<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED March 31, 1999 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 REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
Delaware 52-1910372
Argentina Not Applicable
(STATE OR OTHER JURISDICTION INCORPORATION OR ORGANIZATION) (IRS EMPLOYER IDENTIFICATION NUMBER)
</TABLE>
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)
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 [ ]
----- ----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
INDICATE BY CHECK MARK WHETHER THE COMPANY HAS FILED ALL DOCUMENTS AND REPORTS
REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN CONFIRMED BY A
COURT. YES n/a NO n/a
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: As of March 31, 1999 the
Company had outstanding 100,792,640 shares of Common Stock, $1.00 par value, and
25,000 shares of Series A Convertible Preferred Stock, liquidation preference
$5,536 per share, outstanding.
<PAGE> 2
-------------------------
IMPSAT CORPORATION
IMPSAT S.A.
-------------------------
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I........................................................................3
FINANCIAL INFORMATION.........................................................3
ITEM 1. FINANCIAL STATEMENTS..............................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...............................4
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK..............................................................9
PART II.......................................................................9
OTHER INFORMATION.............................................................9
ITEM 1. LEGAL PROCEEDINGS.................................................9
ITEM 2. CHANGES IN SECURITIES.............................................9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...................................9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS...............9
ITEM 5. OTHER INFORMATION.................................................9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................10
SIGNATURES...................................................................11
</TABLE>
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IMPSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------
1998 1999
----------------------------------
ASSETS (UNAUDITED)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 90,021 $ 64,573
Trade accounts receivable, net 46,974 48,998
Other receivables 20,110 20,338
Prepaid expenses 1,994 1,719
---------- ----------
Total current assets 159,099 135,628
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, Net 330,726 335,901
---------- ----------
NON-CURRENT ASSETS:
Trade account receivables, net 5,143 5,143
Investment 10,708 10,764
Deferred financing costs, net 10,329 10,107
Deferred income taxes, net 1,284
Intangible assets, net 7,920 7,784
Other non-current assets 3,293 4,712
---------- ----------
Total non-current assets 37,393 39,794
---------- ----------
TOTAL $ 527,218 $ 511,323
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable - trade $ 32,416 $ 31,518
Short-term debt 19,262 21,730
Current portion of long-term debt 21,138 17,802
Accrued liabilities 12,628 15,351
Deferred income taxes, net 120
Other liabilities 12,346 13,747
---------- ----------
Total current liabilities 97,910 100,148
---------- ----------
LONG-TERM DEBT, Net 379,292 381,611
---------- ----------
OTHER LONG-TERM LIABILITIES 3,446 3,617
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 13)
MINORITY INTEREST 13,071 12,636
---------- ----------
REDEEMABLE PREFERRED STOCK, Convertible, Series A, 10%, cumulative dividend;
25,000 shares authorized, issued
and outstanding; liquidation preference $5,536 per share 135,018 138,393
---------- ----------
STOCKHOLDERS' DEFICIT:
Common stock, $1 par value; 155,000,000 shares authorized; 100,792,640 shares
issued and outstanding at December 31, 1998
and March 31, 1999, respectively 100,793 100,793
Accumulated deficit (71,391) (91,887)
Treasury stock, 25,198,160 shares, at cost (125,000) (125,000)
Amount paid in excess of carrying value of assets acquired from
related party (5,395) (5,253)
Accumulated other comprehensive loss (526) (3,735)
---------- ----------
Total stockholders' deficit (101,519) (125,082)
---------- ----------
TOTAL $ 527,218 $ 511,323
========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS OF U.S. DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1998 1999
---- ----
(UNAUDITED)
<S> <C> <C>
NET REVENUES FROM SERVICES $ 45,153 $ 53,560
-------- --------
COST AND EXPENSES:
Variable cost of services 7,719 10,916
Leased telecommunications links 6,115 8,813
Salaries, wages and benefits 7,771 10,815
Selling, general and administrative 8,516 10,476
Depreciation and amortization 8,061 10,915
-------- --------
Total cost and expenses 38,182 51,935
-------- --------
Operating income 6,971 1,625
-------- --------
OTHER INCOME (EXPENSES):
Interest expense, net (7,785) (14,360)
Net gain (loss) on foreign exchange 23 (6,212)
Other income (expense), net 332 (481)
-------- --------
Total other expenses (7,430) (21,053)
-------- --------
LOSS BEFORE INCOME TAXES, CUMULATIVE
EFFECT AND MINORITY INTEREST (459) (19,428)
(PROVISION FOR) BENEFIT FROM INCOME TAXES (1,635) 2,143
-------- --------
LOSS BEFORE CUMULATIVE EFFECT
AND MINORITY INTEREST (2,094) (17,285)
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE, NET OF TAX (1,269)
(INCOME) LOSS ATTRIBUTABLE TO MINORITY INTEREST (269) 164
-------- --------
NET LOSS BEFORE DIVIDENDS ON
REDEEMABLE PREFERRED STOCK (3,632) (17,121)
DIVIDENDS ON REDEEMABLE PREFERRED STOCK (3,375)
-------- --------
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS (3,632) (20,496)
OTHER COMPREHENSIVE LOSS, NET OF TAX:
FOREIGN CURRENCY TRANSLATION ADJUSTMENT (3,209)
-------- --------
COMPREHENSIVE LOSS $ (3,632) $ (23,705)
======== =========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
IMPSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS OF U.S. DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT PAID
IN EXCESS OF
CARRYING
VALUE
OF NET ASSETS
ACQUIRED
COMMON STOCK ACCUMULATED TREASURY FROM
SHARES STOCK DEFICIT(*) STOCK RELATED PARTY
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 75,594,480 $ 100,793 $ (71,391) $ (125,000) $ (5,395)
Dividends on redeemable preferred stock (3,375)
Amortization of amount paid in excess
of carrying value of net assets acquired
from related party 142
Foreign currency translation adjustment
Net loss for the period (17,121)
---------- --------- --------- ---------- --------
BALANCE AT MARCH 31, 1999 (unaudited) 75,594,480 $ 100,793 $ (91,887) $ (125,000) $ (5,253)
========== ========= ========= ========== ========
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE MINORITY
LOSS TOTAL INTEREST
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 $ (526) $ (101,519) $ 13,071
Dividends on redeemable preferred stock (3,375)
Amortization of amount paid in excess
of carrying value of net assets acquired
from related party 142
Foreign currency translation adjustment (3,209) (3,209) (271)
Net loss for the period (17,121) (164)
-------- ---------- --------
BALANCE AT MARCH 31, 1999 (unaudited) $ (3,735) $ (125,082) $ 12,636
======== ========== ========
</TABLE>
(*) Includes an appropriation of retained earnings in IMPSAT Argentina amounting
to $1,622 to comply with legal reserve requirements in Argentina.
See notes to consolidated financial statements.
<PAGE> 6
IMPSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------------
1998 1999
---------------------------------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,632) $ (17,121)
Adjustments to reconcile net loss to net cash used in
operating activities, net of acquisition:
Cumulative effect of a change in accounting principle 1,269
Amortization and depreciation 8,061 10,915
Deferred income tax benefit (346) (1,404)
Change in minority interest (85) (435)
Changes in assets and liabilities:
Increase in trade accounts receivable, net (8,010) (2,024)
(Increase) decrease in prepaid expenses (1,598) 275
Increase in other receivables and other
non-current assets (6,883) (1,425)
Increase in accounts payable - trade 5,905 388
Increase in accrued and other liabilities 2,797 4,124
Increase in other long-term liabilities 277 171
-------- ---------
Net cash used in operating activities (2,245) (6,536)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (16,023) (17,098)
Increase in investment (56)
-------- ---------
Net cash used by investing activities (16,023) (17,154)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from short-term debt 17,906 2,468
Proceeds from long-term debt 3,753
Repayments of long-term debt (2,919) (1,017)
Acquisition of treasury stock (125,000)
Proceeds from issuance of redeemable preferred stock 125,000
-------- ---------
Net cash provided by financing activities 18,740 1,451
-------- ---------
EFFECT OF EXCHANGE RATE CHANGE
ON CASH AND CASH EQUIVALENTS (3,209)
---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 472 (25,448)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 10,439 90,021
-------- ---------
CASH AND CASH EQUIVALENTS AT END
OF THE PERIOD $ 10,911 $ 64,573
======== ========
</TABLE>
<PAGE> 7
IMPSAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------------------
1998 1999
------------------------------------------
(UNAUDITED)
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 4,626 $ 12,262
======= ========
Foreign income taxes paid $ 611
========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
(Increase) decrease in Equipment in transit $ (974) $ 1,286
====== ========
Accrued dividends on redeemable preferred stock $ 3,375
========
(Concluded)
</TABLE>
See notes to consolidated financial statements.
<PAGE> 8
IMPSAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF U.S. DOLLARS)
- --------------------------------------------------------------------------------
1. GENERAL
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 links 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 March 31, 1999 are as follows:
<TABLE>
<CAPTION>
OWNERSHIP
COUNTRY OPERATING SUBSIDIARIES PERCENTAGE
<S> <C> <C>
Argentina Impsat S.A. 95.2 %
Argentina Red Alternativa 67.0
Brazil Impsat Comunicacoes Ltda. 99.9
Brazil Mandic BBS Planejamento e Informatica S.A. 75.1
Colombia Impsat S.A. 74.2
Ecuador Impsatel del Ecuador S.A. 100.0
Mexico Impsat S.A. de C.V. 99.9
USA Impsat USA, Inc. 100.0
Venezuela Telecomunicaciones Impsat S.A. 75.0
</TABLE>
In addition, the Company owns International Satellite Capacity Holdings,
NG (Liechtenstein) which serves an intermediary function to the Company
and its operating subsidiaries.
<PAGE> 9
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. 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. All significant intercompany transactions and balances have
been eliminated.
INTERIM FINANCIAL INFORMATION - The unaudited consolidated statements as of
March 31, 1999 and for the three months ended March 31, 1999 and 1998 have
been prepared on the same basis as the audited consolidated financial
statements. In the opinion of management, such unaudited consolidated
financial statements include all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the results for such
period. The operating results for the three-month periods ended March 31,
1999 and 1998 are not necessarily indicative of the operating results to be
expected for the full fiscal year or for any future period.
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.
<PAGE> 10
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 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 three months ended March 31, 1999 and 1998.
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
March 31, 1999 and December 31, 1998) by the Company in unaffiliated
entities 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 goodwill. 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 during
the three months ended March 31, 1999 and 1998.
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 IMPSAT Brazil and Mandic S.A. which use the
local currency as functional currency that are included in stockholders'
equity or in net loss on foreign exchange, respectively.
DEVALUATION - The Brazilian Central Bank introduced changes in the exchange
policies by the end of the second week of January 1999. These changes
eliminated the exchange 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 experienced a significant decline in value in relation to the
United States dollar, if compared with the prevailing exchange rates of
December 31,
<PAGE> 11
1998. As a result of this devaluation, the Company has recorded
approximately $6,200 in foreign exchange losses during the three-month
period ended March 31, 1991, which are reflected in net gain (loss) on
foreign exchange in the accompanying financial statements. The Company
continues to operate in Brazil and therefore has exposure to further
currency exchange risk.
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.
4. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable, by operating subsidiaries, are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
---------------------------------
(UNAUDITED)
<S> <C> <C>
IMPSAT Argentina $ 36,378 $ 37,724
IMPSAT Colombia 8,480 9,278
IMPSAT Venezuela 4,293 4,750
IMPSAT Ecuador 1,559 1,892
IMPSAT USA 2,836 3,525
IMPSAT Brasil and Mandic S.A. 2,963 1,509
Others 574 676
-------- --------
Total 57,083 59,354
Less: allowance for doubtful accounts (10,109) (10,356)
-------- --------
Trade accounts receivable, net $ 46,974 $ 48,998
======== ========
</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 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
----------------------------------------
(UNAUDITED)
<S> <C> <C>
Beginning balance $ 5,933 $ 10,109
Provision for doubtful accounts 5,312 823
Write-offs, net of recoveries (1,136) (576)
-------- --------
Ending balance $ 10,109 $ 10,356
======== ========
</TABLE>
<PAGE> 12
As part of the allowance for doubtful accounts described in the preceding
tables, at March 31, 1999, 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 Banco de la Nacion Argentina ("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.
<PAGE> 13
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:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
-----------------------------------
(UNAUDITED)
<S> <C> <C>
IMPSAT Argentina $ 6,439 $ 4,542
IMPSAT Colombia 5,064 6,777
IMPSAT Venezuela 2,527 1,551
IMPSAT Ecuador 835 520
IMPSAT Mexico 1,078 1,816
IMPSAT Brazil and Mandic S.A. 1,124 3,025
Others 3,043 2,107
-------- --------
Total $ 20,110 $ 20,338
======== ========
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
----------------------------------
(UNAUDITED)
<S> <C> <C>
Land $ 1,750 $ 2,686
Building and improvements 29,760 29,822
Operating communications equipment 398,577 413,092
Furniture, fixtures and other equipment 20,271 19,161
--------- ----------
Total 450,358 464,761
Less: accumulated depreciation (126,728) (136,514)
--------- ----------
Total 323,630 328,247
Equipment in transit 4,289 3,003
Projects in process 2,807 4,651
--------- ----------
Property, plant and equipment, net $ 330,726 $ 335,901
========= =========
</TABLE>
The recap of accumulated depreciation is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
--------------------------------------
(UNAUDITED)
<S> <C> <C>
Beginning balance $ 92,255 $ 126,728
Depreciation expense 36,027 10,637
Disposals and retirements (1,554) (851)
--------- ---------
Ending balance $ 126,728 $ 136,514
========= =========
</TABLE>
<PAGE> 14
7. SHORT-TERM DEBT
The Company's short-term debt is detailed as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
-----------------------------------
(UNAUDITED)
<S> <C> <C>
Short-term credit facilities, denominated in U.S. dollars;
interest rates ranging from 5.72% to 15%;
IMPSAT Argentina $ 11,000 11,038
IMPSAT Colombia 5,859 9,521
IMPSAT Ecuador 1,042
Others 203 129
Short-term credit facilities, denominated in local currencies; local interest
rates ranging from 12.75% to 18.0%;
IMPSAT Argentina 2,000
IMPSAT Ecuador 200
-------- --------
Total short-term debt $ 19,262 $ 21,730
======== ========
</TABLE>
The Company has historically refinanced its short-term credit facilities
on an annual basis.
<PAGE> 15
8. LONG-TERM DEBT
The Company's long-term debt is detailed as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
-------------------------------------
(UNAUDITED)
<S> <C> <C>
12.125% Senior Guaranteed Notes due 2003 $ 125,000 $ 125,000
12.375% Senior Notes due 2008 225,000 225,000
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 8.13% - 14.50%) 32,204 24,064
Local currency (interest rates 23.94% - 46%) 6,156 14,609
IMPSAT Argentina (6.25% - 6.75%), maturing semiannually
through 2003, collateralized by investment 4,802 4,160
IMPSAT USA (8.25% - 8.75%), mortgage and other
collateralized debts 2,066 1,980
IMPSAT Venezuela (9.00% - 10.75%), maturing during 2001 3,508 2,679
Eximbank notes payable (7.00%), maturing semiannually
through 1999 1,694 1,694
Eximbank notes payable (7.00%), maturing semiannually
through 2003 and 2004 227
--------- ---------
Total long-term debt 400,430 399,413
Less: current portion (21,138) (17,802)
--------- ---------
Long-term debt, net $ 379,292 $ 381,611
========= =========
</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.
9. INCOME TAXES
The components of the provision for (benefit from) income taxes, all of
which are for foreign taxes consist of the following for the three months
ended March 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Current income taxes $ 1,981 $ 462
Deferred income taxes (346) (1,404)
Effect of foreign currency translation (1,201)
-------- ---------
Provision for (benefit from) income taxes $ 1,635 $ (2,143)
-------- ----------
</TABLE>
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 at December 31, 1998, which begin to expire in the year 2010.
Deferred taxes result
<PAGE> 16
from temporary differences in the capitalization policies of preoperating
costs and net operating loss carryforwards.
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 was 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 of issuance into 25% of the
common stock of the Company and as of March 31, 1999 was convertible into
approximately 27% 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 three months ended March 31, 1999 related to this plan.
<PAGE> 17
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 $56 during the three months ended
March 31, 1999.
12. OPERATING SEGMENT INFORMATION
The Company's operating segment information, by subsidiary (eliminating
intercompany transactions), is as follows:
<TABLE>
<CAPTION>
IMPSAT IMPSAT IMPSAT IMPSAT IMPSAT
MARCH 31, 1999 (UNAUDITED) ARGENTINA COLOMBIA VENEZUELA MEXICO ECUADOR
<S> <C> <C> <C> <C> <C>
Total Assets $ 233,205 $ 108,615 $ 38,213 $ 8,932 $ 23,507
========= ========= ======== ======== ========
Net Revenues
From Services:
Satelitte Based:
VSAT Technology $ 11,196 $ 3,037 $ 1,359 $ 68 $ 379
SCPC Technology 6,406 6,122 2,728 580 1,608
Terrestrial Based 3,639 3,373 322 41 237
Value Added 3,902 1,961 547 43 780
--------- --------- -------- -------- --------
Total $ 25,143 $ 14,493 $ 4,956 $ 732 $ 3,004
========= ========= ======== ======== ========
Operating income (loss) $ 2,774 $ 3,264 $ 240 $ (1,019) $ 661
========= ========= ======== ======== ========
1998
Total Assets (December 31,) $ 234,844 $ 105,187 $ 36,269 $ 8,640 $ 21,262
========= ========= ======== ======== ========
Net Revenues
From Services:
Satelitte Based:
VSAT Technology $ 8,966 $ 3,525 $ 1,105 $ 32 $ 376
SCPC Technology 6,804 4,884 1,316 666 994
Terrestrial Based 2,755 3,689 138 12 103
Value Added 5,410 1,729 433 27 373
--------- --------- -------- -------- --------
Total March 31, (Unaudited) $ 23,935 $ 13,827 $ 2,992 $ 737 $ 1,846
========= ========= ======== ======== ========
Operating income (loss)
March 31, (Unaudited) $ 3,446 $ 4,495 $ (84) $ (576) $ 194
========= ========= ======== ======== ========
<CAPTION>
PARENT
COMPANY
IMPSAT IMPSAT AND CONSOLIDATED
MARCH 31, 1999 (UNAUDITED) USA BRAZIL OTHERS TOTAL
<S> <C> <C> <C> <C>
Total Assets $ 15,524 $ 24,144 $ 59,183 $ 511,323
======== ======== ======== =========
Net Revenues
From Services:
Satelitte Based:
VSAT Technology $ 208 $ 16,247
SCPC Technology $ 1,696 388 19,528
Terrestrial Based 20 7,632
Value Added 602 292 $ 2,026 10,153
-------- -------- -------- ---------
Total $ 2,298 $ 908 $ 2,026 $ 53,560
======== ======== ======== =========
Operating income (loss) $ (50) $ (2,312) $ (1,933) $ 1,625
======== ======== ======== =========
1998
Total Assets (December 31,) $ 15,095 $ 27,348 $ 78,573 $ 527,218
======== ======== ======== =========
Net Revenues
From Services:
Satelitte Based:
VSAT Technology $ 14,004
SCPC Technology $ 1,621 16,285
Terrestrial Based 6,697
Value Added 195 8,167
-------- ---------
Total March 31, (Unaudited) $ 1,816 $ 45,153
======== =========
Operating income (loss)
March 31, (Unaudited) $ 211 $ (715) $ 6,971
======== ======== =========
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
The Company leases leased telecommunications link with average annual
rental commitments of approximately $25,000 through the year 2003. In
addition, the Company has commitments to purchase communications equipment
amounting to approximately $14,904.
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
March 31, 1999, the balance outstanding on the credit facility amounted to
approximately $2,700.
<PAGE> 18
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 former Argentine national postal service. 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. The Company will continue to assess the effect that the ENCOTESA
receivables situation will have on its results of operations, liquidity or
capital resources.
14. SHARE PURCHASE AGREEMENT
On March 11, 1999, a Share Purchase Agreement was entered into among the
Company, Nevasa and Nunsgate Limited, a wholly owned subsidiary of 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 were consummated on
April 19, 1999.
* * * * * *
<PAGE> 19
IMPSAT S.A.
BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
---------------------------------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 13,849 $ 9,258
Trade accounts receivable, net 28,068 29,604
Receivable from affiliated companies 2,092 2,301
Other receivables 6,439 4,673
Prepaid expenses 362 320
-------- ---------
Total current assets 50,810 46,156
-------- ---------
PROPERTY, PLANT AND EQUIPMENT, Net 167,653 168,882
-------- ---------
NON-CURRENT ASSETS:
Trade account receivables, net 5,143 5,143
Investment 10,708 10,764
Other non-current assets 530 2,260
-------- ---------
Total non-current assets 16,381 18,167
-------- ---------
TOTAL $234,844 $ 233,205
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 18,242 $ 18,794
Short-term debt 13,000 11,038
Advances from affiliated companies 62,721 62,739
Current portion of long-term debt 64,694 64,317
Accrued liabilities 655 686
Deferred income taxes, net 4,301 4,341
Other liabilities 4,402 4,455
-------- ---------
Total current liabilities 168,015 166,370
-------- ---------
LONG-TERM DEBT, Net 1,802 1,764
-------- ---------
OTHER LONG-TERM LIABILITIES 1,485 1,686
-------- ---------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY:
Common stock, 5,148 shares authorized
5,123 issued and outstanding 3 3
Paid in capital 26,442 26,442
Retained earnings 37,097 36,940
-------- ---------
Total stockholders' equity 63,542 63,385
-------- ---------
TOTAL $ 234,844 $ 233,205
========= =========
</TABLE>
See notes to financial statements.
<PAGE> 20
IMPSAT S.A.
STATEMENTS OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1998 1999
---- ----
(UNAUDITED)
<S> <C> <C>
NET REVENUES FROM SERVICES $ 24,080 $ 26,497
-------- --------
COST AND EXPENSES:
Variable cost of services 4,567 5,721
Leased telecommunications links 2,831 3,852
Salaries, wages and benefits 3,892 4,386
Selling, general and administrative 4,545 4,018
Depreciation and amortization 4,799 5,746
-------- --------
Total cost and expenses 20,634 23,723
-------- --------
Operating income 3,446 2,774
-------- --------
OTHER INCOME (EXPENSES):
Interest expense, net (3,096) (2,897)
Other income (expense), net (5) 6
-------- --------
Total other expense (3,101) (2,891)
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES 345 (117)
PROVISION FOR INCOME TAXES (1,050) (40)
-------- --------
NET LOSS $ (705) $ (157)
======== ========
</TABLE>
See notes to financial statements.
<PAGE> 21
IMPSAT S.A.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF U.S. DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS (*) TOTAL
<S> <S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 $ 3 $ 26,442 $ 37,097 $ 63,542
Net loss (157) (157)
-------- -------- -------- --------
BALANCE AT MARCH 31, 1999 $ 3 $ 26,442 $ 36,940 $ 63,385
======== ======== ======== ========
</TABLE>
(*) Includes an appropriation of retained earnings amounting to $1,622 to
comply with legal reserve requirements in Argentina.
See notes to financial statements.
<PAGE> 22
IMPSAT S.A.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1998 1999
-------------------------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (705) $ (157)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization and depreciation 4,799 5,746
Deferred income tax provision 1,050 40
Changes in assets and liabilities:
Increase in trade accounts receivable, net (2,817) (1,536)
(Increase) decrease in prepaid expenses (533) 42
Increase in other receivables and other
non-current assets (12,319) (173)
Increase (decrease) in accounts payable - trade 1,985 (6,389)
(Decrease) increase in accrued and other liabilities (490) 84
Increase in other long-term liabilities 187 499
--------- ----------
Net cash used in operating activities (8,843) (1,844)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,179) (332)
Increase in investment (4,971) (56)
Net cash used in investing activities (7,150) (388)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from (payments on) short-term debt 15,218 (1,962)
Changes in advances from \ to affiliates (1,459) 18
Proceeds from long-term debt 228
Repayments of long-term debt (352) (643)
Irrevocable capital contribution 3,500 -
--------- ----------
Net cash provided by (used in) financing activities 16,907 (2,359)
--------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 914 (4,591)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 6,169 13,849
--------- ----------
CASH AND CASH EQUIVALENTS AT END
OF THE PERIOD $ 7,083 $ 9,258
--------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 4,370 $ 4,270
--------- ----------
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Equipment in transit $ 974 $ 179
========= ==========
</TABLE>
<PAGE> 23
IMPSAT S.A.
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS OF U. S. DOLLARS)
- ---------------------------------------------------------------
1. 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 composed 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., a wholly-owned
subsidiary of the Parent Company, 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 on January 1, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information - The unaudited statements as of March 31, 1999
and for the three months ended March 31, 1999 and 1998 have been prepared on the
same basis as the audited financial statements. In the opinion of management,
such unaudited financial statements include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the results for such
period. The operating results for the three months ended March 31, 1999 and 1998
are not necessarily indicative of the operating results to be expected for the
full fiscal year or for any future period.
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. No single customer accounted for greater than 10% of
total revenue from services for the three months ended March 31, 1999 and 1998.
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:
<PAGE> 24
<TABLE>
<CAPTION>
<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 interest by the
IMPSAT S.A. in entities established for the purchase and leasing of leased
telecommunications link 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 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.
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 1998 financial statements have been
reclassified to conform with the 1999 presentation.
3. TRADE ACCOUNTS RECEIVABLE
The detail of trade accounts receivable is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
-----------------------------------------------
(UNAUDITED)
<S> <C> <C>
Trade accounts receivable $ 36,378 $ 37,725
Less: allowance for doubtful accounts (8,310) (8,121)
-------- --------
Trade accounts receivable, net $ 28,068 $ 29,604
======== ========
</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.
As part of the allowance for doubtful accounts described in the preceding
tables, at March 31, 1999, IMPSAT S.A. had reserved approximately 51.8% (or $1.2
million) of the total amount due to it 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 S.A. and IBM relating to Banco de la Nacion Argentina ("BNA").
BNA, a state owned bank and the largest bank in Argentina, is and has been one
of IMPSAT S.A.'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.
<PAGE> 25
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 S.A.
conducted negotiations with IBM that resulted in the execution of an agreement
between IMPSAT S.A. and IBM contemplating the possible cancellation of the
amounts due to IMPSAT S.A. in respect of the IBM receivable in exchange for a
payment to IMPSAT S.A. of 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 S.A. 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 S.A.'s agreement with IBM (April 30, 1998), and
IBM therefore declined to make the contemplated payment. On December 14, 1998,
IMPSAT S.A. filed suit against IBM for amounts due and arising under the IBM
Receivable totaling $2.2 million, plus interest on such amounts.
<PAGE> 26
The activity for the allowance for doubtful account is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
----------------------------------------
(UNAUDITED)
<S> <C> <C>
Beginning balance $ 5,497 $ 8,310
Provision for doubtful accounts 3,453 303
Write-offs, net of recoveries (640) (492)
------- -------
Ending balance $ 8,310 $ 8,121
======== =======
</TABLE>
4. 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.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at consists of:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
---------------------------------------
(UNAUDITED)
<S> <C> <C>
Building, installations and improvements $ 16,671 $ 16,795
Operating communications equipment 226,480 231,855
Furniture, fixtures and other equipment 8,399 8,792
--------- ---------
Total 251,550 257,442
Less: accumulated depreciation (87,641) (93,137)
--------- ---------
Total 163,909 164,305
Equipment in transit 1,825 2,004
Projects in process 1,919 2,573
--------- ---------
Property, plant and equipment, net $ 167,653 $ 168,882
========= =========
</TABLE>
The recap of accumulated depreciation is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
-------------------------------------
(UNAUDITED)
<S> <C> <C>
Beginning balance $ 68,654 $ 87,641
Depreciation expense 20,515 5,746
Disposals and retirements (1,528) (250)
-------- --------
Ending balance $ 87,641 $ 93,137
======== ========
</TABLE>
<PAGE> 27
6. SHORT-TERM DEBT
IMPSAT S.A.'s short-term debt is detailed as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
---------------------------------------
(UNAUDITED)
<S> <C> <C>
Short-term credit facilities, denominated in
U.S. dollars, interest rates ranging from 9,5% to 14.5% $ 11,000 $ 11,038
Pesos, interest rate 12.75% 2,000 -
-------- --------
Total short-term debt $ 13,000 $ 11,038
========= ========
</TABLE>
IMPSAT S.A. has historically refinanced its short-term credit facilities on an
annual basis.
7. LONG-TERM DEBT
IMPSAT S.A.'s long-term debt is detailed as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
----------------------------------------
(UNAUDITED)
<S> <C> <C>
Term notes payable (6.63% - 12.63%) maturing
semiannually though 1999, collateralized by certain assets $ 64,802 64,160
Eximbank notes payable (7.00%), maturing
semiannually through 1999 1,694 1,694
Eximbank notes payable (7.00%), maturing
semiannually through 2003 and 2004 - 227
--------- --------
Total long-term debt 66,496 66,081
Less: current portion (64,694) (64,317)
--------- --------
Long-term debt, net $ 1,802 $ 1,764
========= ========
</TABLE>
8. INCOME TAXES
The provision for income taxes for the three months ended March 31, 1999 and
1998 consists of $40 and $1,050 in deferred taxes. The statutory tax rate in
Argentina is 35%.
9. COMMITMENTS AND CONTINGENCIES
IMPSAT S.A. leases leased telecommunications link with annual rental
commitments of approximately $18,000 through the year 2001. In addition,
IMPSAT S.A. has commitments to purchase communications equipment amounting to
approximately $4,874 million at March 31, 1999.
IMPSAT S.A. is guarantor on the $125,000 12 1/8% Senior Guaranteed Notes Due
2003 issued on July 30, 1996 by the Parent Company.
<PAGE> 28
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 July
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 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 former Argentine national postal service. 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 IMPSAT S.A.'s
management based on the advice of local legal counsel. 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.
<PAGE> 29
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents the Company's results of operations as a
percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1999
------------ -------------
(IN THOUSANDS AND AS A
PERCENTAGE OF CONSOLIDATED
REVENUES)
<S> <C> <C> <C> <C>
Net revenues from services...................... $45,153 100.0% $53,560 100.0%
Variable costs of services...................... 7,719 17.1 10,916 20.4
Leased telecommunications links................. 6,115 13.5 8,813 16.5
Salaries, wages and benefits.................... 7,771 17.2 10,815 20.2
Selling, general and administrative expenses.... 8,516 18.9 10,476 19.6
Depreciation and amortization................... 8,061 17.8 10,915 20.4
Interest expense, net........................... 7,785 17.2 14,360 26.8
Net gain (loss) on foreign exchange............. 23 0.1 (6,212) (11.6)
(Provision for) benefit from foreign income
taxes......................................... (1,635) (3.6) 2,143 4.0
Comprehensive loss.............................. (3,632) (8.0) (23,705) (44.3)
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Revenues. Revenues of the Company for the first quarter of 1999 totaled
$53.6 million, an increase of $8.4 million, or 18.6 %, from revenues for the
first quarter of 1998. Economic difficulties in many of the countries in which
the Company operates and competitive pressures in the Company's more mature
markets in Argentina and Colombia contributed to the Company's experiencing a
lower rate of revenue growth during the first quarter of 1999 than in prior
periods. The Company anticipates that such conditions could remain in effect
during subsequent quarters.
Revenues at IMPSAT Argentina for the first quarter of 1999 totaled $26.5
million (an increase of $2.4 million, or 10.0%, from the first quarter of
1998). Revenues at IMPSAT Colombia totaled $14.5 million in the first quarter of
1999, an increase of $0.7 million, or 4.8%, from the first quarter of 1998. The
adverse economic conditions experienced in Argentina and Colombia during the
first quarter of 1999 resulted in certain customers of the Company ordering
reductions in the services provided by the Company.
Revenues at IMPSAT Venezuela totaled $5.0 million for the first quarter of
1999, representing an increase of $2.0 million from the first quarter of 1998.
Revenues at IMPSAT Ecuador totaled $3.0 million for the first quarter of 1999
(an increase of $1.2 million from the first quarter of 1998). Management
anticipates that the growth in revenues at IMPSAT Ecuador could decline during
the remainder of 1999 due to the effects of the economic crisis experienced in
that country during the first quarter of this year. IMPSAT USA recorded revenues
of $2.3 million and $1.8 million during the three months ended March 31, 1999
and 1998, respectively, and IMPSAT Mexico maintained revenues of $0.7 million
for each of the same periods.
The Company's net revenues for the first quarter of 1999 also include
revenues of $2.0 million recorded by Mandic S.A. and $0.9 million recorded by
IMPSAT Brazil. Revenues for the first quarter of 1999 recorded by IMPSAT Brazil
and Mandic S.A., each of which was acquired by the Company in the second quarter
of 1998, were negatively impacted by the currency devaluation of the Brazilian
real against the U.S. dollar during that period. Growth in Mandic S.A.'s
Internet services during the first
<PAGE> 30
quarter of 1999 (an increase of 3,740 retail dial-up access Internet customers
compared to the number of customers at December 31, 1998) was offset by price
erosion in local currency caused by the economic problems experienced in Brazil
during the period.
Revenue growth of the Company for the first quarter of 1999 is
attributable to an overall increase in the number of customers and services
provided. Revenues from VSAT-based services (principally VSAT, Minidat, Difusat
and Telecampus) during the first quarter of 1999 totaled $16.2 million, an
increase of $2.2 million (or 16.0%) compared to the corresponding period in
1998. Revenues from Minidat services for the first quarter of 1999 totaled $1.2
million, compared to revenues of $60,000 for the first quarter of 1998. At March
31, 1999, the Company had installed 854 Minidat microstations compared to
installations of 347 Minidat microstations at March 31, 1998. As a percentage of
the Company's total net revenues, revenues from VSAT-based services declined to
30.3% for the first quarter of 1999 from 31.0% for the corresponding period in
1998.
Revenues from the Company's SCPC service offerings (principally, Dataplus,
Interplus and Regional Teleports) for the first quarter of 1999 totaled $19.5
million, an increase of $3.2 million (or 19.9%) from the first quarter of 1998.
Many of the Company's customers have supplemented or replaced their VSAT
services with SCPC services over time as they have increased the amount of
bandwidth required for the private telecommunications network services
contracted with the Company, and the Company expects this trend to continue. 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.
Excluding Internet and Global Fax customers, the Company had a total of
1,534 customers at March 31, 1999, compared to 1,252 customers at March 31,
1998. At March 31, 1999, the Company had in excess of 87,000 retail dial-up
access Internet customers and 293 corporate dedicated access Internet customers,
compared to more than 25,000 retail Internet customers and 151 corporate
Internet customers at March 31, 1998. Mandic S.A.'s net revenues from Internet
services for the first quarter of 1999 totaled $2.0 million. IMPSAT Argentina's
net revenues from Internet services for the first quarter 1999 totaled $1.9
million, an increase of $0.6 million (or 44.4%) compared to the first quarter of
1998.
Variable Cost of Services. The Company's variable cost of services for the
first quarter of 1999 totaled $10.9 million, an increase of $3.2 million, or
41.4%, from the Company's variable cost of services for the first quarter of
1998. Of total variable cost of services for the first quarter of 1999, $5.7
million related to the operations of IMPSAT Argentina and $2.3 million related
to the operations of IMPSAT Colombia, compared to variable cost of services of
$4.5 million and $1.5 million at IMPSAT Argentina and IMPSAT Colombia,
respectively, for the first quarter of 1998. Variable costs of services for
Mandic S.A. and IMPSAT Brazil for the first quarter of 1999 totaled $0.4 million
and $0.3 million, respectively.
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's telecommunications network
infrastructure totaled $2.9 million for the first quarter of 1999, compared to
$2.4 million for the corresponding period in 1998.
Installation costs totaled $2.3 million for the first quarter of 1999 and
$1.5 million for the first quarter of 1998. Installation costs at IMPSAT
Argentina totaled $1.5 million for the first quarter of 1999 as compared to $0.8
million for the first quarter of 1998. The increase in such costs is related in
part to a higher number of de-installations of VSATs due to customer
cancellations and customer upgrades to SCPC technology. The Company contracts
equipment installation services from outside providers.
<PAGE> 31
Sales commissions paid to third-party sales representatives totaled $1.6
million for the first quarter of 1999, compared to $1.3 million for the first
quarter of 1998. The overwhelming amount of such sales commissions paid to
third-party sales representatives related to customers of IMPSAT Argentina.
Sales commissions paid to third-party sales representatives in Argentina totaled
$1.3 million and $1.1 million in the first quarters of 1999 and 1998,
respectively.
In addition, fees paid in connection with the Company's licenses to the
respective governmental entities in the countries in which the Company operates
increased to $1.0 million for the first quarter of 1999 from $0.4 million for
the first quarter of 1998. This increase is principally related to the adoption
of new telecommunications regulations in Colombia which broadened the base of
IMPSAT Colombia's revenues upon which the applicable royalties are levied.
Leased Telecommunications Link Cost. Leased telecommunications links costs
comprise payments for satellite lease capacity and rights to use dedicated fiber
optic capacity owned by third parties. The Company's leased telecommunication
links payments for the first quarter of 1999 totaled $8.8 million, an increase
of $2.7 million, or 44.1%, over such payments for the corresponding period in
1998. The Company had approximately 877.0 MHz and 461.9 MHz of leased satellite
capacity at March 31, 1999 and 1998, respectively. The expansion of the
Company's satellite capacity during the first quarter of 1999 compared to the
first quarter of 1998 is attributable primarily to contractually scheduled
increases in satellite capacity to match anticipated growth in the total number
of SCPC 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 paid by the
Company for the first quarter of 1999 totaled $10.8 million, an increase of $3.0
million, or 39.2%, over the Company's expenses for salaries, wages and benefits
during the first quarter of 1998. Salaries, wages and benefits paid by IMPSAT
Argentina for the first quarter of 1999 totaled $4.4 million, an increase of
$0.5 million or 12.7% over salaries, wages and benefits paid by IMPSAT Argentina
during the first quarter of 1998. The increase in salaries, wages and benefits
resulted primarily from an increase in the number of employees of the Company,
which went from 724 employees at March 31, 1998 to a total of 1,051 employees at
March 31, 1999. In addition, the Company increased salaries, wages and benefits
of its personnel to match market rates and increases in cost of living.
Salaries, wages and benefits paid by the Company with respect to IMPSAT
Brazil and Mandic S.A. for the first quarter of 1999 totaled $1.0 million and
$0.5 million, respectively. Of the Company's total employees at March 31, 1999,
28 individuals were assigned to the Company's project to construct a broadband
network throughout the principal countries in Latin America (the "Project"), the
plans for which were announced in September 1998. Salaries, wages and benefits
for the first quarter of 1999 relating to the Project totaled $132,000.
Selling, General and Administrative Expenses. Selling, General and
Administrative ("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 $10.5 million for the
first quarter of 1999, an increase of $2.0 million, or 23.0%, from SG&A
expenses incurred by the Company during the first quarter of 1998. The increase
relates in part to SG&A expenses incurred by the two newest subsidiaries of the
Company, IMPSAT Brazil and Mandic S.A. SG&A expenses at IMPSAT Argentina for
the first quarter of 1999 totaled $4.0 million, a decrease of $0.5 million from
SG&A expenses incurred by IMPSAT Argentina for the first quarter of 1998. SG&A
expenses incurred by IMPSAT Brazil and Mandic S.A. for the first quarter of
1999 totaled $1.4 million and $0.5 million, respectively.
<PAGE> 32
The Company recorded a provision for doubtful accounts in the first
quarter of 1999 of $0.8 million, compared to $1.2 million for the same period in
1998. The Company reviews the status of accounts receivable from its customers
and makes adjustments to its reserve for uncollectible receivables as it deems
appropriate. At March 31, 1999, excluding amounts owed by two large former
customers that are the subject of certain litigation actions described in
Footnotes 4 and 13 to the Company's Consolidated Financial Statements included
at Item 1 hereto, approximately 13% of the Company's gross current trade
accounts receivable were past due more than six months but less than one year
and approximately 14% of gross accounts receivable were past due more than one
year.
The increase in the Company's SG&A expenses for first quarter of 1999 also
reflects: (i) increased advertising and promotion costs during the period ($1.4
million, representing an increase of $0.3 million, or 29.0%, compared to the
corresponding period in 1998); and (ii) maintenance expenses during the period
($1.2 million, compared to $0.6 million for the first quarter of 1999); and
(iii) expenses related to third party services of $0.6 million (compared to $0.2
million for the corresponding period in 1998).
Depreciation and Amortization. The Company's depreciation and amortization
for the first quarter of 1999 totaled $10.9 million, an increase of $2.9
million, or 35.4%, compared to the first quarter of 1998. Depreciation and
amortization for IMPSAT Argentina totaled $5.7 million and $4.8 million for the
first quarters of 1999 and 1998, respectively.
Interest Expense, Net. The Company's net interest expense for the first
quarter of 1999 totaled $14.4 million, comprising interest expense of $15.4
million and interest income of $1.0 million. Net interest expense for the first
quarter of 1999 increased $6.6 million from net interest expense for the first
quarter of 1998. IMPSAT Argentina's net interest expense for the first quarter
of 1999 totaled $2.9 million ($1.3 million after eliminating intercompany
items), compared to net interest expense of $3.1 million ($1.3 million after
eliminating intercompany items) for the first quarter of 1998. Net interest
expense at IMPSAT Colombia for the first quarter of 1999 totaled $2.8 million
($2.4 million after eliminating intercompany items), as compared to $1.6 million
($1.2 million after eliminating intercompany items) for the first quarter of
1998. Interest expense with respect to intercompany loans are eliminated in the
Company's Consolidated Statement of Operations.
The increase in net interest expense reflects increased indebtedness of
the Company, which grew from $238.8 million as of March 31, 1998 to $421.1
million as of March 31, 1999. As of March 31, 1999, total outstanding
indebtedness at IMPSAT Argentina equaled $139.9 million ($17.1 million after
eliminating intercompany items), compared to $121.5 million ($61.5 million after
eliminating intercompany items) as of March 31, 1998. Total outstanding
indebtedness at IMPSAT Colombia as of March 31, 1999 equaled $61.2 million
($48.2 million after eliminating intercompany items), compared to $55.1 million
($42.1 million after eliminating intercompany items) as of March 31, 1998. Such
increased indebtedness of the Company relates primarily to the issuance by the
Company in June 1998 of $225 million principal amount of 12 3/8% Senior Notes
due 2008 (the "1998 Note Offering"). The average interest rate on the Company's
indebtedness for the first quarter of 1999 was 14.7%, compared to an average
interest rate of 14.1% for the first quarter of 1998.
Net Gain (Loss) on Foreign Exchange. The Company recorded a net loss on
foreign exchange for the first quarter of 1999 of $6.2 million (compared to a
net gain on foreign exchange of $23,000 for the corresponding period in 1998),
primarily as a result of the devaluation of the Brazilian real against the U.S.
dollar.
Provision for Income Taxes. The Company recorded a benefit for income
taxes (all of which are for foreign taxes) of $2.1 million, for the three months
ended March 31, 1999, compared to a provision
<PAGE> 33
for income taxes of $1.6 million for the corresponding period in 1998. IMPSAT
Argentina recorded a provision for income taxes for the first quarter of 1999
of $40,000, compared to $1.1 million in the first quarter of 1998. IMPSAT
Colombia recorded a provision for income taxes for the first quarter of 1999 of
$0.3 million, compared to $0.7 million for the first quarter of 1998.
Comprehensive Loss. For the three months ended March 31, 1999, the Company
incurred a comprehensive loss of $23.7 million, an increase of $20.1 million,
compared to the Company's comprehensive loss of $3.6 million for the three
months ended March 31, 1998. In addition to the items described in the
preceding paragraph, the principal reasons for the increase in the Company's
comprehensive loss as compared to prior periods related to the effect of
accrued dividends of $3.4 million on the Series A Preferred Stock during the
first quarter of 1999 and the foreign currency translation adjustment loss of
$3.2 million.
For the first quarter of 1999, IMPSAT Argentina recorded a net loss of
$0.2 million, compared to net loss of $0.7 million for the corresponding period
in 1998. IMPSAT Colombia recorded net income in the first quarter of 1999 of
$0.5 million, compared to a net income of $1.8 million for the corresponding
period in 1998.
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 commercial operations in Argentina, Colombia, Venezuela, Ecuador, Mexico and
the United States, the further development of its operations in Brazil and for
the Project. The Company intends to meet its capital requirements during the
remainder of 1999 from unused proceeds of the 1998 Note Offering and the
proceeds of the $125 million equity offering to Nunsgate Limited, a wholly owned
subsidiary of British Telecommunications plc ("BT") (see Part II, Item 5 of this
Report). 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
Project. The timing and development of the 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
Project through the end of 2000 could require up to $300 million in additional
financing. The Company does not currently have any commitments regarding such
financing and the development of the 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.
<PAGE> 34
As set forth in its Consolidated Statements of Cash Flow, in the three
months ended March 31, 1999, the Company utilized $6.5 million in net cash flow
from operating activities, compared with $2.2 million generated for the three
months ended March 31, 1998. The decrease in cash flow from operating activities
in the first quarter of 1999 was primarily attributable to an increase in
accounts payable as well as amortization and depreciation. Financing activities
provided $1.5 million in net cash flow for the three months ended March 31,
1999, compared with $18.7 million from cash flow generated by financing
activities for the three months ended March 31, 1998. During such period, the
Company used $17.2 million in net cash flow for investing activities, compared
to $16.0 million for the three months ended March 31, 1998. The Company had a
cash balance of $64.6 million as of March 31, 1999.
The Company leases satellite capacity with annual rental commitments of
approximately $25.0 million through the year 2001. In addition, the Company has
commitments to purchase communications equipment amounting to approximately
$14.9 million at March 31, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Common Stock Offering to BT. On March 11, 1999, a Share Purchase Agreement
was entered into among the Company, Nevasa Holdings Limited ("Nevasa") and 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 were consummated on April 19, 1999.
New Board of Directors Members.
In April 1999, Mr. Gustavo Schwed replaced Ms. Marianne Hay on the
Company's Board of Directors. Mr. Schwed is a Principal of Morgan Stanley
Dean Witter Capital Partners and is Co-Chairman
<PAGE> 35
of the general partner of the Morgan Stanley Global Emerging Markets Private
Investment Fund, L.P. Mr. Schwed joined Morgan Stanley Dean Witter in July
1998. Previously, he was a Principal of Bassini, Playfair & Associates, a
private equity firm specializing in Latin American investments, and a Managing
Director and head of the Latin American Merchant Banking Group of Donaldson,
Lufkin & Jenrette. Mr. Schwed holds an M.B.A. from Stanford University
Graduate School of Business and a B.A. in Economics from Swarthmore College.
In connection with the Common Stock Offering which closed on April 19,
1999, BT was given the right to appoint two directors to the Board of Directors
of IMPSAT Corporation. It is anticipated that these appointments to the Board
of Directors will be made in May of 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) Exhibits. 27.1 Financial Data Schedule.
(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.
(b) Reports on Form 8-K. On March 15, 1999, the Company filed with the
Commission a current report on Form 8-K, which disclosed a public announcement
on March 11, 1999 that the Company had entered into an agreement with BT
pursuant to which BT would acquire a 20% stake in the Company.
<PAGE> 36
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, as amended,
the registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized, in the City of Buenos Aires in the
Republic of Argentina, in the capacities and on the dates indicated.
IMPSAT Corporation
By: /s/ Guillermo Jofre
-----------------------
Guillermo Jofre
Chief Financial Officer
Date: May 17, 1999
IMPSAT S.A.
By: /s/ Jose Torres
-------------------------
Jose Torres
Director and
Chief Accounting Officer
Date: May 17, 1999
<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 QUARTER ENDED MARCH 31, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1998
<CASH> 64,573
<SECURITIES> 0
<RECEIVABLES> 48,998
<ALLOWANCES> 10,356
<INVENTORY> 0
<CURRENT-ASSETS> 135,628
<PP&E> 335,901
<DEPRECIATION> 136,514
<TOTAL-ASSETS> 511,323
<CURRENT-LIABILITIES> 100,148
<BONDS> 399,413
138,393
0
<COMMON> 100,793
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 511,323
<SALES> 0
<TOTAL-REVENUES> 53,560
<CGS> 0
<TOTAL-COSTS> 51,935
<OTHER-EXPENSES> 6,212
<LOSS-PROVISION> 823
<INTEREST-EXPENSE> 14,360
<INCOME-PRETAX> (19,428)
<INCOME-TAX> 2,143
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,496)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
