior years.
Selling, General and Administrative Expenses. SG&A expenses for the
Company consist principally of advertising and promotion costs; provisions for
doubtful accounts; fees and other remuneration; travel and entertainment; rent;
and plant services, telephone and energy expenses.
The Company incurred SG&A expenses of $45.2 million for 1998, an increase
of $11.8 million (or 35.6%), compared to 1997. The increase in SG&A expenses
for 1998 relates principally to an increase in the Company's provision for
doubtful accounts as discussed below and SG&A expenses incurred by the two new
subsidiaries of the Company, IMPSAT Brazil and Mandic S.A.
SG&A expenses at IMPSAT Argentina for 1998 totaled $20.4 million, a
decrease of $0.5 million (or 2.6%) compared to 1997. SG&A expenses at IMPSAT
Brazil and Mandic S.A. for 1998 totaled $5.6 million and $2.2 million,
respectively. The Company also incurred SG&A expenses of $1.9 million during
1998 in connection with IMPSAT 2000.
On a Company-wide basis, the Company recorded a provision for doubtful
accounts in 1998 of $5.3 million, compared to a provision of $3.3 million in
1997, as a result of certain payment arrears experienced by certain customers
in Argentina, Colombia and Ecuador. Of this amount, IMPSAT Argentina recorded
a provision for doubtful accounts during 1998 of $3.5 million, in comparison to
a provision for 1997 of $2.7 million. Prior to June 30, 1998, the Company's
general policy had been to reserve 30% for accounts receivable in excess of 180
days and less than one year, and 100% of all accounts receivable in excess of
360 days. The Company's current general policy is to reserve 100% for all
accounts
21
<PAGE> 22
receivable in excess of 180 days. This policy is not to be applied to a
receivable if the president of an operating subsidiary determines that such
receivable will be collected within a further 60 days.
In addition to the general provision discussed in the preceding paragraph,
at December 31, 1998, the Company had reserved approximately 51.8% (or $1.2
million) of the total amount due to IMPSAT Argentina with respect to a
receivable totaling $2.2 million relating to IBM de Argentina S.A. ("IBM").
The past due receivable (the "IBM Receivable") was recorded for services
provided under a subcontract between IMPSAT Argentina and IBM relating to BNA.
BNA, a state owned bank and the largest bank in Argentina, is and has been one
of the Company's ten largest customers. IBM has filed suit against BNA for
amounts due and owing under its direct contract with BNA. IMPSAT Argentina
currently has a direct contract with BNA for the provision of private network
telecommunications services as to which BNA is generally current.
The payment of the receivable by BNA to IBM is subject to the approval of
the General Auditor of Argentina, which office is conducting an audit of the
procedures used by BNA in awarding the contract. During 1997, IMPSAT Argentina
conducted negotiations with IBM that resulted in the execution of an agreement
between IMPSAT Argentina and IBM contemplating the possible cancellation of the
amounts due to IMPSAT Argentina in respect of the IBM receivable in exchange
for a payment to IMPSAT Argentina approximately $1.5 million plus VAT in the
event that the judge overseeing IBM's suit against BNA authorized IBM's
settlement of the amount due to IMPSAT Argentina as not affecting IBM's claims
against BNA. The contemplated judicial approval was not received prior to the
date established for such authorization in IMPSAT Argentina's agreement with
IBM (April 30, 1998), and IBM therefore declined to make the contemplated
payment. On December 14, 1998, IMPSAT Argentina filed suit against IBM for
amounts due and arising under the IBM Receivable totaling $2.2 million, plus
interest on such amounts.
At December 31, 1998 (excluding (i) the IBM contract discussed above, and
(ii) amounts totaling $8.4 million owed to the Company by Empresa Nacional de
Correos y Telegrafos S.A. ("ENCOTESA"), the former Argentine national postal
service that was privatized in 1997, under IMPSAT Argentina's contracts with
ENCOTESA, see Note 14 to the Company's Consolidated Financial Statements)
approximately 11.6% of the Company's gross current trade accounts receivable
were past due more than six months but less than one year and approximately
12.4% of gross accounts receivable were past due more than one year.
The Company's provision for doubtful accounts for 1998 includes a provision
of $0.6 million relating to amounts owed to IMPSAT Argentina by VideoCable
Comunicaciones S.A. ("VCC") under a contract pursuant to which VCC had agreed
to market IMPSAT Argentina's Internet access service to VCC's customers. The
VCC agreement was terminated on July 2, 1998. In February 1999, the Company
and VCC entered into an agreement for the payment by VCC of $1 million of the
total $1.6 million amount outstanding under this terminated contract.
The increase in the Company's SG&A expenses for 1998 also reflects: (a)
increased entertainment, advertising and promotion costs during the period
($7.9 million, representing an increase of $2.7 million, or 53.4%, compared to
1997) relating to: (i) the Company's expansion of its operations into Brazil,
(ii) promotion campaigns for the Company's newer services (Internet, Conexia
and Telecampus), (iii) consultant fees relating to the exploration of a new
public image for the Company, and (iv) related travel and entertainment
expenses; and (b) expenses during the period related to legal, tax and
consultancy advice ($7.1 million, compared to $5.2 million for 1997) with
respect to the financing and expansion of the Company's operations, including
the acquisitions of IMPSAT Brazil and Mandic S.A. and the development of plans
for the IMPSAT 2000 network.
Depreciation and Amortization. The Company's depreciation and amortization
for 1998 totaled $36.9 million, representing an increase of $8.3 million (or
28.9%) compared to 1997. Depreciation and amortization for IMPSAT Argentina
for 1998, totaled $20.5 million, an increase of $2.5 million (or 13.8%)
compared to 1997.
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<PAGE> 23
Interest Expense, Net. The Company's net interest expense for 1998 totaled
$44.7 million, consisting of interest expense of $49.4 million and interest
income of $4.7 million. Net interest expense for 1998 increased $20.4 million
(or 84.2%) from net interest expense for 1997. IMPSAT Argentina's net interest
expense for 1998 totaled $12.8 million ($6.0 million after eliminating
intercompany items). In comparison, IMPSAT Argentina's net interest expense
for 1997 totaled $12.6 million ($2.6 million after eliminating intercompany
items). Net interest expense at IMPSAT Colombia for 1998 totaled $10.3
million ($8.5 million after eliminating intercompany items). In comparison,
IMPSAT Colombia's net interest expense for 1997 totaled $7.8 million ($4.5
million after eliminating intercompany items). Interest expense with respect
to intercompany loans are eliminated in the Company's Consolidated Statement of
Operations.
The increase in net interest expense is primarily attributable to the
increased indebtedness of the Company, which grew from $220.1 million as of
December 31, 1997 to $419.7 million as of December 31, 1998. Such increased
indebtedness of the Company relates primarily to the issuance by the Company on
June 17, 1998 of $225 million principal amount of 12 3/8% Senior Notes due 2008
(the "1998 Note Offering").
As of December 31, 1998, total outstanding indebtedness at IMPSAT Argentina
equaled $79.7 million ($33 million after eliminating intercompany items),
compared to $106.7 million as of December 31, 1997. Total outstanding
indebtedness at IMPSAT Colombia as of December 31, 1998 equaled $44.2 million
($33.6 million after eliminating intercompany items), compared to $5.4 million
as of December 31, 1997. The average interest rate on the Company's
indebtedness for 1998 was 13.97%, compared to an average interest rate of 11.9%
for 1997.
Interest expense is expected to increase in future periods as a result of
the 1998 Note Offering.
Provision for Income Taxes. The Company recorded a provision for income
taxes for 1998 of $3.8 million, compared to $5.3 million for 1997. IMPSAT
Argentina recorded a provision for income taxes for 1998 of zero, compared to
$3.2 million for 1997. This reduction in IMPSAT Argentina's provision for
income tax is attributable to certain carry forward losses of Resis that, after
IMPSAT Argentina's acquisition of Resis, practically eliminated IMPSAT
Argentina's income tax liability in 1998. IMPSAT Colombia recorded a provision
for income taxes for 1998 of $2.0 million compared to $1.8 million for 1997.
Net Loss. For 1998, the Company incurred a net loss of $34.5 million, an
increase of $26.9 million, compared to the Company's net loss for 1997. The
principal reasons for the increase in the Company's net loss as compared to
prior periods related to the following items: (i) the increase in the
Company's provision for doubtful accounts; (ii) increased interest expense
attributable to increased indebtedness of the Company as a result of the 1998
Note Offering; (iii) the incurrence of a net loss of $7.6 million by IMPSAT
Brazil during the period and; (iv) the effect of accrued dividends of $10.0
million on the Series A Preferred Stock during 1998. For 1998, IMPSAT
Argentina recorded net income of $2.0 million, compared to net loss of $3.2
million for 1997. IMPSAT Argentina's net income in 1998 compared to the net
loss in 1997 is partially attributable to the elimination of IMPSAT Argentina's
income tax liability for 1998 as a result of Resis's loss carryforwards.
IMPSAT Colombia recorded net income for 1998 of $10.2 million compared to a net
income of $8.4 million for 1997.
1997 COMPARED TO 1996
Revenues. Revenues for 1997 totaled $161.1 million, an increase of $32.7
million, or 25.4%, from 1996. Revenues at IMPSAT Argentina for 1997 totaled
$91.6 million, an increase of $4.5 million, or 5.2%, from IMPSAT Argentina's
revenues for 1996. IMPSAT Colombia's revenues for 1997 totaled $49.5 million.
This represented an increase of $14.4 million, or 41.0%, from IMPSAT Colombia's
revenues for 1996. IMPSAT Venezuela's revenues for 1997 totaled $8.6 million,
representing an increase of $4.1 million (or 91.1%) from IMPSAT Venezuela's
revenues for 1996. In addition, the revenues at IMPSAT Ecuador ($2.8 million
and $5.5 million for 1996 and 1997, respectively) and IMPSAT USA ($0.5 million
and $5.0 million for 1996 and 1997, respectively) increased as the Company's
operations in those
23
<PAGE> 24
countries continued to grow. As part of their respective revenues, IMPSAT
Argentina and IMPSAT USA recorded revenues of $2.2 million and $0.9 million,
respectively, during 1997 from certain one-time equipment sales. The
significant growth in IMPSAT USA's revenues during 1997 was principally
generated by certain short-term, non-recurring contracts. Approximately 41% of
IMPSAT USA's revenues for 1997 were derived from such short-term contracts.
The number of customers at IMPSAT Argentina as of November 30, 1997
(excluding Internet, Global Fax, Minidat and Conexia customers) totaled 436,
compared to IMPSAT Argentina's customer base of 358 (excluding Internet, Global
Fax, Minidat and Conexia customers) at November 30, 1996. IMPSAT Argentina had
a total of 2,446 VSAT microstations and 465 Dataplus earth stations installed
as of November 30, 1997. Such installations reflect a net total of 335 VSAT
microstations and 67 Dataplus earth stations installed for new and existing
customers during 1997.
IMPSAT Colombia had 524 customers as of December 31, 1997 (excluding
Internet, Global Fax, Minidat and Conexia customers). This represented an
increase of 114 customers during 1997. At December 31, 1997, IMPSAT Colombia
had installed 886 VSAT microstations and 324 Dataplus earth stations. During
1997, IMPSAT Colombia withdrew from service a net total of 276 VSAT
microstations and installed a net total of 150 Dataplus earth stations for new
and existing customers. During 1997, certain of IMPSAT Colombia's customers
supplemented or replaced VSAT microstations with higher capacity Dataplus earth
stations.
IMPSAT Venezuela had 102 customers as of December 31, 1997 compared to 75
customers as of December 31, 1996. IMPSAT Venezuela installed a net total of 5
VSAT microstations and 11 Dataplus earth stations during 1997.
Variable Cost of Services. The Company's variable cost of services for
1997 totaled $27.3 million, an increase of $5.8 million, or 27.2%, from the
Company's variable cost of services for 1996. Of the Company's total variable
cost of services for 1997, $14.6 million related to the operations of IMPSAT
Argentina and $7.3 million related to the operations of IMPSAT Colombia. This
compared to variable cost of services of $14.7 million at IMPSAT Argentina and
$5.6 million at IMPSAT Colombia for 1996.
The principal items comprising total variable cost of services are
maintenance and installation (including de-installation) costs, and sales
commissions paid to third party sales representatives.
Maintenance costs for the Company totaled $12.5 million during 1997,
representing an increase of $4.0 million over maintenance costs incurred by the
Company for 1996. Maintenance costs for IMPSAT Argentina for 1997 amounted to
$5.8 million. This was an increase of $1.3 million over IMPSAT Argentina's
maintenance costs during 1996. In Colombia, maintenance costs totaled $4.5
million during 1997, an increase of $1.2 million compared to IMPSAT Colombia's
maintenance costs during 1996. Maintenance costs for IMPSAT USA totaled $1.4
million in 1997, compared to maintenance costs of $0.5 million in 1996. IMPSAT
USA's maintenance costs for 1997 included fees paid to third-party carriers to
terminate the "last mile" of certain private telecommunications network links
provided by IMPSAT USA to some of its customers. The increase in maintenance
costs of the Company during 1997 compared to 1996 is primarily attributable to
the increased level and amount of the Company's telecommunications
infrastructure in service as the Company's operations have grown and expanded
over time.
Installation costs for the Company totaled $4.7 million during 1997 in
comparison to installation costs of $2.2 million during 1996. The Company
installed a net total of 109 VSAT microstations and 204 Dataplus earth stations
during 1997. In comparison, the Company installed a net total of 635 VSAT
microstations and 261 Dataplus earth stations during 1996. The Company
utilizes the services of outside providers of installation services.
Sales commissions paid to third party sales representatives totaled $5.9
million for 1997, compared to sales commissions paid to third party sales
representatives totaling $8.9 million during 1996. The overwhelming amount of
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<PAGE> 25
such sales commissions were paid to third-party sales representatives with
respect to customers of IMPSAT Argentina. Sales commissions paid to
third-party sales representatives in Argentina totaled $5.2 million for 1997,
compared to $8.3 million for 1996. The Company incurred lower sales
commissions during 1997 primarily because of the renegotiation of certain of
the agreements with third-party sales representatives for lower commissions.
In addition to direct renegotiations of IMPSAT Argentina's contracts with
third-party sales representatives, commissions were also reduced as a result of
the renegotiation of underlying contracts with customers, which resulted in
reduced sales bases underlying contractually due commissions. For example, the
renegotiation and reduction of services provided by IMPSAT Argentina under its
agreements to provide private telecommunications network services to BNA, in
the second quarter of 1997, resulted in a reduction in the revenues from
services provided to BNA by IMPSAT Argentina and a concomitant reduction in
related sales commissions to the third party sales representatives contracted
with respect to such agreements.
In addition, the Company incurred costs of equipment sold of $2.8 million
1997. The Company did not incur any costs of equipment sold during 1996. The
cost of equipment sold during 1997 related to the revenues recorded by IMPSAT
Argentina and IMPSAT USA during the third quarter of 1997 of $2.2 million and
$0.9 million, respectively, as a result of certain one-time equipment sales.
Satellite Capacity Cost. The Company's satellite capacity costs for 1997
totaled $19.2 million, an increase of $5.3 million over satellite capacity
costs for 1996. The Company had approximately 253.0 MHz and 412.6 MHz of
leased satellite capacity as of December 31, 1996 and 1997, respectively. The
Company's costs for satellite capacity are related to the increase in the
Company's customer and revenue bases. The increase in satellite capacity
during 1997 consisted primarily of amounts contractually scheduled to match
anticipated growth in the total number of Dataplus earth stations to be
installed by the Company over time which, because of their greater transmission
capacity and bandwidth requirements compared to VSATs, utilize larger amounts
of satellite capacity.
Salaries, Wages and Benefits. Salaries, wages and benefits for 1997
totaled $29.1 million, an increase of $3.5 million over the Company's expenses
for salaries, wages and benefits 1996. The Company increased salaries, wages
and benefits of its personnel to match market rates and increases in cost of
living. IMPSAT Argentina incurred $15.8 million in salaries, wages and
benefits costs during 1997, unchanged from IMPSAT Argentina's salaries, wages
and benefits costs during 1996. In Colombia, salaries, wages and benefits costs
totaled $6.3 million during 1997, an increase of $1.3 million compared to
IMPSAT Colombia's salaries, wages and benefits costs during 1996. The
appreciation of the Colombian peso against the U.S. dollar during 1997 resulted
in an increase in U.S. dollar terms in salaries, wages and benefits paid to
employees of IMPSAT Colombia during that period. Salaries, wages and benefits
for 1997 for the Company's other subsidiaries increased by varying amounts
totaling $2.4 million, compared to 1996. The Company maintained a total of 683
employees as of December 31, 1997, compared to 650 employees as of December 31,
1996.
Selling, General and Administrative Expenses. SG&A expenses for the
Company consist principally of publicity and promotion costs; provisions for
doubtful accounts; fees and other remuneration; travel and entertainment; rent;
and plant services, telephone and energy expenses.
The Company incurred SG&A expenses of $33.4 million for 1997, an increase
of $10.3 million from SG&A expenses incurred by the Company during 1996. The
increase in SG&A expenses incurred by the Company during 1997 compared to 1996,
is primarily attributable to an increase in SG&A expenses incurred by IMPSAT
Argentina and IMPSAT Colombia.
SG&A expenses at IMPSAT Argentina for 1997 totaled $20.9 million, an
increase of $7.7 million from SG&A expenses incurred by IMPSAT Argentina for
1996. The increase in SG&A expenses at IMPSAT Argentina in 1997 compared to
1996 included the creation of a specific provision of $2.5 million relating to
services invoiced to ENCOTESA. In addition to the specific provision relating
to ENCOTESA, the Company increased its allowance for
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<PAGE> 26
doubtful accounts from $2.8 million at December 31, 1996 to $5.9 million at
December 31, 1997. The Company has increased its allowance for doubtful
accounts as a result of certain payment arrears experienced by a number of
customers in Argentina. The Company's policy during 1997 was to reserve 30% for
accounts receivable in excess of 180 days but less than one year, and 100% for
all accounts receivable in excess of 360 days. In 1997, the Company
provisioned $1.2 million with respect to the IBM Receivable. See "- 1998
Compared to 1997 - Selling, General and Administrative Expenses."
As a percentage of total revenues, the Company's provision for doubtful
accounts increased from 1.9% of total revenues for 1996 to 3.5% of total
revenues for 1997.
SG&A expenses at IMPSAT Colombia for 1997 totaled $6.5 million, an increase
of $1.9 million from SG&A expenses incurred by IMPSAT Colombia for 1996. The
increase in SG&A expenses at IMPSAT Colombia for 1997 was primarily
attributable to the cost of additional telephone lines for Internet access and
expenses associated with the promotion of IMPSAT Colombia's services at
commercial expositions and trade shows.
SG&A expenses at IMPSAT Venezuela for 1997 totaled $2.3 million, an
increase of $0.8 million from SG&A expenses incurred by IMPSAT Venezuela for
1996. The increase in SG&A expenses at IMPSAT Venezuela for 1997 was
attributable to $0.3 million of severance payments incurred due to termination
of certain of IMPSAT Venezuela's management personnel and increased facilities
rental expenses. IMPSAT Venezuela took steps in 1997 to reduce and rationalize
its SG&A expenses, including the termination of leases covering excess office
and operational facilities. In April 1997, certain changes were made in the
senior management levels at IMPSAT Venezuela, including the designation of Mr.
Mariano Torre Gomez, previously President at IMPSAT Ecuador, as President of
IMPSAT Venezuela.
Finally, the increase in SG&A expenses incurred by the Company during 1997
compared to 1996 was also attributable to legal and tax advice and other fees
and expenses of $4.7 million incurred by the Company during 1997. This
represents an increase of $1.1 million over such expenses incurred during 1996.
Such expenses were incurred during 1997 primarily in connection with legal fees
incurred in connection with its legal proceeding commenced against ENCOTESA,
described in Note 14 to the Company's financial statements, the Company's
ongoing financing activities and the conduct of preliminary feasibility
assessments of the proposed expansion of the Company's operations into Brazil.
Depreciation and Amortization. The Company's depreciation and amortization
for 1997 totaled $28.6 million, representing an increase of $2.4 million (or
9.0%), compared to depreciation and amortization for 1996. Depreciation and
amortization for IMPSAT Argentina for 1997 totaled $18.0 million. In 1997, the
Company adopted an improved inventory control system, which has enhanced the
Company's ability to more accurately track and depreciate its equipment in
service.
Interest Expense, Net. The Company's net interest expense for 1997 totaled
$24.2 million, consisting of interest expense of $23.0 million and interest
income of $1.2 million for 1997. Net interest expense increased $1.1 million
(or 4.7%), from net interest expense for 1996. IMPSAT Argentina's net interest
expense for 1997 (before eliminating intercompany items) totaled $12.6 million
($3.0 million after eliminating intercompany items). Net interest expense at
IMPSAT Colombia for totaled $6.2 million ($4.5 million after eliminating
intercompany items). Interest expense with respect to intercompany loans are
eliminated in the Company's Consolidated Statement of Operations.
The increase in net interest expense for 1997 reflected primarily
increased indebtedness of the Company, which increased from $199.1 million as
of December 31, 1996, to $219.9 million as of December 31, 1997. The increase
in net interest expense is also associated with general effect on investment
levels and increases in interest rates in "emerging markets" such as Latin
America, as a result of the current economic crises in Asia that commenced in
mid-1997.
As of November 30, 1997, total outstanding indebtedness at IMPSAT
Argentina (before eliminating intercompany items) equaled $103.9 million,
compared to $99.5 million (before eliminating intercompany items) as of
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<PAGE> 27
November 30, 1996. Total outstanding indebtedness at IMPSAT Colombia as of
December 31, 1997 equaled $38.9 million, compared to $35.9 million (before
eliminating intercompany items) as of December 31, 1996. In addition, the
average interest rate on the Company's indebtedness for 1997 was 11.9%,
compared to an average interest rate of 15.4% for 1996.
Provision for Income Taxes. The Company recorded a provision for income
taxes for 1997 of $5.3 million, compared to $3.5 million for 1996. IMPSAT
Argentina recorded a provision for income taxes for 1997 for $3.2 million,
compared to $4.0 million in 1996. IMPSAT Colombia recorded a provision for
income taxes for 1997 of $1.8 million, compared to $1.5 million for 1996.
IMPSAT Venezuela recorded a provision for income taxes of $0.8 million,
compared to a credit of $1.7 million in 1996.
Net Loss. The Company incurred a net loss of $7.6 million for 1997, a
decrease of $0.9 million (or 10.5%), compared to the Company's net loss of $8.5
million for 1996. The Company's net loss for 1997 was primarily related to
losses incurred by the Company's operations in Venezuela (a net loss of $5.4
million); Mexico (a net loss of $1.4 million); as well as management services
provided, and overhead expenses incurred, by IMPSAT Corporation of $2.2 million
for 1997. IMPSAT Argentina recorded net loss of $3.2 million for 1997,
compared to a net loss of $0.9 million for 1996. IMPSAT Colombia recorded net
income of $8.4 million for 1997, an increase of $6.2 million compared to IMPSAT
Colombia's net income for 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that it will continue to incur significant
capital expenditures in the next several years in connection with the expected
growth of its established commercial operations (Argentina, Colombia,
Venezuela, Ecuador, Mexico and the United States), and the further development
of its operations in Brazil. The Company intends to meet its capital
requirements during the remainder of 1999 from proceeds of the 1998 Note
Offering and the proceeds of the pending equity contribution by BT. Of total
net proceeds of the 1998 Note Offering of $218 million, the Company used
approximately $70 million to refinance existing short-term indebtedness and
approximately $60 million for capital expenditures in 1998. The Company
currently anticipates that it will require approximately $250 million during the
period 1999 to 2000 for capital expenditures (including amounts already expended
in 1999 to date). The Company's projected capital expenditure requirements
include the further development of private telecommunications network systems in
Brazil and continued additions to its private telecommunications network
infrastructure in order to maintain the Company's ability to provide high
quality, competitive services. The Company's budget contemplates that the
Company will need approximately $75 million for the period from 1999 to 2000
(including amounts already expended in 1999 to date) for capital expenditures
related to the adequate build-out of its private telecommunications network
system in Brazil.
The Company's currently planned capital expenditures described above are
exclusive of expenditures that would be required for the implementation of the
IMPSAT 2000 project. The timing and development of the IMPSAT 2000 project has
not been finalized and will be dependent on the availability of adequate
financing, among other factors. The Company currently estimates that the
initial implementation of the IMPSAT 2000 project through the end of 1999 could
require up to $150 million in additional financing. The Company does not
currently have any commitments regarding such financing and the development of
the IMPSAT 2000 project will be dependent upon the Company's ability to obtain
such financing. Accordingly, the ability of the Company to continue the
expansion of its private telecommunications network systems as is necessary to
provide high-quality, competitive private network services to its customers and
to meet its debt service obligations will be dependent upon the future
performance of the Company, including the ability of the Company to obtain
additional debt financing and potential equity financing. The Company's
ability to maintain its planned program of capital expenditures will be
dependent on its ability to obtain additional sources of financing. If the
Company is unable to obtain such additional sources of financing, it will not
be able to maintain its levels of growth and market position in any of the
countries in which it operates, which could have an adverse effect on the
business and prospects of the Company.
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<PAGE> 28
IMPSAT Argentina repaid $25 million of short-term promissory notes issued
under its $50 million Euro-Commercial Paper Program upon maturity on August 10,
1998 using parent company advances from the proceeds of the 1998 Note Offering.
As set forth in its consolidated statements of cash flow, in 1998, the
Company generated $16.2 million in net cash flow from operating activities,
compared with $17.1 million generated for 1997. Financing activities provided
$191.5 million in net cash flow for 1998, compared with $22.5 million in net
cash flow for 1997. Such increase is primarily attributable to the proceeds of
the 1998 Note Offering. The Company's net outstanding indebtedness increased
by $199.6 million during 1998. On December 31, 1998, the Company had
approximately $19.3 million in outstanding short-term debt, of which $13.0
million was owed by IMPSAT Argentina. On December 31, 1998, the Company had
approximately $40.4 million in debt scheduled to mature in 1999.
During 1998, the Company used $128.2 million in net cash flow for investing
activities, compared to $58.1 million for 1997. The Company had a cash balance
of $90.0 million as of December 31, 1998. Purchases of property, plant and
equipment during 1998 totaled $107.5 million, compared to $55.0 million for
1997. In addition, the increase in net cash flow used for investing
activities in 1998 compared to 1997 is attributable to the Company's
acquisitions of Mandic S.A. and IMPSAT Brazil, which together totaled $14.2
million.
The Company leases satellite capacity with annual rental commitments of
approximately $24.6 million through the year 2003. In addition, the Company has
commitments to purchase communications equipment amounting to approximately
$6.8 million at December 31, 1998.
YEAR 2000
The Company's equipment and operational systems are being reviewed and,
where required, detailed plans have been, or are being, developed and
implemented on a schedule intended to permit the Company's computer systems and
services to continue to function properly in the year 2000. Such plans are
likely to involve a combination of software modification, upgrades and
replacement. The Company's plan for Year 2000 compliance includes the
following phases: (a) establishment of a task force, which includes senior
management of the Company, to address the year 2000 issue; (b) compilation of
an inventory of equipment currently involved or anticipated to be involved in
operations; (c) circulation of questionnaires to suppliers of the Company about
equipment readiness; (d) gathering of information from customers; (e)
implementation of required upgrades or replacements; and (f) testing of
equipment in-house or at supplier sites.
The Company has completed an initial review of the equipment and software
it currently utilizes in the provision of its services. The Company expects to
complete final testing and remediation by mid-1999.
In developing contingency plans with respect to the year 2000 issue, the
Company is analyzing potential operational risks that could lead to the
interruption of critical service functions and has commenced formulating and
installing preventive and remedial measures, such as alternative sources of
power generation. The Company expects to further complete and extend its
contingency plans after completing final testing of equipment and software
involved in its operations.
Ensuring that the Company's equipment and operational systems are year 2000
compliant is expected to increase costs in 1999. Costs incurred by the Company
to date have been immaterial. The current estimate for the cost of remediation
for the Company is approximately $3.5 million. The Company estimates that most
of such costs will be incurred with respect to IMPSAT Argentina ($1.6 million)
and IMPSAT Colombia ($1.0 million), the Company's largest operating
subsidiaries. While these cost estimates are not definitive, Management does
not expect final costs to have a material adverse impact on the Company's
financial position, results of operations or cash flows.
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<PAGE> 29
In addition, the Company faces risks to the extent that suppliers,
customers and others with whom the Company transacts business do not have
business systems or products that comply with the year 2000 requirements. In
providing its services, the Company's systems might sometimes be required to
communicate electronically with customer-owned systems with respect to a
variety of functions. Failure of the systems of the Company's customers to
address the year 2000 issue could impair the Company's ability to perform such
functions. Furthermore, in the event any of the Company's suppliers cannot
timely provide the Company with products, services or systems that meet the
year 2000 requirements, the Company's operating results could be materially
adversely affected. The Company is not yet able to estimate the cost for year
2000 compliance with respect to customers and suppliers, however, based on a
preliminary review, Management does not expect that such costs will have a
material adverse effect on the future consolidated results of operations of the
Company. However, the Company could be adversely impacted by the year 2000 date
issue if suppliers, customers and other businesses do not address this issue
successfully.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and financial statements schedules are set forth
beginning on page F-1 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND OFFICERS
In accordance with its Bylaws, IMPSAT Corporation currently has eight
members on its Board of Directors. In accordance with its Estatutos, IMPSAT
Argentina currently has six members on its Board of Directors. The directors
of the Company and IMPSAT Argentina, respectively, will hold office until the
next annual meeting of their respective stockholders and until successors of
such directors have been elected and qualified, or until their earlier death,
resignation or removal.
The President of IMPSAT Corporation is elected at the annual meeting of
stockholders. The other officers are elected at the annual meetings of the
Board of Directors. All officers hold office until their successors are elected
and qualified, or until their earlier death, resignation or removal. The
Chairman of the Board of Directors of IMPSAT Argentina is elected at the
regular annual meeting of the Board of Directors. Officers of IMPSAT Argentina
are appointed by its Board of Directors.
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<PAGE> 30
Set forth below are the names, ages and positions of directors and
executive officers of the Company and IMPSAT Argentina as of December 31, 1998.
The officers designated as executive officers of the Company are employees of
IMPSAT Argentina, a wholly-owned subsidiary of the Company, which provides
services to the Company pursuant to a management services agreement with the
Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------------- ------- --------------------------------
<S> <C> <C>
Directors
Enrique M. Pescarmona . . . . . . 56 Chairman of the Board; Director of
IMPSAT Argentina
Director, President and Chief Executive
Ricardo A. Verdaguer . . . . . . 48 Officer; Chairman of the Board of
Directors of IMPSAT Argentina
Roberto A. Vivo . . . . . . . . . 45 Director, Deputy Chief Executive Officer;
Director of IMPSAT Argentina
Alexander Rivelis . . . . . . . . 58 Director and Vice President, Institutional
Relations
Lucas Pescarmona . . . . . . . . 28 Director
Sofia Pescarmona . . . . . . . . 25 Director
Marianne Hay (1) . . . . . . . . 47 Director
Stephen R. Munger (1) . . . . . . 41 Director
Executive Officers
Hector Alonso . . . . . . . . . . 41 Chief Operating Officer
Guillermo Jofre . . . . . . . . . 43 Chief Financial Officer
Guillermo V. Pardo . . . . . . . 48 Vice President, Planning
Vice President, Administration, Chief
Jose R. Torres . . . . . . . . . 40 Accounting Officer; Director of IMPSAT
Argentina
Alejandro Suarez del Cerro . . . 45 Vice President, Technology
Marcelo Girotti . . . . . . . . . 33 President of IMPSAT Argentina
Horacio Sajoux . . . . . . . . . 46 President of IMPSAT Colombia
Mariano Torre Gomez . . . . . . . 48 President of IMPSAT Venezuela
Heliodoro Londono . . . . . . . . 42 President of IMPSAT Mexico
Rodolfo Arroyo . . . . . . . . . 39 President of IMPSAT Ecuador
Mauricio G. Klau . . . . . . . . 36 President of IMPSAT USA
Daniel V. Hourquescos . . . . . . 47 President of IMPSAT Brazil
Rafael Carchak Canes . . . . . . 49 Head, Organizational Development Unit;
Director of IMPSAT Argentina
Pedro O. Mayol . . . . . . . . . 59 Director of IMPSAT Argentina
</TABLE>
- - ----------------------------------
30
<PAGE> 31
(1) Member of the Stock Option Committee.
Biographies of Directors and Executive Officers
Information with respect to the business experience and the affiliations of
the current directors and executive officers of the Company is set forth below.
Enrique M. Pescarmona has been Chairman of the Board of Directors of IMPSAT
Corporation since September 1994 and a member of the Board of Directors of
IMPSAT Argentina since March 1994. Mr. Pescarmona is also Chairman of
Corporacion IMPSA S.A. ("CORIM") and Industrias Metalurgicas Pescarmona
S.A.I.C. y F. ("IMPSA"). He is a director of Lagarde, S.A. (a wine company),
Ingenieria y Computacion S.A. ("ICSA") (a manufacturer of electronic
components), Mercantil Andina S.A. (an insurance company), TCA S.A. ("TCA") (a
manufacturer of automobile parts), Buenos Aires al Pacifico San Martin S.A. and
Ferrocarriles Mesopotomico General Urquiza S.A. (Argentine railway companies);
and is Vice President of Henri Lagarde S.A. (an agribusiness). Mr. Pescarmona
is an electromechanical engineer with a master's degree in economics and
business administration from the University of Navarra in Spain.
Ricardo A. Verdaguer has been President, Chief Executive Officer and a
member of the Board of Directors of IMPSAT Corporation since September 1994.
Mr. Verdaguer also has served as President of IMPSAT Argentina since April 1988
until February 1990 and has served as Chairman of the Board of Directors of
IMPSAT Argentina since 1990. Mr. Verdaguer served in a number of management
positions with IMPSA from 1976 to 1988, including as Manager of the Contracts
and Construction Department and Manager of the Commercial Department. Mr.
Verdaguer holds a degree in electromechanical engineering from Ingenieria de la
Universidad Juan Agustin Maza, Mendoza.
Roberto Vivo has been Deputy Chief Executive Officer, Vice President,
Marketing and a member of the Board of Directors of IMPSAT Corporation since
September 1994. Mr. Vivo has also served as Marketing Director of IMPSAT
Argentina from April 1988 to December 1994 and as a member of the Board of
Directors of IMPSAT Argentina since 1988 to the present. Mr. Vivo also serves
as Chairman of the Board of Directors of FAICSA, an Argentina company engaged
in public construction projects. Mr. Vivo holds a degree in business
administration from Universidad Argentina de la Empresa.
Alexander Rivelis has been Vice President of International Development and
a member of the Board of Directors of IMPSAT Corporation since December 1994.
Mr. Rivelis also serves as a member of the Board of Directors of IMPSAT USA.
Mr. Rivelis served as President of IMPSAT USA from 1995 to March 1996,
President of IMPSAT Colombia from 1991 to 1993, and has held a variety of
managerial positions with companies in the Pescarmona group from 1978 through
1990. Mr. Rivelis holds a degree in electrical and mechanical engineering from
the University of Rosario, Argentina.
Lucas Enrique Pescarmona, a son of Enrique M. Pescarmona, has been a member
of the Board of Directors of IMPSAT Corporation since February 1996. From 1993
to 1995 he held positions in the Buenos Aires, Argentina office of Arthur
Andersen & Co. In 1995 he transferred to Tecnologica em Componentes
Automotivos S.A. ("TCA Brazil"), a Brazilian manufacturer of automotive parts
that is part of the Pescarmona group, as senior investment analyst in Brazil.
Mr. Pescarmona is also a member of the Board of Directors of TCA. Mr.
Pescarmona holds degrees in economics and political science from the University
of Pittsburgh and holds a master of business administration degree at SDA
Bocconi in Milan.
Sofia Pescarmona, a daughter of Enrique M. Pescarmona, has been a member of
the Board of Directors of IMPSAT Corporation since February 1996. From August
1994 to December 1997, Ms. Pescarmona has held several positions in the
Company, including in the Internet unit and marketing department of IMPSAT
Corporation and the sales department
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<PAGE> 32
of IMPSAT Argentina. Ms. Pescarmona holds a degree in international relations
from Tufts University. Ms. Pescarmona is currently pursuing an MBA degree at
IAE, Universidad Austral in Argentina.
Marianne Hay has been a member of the Board of Directors of IMPSAT
Corporation since March 1998. Ms. Hay is a Managing Director of Morgan Stanley
Dean Witter & Co. and is President of the Morgan Stanley Global Emerging
Markets Private Investment Fund, L.P. Ms. Hay joined Morgan Stanley in 1993.
Ms. Hay graduated from Edinburgh University with a degree in genetics and holds
a Diploma in education and the qualification of Association of the Institute of
Bankers in Scotland.
Stephen R. Munger has been a member of the Board of Directors of IMPSAT
Corporation since March 1998. Mr. Munger is a Managing Director in the
Mergers, Acquisitions and Restructuring Department of Morgan Stanley Dean
Witter with a focus on the energy industry and is President of Princes Gate.
He joined Morgan Stanley in 1988 as a Vice President in the Corporate Finance
Department. He became a principal in 1990 and a Managing Director in 1993. Mr.
Munger has been a member of the Board of Directors of Econophone, Inc. since
November 1997, TVN Entertainment Corp. since December 1997, and Wright Medical
Technologies, Inc. since February 1998. Mr. Munger graduated from Dartmouth
College and received an MBA from the Wharton School of the University of
Pennsylvania.
Hector Alonso has been Chief Operating Officer of IMPSAT Corporation
beginning in September 1996 and was President of IMPSAT Colombia from September
1993 to August 1996. Prior to joining IMPSAT Colombia, Mr. Alonso had 14 years
of experience in a variety of senior management positions with companies in the
Pescarmona group. Mr. Alonso holds a degree in industrial engineering from
Universidad Argentina de la Empresa.
Guillermo Jofre has been Chief Financial Officer of IMPSAT Corporation
since May 1995. Prior to joining the Company, Mr. Jofre was Executive Vice
President of Banque Indosuez in Argentina from 1993 to 1995, and had over ten
years of experience in management positions with companies in Argentina,
Germany and Switzerland. Presently, Mr. Jofre also serves as a member of the
Board of Directors of the investment fund Bemberg Inversiones S.A. Mr. Jofre
holds a degree in public accounting from University of Cordoba and an MBA from
Imede of Switzerland.
Guillermo V. Pardo has been Vice President, Planning of IMPSAT Corporation
since January 1995. Mr. Pardo was previously Managing Director of the Guido Di
Tella companies and has had over 20 years of experience in finance positions in
a number of companies in Argentina and Spain. Mr. Pardo is currently a member
of the Board of Directors of FAICSA and the Fundacion Torcuato Di Tella. Mr.
Pardo holds a degree in business administration from Universidad de Buenos
Aires.
Jose R. Torres has been Vice President, Administration and Chief Accounting
Officer of IMPSAT Corporation since January 1995 and a Director of IMPSAT
Argentina since 1990. Mr. Torres served as external auditor of the Mendoza
Stock Exchange from 1982 to 1983. Mr. Torres previously worked as assistant
finance manager of IMPSA and as finance manager of IMPSAT Argentina until
December 1994. Mr. Torres holds a degree in public accounting from Universidad
Nacional de Cuyo.
Alejandro Suarez del Cerro has been Vice President, Technology of IMPSAT
Corporation since November 1997. Previously, Mr. Suarez del Cerro held a
number of management positions with IMPSAT Argentina, including the positions
of Technical Project Leader from 1988 to 1990, Technical Manager from 1990 to
1991, Development Manager from 1991 to 1994 and Vice President, Technology from
1995 to 1997. Mr. Suarez del Cerro holds a degree in electronic engineering
from Universidad de Buenos Aires.
Marcelo Girotti has been President of IMPSAT Argentina since August 1998.
Mr. Girotti joined IMPSAT Argentina in 1992 and has held several managerial
positions at IMPSAT Argentina during that period, including Business Manager of
the Interior Unit from 1992 to 1996, Manager of Special Accounts from 1996 to
1997 and Business Manager of the
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<PAGE> 33
Value Added Unit from 1997 to 1998. Mr. Girotti holds a degree in electrical
engineering from Universidad Nacional de Rosario.
Horacio Sajoux has been President of IMPSAT Colombia since September 1996.
Previously, Mr. Sajoux held several management positions with IMPSAT Colombia,
including General Director of Teledatos S.A., the joint venture entity formed
by IMPSAT Colombia and ETB; Vice President, Commercial and Technology; and
Commercial Manager and Director of Technology. Prior to joining IMPSAT
Colombia in 1992, Mr. Sajoux was employed in a number of management positions
at IMPSAT Argentina beginning in 1989. Mr. Sajoux received a degree in
electromechanical engineering from Universidad de Buenos Aires.
Mariano Torre Gomez has been President of IMPSAT Venezuela since April
1997. Mr. Torre has served in a variety of positions involving engineering,
production, planning, business development and new markets for companies in the
Pescarmona group over a period of 17 years. Mr. Torre served as President of
IMPSAT Ecuador for two years prior to his transfer to IMPSAT Venezuela. Before
that, Mr. Torre served four years at IMPSAT Argentina in the Commercial and New
Licenses Departments. Mr. Torre holds a degree in engineering from Universidad
Tecnologica Nacional.
Heliodoro Londono has been President of IMPSAT Mexico since November 1998.
Previously, Mr. Londono held several managerial positions at IMPSAT Colombia
commencing in 1992, including Business Manager of the Financial Sector Unit,
and Manager of Special Accounts. Mr. Londono holds a degree in industrial
engineering and an MBA from Universidad de los Andes, Bogota.
Rodolfo Arroyo became President of IMPSAT Ecuador in March 1997, after
joining IMPSAT Ecuador as a General Manager in April 1996. From the end of
1991 until April 1996, Mr. Arroyo was employed in several different capacities
at IMPSAT Colombia, including Vice President, Planning and Control and Vice
President, Operations. Prior to joining the Company, Mr. Arroyo was employed
by IMPSA as Projects Manager from July 1988 until December 1991. Mr. Arroyo
holds a degree in civil engineering from Universidad Nacional de San Juan in
Mendoza, Argentina.
Mauricio Gabriel Klau has been President of IMPSAT USA since November 1998.
Previously, Mr. Klau was President of IMPSAT Mexico from June 1997 to November
1998. Prior to that, Mr. Klau held several positions within IMPSAT Argentina
and IMPSAT Mexico. Mr. Klau holds a degree in electronic engineering from
Universidad de Buenos Aires.
Daniel V. Houquescos became President of IMPSAT Brazil on March 17, 1997.
Since 1990, Mr. Horquescos has held several positions in the Company, including
General Manager of IMPSAT Argentina from March 1993 to April 1995. Prior to
joining IMPSAT Argentina, Mr. Horquescos served as director of information
services of Direccion General Impositiva, the former Argentine governmental
agency charged with the collection of taxes, and associate Director of CMA
International Company. Mr. Horquescos holds a degree in industrial engineering
from the Instituto Tecnologico de Buenos Aires.
Rafael Carchak Canes has been a Director of IMPSAT Argentina since May 1995
and was President of IMPSAT Argentina from May 1995 to August 1998. Mr.
Carchak is currently head of the Company's Organizational Development Unit.
Prior to joining the Company, Mr. Carchak served in a variety of management
positions with Eveready over a 15 year period, including Operations Manager of
Eveready Argentina from 1990 to 1992, and as President of Eveready Argentina
from 1992, in which position Mr. Carchak had responsibility for Eveready's
operations in Argentina, Paraguay and Chile. Mr. Carchak holds a degree in
engineering from Universidad de Buenos Aires.
Pedro O. Mayol has been a member of the Board of Directors of IMPSAT
Argentina since 1990. He also serves as a member of the Board of Directors of
several other Argentine corporations, including Lagarde S.A., ICSA, TCA,
Mercantil Andina S.A., CORIM and IMPSA. Mr. Mayol, who is a brother-in- law of
Enrique Pescarmona, is an architect.
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<PAGE> 34
COMMITTEES OF THE BOARD OF DIRECTORS
On December 21, 1998, the Company established a Stock Option Committee.
The Stock Option Committee is responsible for the granting of stock options,
incentives and other forms of compensation to eligible persons under the
Company's Stock Option Plan, and is constituted by Ms. Marianne Hay and Mr.
Stephen Munger. None of the executive officers of the Company currently serves
on the Stock Option Committee of another entity or any other committee of the
board of directors of another entity performing similar functions.
ITEM 11. EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION
Board members do not receive any cash fees for their service on the Board
or any Board committee, but they are entitled to reimbursement of all
reasonable out-of-pocket expenses incurred in connection with their attendance
at Board and Board committee meetings. All Board members are eligible to
receive stock options pursuant to the terms of the Stock Option Plan.
SUMMARY COMPENSATION TABLE
The following tables set forth the compensation paid or accrued to the
chief executive officer and the four most highly compensated other executive
officers receiving over $100,000 per year for services rendered of each of the
Company and IMPSAT Argentina during 1998 (the "Named Executive Officers").
<TABLE>
<CAPTION>
NAME AND
PRINCIPAL POSITION ANNUAL COMPENSATION
------------------ --------------------------------------------------------------------------------------
BONUS(1)
----- OTHER ANNUAL
THE COMPANY YEAR SALARY (1997) COMPENSATION
----------- ---- ------ ------------
<S> <C> <C> <C> <C>
Enrique M. Pescarmona
Chairman of the Board...................... 1998 $555,315 $200,000 --
Ricardo A. Verdaguer
President and Chief Executive
Officer.................................... 1998 426,603 250,000 --
Roberto Vivo
Director, Deputy Chief
Executive Officer and
Vice President, Marketing.................. 1998 341,110 200,000 --
Hector Alonso
Chief Operating Officer.................... 1998 250,287 150,000 --
Horacio Sajoux, President of
IMPSAT Colombia............................ 1998 198,068 63,982 $44,957(2)
IMPSAT ARGENTINA
----------------
Marcelo Girotti, President................. 1998 145,000 -- --
Rafael Carchak Canes (3)................... 1998 112,500 -- --
</TABLE>
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<PAGE> 35
__________________________________
(1) Amounts in this column represent bonuses paid to the Named Executive
Officers in December 1998. Such amounts relate to the operating results
achieved by the Company during 1997. Bonuses relating to the Company's
operating results in 1998 are currently not expected to be determined before
the second half of 1999.
(2) Annual housing allowance.
(3) In August 1998, Mr. Rafael Carchak Canes was succeeded by Mr. Marcelo
Girotti as President and Chief Executive Officer of IMPSAT Argentina.
STOCK OPTION GRANTS
The following table sets forth information regarding grants of options
to purchase Common Stock made by the Company during 1998 to each of the Named
Executive Officers. No stock appreciation rights were granted during 1998. No
stock options were exercised by the Named Executive Officers during 1998.
<TABLE>
<CAPTION>
Percent
Number of of Total Potential Realizable Value at Assumed
Securities Options Market Annual Rates of Stock Price Appreciation
Underlying Granted to Exercise Price on for Option Term(4)
Options Employees Price Date of Expiration ----------------------------------------
Name(1) Granted in 1998(2) ($/Share) Grant Date(3) (0%) (5%) (10%)
------------------------ ------------ ------------ ----------- -------- ---------- ----------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Enrique M. Pescarmona.... 100,000 13.4% $4.96 $496,000 12/31/06 496,000 732,840 1,063,226
Ricardo A. Verdaguer..... 100,000 13.4 4.96 496,000 12/31/06 496,000 732,840 1,063,226
Roberto Vivo............. 80,000 10.7 4.96 396,800 12/31/06 396,800 586,272 850,580
Hector Alonso............ 58,000 7.8 4.96 287,680 12/31/06 287,680 425,047 616,671
Horacio Sajoux........... 32,000 4.3 4.96 158,720 12/31/06 158,720 234,509 340,232
Marcelo Girotti.......... 32,000 4.3 4.96 158,720 12/31/06 158,720 234,509 340,232
</TABLE>
- - ----------------------------------
(1) Options granted in 1998 vest as to 10% on the first anniversary of the
date of grant and as to an additional 30% on each anniversary thereafter. All
options expire on December 31, 2006, unless sooner terminated under the terms
of the Stock Option Plan (as hereinafter defined).
(2) The Company granted options to purchase a total of 746,000 shares of
Common Stock during 1998.
(3) Subject to earlier expiration, upon the occurrence of certain events,
as provided in the Stock Option Plan.
(4) Amounts reported in these columns represent amounts that may be
realized upon exercise of options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation (5% and 10%) on
the Common Stock over the term of the options. These assumptions are based on
rules promulgated by the Commission and do not reflect the Company's estimate
of future stock price appreciation. Actual gains, if any, on the stock option
exercises and Common Stock holdings are dependent on the timing of such
exercise and the future performance of the Common Stock. There can be no
assurance that the rates of appreciation assumed in this table can be achieved
or that the amounts reflected will be received by the option holder.
1998 STOCK OPTION PLAN.
On December 21, 1998, the Board of Directors and stockholders of the
Company adopted the 1998 Stock Option Plan (the "Stock Option Plan"), which
provides for the grant to officers, key employees and directors of the Company
or its affiliates of both "incentive stock options" within the meaning of
Section 422 of the U.S. Internal Revenue Code of 1986, as amended (the "Code")
and stock options that are non-qualified for U.S. federal income tax purposes.
A copy of the
35
<PAGE> 36
Stock Option Plan is filed as Exhibit 10.1 to this report. The total number of
shares of Common Stock for which options may be granted pursuant to the Stock
Option Plan is 8,067,268, subject to certain adjustments reflecting changes in
the Company's capitalization. The Stock Option Plan is currently administered
by the Stock Option Committee constituted by non-employee directors. The Stock
Option Committee determines, among other things, which officers, employees,
consultants and directors will receive options under the plan, the time when
options will be granted, and the type of option (incentive stock options or
non-qualified stock options, or both) to be granted. Options granted under the
Stock Option Plan are on such terms, including the number of shares subject to
each option, the time or times when the options will become exercisable, and
the option price and duration of the options, as determined by the Stock Option
Committee.
The exercise price of incentive and non-qualified stock options is
determined by the Stock Option Committee, but may not be less than the fair
market value on the date of grant of the Common Stock, and the term of any such
option may not exceed ten years from the date of grant.
Payment of the option price may be made by cash, promissory note, tender of
shares of Common Stock then owned by the optionee or, subject to certain
conditions, the surrender to the Company of an exercisable option to purchase
shares of Common Stock under the Stock Option Plan. Payment of the option
price may also be made by delivery to the Company, on a form prescribed by the
Stock Option Committee, of a properly executed exercise notice and irrevocable
instructions to a registered securities broker approved by the Stock Option
Committee to sell the shares of Common Stock held by the optionee and promptly
deliver cash to the Company. Options granted pursuant to the Stock Option Plan
are not transferable, except by will or the laws of descent and distribution in
the event of death. During an optionee's lifetime, the option is exercisable
only by the optionee or, in case of disability, by the optionee's legal
representative.
Pursuant to the terms of the Stock Option Plan, if a "Change in Control"
(as defined in the Stock Option Plan) of the Company occurs, all outstanding
stock options become vested and fully exercisable.
The Board of Directors has the right at any time and from time to time to
amend or modify the Stock Option Plan, without the consent of the Company's
shareholders (unless otherwise required by law) or optionees; provided, that no
such action may adversely affect options previously granted without the
optionee's consent. The expiration date of the Stock Option Plan, after which
no option may be granted thereunder, is October 1, 2008.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors did not have a compensation or stock option
committee during the first eleven months of 1998. As a result, decisions with
respect to compensation matters that otherwise would be decided by a
compensation committee were made by the Board of Directors as a whole. Pursuant
to the terms of the Securityholders Agreement between Nevasa and the Morgan
Stanley Investors dated as of March 19, 1998, for so long as any Morgan Stanley
Investors beneficially own a majority of the shares of Series A Preferred Stock
outstanding on their date of issuance, any material amendment or change of the
compensation arrangements of IMPSAT Corporation's Chief Executive Officer,
Chief Financial Officer, Deputy Chief Executive Officer or Chief Operating
Officer must be approved by the designees of the Morgan Stanley Investors to
the Board of Directors of the Company.
Mr. Stephen Munger, who is Princes Gate's designee to the Company's Board
of Directors and a member of the Stock Option Committee, is the President of PG
Investors II, Inc., the general partner of Princes Gate. Ms. Marianne Hay is
the MSGEM Fund's designee to the IMPSAT Corporation's Board of Directors and a
member of the Stock Option Committee. Ms. Hay is President of Morgan Stanley
Global Emerging Markets, Inc., the general partner of the MSGEM Fund. Princes
Gate and the MSGEM Fund are affiliates of Morgan Stanley & Co. Incorporated
("Morgan Stanley"). The Company paid commissions to Morgan Stanley of $5.9
million in 1998 in connection with the placement of the Company's $225,000,000
12 3/8% Notes due 2008.
36
<PAGE> 37
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and the accompanying notes set forth certain
information concerning the beneficial ownership of IMPSAT Corporation's capital
stock and IMPSAT Argentina's common stock as of December 31, 1998 by (i) each
person who owned of record, or was known to own beneficially, more than five
percent of any class of IMPSAT Corporation's capital stock or IMPSAT
Argentina's common stock, (ii) each director, (iii) each executive officer and
(iv) all directors and executive officers as a group. Except as otherwise
indicated, each person listed in the table has informed the Company that such
person has (i) sole voting and investment power with respect to such person's
shares of capital stock and (ii) record and beneficial ownership with respect
to such person's shares of capital stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES PERCENT
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
IMPSAT CORPORATION COMMON STOCK(1)
Beneficial Owners of more than 5%
Nevasa Holdings Limited (2)............................. 75,594,480 71.5%
17 Dame Street
Dublin 2, Ireland
Princes Gate Investors II, L.P.(3)...................... 24,041,176 22.8
Morgan Stanley Global Emerging Markets Private
Investment Fund, L.P.(4)................................ 6,010,294 5.7
Directors and Executive Officers(2).. 0 0%
All Directors and Officers as a Group (12
persons)(2)............................................. 0 0%
IMPSAT CORPORATION PREFERRED STOCK
Beneficial Owners of more than 5%
Princes Gate Investors II, L.P.(5)...................... 20,000 80%
Morgan Stanley Global Emerging Markets Private
Investment Fund, L.P.(6)................................ 5,000 20%
Directors and Executive Officers(2)..................... 0 0%
All Directors and Officers as a Group (12
persons)(2)............................................. 0 0%
IMPSAT ARGENTINA COMMON STOCK
Beneficial Owners of more than 5%
Credit Suisse Esmeralda 130
Capital Federal,
Buenos Aires, Argentina............................... 248 4.84%
IMPSAT Corporation
Alferez Pareja 256 (1107)
Buenos Aires, Argentina............................... 4,875 95.16%
</TABLE>
37
<PAGE> 38
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES PERCENT
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Directors and Executive Officers(2)........................ 0 0%
All Directors and Officers as a Group
(7 persons)(2)........................................... 0 0%
</TABLE>
- - -----------------------------
(1) Determined on an as-converted basis, assuming the conversion of all
issued and outstanding shares of Series A Preferred Stock into Common
Stock. As of December 31, 1998, each share of Series A Preferred
Stock was convertible into 1,202 shares of Common Stock, or a total of
30,051,471 shares of Common Stock.
(2) Nevasa Holdings Limited is controlled by CORIM, Militello Ltd. and
Rotling International Corporation. CORIM, an Argentine corporation
that holds an 82.54% equity interest in Nevasa, is controlled by Mr.
Enrique Pescarmona, Chairman of the Board of Directors of IMPSAT
Corporation, and other members of the Pescarmona family and is a
holding company for businesses engaged in a variety of activities
including property, casualty and other insurance, heavy-steel capital
goods, manufacturing auto parts, cargo transportation and
environmental services. Militello Ltd., a British Virgin Islands
corporation, holds an 11.62% equity interest in Nevasa and is itself
controlled by Mr. Roberto Vivo, Deputy Chief Executive Officer of
IMPSAT Corporation. Rotling International Corporation, a British
Virgin Islands corporation, holds a 5.84% equity interest in Nevasa
and is itself controlled by Mr. Ricardo Verdaguer, President and Chief
Executive Officer of IMPSAT Corporation.
(3) Determined on an as-converted basis, assuming the conversion of 20,000
shares of Series A Preferred Stock, which were convertible into
6,010,294 shares of Common Stock on December 31, 1998, owned by
Princes Gate and affiliates of Princes Gate over which Princes Gate
has sole voting power. See Note 5 to this "Security Ownership of
Certain Beneficial Owners and Management" section.
(4) Determined on an as-converted basis, assuming the conversion of 5,000
shares of Series A Preferred Stock, which were convertible into
24,041,176 shares of Common Stock on December 31, 1998, owned by MSGEM
and Morgan Stanley Global Emerging Markets Private Investors, L.P.
(collectively, the "MSGEM Fund") over which MSGEM has sole voting
power. See Note 6 to this "Security Ownership of Certain Beneficial
Owners and Management" section.
(5) The shares of Series A Preferred Stock set forth on this line include
2,857 shares owned by certain affiliates of Princes Gate over which
Princes Gate has sole voting and dispositive power. The business
address of Princes Gate is Princes Gate Investors II, L.P., 1585
Broadway, 36th Floor, New York, NY 10036. Mr. Stephen Munger, who is
the President of PG Investors II, Inc., the general partner of Princes
Gate and Princes Gate's designee to IMPSAT Corporation's Board of
Directors, disclaims voting or dispositive power over the shares of
Series A Preferred Stock owned by Princes Gate and its affiliates.
(6) The shares of Series A Preferred Stock set forth on this line include
4,712 shares owned by MSGEM and 288 shares owned by Morgan Stanley
Global Emerging Markets Private Investors, L.P. MSGEM, which is a
subsidiary of Morgan Stanley, manages the investment in, and has sole
voting power over, the shares of Series A Preferred Stock owned by
each person comprising the MSGEM Fund. The business address of each of
such persons is c/o Morgan Stanley Global Emerging Markets Private
Investment Fund, L.P., 1221 Avenue of the Americas, 33rd Floor, New
York, NY 10020. Ms. Marianne Hay, who is President of Morgan Stanley
Global Emerging Markets, Inc., the general partner of the MSGEM Fund,
and the MSGEM Fund's designee to the IMPSAT Corporation's Board of
Directors, disclaims voting or dispositive power over the shares of
Series A Preferred Stock owned by the MSGEM Fund.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In the normal course of business, the Company and its Subsidiaries provide
private telecommunications network services to companies in which CORIM,
members of the Pescarmona family (including Mr. Enrique Pescarmona, Mr. Lucas
Pescarmona and Ms. Sofia Pescarmona, members of the Company's Board of
Directors), El Sitio International Corp ("El Sitio") a corporation in which Mr.
Roberto Vivo has a minority interest and is Chairman of the Board of Directors
and of which Mr. Ricardo Verdaguer is a director, and entities affiliated with
the Suramericana Group (as defined in the following paragraph) have an
interest. Total telecommunications services provided to companies in which
CORIM or members of the Pescarmona family have an interest during 1998 totaled
approximately $1.5 million, total telecommunications services provided to El
Sitio subsidiaries totaled during 1998 approximately $185,000, and total
38
<PAGE> 39
telecommunications services provided to companies affiliated with the
Suramericana Group for 1998 totaled approximately $ 8.4 million.
The Company holds a 74.2% equity interest in IMPSAT Colombia, and
Suramericana de Seguros and Suramericana de Capitalizacion, the insurance and
finance companies, respectively of the Sindicato Antioqueno (Suramericana de
Seguros, Suramericana de Capitalizacion and affiliated entities being referred
to as the "Suramericana Group"), together hold a 24.6% equity interest in
IMPSAT Colombia. The Suramericana Group also holds a 25% equity interest in
IMPSAT Venezuela.
The following is a description of the most significant of transactions
between the Company and its subsidiaries and entities affiliated with CORIM, El
Sitio and the Suramericana Group during 1998. Although the Company believes
that transactions with its affiliates are generally conducted on an arm's
length basis, conflicts of interest are inherent in such transactions.
IMPSAT Argentina provides telecommunications services to:
- Industrias Metalurgicas Pescarmona, S.A.I.C. y F. ("IMPSA"), a company
controlled by CORIM that produces heavy steel capital goods, including
hydromechanical equipment and cranes and, through subsidiaries, engages
in other businesses including but not limited to cargo transportation,
auto parts manufacturing and general environmental services. Total
telecommunications services provided to IMPSA for 1998 totaled
approximately $200,000. In addition, IMPSA provided services to IMPSAT
Argentina in 1998 totalling approximately $149,000.
- TCA, a company controlled by CORIM and IMPSA that produces wire
harnesses for automobile electrical systems and coil springs for
automobile suspension systems in Argentina and Brazil. Total
telecommunications services provided to TCA for 1998 totaled
approximately $63,800.
- Buenos Aires al Pacifico San Martin S.A. ("BAPSA"), a company controlled
by CORIM and IMPSA that operates the San Martin Railway between Buenos
Aires and the Cuyo region in central-western Argentina and provides
cargo transportation services along the San Martin Railway. Total
telecommunications services provided to BAPSA for 1998 totaled
approximately $842,000.
- Mercantil Andina S.A., an insurance company owned by CORIM and members
of the Pescarmona family. Total telecommunications services provided to
Mercantil Andina S.A. for 1998 totaled approximately $293,000.
IMPSAT Colombia provides telecommunications services to several companies
within the Suramericana Group, including Suramericana de Seguros, an insurance
company, Corporacion Financiera Nacional y Suramericana S.A. ("Corfinsura"), a
financial institution, Susalud, a health services company, Proteccion S.A., a
pension fund, Suleasing, a finance company, and Sufinanciamiento, a finance
company. Representatives of the Suramericana Group serve as directors of
Colinvertel, IMPSAT Colombia and IMPSAT Venezuela. During 1998, the total
amount of telecommunications services rendered to the Suramericana Group
totaled approximately $7,585,000, the most significant of which are detailed as
follows:
Suramericana de Seguros 889,000
Corfinsura 200,000
Susalud 86,000
Sufinanciamiento 169,000
Proteccion 230,000
Suleasing 106,000
39
<PAGE> 40
Conavi 1,247,000
Suvalor 165,000
Industrias Noel 380,000
Acerias Paz del Rio 100,000
Suratep 96,000
Sodexho Pass 258,000
Almacenes Exito 175,000
BanColombia 3,361,000
During 1998, IMPSAT Venezuela provided telecommunications services to
several companies within the Suramericana Group, including Industrias
Alimenticias Noel de Venezuela S.A. and Industrias Alimenticias Hermo de
Venezuela S.A., which totaled approximately $118,000, and Cadena de Tiendas
Venezolanas S.A., which totaled approximately $727,000.
The Company provides telecommunications services El Sitio and certain of
its subsidiaries. During 1998, total amount of telecommunications services
rendered to El Sitio and it subsidiaries by the Company totaled approximately
$185,000. IMPSAT Argentina provides CCC S.A., a subsidiary of El Sitio, with a
banner on its Web page and Internet access in exchange for the maintenance of
both IMPSAT Argentina's institutional Web Page and IMPSAT Argentina's Internet
customer oriented Web Page. In addition, El Sitio provides free advertising in
the El Sitio Web pages to the Company. No economic value was assigned to these
transactions. IMPSAT USA provided telecommunications services to El Sitio
totaling approximately $62,000 in 1998. During 1998, IMPSAT Mexico provided
telecommunications services to El Sitio totaling approximately $23,000. Mandic
S.A. provided Internet services to O Site Ltda., a wholly-owned subsidiary of El
Sitio, totaling approximately $100,000 in 1998.
In the normal course of business, the Company enters into transactions with
companies in which CORIM, members of the Pescarmona family, the Suramericana
Group and Affiliates of the Holders of the Company's Series A Preferred Stock
have an interest. The following is a description of the most significant of
such transactions during 1998:
Mercantil Andina acts from time to time as an insurance broker and an
insurer for IMPSAT Argentina. IMPSAT Argentina paid premiums to Mercantil
Andina S.A., totaling approximately $465,000 during 1998.
Corfinsura and BanColombia, are creditors of IMPSAT Colombia. As of
December 31, 1998, IMPSAT Colombia was indebted to Corfinsura in the amount of
approximately $7,381,000 and to BanColombia in the amount of approximately
$12,049,000. The total interest paid for 1998 was approximately $1,933,000.
Suramericana de Seguros acts from time to time as an insurance broker and
an insurer for IMPSAT Colombia. IMPSAT Colombia paid premiums to Suramericana
de Seguros totaling approximately $530,000 in 1998.
Certain other companies within the Suramericana Group, including Suleasing
S.A., provide financial leasing services to IMPSAT Colombia. The total
indebtedness as of December 31, 1998 was approximately $2,839,000 and the total
interest paid in 1998 was approximately $381,000.
Other payments by IMPSAT Colombia to companies of Suramericana Group in
1998 included: payments of approximately $289,000 to Proteccion, S.A. for
pension fund services; Susalud, had total payments of approximately $251,000
for health benefit services and payments of approximately $258,000 to Sodexho
Pass for employee luncheon services.
The Company paid commissions to Morgan Stanley of $5.9 million in 1998 in
connection with the placement of the Company's $225,000,000 12 3/8% Notes due
2008.
40
<PAGE> 41
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) LIST OF FINANCIAL STATEMENTS
Consolidated Financial Statements of IMPSAT Corporation and Subsidiaries
- Consolidated Balance Sheets as of December 31, 1998 and 1997
- Consolidated Statements of Operations and Comprehensive Loss for Each
of the Three Years in the Period Ended December 31, 1998
- Consolidated Statements of Stockholders' (Deficit) Equity for Each of
the Three Years in the Period Ended December 31, 1998
- Consolidated Statements of Cash Flows for Each of the Three Years in
the Period Ended December 31, 1998
Consolidated Financial Statements of IMPSAT S.A. and Subsidiaries
- Balance Sheets as of December 31, 1998 and 1997 and November 30, 1997
- Statements of Income for the Year Ended December 31, 1998, the One
Month Period Ended December 31, 1997 and Each of the Two Years in the
Period Ended November 30, 1997
- Statements of Stockholders' Equity for the Year Ended December 31,
1998, the Year Ended December 31, 1997 (Period of One Month) and for
Each of the Two Years in the Period Ended November 30, 1997
- Statements of Cash Flows for the Year December 31, 1998, the One Month
Period Ended December 31, 1997 and for Each of the Two Years in The
Period Ended November 30, 1997
(a)(2) LIST OF SCHEDULES.
All schedules for which provision is made in the applicable accounting
regulations of the Commission are omitted because they are not applicable, or
the information is included in the financial statements included herein.
(a)(3) EXHIBITS
The exhibits listed in the accompanying Exhibit Index and required by
Item 601 of Regulation S-K (numbered in accordance with Item 601 of Regulation
S-K) are filed or incorporated by reference as part of this Report.
(b) REPORTS ON FORM 8-K.
On March 15, 1999 a Current Report on Form 8-K was filed by the
registrants to disclose that the Company had entered into an agreement with BT
pursuant to which BT would acquire a 20% stake in the Company.
41
<PAGE> 42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, each of the registrants has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized,
in the City of Buenos Aires in the Republic of Argentina, March 31, 1999.
IMPSAT Corporation
By:
Ricardo A. Verdaguer,
President and Chief
Executive Officer
Date: March 31, 1999
IMPSAT S.A.
By:
Marcelo Girotti
President
Date: March 31, 1999
42
<PAGE> 43
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below (each, a "Signatory") constitutes and appoints Guillermo Jofre and Jose
R. Torres and Mauricio Gabriel Klau (each, an "Agent," and collectively,
"Agents") or either of them, his true and lawful attorney-in-fact and agent,
each with full power of substitution and resubstitution, for and in his name,
place and stead, in any and all capacities, to sign this Report and any and all
amendments thereto and to file the same, with all exhibits thereto, and all
other documents in connection therewith, with the Securities and Exchange
Commission. Each Signatory further grants to the Agents, and each of them, full
power and authority to do and perform each and every act and thing requisite
and necessary, in the judgment of such Agent, to be done in connection with any
such signing and filing, as full to all intents and purposes as he might or
could do in person, and hereby ratifies and confirms all that said Agents, or
any of them, or their or his other substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Enrique M. Pescarmona Chairman of the Board of Directors of IMPSAT March 31, 1999
Corporation
/s/ Ricardo A. Verdagaer Director, President and Chief Executive Officer of March 31, 1999
IMPSAT Corporation
/s/ Guillermo Jofre Vice President, Finance of IMPSAT Corporation March 31, 1999
/s/ Jose R. Torres Vice President, Administration and Chief Accounting March 31, 1999
Officer of IMPSAT Corporation
/s/ Roberto Vivo Director, Deputy Chief Executive Officer and Vice March 31, 1999
President, Marketing of IMPSAT Corporation
/s/ Alexander Rivelis Director and Vice President, International March 31, 1999
Development of IMPSAT Corporation
/s/ Lucas Pescarmona Director of IMPSAT Corporation March 31, 1999
/s/ Sofia Pescarmona Director of IMPSAT Corporation March 31, 1999
/s/ Marianne Hay Director of IMPSAT Corporation March 31, 1999
/s/ Stephen R. Munger Director of IMPSAT Corporation March 31, 1999
</TABLE>
43
<PAGE> 44
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below (each, a "Signatory") constitutes and appoints Guillermo Jofre, Jose R.
Torres and Mauricio Gabriel Klau (each, an "Agent," and collectively, "Agents")
and each or any of them, his true and lawful attorney-in-fact and agent, each
with full power of substitution and resubstitution, for and in his name, place
and stead, in any and all capacities, to sign this Report and any and all
amendments thereto and to file the same, with all exhibits thereto, and all
other documents in connection therewith, with the Securities and Exchange
Commission. Each Signatory further grants to the Agents, and each of them, full
power and authority to do and perform each and every act and thing requisite
and necessary, in the judgment of such Agent, to be done in connection with any
such signing and filing, as full to all intents and purposes as he might or
could do in person, and hereby ratifies and confirms all that said Agents, or
any of them, or their or his other substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Ricardo A. Verdaguer Chairman of the Board of Directors of IMPSAT March 31, 1999
Argentina
/s/ Enrique M. Pescarmona Director of IMPSAT Argentina March 31, 1999
/s/ Roberto Vivo Director of IMPSAT Argentina March 31, 1999
/s/ Pedro Mayol Director of IMPSAT Argentina March 31, 1999
/s/ Marcelo Girotti Director of IMPSAT Argentina March 31, 1999
/s/ Jose R. Torres Director of IMPSAT Argentina (principal financial March 31, 1999
officer)
/s/ Jorge I. Marine Manager, Administration of IMPSAT Argentina March 31, 1999
(principal accounting officer)
/s/ Mauricio Gabriel Klau Attorney-in-Fact March 31, 1999
</TABLE>
44
<PAGE> 45
INDEPENDENT AUDITORS' REPORT
To the Shareholders of IMPSAT Corporation:
We have audited the accompanying consolidated balance sheets of IMPSAT
Corporation and its subsidiaries (the "Company") as of December 31, 1998 and
1997, and the related consolidated statements of operations and comprehensive
loss, stockholders' (deficit) equity and of cash flows for each of the three
years in the period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, the Company
changed its method of accounting for license and permit costs in 1998.
Deloitte & Touche LLP
Miami, Florida
March 12, 1999
<PAGE> 46
<TABLE>
<CAPTION>
IMPSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997 (IN THOUSANDS OF U.S. DOLLARS)
- - --------------------------------------------------------------------------------------------------------------------
ASSETS 1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 90,021 $ 10,439
Trade accounts receivable, net 46,974 36,596
Other receivables 20,110 15,583
Prepaid expenses 1,994 2,397
--------- ---------
Total current assets 159,099 65,015
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, Net 330,726 255,422
--------- ---------
NON-CURRENT ASSETS:
Trade account receivables, net 5,143 5,143
Investment 10,708 4,178
Deferred financing costs, net 10,329 4,044
Intangible assets, net 7,920 2,003
Other non-current assets 3,293 4,111
--------- ---------
Total non-current assets 37,393 19,479
--------- ---------
TOTAL $ 527,218 $ 339,916
========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 32,416 $ 25,289
Short-term debt 19,262 50,189
Current portion of long-term debt 21,138 10,186
Accrued liabilities 12,628 8,878
Deferred income taxes, net 120 247
Other liabilities 12,346 8,649
--------- ---------
Total current liabilities 97,910 103,438
--------- ---------
LONG-TERM DEBT, Net 379,292 159,677
--------- ---------
OTHER LONG-TERM LIABILITIES 3,446 3,014
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 14)
MINORITY INTEREST 13,071 10,398
--------- ---------
REDEEMABLE PREFERRED STOCK, Convertible, Series A,
10%, cumulative dividend; 25,000 shares authorized,
issued and outstanding; liquidation preference $5,400
per share 135,018
---------
STOCKHOLDERS' (DEFICIT) EQUITY:
Common stock, $1 par value; 150,000,000 shares authorized;
100,792,640 shares issued and outstanding at December 31,
1998 and 1997, respectively 100,793 100,793
Accumulated deficit (71,391) (37,404)
Treasury stock, 25,198,160 shares, at cost (125,000)
Amount paid in excess of carrying value of assets acquired from
related party (5,395)
Accumulated other comprehensive loss (526)
--------- ---------
Total stockholders' (deficit) equity (101,519) 63,389
--------- ---------
TOTAL $ 527,218 $ 339,916
========= =========
</TABLE>
See notes to consolidated financial statements.
-F-2-
<PAGE> 47
<TABLE>
<CAPTION>
IMPSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
DECEMBER 31, 1998 (IN THOUSANDS OF U.S. DOLLARS)
- - ---------------------------------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
NET REVENUES FROM SERVICES $ 208,089 $ 161,065 $ 128,393
----------- ---------- ----------
COST AND EXPENSES:
Variable cost of services 36,369 27,333 21,494
Satellite capacity cost 24,507 19,230 13,925
Salaries, wages and benefits 38,198 29,109 25,561
Selling, general and administrative 45,199 33,356 23,030
Depreciation and amortization 36,946 28,673 26,318
----------- ---------- ----------
Total cost and expenses 181,219 137,701 110,328
----------- ---------- ----------
Operating income 26,870 23,364 18,065
----------- ---------- ----------
OTHER INCOME (EXPENSES):
Interest expense, net (44,698) (24,272) (23,185)
Net gain (loss) on foreign exchange (675) (276) 910
Other income (expense), net 760 (151) 1,035
---------- ---------- ----------
Total other expense (43,263) (24,699) (21,240)
---------- ---------- ----------
LOSS BEFORE INCOME TAXES, CUMULATIVE
EFFECT AND MINORITY INTEREST (16,393) (1,335) (3,175)
PROVISION FOR INCOME TAXES (3,805) (5,263) (3,542)
---------- ---------- ----------
LOSS BEFORE CUMULATIVE EFFECT
AND MINORITY INTEREST (20,198) (6,598) (6,717)
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE, NET OF TAX (1,269)
INCOME ATTRIBUTABLE TO MINORITY INTEREST (2,502) (993) (1,766)
---------- ---------- ----------
NET LOSS BEFORE DIVIDENDS ON
REDEEMABLE PREFERRED STOCK (23,969) (7,591) (8,483)
DIVIDENDS ON REDEEMABLE PREFERRED STOCK (10,018)
---------- ---------- ----------
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS (33,987) (7,591) (8,483)
OTHER COMPREHENSIVE LOSS, NET OF TAX:
FOREIGN CURRENCY TRANSLATION ADJUSTMENT (526)
---------- ---------- ----------
COMPREHENSIVE LOSS $ (34,513) $ (7,591) $ (8,483)
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
-F-3-
<PAGE> 48
<TABLE>
<CAPTION>
IMPSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
DECEMBER 31, 1998 (IN THOUSANDS OF U.S. DOLLARS)
- - --------------------------------------------------------------------------------------------------------------------
COMMON STOCK IMPSAT ACCUMULATED TREASURY
SHARES STOCK ARGENTINA DEFICIT(*) STOCK
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 51,301,000 $ 51,301 $ 13,360 $ (8,240)
IMPSAT Argentina exchange (51%) 26,450,000 26,450 (13,360) (13,090)
Net loss for the year (8,483)
------------ --------- -------- --------- ----------
BALANCE AT DECEMBER 31, 1996 77,751,000 77,751 - (29,813) -
IMPSAT Argentina exchange (43.5%) 23,041,640 23,042
Additional capitalization IMPSAT
Colombia and IMPSAT Venezuela
Net loss for the year (7,591)
------------ --------- -------- --------- ----------
BALANCE AT DECEMBER 31, 1997 100,792,640 100,793 - (37,404) -
Acquisition of treasury stock (25,198,160) $ (125,000)
Acquisition of IMPSAT Brazil (Note 2)
Change in minority interest, primarily related
to the acquisition of Mandic S.A. (Note 2)
Dividends on redeemable preferred stock (10,018)
Amortization of amount paid in excess
of carrying value of net assets acquired
from related party
Foreign currency translation adjustment
Net loss for the year (23,969)
------------ --------- -------- --------- ----------
BALANCE AT DECEMBER 31, 1998 75,594,480 $ 100,793 $ - $ (71,391) $ (125,000)
============ ========= ======== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
IMPSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
DECEMBER 31, 1998 (IN THOUSANDS OF U.S. DOLLARS)
- - -----------------------------------------------------------------------------------------------------------------
AMOUNT PAID
IN EXCESS OF
CARRYING
VALUE
OF NET ASSETS ACCUMULATED
ACQUIRED OTHER
FROM COMPREHENSIVE MINORITY
RELATED PARTY LOSS TOTAL INTEREST
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 $ 56,421 $ 28,495
IMPSAT Argentina exchange (51%)
Net loss for the year (8,483) 1,766
-------- ------ ---------- ---------
BALANCE AT DECEMBER 31, 1996 - - (47,938) 30,261
IMPSAT Argentina exchange (43.5%) 23,042 (22,393)
Additional capitalization IMPSAT
Colombia and IMPSAT Venezuela 1,537
Net loss for the year (7,591) 993
-------- ------ ---------- ---------
BALANCE AT DECEMBER 31, 1997 - - 63,389 10,398
Acquisition of treasury stock (125,000)
Acquisition of IMPSAT Brazil (Note 2) $ (5,679) (5,679)
Change in minority interest, primarily related
to the acquisition of Mandic S.A. (Note 2) 171
Dividends on redeemable preferred stock (10,018)
Amortization of amount paid in excess
of carrying value of net assets acquired
from related party 284 284
Foreign currency translation adjustment $ (526) (526)
Net loss for the year (23,969) 2,502
-------- ------ ---------- ---------
BALANCE AT DECEMBER 31, 1998 $ (5,395) $ (526) $ (101,519) $ 13,071
======== ====== ========== =========
</TABLE>
(*) Includes an appropriation of retained earnings amounting to $1,254, $1,410
and $1,622 in 1996, 1997 and 1998, respectively, to comply with legal reserve
requirements in Argentina.
See notes to consolidated financial statements.
-F-4-
<PAGE> 49
<TABLE>
<CAPTION>
IMPSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 1998 (IN THOUSANDS OF U.S. DOLLARS)
- - -------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (23,969) $ (7,591) $ (8,483)
Adjustments to reconcile net loss to net cash
provided by operating activities, net of acquisition:
Cumulative effect of a change in accounting principle 1,269
Amortization and depreciation 36,946 28,673 26,318
Deferred income tax (benefit) provision (127) 4,964 3,012
Income attributable to minority interest 2,502 993 1,766
Changes in assets and liabilities:
Increase in trade accounts receivable, net (10,128) (13,627) (6,525)
Decrease (increase) in prepaid expenses 75 1,671 (1,406)
Increase in other receivables and other
non-current assets (1,969) (4,678) (6,647)
Increase (decrease) in accounts payable - trade 4,204 4,627 (41)
Increase in accrued and other liabilities 6,979 1,526 4,340
Increase (decrease) in other long-term liabilities 432 581 (2,491)
---------- --------- ---------
Net cash provided by operating activities 16,214 17,139 9,843
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (107,461) (55,028) (53,648)
Cash paid in Mandic S.A. acquisition, net of cash acquired (8,485)
Cash paid in IMPSAT Brazil merger (5,679)
Increase in investment (6,530) (3,052)
Capitalized license and permit costs (33)
---------- --------- ---------
Net cash used by investing activities (128,155) (58,080) (53,681)
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments on) borrowings from short-term debt (31,358) 18,337 (28,483)
Capital contribution from minority interest 1,537
Proceeds from long-term debt, net of deferred
financing costs 228,097 10,483 132,888
Repayments of long-term debt (5,216) (7,872) (37,888)
Acquisition of treasury stock (125,000)
Proceeds from issuance of redeemable preferred stock 125,000
---------- --------- ---------
Net cash provided by financing activities 191,523 22,485 66,517
---------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 79,582 (18,456) 22,679
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 10,439 28,895 6,216
---------- --------- ---------
CASH AND CASH EQUIVALENTS AT END
OF YEAR $ 90,021 $ 10,439 $ 28,895
========== ========= =========
</TABLE>
(Continued)
-F-5-
<PAGE> 50
<TABLE>
<CAPTION>
IMPSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 1998 (IN THOUSANDS OF U.S. DOLLARS)
- - -----------------------------------------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 45,967 $ 23,442 $ 19,413
======== ======== ========
Foreign income taxes paid $ 1,901 $ 1,375 $ 1,015
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Equipment in transit $ 2,473 $ 1,412 $ 350
======== ======== ========
Common stock issued in exchange for an additional 44%
and 51% of IMPSAT Argentina, respectively $ 23,043 $ 26,450
======== ========
Accrued dividends on redeemable preferred stock $ 10,018
========
Fair value of net assets acquired in Mandic S.A.
acquisition $ 1,794
========
</TABLE>
(Concluded)
See notes to consolidated financial statements.
-F-6-
<PAGE> 51
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF U.S. DOLLARS)
- - --------------------------------------------------------------------------------
1. BACKGROUND AND EVOLUTION
IMPSAT Corporation, a Delaware holding company (the "Company"), is a
privately-held corporation which provides and operates private networks
of integrated data and voice telecommunications systems in a number of
countries in Latin America. The Company provides a full range of private
telecommunications network services which are tailored to meet the
specific system requirements of its customers, including digital
information (data, voice and video) transmission via VSAT, SCPC, fiber
optic and microwave technology and a wide range of value added services,
including internet access and electronic commerce; fax store and
forward; healthcare billing and insurance verification services; and
video-conferencing and long-distance learning. The Company utilizes its
array of service offerings in different ways to create customized
packages that best suit each customer's private telecommunications
network system needs. The Company's principal line of business comprises
the provision of data transmission services for large national and
multinational companies, financial institutions, and governmental
agencies and other business customers in Latin America. The Company
provides its services through its owned advanced telecommunications
networks comprised of owned teleports, earth stations, fiber optic and
microwave link and leased satellite and fiber optic capacity.
The Company was formed in August 1994 for the purpose of combining
operating entities in Argentina, Colombia and Venezuela, which were
previously controlled by common ownership. The original operating entity
was established in Argentina in 1990 under the name of IMPSAT S.A.
("IMPSAT Argentina"). Thereafter, operating entities were established in
Colombia in 1992 ("IMPSAT Colombia") and in Venezuela in 1993 ("IMPSAT
Venezuela"). Other operating subsidiaries have been created or acquired
in Mexico, Ecuador, Peru (inactive), United States and Brazil.
The Company's operating subsidiaries at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
OWNERSHIP
COUNTRY OPERATING SUBSIDIARIES PERCENTAGE
<S> <C> <C>
Argentina Impsat S.A. 95.2 %
Colombia Impsat S.A. 74.2
Venezuela Telecomunicaciones Impsat S.A. 75.0
Mexico Impsat S.A. de C.V. 99.9
Ecuador Impsatel del Ecuador S.A. 100.0
USA Impsat USA, Inc. 100.0
Brazil Impsat Comunicacoes Ltda. 99.9
Brazil Mandic BBS Planejamento e Informatica S.A. 75.1
</TABLE>
In addition, the Company owns International Satellite Capacity Holdings,
NG (Liechtenstein) which serves a intermediary function to the Company
and its operating subsidiaries.
-F-7-
<PAGE> 52
2. MERGERS AND ACQUISITIONS
On June 1, 1998, the Company acquired from Nevasa Holdings Limited
("Nevasa"), the Company's parent, 99.9% of the capital stock of IMPSAT
Comunicacoes Ltda. ("IMPSAT Brazil"), a Brazilian company, for
approximately $5,700. The purchase price for IMPSAT Brazil represented
the total amount of pre-operating and development costs and expenses
incurred for IMPSAT Brazil by Nevasa. IMPSAT Brazil was established by
Nevasa and operates under a value added telecommunications license
permitting IMPSAT Brazil to lease satellite capacity directly from
EMBRATEL, Brazil's long-distance carrier, and sell corporate private
telecommunications network services (data, voice and video) using
terrestrial and satellite links to third parties. The acquisition, as is
the case for transactions among companies under common control, has been
accounted for in a manner similar to the pooling of interests method of
accounting, whereby all assets and liabilities have been recorded at
their historical carrying amounts and the acquisition was recorded as if
the transaction occurred on January 1, 1998. IMPSAT Brazil did not have
material operations in 1997 as it was in the pre-operating phase.
Amounts paid in excess of carrying value of the underlying net assets
acquired were recorded as a reduction of stockholders' deficit and are
being amortized on a straight-line basis over a period of 10 years.
On April 20, 1998, the Company signed a definitive agreement to purchase
a 75.1% interest in Mandic BBS Planejamento e Informatica S.A. ("Mandic
S.A."), a Brazilian internet access provider, for approximately $9,800.
The remaining 24.9% will be owned by Mr. Aleksander Mandic, the founder
and current president of Mandic S.A. The initial stage of the
acquisition of Mandic S.A., pursuant to which the Company acquired a
58.5% interest, was consummated on May 29, 1998, and the remaining 16.6%
interest was acquired during November 1998. The acquisition was
accounted for as a purchase.
The purchase price was allocated as follows:
<TABLE>
<S> <C>
Estimated fair value of net assets acquired $ 1,794
Goodwill 7,991
-------
Purchase price $ 9,785
=======
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The financial statements are presented on a
consolidated basis and include the accounts of the Company and its
subsidiaries. IMPSAT Argentina has been consolidated on the basis of its
fiscal year-end, November 30. Effective December 31, 1997, IMPSAT
Argentina changed its fiscal year to December 31. All significant
intercompany transactions and balances have been eliminated.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents are highly liquid
investments, including short-term investments and time deposits with
maturities of three months or less at the time of purchase. Cash
equivalents and short-term investments are stated at cost, which
approximates market value.
REVENUE RECOGNITION - The Company provides services to its customers
pursuant to contracts which range from six months to five years but
generally are for three years. The customer generally pays an
engineering fee, an installation charge and a monthly fee based on the
quantity and type of equipment
-F-8-
<PAGE> 53
installed. The fees stipulated in the contracts are generally
denominated in U.S. dollars equivalents. Services are billed on a
monthly, predetermined basis, which coincides with when the services are
rendered. No single customer accounted for greater than 10% of total
revenue from services for the years ended December 31, 1998, 1997 and
1996.
PROPERTY, PLANT AND EQUIPMENT COSTS - Property, plant and equipment are
recorded at cost and depreciated using the straight-line method over the
following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements 10-25 years
Operating communications equipment 5-10 years
Furniture, fixtures and other equipment 2-10 years
</TABLE>
INVESTMENT - Investment represents a less than 1.0% ownership interest
(at December 31, 1998 and 1997, respectively) by the Company in an
unaffiliated cooperative established for the purchase and leasing of
satellite capacity time and is accounted for under the cost method.
DEFERRED FINANCING COSTS - Debt issuance costs and transaction fees,
which are associated with the issuance of the Company's 12 1/8% Senior
Guaranteed Notes due 2003 (the "Senior Guaranteed Notes") and the 12
3/8% Senior Notes due 2008 (the "Senior Notes") (see Note 8) are being
amortized (and charged to interest expense) over the term of the related
notes on a method which approximates the level yield method.
INTANGIBLE ASSETS - Intangible assets include license and permit costs
(in 1997) and goodwill (in 1998). License and permit costs, such as
legal costs, regulatory fees and application costs incurred to obtain
and make functional the operating licenses in each respective country in
the amount of approximately $3,700, were capitalized and were being
amortized on the straight-line basis over periods not to exceed ten
years. In connection with the early adoption of the American Institute
of Certified Public Accountants' Statement of Position 98-5, Reporting
on the Costs of Start-Up Activities, as of January 1, 1998, the
unamortized license and permit costs were expensed as a cumulative
effect of a change in accounting principles. Goodwill, representing the
excess of the purchase price over the estimated fair value of the net
assets acquired of Mandic S.A. (see Note 2) of approximately $7,991, is
being amortized on a straight-line basis of over a period of 15 years.
The Company reviews the carrying value of goodwill on an ongoing basis.
If such review indicates that these values may not be recoverable, the
Company's carrying value will be reduced to its estimated fair value.
LONG-LIVED ASSETS - Long-lived assets are reviewed on an ongoing basis
for impairment based on comparison of carrying value against
undiscounted future cash flows. If an impairment is identified, the
assets carrying amount is adjusted to fair value. No such adjustments
were recorded for the years ended December 31, 1998, 1997 and 1996.
INCOME TAXES - Deferred income taxes result from temporary differences
in the recognition of expenses for tax and financial reporting purposes
and are accounted for in accordance with Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards No. 109
("SFAS No. 109"), Accounting for Income Taxes, which requires the
liability method of computing deferred income taxes. Under the liability
method, deferred taxes are adjusted for tax rate changes as they occur.
FOREIGN CURRENCY TRANSLATION - The Company's subsidiaries generally use
the U.S. dollar as the functional currency. Accordingly, the financial
statements of the subsidiaries were remeasured. The effects of foreign
currency transactions and of remeasuring the financial position and
results of operations into the functional currency are included as net
gain or loss on foreign exchange, except for those which use the local
currency as functional currency that are included in stockholders'
equity.
-F-9-
<PAGE> 54
FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company's financial
instruments include receivables, investment, payables, short- and
long-term debt. The fair value of such financial instruments have been
determined using available market information and interest rates as of
December 31, 1998 and 1997.
At December 31, 1998, the fair value of the Senior Guaranteed Notes and
Senior Notes was approximately $299,000 compared to the carrying value
of $350,000. At December 31, 1997, the fair value of the Senior
Guaranteed Notes was approximately $129,000 compared to the carrying
value of $125,000. The fair value of all other financial instruments
were not materially different from their carrying value.
STOCK-BASED COMPENSATION - SFAS No. 123, Accounting for Stock-Based
Compensation, encourages, but does not require, companies to record
compensation cost for stock-based employee and non-employee members of
the Board compensation plans at fair value. The Company has chosen to
continue to account for stock-based compensation to employees and
non-employee members of the Board using the intrinsic value method as
prescribed by Accounting Principles Board Opinion ("APB") No. 25,
Accounting for Stock Issued to Employees, and related interpretations.
Accordingly, compensation cost for stock options issued to employees and
non-employee of the Board are measured as the excess, if any, of the
fair value of the Company's stock at the date of grant over the amount
an employee or non-employee member of the Board must pay for the stock.
RECLASSIFICATIONS - Certain amounts in the 1997 and 1996 consolidated
financial statements have been reclassified to conform with the 1998
presentation.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1997, the FASB issued SFAS No.
130, Reporting Comprehensive Income. SFAS No. 130 requires that all
components of comprehensive income be reported on one of the following:
(1) the statement of income; (2) the statement of changes in
stockholders' equity; or (3) a separate statement of comprehensive
income. Comprehensive income is comprised of net income and all changes
to stockholders' equity, except those due to investments by owners
(changes in paid-in capital) and distributions to owners (dividends).
SFAS No. 130 was adopted as of January 1, 1998.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. SFAS No. 131 changes the way
public companies report information about segments of their business in
their annual financial statements and requires them to report selected
segment information in their quarterly reports issued to shareholders.
SFAS No. 131 also requires entity-wide disclosures about the products
and services an entity provides, the foreign countries in which it holds
assets and reports revenues, and its major customers. SFAS No. 131 was
adopted as of January 1, 1998.
In March 1998, the American Institute of Certified Public Accountants
issues Statement of Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1
provides guidance for capitalizing and expensing the costs of computer
software developed or obtained for internal use. SOP 98-1 is effective
for financial statements for fiscal year beginning after December 15,
1998. Management does not expect the adoption of SOP 98-1 to have a
significant impact on the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. Among other provisions, SFAS No. 133
establishes accounting and reporting standards for derivative
instruments and for hedging activities. It also requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. SFAS No. 133 is effective for financial statements for fiscal
years beginning after June 15, 1999.
-F-10-
<PAGE> 55
Management has not determined what effects, if any, the adoption of SFAS
No. 133 will have on the Company's financial statements.
4. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable, by operating subsidiaries, at December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
IMPSAT Argentina $ 36,378 $ 27,531
IMPSAT Colombia 8,480 10,102
IMPSAT Venezuela 4,293 2,202
IMPSAT Ecuador 1,559 990
IMPSAT USA 2,836 1,359
IMPSAT Brasil and Mandic S.A. 2,963
Others 574 345
-------- --------
Total 57,083 42,529
Less: allowance for doubtful accounts (10,109) (5,933)
-------- --------
Trade accounts receivable, net $ 46,974 $ 36,596
======== ========
</TABLE>
The Company's subsidiaries provide trade credit to their customers in
the normal course of business. The collection of a substantial portion
of the trade receivables are susceptible to changes in the Latin
American economies and political climates. Prior to extending credit,
the customers' financial history is analyzed.
The activity for the allowance for doubtful accounts at December 31 is
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Beginning balance $ 5,933 $ 2,803 $ 1,130
Provision for doubtful accounts 5,312 3,269 1,673
Write-offs, net of recoveries (1,136) (139)
-------- ------- -------
Ending balance $ 10,109 $ 5,933 $ 2,803
======== ======== =======
</TABLE>
5. OTHER RECEIVABLES
Other receivables consist primarily of refunds or credits pending from
local governments for taxes other than income, advances to suppliers,
and other miscellaneous amounts due to the Company and its operating
subsidiaries as follows at December 31:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
IMPSAT Argentina $ 6,439 $ 4,753
IMPSAT Colombia 5,064 4,460
IMPSAT Venezuela 2,527 2,133
IMPSAT Ecuador 835 548
IMPSAT Mexico 1,078 2,133
IMPSAT Brazil 1,124
Others 3,043 1,556
---------- ----------
Total $ 20,110 $ 15,583
========== ==========
</TABLE>
-F-11-
<PAGE> 56
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 consisted of:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Land $ 1,750 $ 1,478
Building and improvements 29,760 23,312
Operating communications equipment 398,577 301,525
Furniture, fixtures and other equipment 20,271 14,503
--------- ---------
Total 450,358 340,818
Less: accumulated depreciation (126,728) (92,255)
--------- ---------
Total 323,630 248,563
Equipment in transit 4,289 6,525
Projects in process 2,807 334
--------- ---------
Property, plant and equipment, net $ 330,726 $ 255,422
========= =========
</TABLE>
The recap of accumulated depreciation at December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Beginning balance $ 92,255 $ 64,250 $ 47,155
Depreciation expense 36,027 29,665 25,913
Disposals and retirements (1,554) (1,660) (8,818)
--------- -------- --------
Ending balance $ 126,728 $ 92,255 $ 64,250
========= ======== ========
</TABLE>
7. SHORT-TERM DEBT
The Company's short-term debt at December 31 is detailed as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Commercial paper (7.55% to 8.33%) $ 25,000
Short-term credit facilities, denominated in U.S. dollars;
interest rates ranging from 5.72% to 12.75%;
IMPSAT Argentina $ 11,000 15,850
IMPSAT Colombia 5,859 5,414
IMPSAT Venezuela 1,714
IMPSAT Ecuador 992
Others 203
Short-term credit facilities, denominated in local
currencies; local interest rates;
IMPSAT Argentina (12.75%) 2,000
IMPSAT Ecuador (18.0%) 200
IMPSAT Venezuela (28.0% to 32.0%) 1,219
-------- --------
Total short-term debt $ 19,262 $ 50,189
======== ========
</TABLE>
The Company has historically refinanced its short term credit facilities
on an annual basis.
-F-12-
<PAGE> 57
8. LONG-TERM DEBT
The Company's long-term debt at December 31 is detailed as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
12.125% Senior Guaranteed Notes due 2003 $ 125,000 $ 125,000
12.375% Senior Notes due 2008 225,000
Term notes payable:
IMPSAT Colombia; with maturities through 2002 collateralized by equipment with
a carrying value of approximately $14,000 and the assignment of customer
contracts totalling approximately $12,000 denominated in:
U.S. dollars (interest rates 8.50% - 14.50%) 32,204 27,111
Local currency (interest rates 27% - 46%) 6,156 6,380
IMPSAT Argentina (6.56% - 6.75%), maturing semiannually
through 2003, collateralized by investment 4,802 2,435
IMPSAT USA (8.25% - 8.75%), mortgage and other
collateralized debts 2,066
IMPSAT Venezuela (9.00% - 10.75%), maturing during 2001 3,508 5,550
Eximbank notes payable (7.00%), maturing semiannually
through 1999 1,694 3,387
--------- ---------
Total long-term debt 400,430 169,863
Less: current portion (21,138) (10,186)
--------- ---------
Long-term debt, net $ 379,292 $ 159,677
========= =========
</TABLE>
The scheduled maturities of long-term debt at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR
<S> <C>
1999 $ 21,138
2000 19,613
2001 5,541
2002 3,029
2003 and thereafter $351,109
--------
Total $400,430
========
</TABLE>
The Senior Guaranteed Notes, Senior Notes and some of the term notes
payable for IMPSAT Colombia and IMPSAT Venezuela contain certain
covenants requiring certain financial ratios, limiting the incurrence of
additional indebtedness and capital expenditures, and restricting the
ability to pay dividends.
-F-13-
<PAGE> 58
9. INCOME TAXES
For the years ended December 31, 1998, 1997 and 1996, the provision for
income taxes, all of which are for foreign taxes, consist of a current
provision of $3,932, $299 and $530, respectively, and a deferred
(benefit) provision of $(127), $4,964 and $3,012, respectively. The
foreign statutory tax rates range from 20% to 35% depending on the
particular country. There is no provision or benefit for U.S. income
taxes, as the Company has net operating loss carryforwards in the amount
of $24,235, which begin to expire in the year 2010. Deferred taxes result
from temporary differences in the capitalization policies of preoperating
costs and net operating loss carryforwards. The composition of net
deferred tax liability at December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred tax assets:
Preoperating costs:
IMPSAT Colombia $ 1,787 $ 1,698
IMPSAT Venezuela 1,065 1,380
IMPSAT Ecuador 58
Net operating loss carryforwards:
IMPSAT Brazil 2,576
IMPSAT Venezuela 3,604 4,048
IMPSAT Mexico 3,369 2,487
IMPSAT Ecuador 876
Company and IMPSAT USA 9,249 2,745
Other:
IMPSAT Colombia 23 139
IMPSAT Mexico 63 54
-------- -------
Gross deferred tax assets 21,736 13,485
-------- -------
Deferred tax liabilities:
IMPSAT Argentina (4,301) (4,301)
IMPSAT Colombia (389)
IMPSAT Mexico (197) (293)
-------- -------
Gross deferred tax liabilities (4,498) (4,983)
--------- -------
Less: valuation allowance (17,318) (8,749)
--------- -------
Net deferred tax liability $ (120) $ (247)
========= =======
</TABLE>
As there is no assurance that the Company will generate sufficient
earnings to utilize its available tax assets, a valuation allowance has
been established to offset deferred tax assets.
10. REDEEMABLE PREFERRED STOCK
On March 19, 1998, the Company redeemed 25% of its outstanding common
stock previously held by STET International Netherlands NV (the "STET
Shares") with the proceeds of a substantially concurrent issuance and
sale of $125,000 of the Company's Series A Convertible Preferred Stock
(the "Series A Preferred Stock"). The Series A Preferred Stock were
offered and sold to Princes Gate Investors II, L.P. ("Princes Gate") and
Morgan Stanley Global Emerging Markets Private Investment Fund, L.P.
("MSGEM"), two private equity funds that are affiliates of Morgan Stanley
Dean Witter & Co., and to certain other investors affiliated with Princes
Gate and MSGEM (such investors along with Princes Gate and MSGEM, the
"Purchasers"). The Series A Preferred Stock was convertible at the date
-F-14-
<PAGE> 59
of issuance into 25% of the common stock of the Company and as of
December 31, 1998 was convertible into 26.5% of the Common Stock of the
Company.
The following are some of the principal features of the Series A
Preferred Stock: (a) cumulative dividends at the rate of 10% per annum,
compounded quarterly and, with certain exceptions, payable in kind; (b)
mandatorily redeemable in cash by the Company at maturity (ten years
after issuance) plus accrued and unpaid dividends; (c) callable under
certain circumstances by the Company, in whole, at 100% of the principal
amount, plus accrued and unpaid dividends; (d) convertible into common
stock of the Company at any time at the option of the Purchasers
(including upon a call by the Company), at a specified conversion rate
subject to certain antidilution rights; (e) the right by Purchasers
holding a certain minimum number of outstanding Series A Preferred Stock
to appoint two directors to the Company's Board of Directors as well as
to immediately appoint half of the members of the Company's Board of
Directors upon the occurrence of certain specified events; and (f) the
right by Directors appointed by the Purchasers holding a certain minimum
number of outstanding Series A Preferred Stock, to a veto over certain
major corporate actions.
11. STOCK OPTION PLAN
In December 1998, the Company adopted the 1998 Stock Option Plan (the
"1998 Plan"), pursuant to which 8,067,268 shares of Company's Common
Stock were reserved for issuance upon exercise of options. The 1998 Plan
is designed as a means to retain and motivate key employees and
directors. The Company's Stock Option Committee, or in the absence
thereof, the Board, administers and interprets the 1998 Plan and is
authorized to grant options thereunder to all eligible employees of the
Company, including executive officers and directors (whether or not they
are employees) of the Company or affiliated companies. Options granted
under the 1998 Plan are on such terms and at such prices as determined by
the Stock Option Committee, except that the per share exercise price of
incentive stock options cannot be less than the fair market value of the
Common Stock on the date of grant. The 1998 Plan will terminate on
December 1, 2008, unless sooner terminated by the Company's Board.
During the year ended December 31, 1998, the Company granted options for
746,000 shares (the "Covered Shares") at an exercise price of $4.96.
These options vest on each of the first, second and third anniversaries
of the date of grant, as to 10%, 30%, and 30%, respectively, of the
Covered Shares. On the fourth anniversary of the date of grant, the
option vests as to the remainder of the Covered Shares.
The Company applies APB No. 25 and related interpretations in accounting
for its stock options plan to employees and non-employee members of the
Board as described in Note 1. Accordingly, no compensation expense has
been recognized in the year ended December 31, 1998 related to this plan.
For purposes of the following pro forma disclosures, the fair value of
the options granted in 1998 was estimated using the minimum value method
prescribed by SFAS No. 123 for nonpublic entities with the following
assumptions: no dividend yields; no volatility; risk-free interest rate
of 7.0%; and an expected term of 4 years. Had compensation cost been
determined based on the fair value at the date of grant consistent with
the requirement of SFAS 123, the Company's net loss and comprehensive
loss would have increased by approximately $225.
-F-15-
<PAGE> 60
12. OPERATING SEGMENT INFORMATION
The Company's operating segment information, by subsidiary (eliminating
intercompany transactions), is as follows for the years ended December
31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
PARENT
COMPANY
IMPSAT IMPSAT IMPSAT IMPSAT IMPSAT IMPSAT IMPSAT AND CONSOLIDATED
1998 ARGENTINA COLOMBIA VENEZUELA MEXICO ECUADOR USA BRAZIL OTHERS TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Assets $ 234,844 $ 105,187 $ 36,269 $ 8,640 $ 21,262 $ 15,095 $ 27,348 $ 78,573 $ 527,218
--------- --------- -------- ------- -------- -------- -------- -------- ---------
Net Revenues
From Services:
Satelitte Based:
VSAT Technology $ 37,653 $ 13,491 $ 4,318 $ 184 $ 1,624 $ 469 $ 57,739
SCPC Technology 26,078 22,058 6,938 2,951 5,433 $ 6,536 1,019 71,013
Terrestrial Based 16,389 15,696 837 64 604 46 33,636
Value Added 18,025 8,658 2,772 1,145 2,156 2,587 2,112 $ 8,246 45,701
--------- --------- -------- ------- -------- -------- -------- -------- ---------
Total $ 98,145 $ 59,903 $ 14,865 $ 4,344 $ 9,817 $ 9,123 $ 3,646 $ 8,246 $ 208,089
========= ========= ======== ======= ======== ======== ======== ======== =========
Operating income (loss) $ 14,779 $ 21,458 $ 366 $ (2,333) $ 1,535 $ 1,057 $ (7,611) $ (2,381) $ 26,870
========= ========= ======== ======= ======== ======== ======== ======== =========
1997
Total Assets $ 197,820 $ 85,709 $ 27,478 $ 6,199 $ 12,991 $ 5,931 $ - $ 3,788 $ 339,916
========= ========= ======== ======= ======== ======== ======== ======== =========
Net Revenues
From Services:
Satelitte Based:
VSAT Technology $ 33,022 $ 17,458 $ 2,623 $ 65 $ 1,467 $ - $ 54,635
SCPC Technology 31,638 15,336 5,041 1,321 2,967 $ 3,547 59,850
Terrestrial Based 7,123 12,073 443 9 209 19,857
Value Added 19,007 4,646 500 32 871 1,471 $ 196 26,723
--------- --------- -------- ------- -------- -------- -------- -------- ---------
Total $ 90,790 $ 49,513 $ 8,607 $ 1,427 $ 5,514 $ 5,018 $ - $ 196 $ 161,065
========= ========= ======== ======= ======== ======== ======== ======== =========
Operating income (loss) $ 13,299 $ 20,213 $ (811) $ (1,809) $ 1,651 $ 297 $ - $ (9,476) $ 23,364
========= ========= ======== ======= ======== ======== ======== ======== =========
1996
Total Assets $ 177,952 $ 70,501 $ 23,718 $ 7,043 $ 9,795 $ 997 $ - $ 25,224 $ 315,230
========= ========= ======== ======= ======== ======== ======== ======== =========
Net Revenues
From Services:
Satelitte Based:
VSAT Technology $ 37,473 $ 15,950 $ 1,514 $ 16 $ 1,159 $ - $ - $ 56,112
SCPC Technology 31,232 11,416 2,694 182 1,511 $ 471 47,506
Terrestrial Based 5,432 5,416 212 17 11,077
Value Added 11,011 2,496 76 - 115 - - - 13,698
--------- --------- -------- ------- -------- -------- -------- -------- ---------
Total $ 85,148 $ 35,278 $ 4,496 $ 198 $ 2,802 $ 471 $ - $ - $ 128,393
========= ========= ======== ======= ======== ======== ======== ======== =========
Operating income (loss) $ 14,459 $ 14,256 $ (731) $ (1,759) $ 82 $ (325) $ - $ (8,417) $ 18,065
========= ========= ======== ======= ======== ======== ======== ======== =========
</TABLE>
13. RELATED PARTY TRANSACTIONS
The Company in the normal course of its business provides
telecommunications network services to affiliates of its majority
stockholder and to affiliates of the minority stockholders of certain of
its subsidiaries. During the years ended December 31, 1998, 1997 and
1996, such services totaled approximately $10,080, $6,700 and $1,800,
respectively. In addition, the Company also enters into transactions with
such affiliates, which primarily include financial (borrowings),
insurance, and employee benefits services. During the years ended
December 31, 1998, 1997 and 1996, such transactions totaled approximately
$4,256, $3,755 and $856, respectively.
-F-16-
<PAGE> 61
Investment banking fees amounting to $5,900 were paid to representative
affiliates of the redeemable preferred stock shareholders during 1998.
14. COMMITMENTS AND CONTINGENCIES
The Company leases satellite capacity with average annual rental
commitments of approximately $24,634, through the year 2003. In addition,
the Company has commitments to purchase communications equipment
amounting to approximately $6,833 and was obligated under letter of
credits amounting to approximately $69 at December 31, 1998.
The Company is a third party guarantor of up to 75% of a $6,000 credit
facility provided to IMPSAT Venezuela by a regional development fund. At
December 31, 1998, the balance outstanding on the credit facility
amounted to approximately $3,500.
During May 1997, the Company and IMPSAT Argentina entered into a three
party arrangement with a financial institution whereby $60,000 was
borrowed by the subsidiary and concurrently a like amount certificate of
deposit was placed at the financial institution by the Company. The
arrangements establish a right of setoff and, accordingly, the amounts
have been netted for purposes of the consolidated financial statement
presentation. The arrangements expire in July 1999.
The Company is involved in or subject to various litigation and legal
proceedings incidental to the normal conduct of its business. Whenever
justified, the Company expects to vigorously prosecute or defend such
claims, although there can be no assurance that the Company will
ultimately prevail with respect to any such matters.
In November 1996, IMPSAT Argentina filed suit against one of its
customers, ENCOTESA, for amounts due and arising under IMPSAT Argentina's
contracts with ENCOTESA, the Argentine national postal service. On
December 27, 1996, ENCOTESA filed its reply to IMPSAT Argentina's claim.
The court has not yet ruled upon IMPSAT Argentina's claim against
ENCOTESA. In September 1997, ENCOTESA was privatized and emerged as
Correo Argentino S.A. In connection therewith, the claim by IMPSAT
Argentina remained with ENCOTESA. Based on these developments, the
Company has reclassified the trade account receivables from ENCOTESA to
non-current assets at the estimated net realizable value of $5,143 as
determined by the Company's management based on the advice of local legal
counsel. IMPSAT Argentina and ENCOTESA have held discussions in an effort
to settle IMPSAT Argentina's claims against ENCOTESA, and during the
pendency of such discussions the parties have deferred further court
proceedings. To date, the parties have been unable to reach any
settlement of the matter. The Company will continue to assess the effect
that the ENCOTESA receivables situation will have on its results of
operations, liquidity or capital resources.
15. SUBSEQUENT EVENTS
DEVALUATIONS - The Brazilian Central Bank introduced changes in the
exchange policies by the end of the second week of January 1999. These
changes eliminated the exchanging range whereby the fluctuation margin of
the Brazilian real in relation to the United States dollar was managed,
allowing the market to freely negotiate the rate of exchange. The
Brazilian real has lost about 40% of its value in relation to the Unites
States dollar, if compared with the prevailing exchange rate as of
December 31, 1998. Based on the balances of monetary assets and
liabilities denominated in Brazilian reales at December 31, 1998, the
Company estimates it has realized approximately $3,300 in foreign
exchange losses through the end of February 1999. This loss will be
reflected in the end of February 1999.
Ecuador has also experienced a devaluation of approximately 37% with the
prevaling exchange rate as of December 31, 1998. Based on the balances of
monetary assets and liabilities denominated in sucres
-F-17-
<PAGE> 62
at December 31, 1998, the Company estimates it has realized approximately
$74 in foreign exchange losses through the end of February 1999. This
loss will be reflected in the first quarter of 1999.
The Company continues to operate in Brazil and Ecuador and therefore has
exposure to further currency exchange risks.
COMMON STOCK - In connection with the Share Purchase Agreement described
below, the Board amended and restated the articles of incorporation of
the Company, increasing the authorized shares of common stock from
150,000,000 to 155,000,000.
SHARE PURCHASE AGREEMENT - On March 10, 1999, a Share Purchase Agreement
was entered into among the Company, Nevassa and British
Telecommunications plc ("BT"), in which the Company agreed to issue, sell
and deliver 20,158,528 newly issued shares of common stock to BT and
Nevasa agreed to sell 4,031,706 currently owned shares of common stock to
BT for $125,000 and $25,000, respectively. These transactions are
expected to be consummated in the second quarter of 1999.
* * * * * *
-F-18-
<PAGE> 63
INDEPENDENT AUDITORS' REPORT
To the Stockholders of IMPSAT S.A.:
We have audited the accompanying balance sheets of IMPSAT S.A. (the
"Company") as of December 31, 1998 and 1997, and November 30, 1997, and
the related statements of operations, of stockholders' equity and of cash
flow for the year ended December 31, 1998, for the one month period ended
December 31, 1997, and for each of the two years in the period ended
November 30, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statement based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. 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 the management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of IMPSAT S.A. at December 31, 1998 and
1997, and November 30, 1997, and the results of its operations and its
cash flows for the year ended December 31, 1998, for the one month period
ended December 31, 1997, and for each of the two years in the period
ended November 30, 1997 in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE
Buenos Aires, Argentina
March 5, 1999
-F-19-
<PAGE> 64
IMPSAT S.A.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997 AND NOVEMBER 30, 1997
(IN THOUSANDS OF U. S. DOLLARS)
- - -------------------------
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1998 1997 1997
----- ----- -----
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C>
Cash and cash equivalents $ 13,849 $ 6,169 $ 5,843
Trade accounts receivable, net 28,068 22,034 19,460
Receivables from affiliated companies 2,092 6,730 6,699
Other receivables 6,439 4,753 5,093
Prepaid expenses 362 789 1,052
-------- -------- --------
Total current assets 50,810 40,475 38,147
-------- -------- --------
PROPERTY, PLANT AND EQUIPMENT, NET 167,653 147,431 148,786
-------- -------- --------
NON-CURRENT ASSETS:
Trade accounts receivable, net 5,143 5,143 5,143
Investment 10,708 4,178 4,178
Other non-current assets 529 593 596
-------- -------- --------
Total non-current assets 16,381 9,914 9,917
-------- -------- --------
TOTAL $234,844 $197,820 $196,850
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payables - trade $ 18,242 $ 14,327 $ 17,671
Short-term debt 13,000 40,850 37,741
Advances from affiliated companies 62,721 5,338 4,705
Current portion of long-term debt 64,694 2,794 2,829
Accrued liabilities 655 432 473
Deferred income taxes 4,301 4,301 3,990
Other liabilities 4,402 4,729 4,590
-------- -------- --------
Total current liabilities 168,015 72,771 71,999
-------- -------- --------
LONG-TERM DEBT, NET 1,802 63,029 63,338
-------- -------- --------
OTHER LONG-TERM LIABILITIES 1,485 1,383 1,496
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY:
Common Stock; 5,123 shares authorized,
issued, and outstanding 3 3 3
Paid-in capital 26,442 46,319 46,319
Retained earnings 37,097 14,315 13,695
-------- -------- --------
Total stockholders' equity 63,542 60,637 60,017
-------- -------- --------
TOTAL 234,844 $197,820 $196,850
======== ======== ========
See notes to financial statements.
</TABLE>
-F-20-
<PAGE> 65
IMPSAT S.A.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998, FOR THE ONE MONTH PERIOD ENDED DECEMBER
31, 1997, AND FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED NOVEMBER 30, 1997
(IN THOUSANDS OF U. S. DOLLARS)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1998 1997 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
NET REVENUES FROM SERVICES $ 100,541 $ 8,130 $ 91,641 $ 87,093
------- ------- ------ ------
COSTS AND EXPENSES:
Variable cost of services 17,919 1,590 14,606 14,695
Satellite capacity cost 10,629 944 9,614 9,503
Salaries, wages and benefits 16,342 1,086 15,823 15,799
Selling, general and administrative 20,357 1,045 20,905 13,167
Depreciation and amortization 20,515 1,562 18,033 18,970
------- ------- ------ ------
Total cost and expenses 85,762 6,227 78,981 72,134
------- ------- ------ ------
Operating income 14,779 1,903 12,660 14,959
------- ------- ------ ------
OTHER INCOME (EXPENSES):
Interest expense, net (12,801) (976) (12,617) (12,527)
Other income, net 16 4 9 624
------- ------- ------ ------
Total other (expenses) (12,785) (972) (12,608) (11,903)
------- ------- ------ ------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 1,994 931 52 3,056
PROVISION FOR INCOME TAX (311) (3,247) (3,963)
------- ------- ------ ------
INCOME (LOSS) BEFORE MINORITY INTEREST 1,994 620 (3,195) (907)
INCOME ATTRIBUTABLE TO MINORITY
INTEREST 3
------- ------- ------ ------
NET INCOME (LOSS) $ 1,994 $ 620 $ (3,195) $ (904)
======= ======= ====== ======
</TABLE>
See notes to financial statements.
-F-21-
<PAGE> 66
IMPSAT S.A.
STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31,
1998, FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 (PERIOD OF ONE MONTH), AND FOR
EACH OF THE TWO YEARS ENDED NOVEMBER 30, 1997 (IN THOUSANDS OF U. S. DOLLARS)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCKHOLDERS'
------------------------------
PAID-IN RETAINED MINORITY
COMMON STOCK CAPITAL EARNINGS(*) TOTAL INTEREST
--------- ---------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
BALANCE AT NOVEMBER 30, 1995 3 31,471 17,794 49,268 3
Resis Ingenieria increased paid in capital 6,343 6,343
Net loss (904) (904) (3)
--------- ---------- --------- -------- -------
BALANCE AT NOVEMBER 30, 1996 3 37,814 16,890 54,707 --
Resis Ingenieria increased paid in capital 8,505 8,505
Net loss (3,195) (3,195)
--------- ---------- --------- -------- -------
BALANCE AT NOVEMBER 30, 1997 $ 3 $ 46,319 $ 13,695 $ 60,017 --
Net income 620 620
--------- ---------- --------- -------- -------
BALANCE AT DECEMBER 31, 1997 $ 3 $ 46,319 $ 14,315 $ 60,637 --
Resis Ingenieria S.A. increased paid in capital 911 911
Resis Ingenieria S.A. loss absortion (20,788) 20,788
Net income 1,994 1,994
--------- ---------- --------- -------- -------
BALANCE AT DECEMBER 31, 1998 $ 3 $ 26,442 $ 37,097 $ 63,542 --
========= ========== ========= ======== =======
</TABLE>
(*) Includes an appropriation of retained earnings, amounting to $1,254,
$1,410 and $1,622 1996, 1997 and 1998, respectively, to comply with legal
reserve requirements in Argentina.
See notes to financial statements.
-F-22-
<PAGE> 67
IMPSAT S.A.
STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998, FOR THE ONE MONTH
PERIOD ENDED DECEMBER 31, 1997, AND FOR EACH OF THE TWO YEARS IN THE PERIOD
ENDED NOVEMBER 30, 1997 (IN THOUSANDS OF U. S. DOLLARS)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER, 31 NOVEMBER 30,
1998 1997 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,994 $ 620 $ (3,195) $ (904)
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Amortization and depreciation 20,515 1,562 18,033 18,970
Deferred income tax provision 311 3,247 3,963
Minority interest (3)
Changes in assets and liabilities:
Increase in trade accounts
receivable, net (6,034) (2,574) (4,214) (4,317)
Decrease (increase) in prepaid expenses 427 263 781 (560)
Decrease (increase) in other receivable
assets and other non-current assets 3,016 342 (4,391) (3,116)
(Decrease) increase in accounts payable-
trade (2,535) (2,711) 1,394 (9,201)
(Decrease) increase in accrued and other
liabilities (104) 98 575 (4,074)
Increase (decrease) in other long-term 102 (113) (2,259) (2,489)
liabilities ------- ------- ------- -------
Net cash provided by (used in) operating activities 17,381 (2,232) 9,971 (1,731)
------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (34,288) (207) (16,601) (22,384)
Increase in investment (6,530) (2,995) (1,183)
------- ------- ------- -------
Net cash used in investing activities (40,818) (207) (19,596) (23,567)
------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments of) borrowings from short-term debt (27,850) 3,109 17,414 (16,481)
Increase (decrease) in advances
from/to affiliates 57,383 (69,719) 69,719
Repayments of long - term debt (4,513) (344) (6,385) (33,440)
Proceeds from long - term debt 5,186 63,098
Irrevocable capital contribution 911 8,505 6,343
------- ------- ------- -------
Net cash provided by operating activities 31,117 2,765 12,913 26,141
------- ------- ------- -------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 7,680 326 3,288 843
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR 6,169 5,843 2,555 1,712
------- ------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF THE
YEAR $ 13,849 $ 6,169 $ 5,843 $ 2,555
------- ------- ------- -------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 9,066 $ 98 $ 10,448 $ 10,613
======= ======= ======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Equipment in transit $ 1,488 $ 236 $ 236 $ 350
=========== =========== ======== ========
</TABLE>
See notes to consolidated financial statements.
-F-23-
<PAGE> 68
IMPSAT S.A.
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS OF U. S. DOLLARS)
- - --------------------------------------------------------------------------------
1. CHANGE OF FISCAL YEAR END
On November 12, 1997, the Extraordinary Shareholders' Meeting approved the
change of IMPSAT S.A.'s fiscal year end to December 31, 1997, to conform with
the Parent Company's fiscal year end.
2. BACKGROUND
IMPSAT S.A. provides and operates private networks of integrated data and voice
telecommunications systems in Argentina. IMPSAT S.A.'s principal line of
business comprises the provision of data transmission services for large
national and multinational companies, financial institutions, governmental
agencies and other business customers in Argentina. It provides its services
through its advanced telecommunications networks comprised of owned teleports,
earth stations, fiber optic and microwave links and leased satellite capacity.
IMPSAT S.A. is a 95.2% owned subsidiary of IMPSAT Corporation, a Delaware
holding company (the "Parent Company").
On October 20, 1998, IMPSAT S.A. and Resis Ingenieria S.A. merged and Resis
Ingenieria S.A. ceased operations. The merger as is the case for transactions
among companies under common control, has been accounted for in a manner similar
to the pooling of interests method of accounting, whereby all assets and
liabilities have been recorded at their historical carrying amounts and the
merger was recorded as if the transaction occurred at the beginning of each
period presented.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents -- Cash and cash equivalents are highly liquid
investments, including short-term investments and time deposits with maturities
of three months or less at the time of purchase. Cash equivalents and short-term
investments are stated at cost, which approximates market value.
Revenue Recognition -- IMPSAT S. A. provides services to its customers pursuant
to contracts which range from six months to five years but generally are for
three years. The customer generally pays an engineering fee, an installation
charge and a monthly fee based on the number of microsystems installations. The
fees stipulated in the contracts are generally denominated in U.S. dollars.
Services are billed on a monthly, predetermined basis, which coincides with when
the services are rendered. For the year ended November 30, 1996, IMPSAT S. A.
had one customer that represented approximately 15% net revenue from services.
No single customer accounted for greater than 10% of total revenue from services
for the fiscal year ended December 31, 1998, for the one-month period ended
December 31, 1997, and for the year ended November 30, 1997.
Property, Plant and Equipment -- Property, plant and equipment are recorded at
cost and depreciated using the straight-line method over the following estimated
useful lives:
-F-24-
<PAGE> 69
<TABLE>
<S> <C>
Building and improvement 10-25 years
Operating communications equipment 10 years
Furniture, fixtures and other equipment 5-10 years
</TABLE>
Investment - Investment represents a less than 1% ownership (at December 31,
1998 and 1997, and November 30, 1997 and 1996) interest by the IMPSAT S.A. in an
unaffiliated cooperative established for the purchase and leasing of satellite
capacity time and is accounted for under the cost method.
Income Taxes -- Deferred income taxes result from timing differences in the
recognition of expenses for tax and financial reporting purposes and are
accounted for in accordance with Financial Accounting Standards Board (the
"FASB") Statements of Financial Accounting Standards ("SFAS") No. 109,
accounting for Income Taxes, which required the liability method of computing
deferred income taxes. Under the liability method, deferred taxes are adjusted
for tax rate changes as they occur.
Foreign Currencies Translation -- The translation of these consolidated
financial statements into U.S. dollars has been made following the guidelines of
SFAS No. 52, Foreign Currency Translation. Major operations of IMPSAT S. A. are
stated in U.S. dollars. Accordingly, the U.S. dollar has been designated as the
functional currency. Local currency denominated transactions are remeasured into
the functional currency. Accordingly, fixed assets and stockholders account have
been translated into U.S. dollars taking into account the exchange rate
prevailing at each transaction date. Monetary assets and liabilities are
translated using the year-end exchange. Profit and loss accounts were translated
using average exchange rates for the periods in which they were accrued, except
for the consumption of non-monetary assets for which their respective dollar
translated costs were considered.
Fair Value of Financial Instruments -- IMPSAT S. A.'s financial instruments
include receivables, payables, short and long-term debt. The fair value of such
financial instruments have been determined based on market interest rates as of
December 31, 1998. The fair values were not materially different than their
carrying (or contract) values.
Long-Lived Assets -- Long-lived assets are reviewed on an ongoing basis for
impairment. Estimated fair value is calculated using discounted cash flow
methods and other valuation techniques.
Reclassifications -- Certain amounts in the 1997 and 1996's financial statements
have been reclassified to conform with the 1998 presentation.
4. TRADE ACCOUNTS RECEIVABLE
The detail of trade accounts receivable is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1998 1997 1997
-------- -------- ------
<S> <C> <C> <C>
Trade accounts receivable $ 36,378 $ 27,531 $ 24,742
Less: allowance for doubtful accounts (8,310) (5,497) (5,282)
-------- -------- -------
Trade accounts receivable, net $ 28,068 $ 22,034 $ 19,460
======== ======== =======
</TABLE>
IMPSAT S. A. provides trade credit to its customers in the normal course of
business. Prior to extending credit, the customers' financial history is
analyzed.
-F-25-
<PAGE> 70
The activity for the allowance for doubtful account is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1998 1997 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Beginning balance $ 5,497 $ 5,282 $ 2,712 $ 1,110
Provision for doubtful accounts 3,453 215 2,654 1,602
Net write-off (640) (84)
------ ------ ------ ----
Ending balance $ 8,310 $ 5,497 $ 5,282 $ 2,712
====== ====== ====== ====
</TABLE>
5. OTHER RECEIVABLES
Other receivables consist primarily of refunds or credits pending from local
government for taxes other than income, advances to suppliers other than
for fixed assets, related parties receivables and other miscellaneous
amounts due to IMPSAT S. A.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at consists of:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1998 1997 1997
----- ----- -----
<S> <C> <C> <C>
Building installations and improvements $ 16,671 $ 16,001 $ 16,001
Operating communications equipment 226,480 191,655 190,886
Furniture, fixtures and other equipment 8,399 7,042 6,993
-------- -------- --------
Total 251,550 214,698 213,880
Less: accumulated depreciation (87,641) (68,654) (67,212)
-------- -------- --------
Total 163,909 146,044 146,668
Equipment in transit 1,825 1,362 2,099
Work in progress 1,919 25 19
-------- -------- --------
Property, plant and equipment, net $ 167,653 $ 147,431 $ 148,786
======== ======== ========
</TABLE>
The recap of accumulated depreciation is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1998 1997 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Beginning balance $ 68,654 $ 67,212 $ 50,682 $ 40,526
Depreciation expense 20,515 1,562 18,033 18,970
Disposals and retirements (1,528) (120) (1,503) (8,814)
------- ------- ------- -------
Ending balance $ 87,641 $ 68,654 $ 67,212 $ 50,682
======= ======= ======= =======
</TABLE>
7. SHORT-TERM DEBT
IMPSAT S. A.'s short-term debt is detailed as follows:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1998 1997 1997
----- ----- -----
<S> <C> <C> <C>
Short-term credit facilities, denominated in
U.S. dollars, interest rates ranging from 9.5% to 12.5% 11,000 25,000 25,000
Pesos, interest rate 12.75% 2,000 15,850 12,741
------- ------- -------
Total short-term debt $ 13,000 $ 40,850 $ 37,741
======= ======= =======
</TABLE>
IMPSAT S. A. has historically refinanced its short-term credit facilities on an
annual basis.
-F-26-
<PAGE> 71
8. LONG-TERM DEBT
IMPSAT S. A.'s long-term debt is detailed as follows:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Term notes payable (6.63%-12.63%) maturing
semiannually through 1999, collateralized
by certain assets $ 64,802 $ 62,436 $ 62,780
Eximbank notes payable (7%)
maturing semiannually through 1999 1,694 3,387 3,387
------- ------- -------
Total long-term debt 66,496 65,823 66,167
Less: current portion (64,694) (2,794) (2,829)
------- ------- -------
Long-term debt, net $ 1,802 $ 63,029 $ 63,338
======= ======= =======
</TABLE>
The scheduled maturities of debt and credit facilities at December 31, 1998 are
as follows:
<TABLE>
<CAPTION>
FISCAL YEAR: AMOUNT
---------- --------
<S> <C>
1999 $ 64,694
2000 1,802
------
Total $ 66,496
======
</TABLE>
9. INCOME TAXES
The provision for income taxes of IMPSAT S.A. is comprised as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, NOVEMBER 30, NOVEMBER 30,
1998 1997 1997 1996
---------------------------------------------
<S> <C> <C> <C> <C>
Deferred $ 0 $ 311 $3,247 $3,963
---------------------------------------------
Total $ 0 $ 311 $3,247 $3,963
=============================================
</TABLE>
The statutory tax rate in Argentina is 35%.
10. COMMITMENTS AND CONTINGENCIES
IMPSAT S. A. leases satellite capacity with annual rental commitments of
approximately $18.0 million through the year 2001. In addition, IMPSAT S. A. has
commitments to purchase communications equipment amounting to approximately $4.1
million at December 31, 1998.
IMPSAT S. A. is guarantor on the $125,000,000, 12 1/8% Senior Guaranteed Notes
Due 2003 issued on July 30, 1996 by the Parent Company.
During May, 1997, the Parent Company and IMPSAT S.A. entered into a three party
arrangement with a financial institution whereby $ 60 million was borrowed by
IMPSAT S.A. and concurrently a like amount Certificate of Deposit was placed at
the financial institution by the Parent Company. The arrangement expires in May
1999.
IMPSAT S.A. is involved in or subject to various litigation and legal
proceedings incidental to the normal conduct of its business. Whenever
justified, IMPSAT S.A. expects to vigorously prosecute or defend such
-F-27-
<PAGE> 72
claims, although there can be no assurance that IMPSAT S.A. will ultimately
prevail with respect to any such matters.
In November 1996, IMPSAT S.A. filed suit against one of its customers, ENCOTESA
for amounts due and arising under IMPSAT S.A.'s contracts with ENCOTESA, the
Argentine national postal service. On December 27, 1996, ENCOTESA filed its
reply to IMPSAT S.A.'s claim. The court has not yet ruled upon IMPSAT S.A.'s
claim against ENCOTESA. In September 1997, ENCOTESA was privatized and emerged
as Correo Argentino S.A. In connection therewith, the claim by IMPSAT Argentina
remained with ENCOTESA. Based on these developments, the IMPSAT S.A. has
reclassified the trade account receivables from ENCOTESA to non-current assets
at the estimated net realizable value of $5,143 as determined by the IMPSAT
S.A.'s management based on the advice of local legal counsel. IMPSAT Argentina
and ENCOTESA have held discussions in an effort to settle IMPSAT Argentina's
claims against ENCOTESA, and during the pendency of such discussions the parties
have deferred further court proceedings. To date, the parties have been unable
to reach any settlement of the matter. IMPSAT S.A. will continue to assess the
effect that the ENCOTESA receivables situation will have on its results of
operations, liquidity or capital resources.
In the normal course of business, IMPSAT S. A. faces challenges to its various
licenses and rights to operate on an exclusive basis, which it vigorously
defends. There can be no assurance it will ultimately prevail on these
challenges.
-F-28-
<PAGE> 73
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ---------------------------------------------------------------- ---------
<S> <C>
10.1 IMPSAT Corporation 1998 Stock Option Plan. Filed herewith.
24.1. Power of Attorney (included on the signature page hereto).
27.1. Financial Data Schedule. Filed herewith.
</TABLE>
<PAGE> 1
Exhibit 10.1
- - --------------------------------------------------------------------------------
IMPSAT CORPORATION 1998 STOCK OPTION PLAN
- - --------------------------------------------------------------------------------
1. Definitions
In this Plan, except where the context otherwise indicates, the following
definitions apply:
1.1. "Affiliate" means parent or subsidiary corporations of the
Company, as defined in Sections 424(e) and (f) of the Code (but substituting
"the Company" for "employer corporation"), including parents or subsidiaries of
the Company which become such after adoption of the Plan.
1.2. "Agreement" means a written agreement granting an Option and/or
Right that is executed by the Company and the Optionee.
1.3. "Board" means the Board of Directors of the Company.
1.4. "Code" means the Internal Revenue Code of 1986, as amended.
1.5. "Committee" means the committee appointed by the Board to
administer the Plan.
1.6. "Common Stock" means the Class A Common Stock, par value $1.00
per share, of the Company.
1.7. "Company" means IMPSAT Corporation, a Delaware corporation.
1.8. "Date of Exercise" means the date on which the Company receives
notice of the exercise of an Option in accordance with the terms of Article 8.
1.9. "Date of Grant" means the date on which an Option or Right
granted under the Plan.
1.10. "Director" means a member of the Board of Directors of the
Company or any Affiliate.
1.11. "Eligible Individual" means (i) any Employee or Director or (ii)
any consultant or advisor to the Company or an Affiliate who renders bona fide
services to the Company or an Affiliate.
1.12. "Employee" means any employee of the Company or an Affiliate or
any person who has been hired to be an employee of the Company or an Affiliate.
<PAGE> 2
1.13. "Fair Market Value" means the fair market value of a Share as
determined by the Committee pursuant to a reasonable method adopted in good
faith for such purpose.
1.14. "Incentive Stock Option" means an Option granted under the Plan
that qualifies as an incentive stock option under Section 422 of the Code and
that the Company designates as such in the Agreement granting the Option.
1.15. "Nonstatutory Stock Option" means an Option granted under the
Plan that is not an Incentive Stock Option.
1.16. "Option" means an option to purchase Shares granted under the
Plan.
1.17. "Option Period" means the period during which an Option may be
exercised.
1.18. "Option Price" means the price per Share at which an Option may
be exercised. The Option Price shall be determined by the Committee, provided,
however, that, in the case of Incentive Stock Options the Option Price shall
not be less than the Fair Market Value as of the Date of Grant.
Notwithstanding the foregoing, in the case of an Incentive Stock Option granted
to an Optionee who (applying the rules of Section 424(d) of the Code) owns
stock possessing more than ten percent of the total combined voting power of
all classes of stock of the Company or an Affiliate (a "Ten-Percent
Stockholder"), the Option Price shall not be less than one hundred and ten
percent (110%) of the Fair Market Value on the Date of Grant. The Option Price
of any Option shall be subject to adjustment to the extent provided in Article
10 hereof.
1.19. "Optionee" means an Eligible Individual to whom an Option or
Right has been granted.
1.20. "Plan" means the IMPSAT Corporation 1998 Stock Option Plan.
1.21. "Related Option" means the Option in connection with which, or by
amendment to which, a specified Right is granted.
1.22. "Related Right" means the Right granted in connection with, or by
amendment to, a specified Option.
1.23. "Right" means a stock appreciation right granted under the Plan
in accordance with the terms of Section 7.
1.24. "Right Period" means the period during which a Right may be
exercised.
1.25. "Share" means a share of Common Stock.
2
<PAGE> 3
2. Purpose
The Plan is intended to assist the Company and its Affiliates in
attracting and retaining Eligible Individuals of outstanding ability and to
promote the identification of their interests with those of the stockholders of
the Company.
3. Administration
The Committee shall administer the Plan and shall have plenary
authority, in its discretion, to award Options and Rights to Eligible
Individuals, subject to the provisions of the Plan. The Committee shall have
plenary authority and discretion, subject to the provisions of the Plan, to
determine which Eligible Individuals shall be granted Options and/or Rights,
the time or times at which Options or Rights are granted and the terms (which
terms need not be identical) of all Options and Rights including, but not
limited to, the Option Price, the number of Shares subject to an Option,
whether an Option shall be an Incentive Stock Option or a Nonstatutory Stock
Option, any provisions relating to vesting, any circumstances in which Options
or Rights terminate or Shares may be repurchased by the Company, the period
during which Options or Rights may be exercised and any other restrictions on
Options or Rights. In making these determinations, the Committee may take into
account the nature of the services rendered by the Eligible Individuals, their
present and potential contributions to the success of the Company and its
Affiliates, and such other factors as the Committee in its discretion shall
deem relevant. Subject to the provisions of the Plan, the Committee shall have
plenary authority to construe and interpret the Plan and the Agreements, to
prescribe, amend and rescind rules and regulations relating to the Plan and to
make all other determinations deemed necessary or advisable for the
administration of the Plan, including, but not limited to, any determination to
accelerate the vesting of outstanding Options or Rights. The determinations of
the Committee on the matters referred to in this Article 3 shall be binding and
final.
4. Eligibility
Options and Rights may be granted only to Eligible Individuals,
provided, however, that only Employees who have commenced employment with the
Company and its Affiliates shall be eligible to receive Incentive Stock
Options. No Eligible Individual shall be granted Options or Rights totally
more than 15% of the total number of Shares issuable under the Plan.
5. Stock Subject to the Plan
5.1. Subject to adjustment as provided in Article 9, the maximum
number of Shares that may be issued under the Plan is 8,067,268 Shares.
5.2. If an Option or Right expires or terminates for any reason
(other than by reason of the exercise of a Related Option or Related Right)
without having been fully exercised, the unissued Shares which had been subject
to such Option shall become available for the grant of additional Options or
Rights.
3
<PAGE> 4
5.3. Upon exercise of a Right (regardless of whether the Right is
settled in cash or Shares), the number of Shares with respect to which the
Right is exercised shall be charged against the number of Shares issuable under
the Plan and shall not become available for the grant of other Awards.
6. Options
6.1 Options granted under the Plan shall be either Incentive
Stock Options or Nonstatutory Stock Options, as designated by the Committee.
Each Option granted under the Plan shall be clearly identified either as an
Incentive Stock Option or a Nonstatutory Stock Option and shall be evidenced by
an Agreement that specifies the terms and conditions of the grant. Options
granted to Eligible Individuals shall be subject to the terms and conditions
set forth in this Article 6 and such other terms and conditions not
inconsistent with this Plan as the Committee may specify.
6.2 The Option Period for Options granted to Eligible
Individuals shall be determined by the Committee and specifically set forth in
the Agreement, provided, however, that an Option shall not be exercisable after
ten years (five years in the case of an Incentive Stock Option granted to a
Ten-Percent Stockholder) from its Date of Grant.
7. Rights
7.1 Rights granted under the Plan shall be evidenced by an
Agreement specifying the terms and conditions of the grant.
7.2 A Right may be granted under the Plan:
(a) in connection with, and at the same time as, the grant
of an Option under the Plan;
(b) by amendment of an outstanding Option granted under the
Plan; or
(c) independently of any Option granted under the Plan.
7.3 A Right granted under Section 7.2(a) or Section 7.2(b) of
this Plan is a Related Right. A Related Right may, in the Committee's
discretion, apply to all or any portion of the Shares subject to the Related
Option.
7.4 A Right may be exercised in whole or in part as provided in
the applicable Agreement, and, subject to the terms of the Agreement, entitles
an Optionee to receive, without payment to the Company (but subject to required
tax withholding), either cash or that number of Shares (equal to the highest
whole number of Shares), or a
4
<PAGE> 5
combination thereof, in an amount or having a fair market value determined as
of the Date of Exercise not to exceed the number of Shares subject to the
portion of the Right exercised multiplied by an amount equal to the excess of
(i) the Fair Market Value on the Date of Exercise of the Right over (ii) either
(A) the Fair Market Value on the Date of Grant of the Right if it is not a
Related Right, or (B) the Option Price as provided in the Related Option if the
Right is a Related Right.
7.5 The Right Period shall be determined by the Committee and
specifically set forth in the applicable Agreement, subject to the following
conditions:
(a) a Right will expire no later than the earlier of (1) ten
years from the Date of Grant, or (2) in the case of a
Related Right, the expiration of the Related Option;
(b) a Right may be exercised only when the Fair Market Value
on the Date of Exercise exceeds either (1) the Fair Market
Value on the Date of Grant of the Right if it is not a
Related Right, or (2) the Option Price of the Related Option
if the Right is a Related Right; and
(c) a Right that is a Related Right to an Incentive Stock
Option may be exercised only when and to the extent the
Related Option is exercisable.
7.6 The exercise, in whole or in part, of a Related Right shall
cause a reduction in the number of Shares subject to the Related Option equal
to the number of Shares with respect to which the Related Right is exercised.
Similarly, the exercise, in whole or in part, of a Related Option shall cause a
reduction in the number of Shares subject to the Related Right equal to the
number of Shares with respect to which the Related Option is exercised.
8. Exercise of Options and Rights
8.1 An Option or Right may, subject to the terms of the
applicable Agreement under which it is granted, be exercised in whole or in
part by the delivery to the Company of written notice of the exercise, in such
form as the Committee may prescribe, accompanied, in the case of an Option, by
full payment of the Option Price for the Shares with respect to which the
Option is exercised as provided in Section 8.2 hereof.
8.2 Payment of the aggregate Option Price for the Shares with
respect to which an Option is being exercised shall be made in cash; provided,
however, that the Committee, in its sole discretion, may provide in an
Agreement that part or all of such payment may be made by the Optionee in one
or more of the following manners: (a) by delivery (including constructive
delivery) to the Company of Shares valued at Fair Market Value on Date of
Exercise; (b) by delivery on a form prescribed by the
5
<PAGE> 6
Committee of a properly executed exercise notice and irrevocable instructions
to a registered securities broker approved by the Committee to sell Shares and
promptly deliver cash to the Company; (c) by delivery of a promissory note as
provided in Section 8.3 hereof; or (d) by surrender to the Company of an Option
(or a portion thereof) that has become exercisable and the receipt from the
Company upon such surrender, without any payment to the Company (other than
required tax withholding amounts), of (x) that number of Shares (equal to the
highest whole number of Shares) having an aggregate Fair Market Value as of the
date of surrender equal to that number of Shares subject to the Option (or
portion thereof) being surrendered multiplied by an amount equal to the excess
of (i) the Fair Market Value on the date of surrender over (ii) the Option
Price, plus (y) an amount of cash equal to the Fair Market Value of any
fractional Share to which the Optionee would be entitled but for the
parenthetical in clause (x) above relating to whole number of Shares.
8.3 To the extent provided in an Agreement and permitted by
applicable law, the Committee may accept as payment of the Option Price a
promissory note executed by the Optionee evidencing his or her obligation to
make future cash payment thereof; provided, however, that in no event may the
Committee accept a promissory note for an amount in excess of the difference
between the aggregate Option Price and the par value of the Shares. Promissory
notes made pursuant to this Section 8.3 shall be payable upon such terms as may
be determined by the Committee, shall be secured by a pledge of the Shares
received upon exercise of the Option and shall bear interest at a rate fixed by
the Committee.
9. Restrictions on Transfer
Options and Rights shall not be transferable other than by will or
the laws of descent and distribution. An Option or Right may be exercised
during the Optionee's lifetime only by the Optionee or, in the event of his or
her legal disability, by his or her legal representative. The Shares acquired
pursuant to the Plan shall be subject to such restrictions and agreements
regarding sale, assignment, encumbrances, or other transfers or dispositions
thereof (i) as are in effect among the stockholders of the Company at the time
such Shares are acquired, (ii) as the Committee shall deem appropriate and
(iii) as are required by applicable law.
10. Capital Adjustments
In the event of any change in the outstanding Common Stock by
reason of any stock dividend, split-up (or reverse stock split),
recapitalization, reclassification, reorganization, reincorporation,
combination or exchange of shares, merger, consolidation, liquidation or
similar change in corporate structure, the Committee may, in its discretion,
provide for a substitution for or adjustment in (i) the number and class of
Shares subject to outstanding Options or Rights, (ii) the Option Price of
outstanding Options the base price upon which payments under Rights that are
not Related Rights are
6
<PAGE> 7
determined, and (iii) the aggregate number and class of Shares that may be
issued under the Plan.
11. Termination or Amendment
The Board may amend, alter, suspend or terminate the Plan in any
respect at any time; provided, however, that after the Plan has been approved
by the stockholders of the Company, no amendment, alteration, suspension or
termination of the Plan shall be made by the Board without approval of (i) the
Company's stockholders to the extent stockholder approval is required by
applicable law or regulations and (ii) each affected Optionee if such
amendment, alteration, suspension or termination would adversely affect his or
her rights or obligations under any Option granted prior to the date of such
amendment, alteration, suspension or termination. No Option may be granted nor
any Shares issued under the Plan during any suspension or after termination of
the Plan.
12. Modification, Extension and Renewal of Options; Substituted Options
12.1 Subject to the terms and conditions of the Plan, the
Committee may modify, extend or renew the terms of any outstanding Options and
Rights, or accept the surrender of outstanding Options and Rights granted under
the Plan or options and stock appreciation rights granted under any other plan
of the Company or an Affiliate (to the extent not theretofore exercised) and
authorize the granting of new Options and Rights in substitution therefor (to
the extent not theretofore exercised). Any such substituted Options or Rights
may specify a lower exercise price than the surrendered options and stock
appreciation rights, a longer term than the surrendered options and stock
appreciation rights, or have any other provisions that are authorized by the
Plan. Notwithstanding the foregoing, however, no modification of an Option or
Right shall, without the consent of the Optionee, alter or impair any of the
Optionee's rights or obligations under such Option.
12.2 Anything contained herein to the contrary notwithstanding,
Options and Rights may, at the discretion of the Committee, be granted under
the Plan in substitution for stock appreciation rights and options to purchase
shares of capital stock of another corporation which is merged into,
consolidated with, or all or a substantial portion of the property or stock of
which is acquired by, the Company or one of its Affiliates. The terms and
conditions of the substitute Options so granted may vary from the terms and
conditions set forth in this Plan to such extent as the Committee may deem
appropriate in order to conform, in whole or part, to the provisions of the
options and stock appreciation rights in substitution for which they are
granted.
7
<PAGE> 8
13. Effectiveness of the Plan
The Plan and any amendment thereto shall be effective on the date
on which it is adopted by the Board, provided that any such adoption requiring
stockholder approval is subject to approval by vote of the stockholders of the
Company within 12 months after such adoption by the Board. Options and Rights
may be granted prior to stockholder approval of the Plan, and the date on which
any such Option or Right is granted shall be the Date of Grant for all purposes
provided that (a) each such Option or Right shall be subject to stockholder
approval of the Plan, (b) no Option or Right may be exercised prior to such
stockholder approval, and (c) any such Option or Right shall be void ab initio
if such stockholder approval is not obtained.
14. Withholding
The Company's obligation to deliver Shares or pay any amount
pursuant to the terms of any Option or Right shall be subject to the
satisfaction of applicable federal, state and local tax withholding
requirements. To the extent provided in the applicable Agreement and in
accordance with rules prescribed by the Committee, an Optionee may satisfy any
such withholding tax obligation by any of the following means or by a
combination of such means: (i) tendering a cash payment, (ii) authorizing the
Company to withhold Shares otherwise issuable to the Optionee, or (iii)
delivering to the Company already owned and unencumbered Shares.
15. Term of the Plan
Unless sooner terminated by the Board pursuant to Article 11, the
Plan shall terminate on October 1, 2008, and no Options or Rights may be
granted after such date. The termination of the Plan shall not affect the
validity of any Option or Right outstanding on the date of termination.
16. Indemnification of Committee
In addition to such other rights of indemnification as they may
have as Directors or as members of the Committee, the members of the Committee
shall be indemnified by the Company against the reasonable expenses, including
attorneys' fees, actually and reasonably incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any Option or
Right granted hereunder, and against all amounts reasonably paid by them in
settlement thereof or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, if such members acted in good faith and in a manner
which they believed to be in, and not opposed to, the best interests of the
Company.
8
<PAGE> 9
17. General Provisions
17.1 The establishment of the Plan shall not confer upon any
Eligible Individual any legal or equitable right against the Company, any
Affiliate or the Committee, except as expressly provided in the Plan.
17.2 The Plan does not constitute inducement or consideration for
the employment or service of any Eligible Individual, nor is it a contract
between the Company or any Affiliate and any Eligible Individual.
Participation in the Plan shall not give an Eligible Individual any right to be
retained in the service of the Company or any Affiliate.
17.3 Neither the adoption of this Plan nor its submission to the
stockholders, shall be taken to impose any limitations on the powers of the
Company or its Affiliates to issue, grant, or assume options, warrants, rights,
or restricted stock, otherwise than under this Plan, or to adopt other stock
option or restricted stock plans or to impose any requirement of stockholder
approval upon the same.
17.4 The interests of any Eligible Individual under the Plan are
not subject to the claims of creditors and may not, in any way, be assigned,
alienated or encumbered except as provided in an Agreement.
17.5 The Plan shall be governed, construed and administered in
accordance with the laws of the State of Delaware.
17.6 The Committee may require each person acquiring Shares
pursuant to Options or Rights hereunder to represent to and agree with the
Company in writing that such person is acquiring the Shares without a view to
distribution thereof. The certificates for such Shares may include any legend
which the Committee deems appropriate to reflect any restrictions on transfer.
All certificates for Shares issued pursuant to the Plan shall be subject to
such stock transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations and other requirements of the Securities
and Exchange Commission, any stock exchange or interdealer quotation system
upon which the Common Stock is then listed or quoted, and any applicable
federal or state securities laws. The Committee may place a legend or legends
on any such certificates to make appropriate reference to such restrictions.
The certificates for Shares acquired pursuant to an Option may also include any
legend which the Committee deems appropriate to reflect restrictions contained
in this Plan or in the applicable Agreement or to comply with the Delaware
General Corporation Law.
17.7 The Company shall not be required to issue any certificate
or certificates for Shares upon the exercise of Options, or record any person
as a holder of record of such Shares, without obtaining, to the complete
satisfaction of the Committee, the approval of all regulatory bodies deemed
necessary by the Committee, and without complying to the Committee's complete
satisfaction, with all rules and regulations, under federal, state or local law
deemed applicable by the Committee.
*** ***
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF IMPSAT CORPORATION AND ITS CONSOLIDATED
SUBSIDIARIES AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 90,021
<SECURITIES> 0
<RECEIVABLES> 46,974
<ALLOWANCES> 10,109
<INVENTORY> 0
<CURRENT-ASSETS> 159,099
<PP&E> 330,726
<DEPRECIATION> 126,728
<TOTAL-ASSETS> 527,218
<CURRENT-LIABILITIES> 97,910
<BONDS> 379,292
135,018
0
<COMMON> 100,793
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 527,218
<SALES> 0
<TOTAL-REVENUES> 208,089
<CGS> 0
<TOTAL-COSTS> 181,219
<OTHER-EXPENSES> 675
<LOSS-PROVISION> 5,312
<INTEREST-EXPENSE> 44,698
<INCOME-PRETAX> (16,393)
<INCOME-TAX> 3,805
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,269)
<NET-INCOME> (34,513)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
