<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, 2000 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 FIBER NETWORKS, INC.
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, 2000 the
Company had outstanding 91,428,570 shares of Common Stock, $1.00 par value
outstanding.
<PAGE> 2
-------------------------
IMPSAT FIBER NETWORKS, INC.
IMPSAT S.A.
-------------------------
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I FINANCIAL INFORMATION...............................................................................F-1
ITEM 1. FINANCIAL STATEMENTS..........................................................................F-1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.......................................................................1
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......................................7
PART II OTHER INFORMATION....................................................................................8
ITEM 1. LEGAL PROCEEDINGS...............................................................................8
ITEM 2. CHANGES IN SECURITIES...........................................................................8
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.................................................................8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.............................................8
ITEM 5. OTHER INFORMATION...............................................................................8
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................9
SIGNATURES..................................................................................................10
</TABLE>
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, MARCH 31,
1999 2000
------------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 97,507 $ 557,545
Trade accounts receivable, net ....................................... 52,176 52,878
Other receivables .................................................... 27,640 30,516
Prepaid expenses ..................................................... 1,703 2,891
------------- -------------
Total current assets .......................................... 179,026 643,830
------------- -------------
BROADBAND NETWORK, Net ................................................. 71,868 126,501
------------- -------------
PROPERTY, PLANT AND EQUIPMENT, Net ..................................... 310,330 321,963
------------- -------------
NON-CURRENT ASSETS:
Investments .......................................................... 235,925 141,914
Intangible assets .................................................... 442 87,350
Deferred financing costs, net ........................................ 8,985 14,452
Other non-current assets ............................................. 21,756 21,396
------------- -------------
Total non-current assets ...................................... 267,108 265,112
------------- -------------
TOTAL .................................................................. $ 828,332 $ 1,357,406
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable -- trade ............................................ $ 53,678 $ 60,313
Short-term debt ...................................................... 15,670 17,920
Current portion of long-term debt .................................... 23,007 24,061
Accrued and other liabilities ........................................ 29,506 35,109
Deferred income taxes, net ........................................... 51,870 15,682
Customer advances on broadband network ............................... 23,200 42,125
------------- -------------
Total current liabilities ..................................... 196,931 195,210
------------- -------------
LONG-TERM DEBT, Net .................................................... 445,634 778,205
------------- -------------
OTHER LONG-TERM LIABILITIES ............................................ 16,406 16,059
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 13)
MINORITY INTEREST ...................................................... 4,985
------------- -------------
REDEEMABLE PREFERRED STOCK, Convertible, Series A, 10%,
cumulative dividend; 25,000 shares authorized, issued and
outstanding, converted and redeemed on February 4, 2000 .............. 149,035
------------- -------------
STOCKHOLDERS' EQUITY:
Common Stock $0.01 par value; 300,000,000 shares authorized,
71,605,993 shares issued and outstanding at December 31, 1999,
and 91,428,570 shares issued and outstanding at March 31, 2000 ..... 716 914
Additional paid in capital ........................................... 221,013 541,710
Accumulated deficit .................................................. (202,934) (232,001)
Treasury stock, 14,917,915 shares, at cost ........................... (125,000)
Amount paid in excess of carrying value of assets acquired
from related party ................................................. (4,827) (4,685)
Deferred stock-based compensation .................................... (5,438)
Accumulated other comprehensive income ............................... 126,373 67,432
------------- -------------
Total stockholders' equity .................................... 15,341 367,932
------------- -------------
TOTAL .................................................................. $ 828,332 $ 1,357,406
============= =============
</TABLE>
See notes to consolidated financial statements.
F-1
<PAGE> 4
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
NET REVENUES FROM SERVICES:
Network services ............................... $ 42,349 $ 44,992
Internet ....................................... 6,022 6,714
Other .......................................... 5,189 7,057
---------- ----------
Total net revenues from services ........... 53,560 58,763
---------- ----------
COSTS AND EXPENSES:
Direct costs:
Contracted services ........................ 6,433 8,082
Other direct costs ......................... 3,425 4,339
Leased capacity ............................ 9,717 13,037
Cost of sold equipment ..................... 901 820
---------- ----------
Total direct costs ..................... 20,476 26,278
---------- ----------
Salaries and wages ............................. 10,815 12,981
Selling, general and administrative ............ 9,729 13,031
Depreciation and amortization .................. 10,915 19,936
---------- ----------
Total costs and expenses ............... 51,935 72,226
---------- ----------
Operating income (loss) .......................... 1,625 (13,463)
---------- ----------
OTHER INCOME (EXPENSES):
Interest expense, net .......................... (14,360) (17,614)
Net (loss) gain on foreign exchange ............ (6,212) 2,565
Other (expense) income, net .................... (481) 178
---------- ----------
Total other expenses ................... (21,053) (14,871)
---------- ----------
LOSS BEFORE INCOME TAXES
AND MINORITY INTEREST .......................... (19,428) (28,334)
BENEFIT FROM INCOME TAXES ........................ 2,143 660
---------- ----------
LOSS BEFORE MINORITY INTEREST .................... (17,285) (27,674)
LOSS ATTRIBUTABLE TO MINORITY INTEREST ........... 164
---------- ----------
NET LOSS BEFORE DIVIDENDS ON REDEEMABLE
PREFERRED STOCK ................................ (17,121) (27,674)
DIVIDENDS ON REDEEMABLE PREFERRED STOCK .......... (3,375) (1,393)
---------- ----------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS ................................... $ (20,496) $ (29,067)
========== ==========
NET LOSS PER COMMON SHARE:
BASIC AND DILUTED .............................. $ (0.42) $ (0.36)
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
BASIC AND DILUTED .............................. 48,725 80,591
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 5
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS ................................................... $ (20,496) $ (29,067)
OTHER COMPREHENSIVE LOSS, net of tax:
Foreign currency translation adjustment ........................ (3,209) 303
Change on unrealized gain on investment available for sale ..... -- (59,244)
---------- ----------
TOTAL ....................................................... (3,209) (58,941)
---------- ----------
COMPREHENSIVE LOSS ............................................... $ (23,705) $ (88,008)
========== ==========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 6
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------------- PAID IN ACCUMULATED
SHARES STOCK CAPITAL DEFICIT
------------- --------- ------------- ------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1999 ..................... 56,688,076 $ 716 $ 221,013 $ (202,934)
Dividends on redeemable preferred
stock ........................................ (1,393)
Issuance of common shares in Initial
Public Offering, net of offering
expenses ..................................... 14,350,000 144 229,301
Issuance of common stock in exchange
for minority interest in Impsat
Argentina, Colombia and Venezuela ............ 5,472,579 54 92,980
Issuance of treasury stock upon conversion
of Series A preferred shares ................. 14,917,915 (7,022)
Deferred stock-based compensation .............. 5,438
Amortization of amount paid in excess of
carrying value of net assets acquired
from related party ...........................
Change on unrealized gain on investment
available for sale ...........................
Foreign currency translation
adjustment ...................................
Net loss for the period ........................ (27,674)
------------ ------- ---------- ----------
BALANCE AT MARCH 31, 2000 ........................ 91,428,570 $ 914 $ 541,710 $ (232,001)
============ ======= ========== ==========
</TABLE>
F-4
<PAGE> 7
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMOUNT PAID
IN EXCESS OF
CARRYING
VALUE ACCUMULATED
OF NET ASSETS DEFERRED STOCK- OTHER
TREASURY ACQUIRED FROM BASED COMPREHENSIVE
STOCK RELATED PARTY COMPENSATION (LOSS) INCOME TOTAL
----------- ---------------- -------------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1999 ..................... $ (125,000) $ (4,827) $ 126,373 $ 15,341
Dividends on redeemable preferred
stock ........................................ (1,393)
Issuance of common shares in Initial
Public Offering, net of offering
expenses ..................................... 229,445
Issuance of common stock in exchange
for minority interest in Impsat
Argentina, Colombia and Venezuela ............ 93,034
Issuance of treasury stock upon conversion
of Series A preferred shares ................. 125,000 117,978
Deferred share based compensation .............. (5,438)
Amortization of amount paid in excess of
carrying value of net assets acquired
from related party ........................... 142 142
Change on unrealized gain on investment
available for sale ........................... (59,244) (59,244)
Foreign currency translation
adjustment ................................... 303 303
Net loss for the period ........................ (27,674)
---------- ---------- ---------- ---------- ----------
BALANCE AT MARCH 31, 2000 ........................ $ $ (4,685) $ (5,438) $ 67,432 $ 367,932
========== ========== ========== ========== ==========
</TABLE>
F-5
<PAGE> 8
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................ $ (17,121) $ (27,624)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Amortization and depreciation ......................................... 10,915 19,936
Deferred income tax benefit ........................................... (1,404) (1,395)
Change in minority interest ........................................... (435)
Changes in assets and liabilities:
Increase in trade accounts receivable, net .......................... (2,024) (702)
Decrease (increase) in prepaid expenses ............................. 275 (1,188)
Increase in other receivables and other
non-current assets ................................................ (1,425) (1,783)
Increase in accounts payable -- trade ............................... 388 6,635
Increase in customer advances on broadband network .................. 18,925
Increase in accrued and other liabilities ........................... 4,124 5,603
Increase (decrease) in other long-term liabilities .................. 171 (347)
---------- ----------
Net cash (used in) provided by operating activities ............... (6,536) 18,060
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Build-out of broadband network .......................................... (20,203)
Purchases of property, plant and equipment .............................. (17,098) (30,190)
Increase in investment .................................................. (56) (26)
---------- ----------
Net cash used in investing activities ............................. (17,154) (50,419)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from short-term debt ..................................... 2,468 2,250
Proceeds from long-term debt, net ....................................... 296,199
Repayments of long-term debt ............................................ (1,017) (3,300)
Proceeds from issuance of common stock, net ............................. 229,445
Cash paid in redemption of preferred stock .............................. (32,500)
---------- ----------
Net cash provided by financing activities ......................... 1,451 492,094
---------- ----------
EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH
EQUIVALENTS ............................................................. (3,209) 303
---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ...................... (25,448) 460,038
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD ...................... 90,021 97,507
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD ............................ $ 64,573 $ 557,545
========== ==========
</TABLE>
(Continued)
F-6
<PAGE> 9
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid ........................................................... $ 12,262 $ 13,740
========= =========
Foreign income taxes paid ............................................... $ 611 $ --
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Accrued dividends on redeemable preferred stock ......................... $ 3,375 $ 1,393
========= =========
Change to unrealized gain on investment available for sale,
net of tax ............................................................ $ (59,244)
=========
Broadband network vendor financing ...................................... $ 34,691
=========
Issuance of treasury stock upon conversion of preferred stock ........... $ 115,142
=========
Issuance of common stock in exchange of minority interest
of IMPSAT Argentina, Colombia and Venezuela ........................... $ 93,034
=========
</TABLE>
(Concluded)
See notes to consolidated financial statements.
F-7
<PAGE> 10
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF U.S. DOLLARS)
1. GENERAL
IMPSAT Fiber Networks, Inc., a Delaware holding company (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. In addition, the Company is building an extensive pan-Latin American
high capacity fiber optic network (the "Broadband Network"). The Company expects
that the first phase of the Broadband Network (see Note 6), which will connect
points across Argentina and Brazil, will be completed by December 2000.
The Company currently provides telecommunications and data services
through its advanced fiber optic, satellite and microwave telecommunications
networks. These networks consist of owned teleports, earth stations, fiber optic
and microwave links, and leased satellite and fiber optic links. The Company
operates 12 metropolitan area networks in some of the largest cities in Latin
America, including: Buenos Aires, Sao Paulo, Bogota and Caracas.
The Company's operating subsidiaries and percentages owned by the Company
are as follows:
<TABLE>
<S> <C> <C>
Argentina Impsat S.A. 100.0%
Brazil Impsat Comunicacoes Ltda. 99.9
Chile Impsat Chile S.A. 100.0
Colombia Impsat S.A. 100.0
Ecuador Impsatel del Ecuador S.A. 100.0
Mexico Impsat S.A. de C.V. 99.9
Peru Impsat S.A. 100.0
USA Impsat USA, Inc. 100.0
Venezuela Telecomunicaciones Impsat S.A. 100.0
</TABLE>
In addition, the Company owns International Satellite Capacity Holdings,
NG (Liechtenstein) and Filcrown International Corporation (BVI), which serve
intermediary functions to the Company and its operating subsidiaries.
2. INITIAL PUBLIC OFFERING
The Company's completed an initial public offering ("IPO") of 11,500,000
shares of common stock on February 4, 2000. On the same date, British
Telecommunications plc purchased 2,850,000 shares of the Company's common stock
simultaneously with the IPO to maintain its approximate current ownership share
in the Company. In anticipation of the IPO, on January 11, 2000, the Company's
Board of Directors (the "Board") amended and restated the articles of
incorporation of the Company to change the name of the Company to IMPSAT Fiber
Networks, Inc. and authorized 300,000,000 shares of common stock, $0.01 par
value, and 5,000,000 shares of "blank check" preferred stock, $0.01 par value.
In addition, the Board approved a .592 for 1 reverse common stock split (see
Note 3), adopted a stockholders rights plan and approved the issuance of
5,472,579 shares of common stock to the minority shareholders in IMPSAT
Argentina, IMPSAT Venezuela and IMPSAT Colombia in exchange for their minority
interests in those subsidiaries. The acquisition of these minority interests was
accounted for under the purchase method and resulted in approximately $88.0
million in goodwill.
In addition, the Company redeemed approximately $32.5 million of the redeemable
preferred stock and the holders converted their remaining preferred shares into
14,917,915 shares of common stock.
F-8
<PAGE> 11
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, 2000 and for the three months ended March 31, 1999 and 2000 have
been prepared on the same basis as the Company's audited consolidated financial
statements. In the opinion of management, the 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 2000 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 fair 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 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 net revenue
from services for the three months ended March 31, 1999 and 2000.
In connection with the Company's build out of the Broadband Network, the Company
has granted Global Crossing Development Co., a subsidiary of Global Crossings
Ltd. ("Global Crossing") an indefeasible right of use ("IRU") to a portion of
its broadband network capacity (see Note 6) when the Broadband Network is
completed. The Company received a fixed advance payment and will recognize the
revenue from the IRU ratably over the life of the IRU.
Broadband Network -- The Broadband Network is under construction. Costs
in connection with the construction, installation and expansion of the Broadband
Network are capitalized. Depreciation will be computed using the straight-line
method over the life of the rights of way for the related network. Rights of way
agreements represent the fees paid and the net present value of fees to be paid
per signed agreements entered into for obtaining rights of way and other permits
for the Broadband Network. These capitalized agreements are being amortized over
the term of the rights of way, which range from 5 to 20 years.
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:
<TABLE>
<S> <C>
Buildings and improvements ....................................... 10-25 years
Operating communications equipment ............................... 5-10 years
Furniture, fixtures and other equipment .......................... 2-10 years
</TABLE>
F-9
<PAGE> 12
The operating communications equipment owned by the Company is subject to rapid
technological obsolescence, therefore it is reasonably possible that the
equipment's estimated useful lives could change in the near future.
Investments -- Investments covered under the scope of Statement of
Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities, are classified as "available for
sale" and are carried at fair value with any unrealized gain or loss, net of
tax, being included in accumulated other comprehensive income within
stockholders' equity. All other investments are carried at cost.
The Company's investments consist of the following at December 31, 1999 and
March 31, 2000:
<TABLE>
<CAPTION>
1999 2000
--------------------------------
<S> <C> <C>
Investment, at cost..................... $ 10,235 $ 10,261
Investment, at fair value ($21,527 at cost) 225,690 131,653
----------- -------------
Total............................ $ 235,925 $ 141,914
=========== =============
</TABLE>
The Company's cost basis investment represents a less than 1% ownership in
unaffiliated entities established for the purchase and leasing of satellite
capacity time. The fair value basis investment represents a 15.3% stake in the
common stock of El Sitio, Inc. The Company's investment in El Sitio's common
stock is subject to equity price risk. The Company has not taken any actions to
hedge this market risk exposure.
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"), 13 3/4% Senior Notes
due 2005 (the "Senior Notes 2005") and 12 3/8% Senior Notes due 2008 (the
"Senior Notes 2008") 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 consist primarily of goodwill of
approximately $88.1 million created in the acquisition of the minority interest
of certain operating subsidiaries, see Note 2. This goodwill 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 three months
ended March 31, 1999 and 2000.
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 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 Company's 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 which uses the local currency as the
functional currency and its effects are included in the stockholders' equity.
Fair Value of Financial Instruments -- The Company's financial
instruments include receivables, investment, payables, short- and long-term
debt. The Company's Senior Guaranteed Notes, Senior Notes 2005 and 2008, and
available for sale investment were valued at market closing prices at December
31, 1999 and March 31, 2000. The fair
F-10
<PAGE> 13
value of all other financial instruments have been determined using available
market information and interest rates as of December 31, 1999 and March 31,
2000.
At December 31, 1999 and March 31, 2000, the fair value of the Senior Guaranteed
Notes and Senior Notes 2008 was approximately $324.0 million and $321.2 million,
respectively, compared to the carrying value of $350.0 million, and the fair
value and carrying value of the Company's investment in El Sitio's common stock
was approximately $225.7 and $131.7 million, respectively. At March 31, 2000,
the fair value of the Senior Notes 2005 was approximately $296.3 million
compared to the carrying value of $300.0 million. 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 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 members 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.
Stock Split -- On January 11, 2000, the Company's Board approved a .592
to 1 reverse common stock split (see Note 2). Retroactive restatement has been
made to all share amounts to reflect the stock split.
Net Loss Per Common Share -- Basic earnings per share is computed based
on the average number of common shares outstanding and diluted earnings per
share is computed based on the average number of common and potential common
shares outstanding under the treasury stock method.
Reclassifications -- Certain amounts in the 1999 consolidated financial
statements have been reclassified to conform with the 2000 presentation.
New Accounting Pronouncement - In June 1998, the Financial Accounting
Standards Board ("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. In June 1999, the FASB
issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, an
amendment to SFAS No. 133. SFAS No. 137 deferred the effective date of adoption
of SFAS No. 133 to fiscal years beginning after June 15, 2000. Management has
not determined what effects, if any, the adoption of SFAS No. 133 will have on
the Company's consolidated financial statements.
F-11
<PAGE> 14
4. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable, by operating subsidiaries, at December 31 and
March 31, are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
---- ----
(UNAUDITED)
<S> <C> <C>
IMPSAT Argentina....................... $ 49,989 $ 49,690
IMPSAT Colombia........................ 6,655 7,110
IMPSAT Venezuela....................... 7,074 6,543
IMPSAT Ecuador......................... 1,943 2,262
IMPSAT USA............................. 2,807 3,502
IMPSAT Brasil.......................... 1,791 2,254
Others................................. 1,737 2,127
-------------- --------------
Total........................ 71,996 73,488
Less: allowance for doubtful accounts.. (19,820) (20,610)
-------------- --------------
Trade accounts receivable, net......... $ 52,176 $ 52,878
============== ==============
</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 for the year ended
December 31, 1999, and for the three months ended March 31, 2000, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
-------------- ---------------
(UNAUDITED)
<S> <C> <C>
Beginning balance............... $ 10,109 $ 19,820
Provision for doubtful accounts. 11,232 3,726
Write-offs, net of recoveries... (1,521) (2,936)
------------- -------------
Ending balance.................. $ 19,820 $ 20,610
============= =============
</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 and March 31:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------- --------------
(UNAUDITED)
<S> <C> <C>
IMPSAT Argentina.................. $ 13,606 $ 13,553
IMPSAT Colombia................... 5,269 4,822
IMPSAT Venezuela.................. 1,757 1,426
IMPSAT Ecuador.................... 314 337
IMPSAT Mexico..................... 2,662 2,992
IMPSAT Brazil..................... 1,122 5,226
Others............................ 2,910 2,160
------------ -------------
Total................... $ 27,640 $ 30,516
============ =============
</TABLE>
F-12
<PAGE> 15
6. BROADBAND NETWORK AND AGREEMENTS
Broadband network and related equipment consists of the following at December 31
and March 31:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
-------------- ----------------
(UNAUDITED)
<S> <C> <C>
Equipment and materials $ 4,018 $ 4,261
Right of ways 15,134 19,768
------------- ---------------
Total 19,152 24,029
Less: accumulated depreciation (1,318) (1,579)
------------- ---------------
Total 17,834 22,450
Under construction - Broadband Network 51,966 91,213
Under construction - Global Crossing ducts 2,068 12,838
------------- ---------------
Total $ 71,868 $ 126,501
============= ===============
</TABLE>
The recap of accumulated depreciation for the year ended December 31,
1999 and for the three months ended March 31, 2000, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
Beginning balance.......... $ 296 $ 1,318
Depreciation expense....... 1,022 261
--------------- ---------------
Ending balance............. $ 1,318 $ 1,579
=============== ===============
</TABLE>
NORTEL NETWORKS AGREEMENTS - On September 6, 1999, the Company executed two
turnkey agreements with Nortel Networks Corporation ("Nortel") relating to
Nortel's design and construction of segments of the Broadband Network in
Argentina and Brazil for approximately $265 million. Pursuant to these
agreements, Nortel will construct:
- long-haul, high capacity fiber optic backbones linking major
cities in Argentina and Brazil;
- fiber optic and wireless radio local rings and access points
within major cities in Argentina and Brazil; and
- connections in Argentina and Brazil that will integrate the
Company's networks with other providers' facilities, including
submarine cable systems, and provide the Company with access to
global telecommunications links.
In addition, Nortel will provide, as part of the turnkey agreements:
- required equipment and components;
- civil infrastructure design and engineering;
- civil works supervision;
- network infrastructure and configuration planning and engineering;
- formulation of network quality and performance specifications;
- compilation of network testing procedures and protocols; and
- preparation of network maintenance and operations plans and
procedures.
On October 25, 1999, each of IMPSAT Argentina and IMPSAT Brazil signed
definitive agreements with affiliates of Nortel to borrow an aggregate of up to
approximately $149.1 million and $148.3 million, respectively, of long term
vendor financing. The financing, which will be disbursed over a two year period
with final maturity in 2006, will be used to finance Nortel's construction of
the segments of the Broadband Network in each of Argentina and Brazil. The
F-13
<PAGE> 16
Company has agreed to guarantee the obligations of each of IMPSAT Argentina and
IMPSAT Brazil under the Nortel financing agreements.
FRAMEWORK AGREEMENT WITH GLOBAL CROSSING - On July 27, 1999, the Company entered
into an agreement with Global Crossing that contemplated the Company and Global
Crossing entering into a series of definitive agreements. As part of these
arrangements, the Company expects to purchase from Global Crossing indefeasible
rights of use of capacity valued at not less than $46 million on any of Global
Crossing's fiber optic cable networks worldwide. These rights should enable the
Company to interconnect the Company's networks in Argentina and Brazil and give
the Company global international access.
On September 22, 1999, the Company entered into a definitive agreement with
Global Crossing to construct the terrestrial portion of the Global Crossing's
South American network between Las Toninas, Argentina on the Atlantic Ocean and
Valparaiso, Chile on the Pacific Ocean (the "Trans-Andean Crossing System"). The
Company commenced construction of the Trans-Andean Crossing System in September
1999. Global Crossing will pay the Company $64 million for the Company's turnkey
construction of the Trans-Andean Crossing System, as follows:
- construction of three ducts (the "Global Crossing Ducts") and
related facilities over 230 route miles between Las Toninas and
Buenos Aires, Argentina and over 290 route miles between Mendoza,
Argentina and Valparaiso, Chile for approximately $39 million.
- licensing to Global Crossing of one duct on our Broadband Network
between the cities of Buenos Aires and Mendoza in Argentina for
approximately $25 million.
During 1999, Global Crossing paid the Company $32.8 million in respect of the
ongoing construction of the Global Crossing Ducts. The Company will accumulate
all construction costs for the Global Crossing Ducts in projects under
construction and will defer all payment received from Global Crossing until
completion and deliver of the respective ducts. The Company will lease space in
the telehouses in Buenos Aires, Argentina and Santiago, Chile to Global Crossing
for its network operations.
In addition to the Trans-Andean Crossing System, the Company will:
- construct fiber optic terrestrial backhauls that will connect
Global Crossing's submarine cable landing points in Brazil,
Colombia and Peru to major cities in these countries
- sell co-location space in our telehouses in Rio de Janeiro and Sao
Paulo, Brazil; Bogota, Colombia; Lima, Peru; and Caracas,
Venezuela
The Company's telehouses will contain switching, routing and other network
co-location equipment owned by the Company or lessees of space in the
telehouses.
During the first quarter of 2000, the Company entered into agreements with
Global Crossing to provide Global Crossing with IRUs of up to 20 years relating
to broadband backhaul and network maintenance services in Rio de Janeiro and Sao
Paulo, Brazil. The terrestrial fiber optic backhauls will connect Global
Crossing's landing points in Rio de Janeiro and Sao Paulo with its
points-of-presence to be co-located in the Company's telehouses in those cities.
F-14
<PAGE> 17
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 and March 31 (exclusive of
the Broadband Network, which is described in note 6, above) consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------- -------------
(UNAUDITED)
<S> <C> <C>
Land........................................ $ 3,985 $ 6,999
Building and improvements................... 31,102 34,895
Operating communications equipment.......... 486,528 507,874
Furniture, fixtures and other equipment..... 21,337 21,824
------------- -------------
Total............................. 542,952 571,592
Less: accumulated depreciation.............. (242,706) (254,868)
------------- -------------
Total............................. 300,246 316,724
Works in process............................ 10,084 5,239
------------- -------------
Property, plant and equipment, net.......... $ 310,330 $ 321,963
============= =============
</TABLE>
The recap of accumulated depreciation for the year ended December 31,
1999 and for the three months ended March 31, 2000, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------- -------------
(UNAUDITED)
<S> <C> <C>
Beginning balance................. $ 126,728 $ 242,706
Depreciation expense.............. 118,834 18,557
Disposals and retirements......... (2,856) (6,395)
------------- -------------
Ending balance............. ...... $ 242,706 $ 254,868
============= =============
</TABLE>
8. SHORT-TERM DEBT
The Company's short-term debt at December 31 and March 31, is detailed as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
Short-term credit facilities, denominated in U.S.
dollars; interest rates ranging from 5.72% to
16.00%;
IMPSAT Argentina .................................... $ 10,707 $ 11,908
IMPSAT Colombia ..................................... 4,756 5,994
Others .............................................. 207 18
---------- ----------
Total short-term debt ........................... $ 15,670 $ 17,920
========== ==========
</TABLE>
The Company has historically refinanced its short term credit facilities
on an annual basis.
F-15
<PAGE> 18
9. LONG-TERM DEBT
The Company's long-term debt at December 31 and March 31, is detailed as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------- -------------
(UNAUDITED)
<S> <C> <C>
12.125% Senior Guaranteed Notes due 2003 ........................ $ 125,000 $ 125,000
13.75% Senior Notes due 2005 .................................... 300,000
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 $14,400 and the assignment of customer
contracts totalling approximately $4,800
Denominated in:
U.S. dollars (interest rates 7.02% -- 12,50%) .............. 23,175 22,458
Local currency (interest rates 12.3% -- 35.40%) ............ 15,509 15,686
IMPSAT Argentina (6.63% -- 12.63%), maturing
Semiannually through 2003, collateralized by
Investment ................................................. 3,799 3,271
IMPSAT USA (8.25% -- 8.75%), mortgage and
equipment notes ............................................ 1,731 1,651
IMPSAT Venezuela (9.00% -- 10.75%), maturing during
2001 ....................................................... 2,383 1,474
IMPSAT Brazil (13%), maturing during 2004 ..................... 4,718 5,179
IMPSAT Argentina Eximbank notes payable (8.00%),
maturing semiannually through 2003 and 2004 ................... 7,285 7,820
Broadband vendor financing (11.78%) due 2007 .................. 59,961 94,652
Other ........................................................... 80 75
---------- ----------
Total long-term debt .................................. 468,641 802,266
Less: current portion ........................................... (23,007) (24,061)
---------- ----------
Long-term debt, net ............................................. $ 445,634 $ 778,205
========== ==========
</TABLE>
The Senior Guaranteed Notes, the Senior Notes 2005 and 2008, the
Broadband Network vendor financing and some of the term notes payable for IMPSAT
Argentina, IMPSAT Brazil, 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.
10. INCOME TAXES
The composition of the benefit (provision) from income taxes, all of
which are for foreign taxes, for the three months ended March 31, 1999 and 2000
is as follows:
<TABLE>
<CAPTION>
MARCH 31,
1999 2000
------------ -------------
(UNAUDITED)
<S> <C> <C>
Current income taxes...................... $ (462) $ (897)
Deferred income taxes..................... 2,605 1,557
---------- -----------
Total................................ $ 2,143 $ 660
========== ===========
</TABLE>
The foreign statutory tax rates range from 20% to 35% depending on the
particular country.
11. STOCK OPTION PLANS
In December 1998, the Company adopted the 1998 Stock Option Plan (the
"1998 Plan"), pursuant to which 4,776,016 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
compensation committee, or in the absence
F-16
<PAGE> 19
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 compensation 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.
Under the 1998 Plan, the Company granted options for 441,650 shares at an
exercise price of $8.38 during the year ended December 31, 1998 and options for
393,340 shares at an exercise price of $10.47 during the year ended December 31,
1999. 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 granted shares.
On the fourth anniversary of the date of grant, the option vests as to the
remainder of the granted shares.
On January 5, 2000, the Company's Board adopted the 1999 Stock Option
Plan (the "1999 Plan"), which provides for the grants to its key officers and
employees of stock options that are non- qualified for U.S. federal income tax
purposes. The terms of the 1999 Plan are otherwise identical to those of the
1998 Plan except that:
- The total number of shares of our common stock for which options
may be and were granted pursuant to the 1999 Plan is 355,214;
- The exercise price is $1.69 per share of common stock; and
- Ten percent, twenty percent, thirty percent and forty percent of
the options granted vest on each of the fourth, fifth, sixth and
seventh anniversaries, respectively, of the date of grant or upon
a change of control of the Company.
The expiration date of the 1999 Plan is January 5, 2010.
In connection with the stock options granted under the 1999 Plan, the
Company recorded $5.4 million in stockholders' equity as deferred compensation
during January 2000. The deferred compensation will be amortized to expense over
the vesting period, which commences four years after the date of grant.
12. OPERATING SEGMENT INFORMATION
The Company's operating segment information, by subsidiary, as of and for
the three months ended March 31, 1999 and 2000, is as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------
1999 2000
----------- -----------
<S> <C> <C>
TOTAL ASSETS
IMPSAT Argentina ..................... $ 233,205 $ 302,791
IMPSAT Colombia ...................... 108,615 81,782
IMPSAT Venezuela ..................... 38,213 43,604
IMPSAT Mexico ........................ 8,932 12,126
IMPSAT Ecuador ....................... 23,507 18,202
IMPSAT USA ........................... 15,524 19,283
IMPSAT Brazil ........................ 24,144 115,664
Parent Company, Others
and eliminations .................. 59,183 763,954
----------- -----------
CONSOLIDATED TOTAL ................ $ 511,323 $ 1,357,406
=========== ===========
NET REVENUES FROM SERVICES
NETWORK SERVICES
IMPSAT Argentina ..................... $ 20,564 $ 20,794
IMPSAT Colombia ...................... 12,924 10,919
IMPSAT Venezuela ..................... 4,509 5,682
IMPSAT Ecuador ....................... 2,302 2,564
</TABLE>
F-17
<PAGE> 20
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------
1999 2000
----------- -----------
<S> <C> <C>
IMPSAT USA ........................... 2,465 2,827
IMPSAT Brazil ........................ 694 3,134
Other ................................ 642 819
Eliminations ......................... (1,751) (1,747)
----------- -----------
CONSOLIDATED TOTAL ................ $ 42,349 $ 44,992
=========== ===========
INTERNET
IMPSAT Argentina ..................... $ 1,842 $ 2,411
IMPSAT Colombia ...................... 752 702
IMPSAT Venezuela ..................... 167 472
IMPSAT Ecuador ....................... 742 816
IMPSAT USA ........................... 1,334 2,094
IMPSAT Brazil ........................ 134 1,384
Others ............................... 1,910 48
Eliminations ......................... (859) (1,213)
----------- -----------
CONSOLIDATED TOTAL ................ $ 6,022 $ 6,714
=========== ===========
OTHER
IMPSAT Argentina ..................... $ 4,091 $ 3,599
IMPSAT Colombia ...................... 1,209 2,194
IMPSAT Venezuela ..................... 396 381
IMPSAT Ecuador ....................... 39 115
IMPSAT USA ........................... 376 822
IMPSAT Brazil ........................ 193 578
Others ............................... 292 119
Eliminations ......................... (1,407) (751)
----------- -----------
CONSOLIDATED TOTAL ................ $ 5,189 $ 7,057
=========== ===========
TOTAL NET REVENUE FROM SERVICES
IMPSAT Argentina ..................... $ 26,497 $ 26,804
IMPSAT Colombia ...................... 14,885 13,815
IMPSAT Venezuela ..................... 5,072 6,535
IMPSAT Ecuador ....................... 3,083 3,495
IMPSAT USA ........................... 4,175 5,743
IMPSAT Brazil ........................ 1,021 5,096
Others ............................... 2,844 986
Eliminations ......................... (4,017) (3,711)
----------- -----------
CONSOLIDATED TOTAL ................ $ 53,560 $ 58,763
=========== ===========
OPERATING INCOME (LOSS)
IMPSAT Argentina ..................... 2,774 $ (6,251)
IMPSAT Colombia ...................... 3,264 388
IMPSAT Venezuela ..................... 240 (432)
IMPSAT Mexico ........................ (1,019) (464)
IMPSAT Ecuador ....................... 661 (20)
IMPSAT USA ........................... (50) 215
IMPSAT Brazil ........................ (2,312) (4,469)
Eliminations ......................... (1,933) (2,430)
----------- -----------
CONSOLIDATED TOTAL ................ $ 1,625 $ (13,463)
=========== ===========
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
COMMITMENTS - The Company leases satellite capacity with average annual
rental commitments of approximately $33.0 million, through the year 2003. In
addition, the Company has commitments to purchase communications equipment
amounting to approximately $10.0 million at March 31, 2000.
GUARANTEES - The Company is a third party guarantor of up to 75% of a
$6.0 million credit facility provided to IMPSAT Venezuela by a regional
development fund. At March 31, 2000, the balance outstanding on the credit
facility amounted to approximately $1.5 million.
IMPSAT Brazil has entered into a $5.2 million term note with El Camino
Resources, which is guaranteed by the Company and IMPSAT Argentina. At March 31,
2000, the balance outstanding was approximately $5.2 million.
F-18
<PAGE> 21
LITIGATION - 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 a former customer,
ENCOTESA, for amounts due and arising under IMPSAT Argentina's contracts with
ENCOTESA, the Argentine national postal service for $7.3 million. The ultimate
collectivity of this matter continues to be negotiated for settlement, however,
the Company has valued this receivable at a net realizable value of zero.
* * * * * *
F-19
<PAGE> 22
IMPSAT S.A.
BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
--------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,199 $ 6,664
Trade accounts receivable, net 36,046 36,010
Receivable from affiliated companies 4,130 3,218
Other receivables 13,605 13,553
Prepaid expenses 825 838
--------- ---------
Total current assets 58,805 60,283
--------- ---------
BROADBAND NETWORK, Net 28,944 55,506
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, Net 155,045 161,289
--------- ---------
NON-CURRENT ASSETS:
Investment 10,235 10,261
Deferred income taxes, net 3,622 3,622
Other non-current assets 16,327 15,452
--------- ---------
Total non-current assets 30,184 29,335
--------- ---------
TOTAL $ 272,978 $ 306,413
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 32,732 $ 31,481
Short-term debt 10,707 11,908
Advances from affiliated companies 68,959 22,146
Current portion of long-term debt 4,411 4,282
Accrued and other liabilities 9,548 8,762
Customer advances on broadband network 23,200 32,791
--------- ---------
Total current liabilities 149,557 111,370
--------- ---------
LONG-TERM DEBT, Net 46,124 59,826
--------- ---------
OTHER LONG-TERM LIABILITIES 510 877
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY:
Common stock, 5,123 shares issued and outstanding at December 31, 1998;
and 14,755 shares issued and outstanding at December 31, 1999 3 3
Paid in capital 82,442 149,685
Accumulated deficit (5,658) (15,348)
--------- ---------
Total stockholders' equity 76,787 134,340
--------- ---------
TOTAL $ 272,978 $ 306,413
========= =========
</TABLE>
See notes to financial statements.
F-20
<PAGE> 23
IMPSAT S.A.
STATEMENTS OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1999 2000
---- ----
(UNAUDITED)
<S> <C> <C>
NET REVENUES FROM SERVICES:
Network services ................................. $ 20,564 $ 20,794
Internet ......................................... 1,842 2,411
Other ............................................ 4,091 3,599
--------- ---------
Total net revenues from services ............. 26,497 26,804
--------- ---------
COSTS AND EXPENSES:
Direct Costs:
Contracted services .......................... 3,343 4,018
Other direct costs ........................... 1,944 1,875
Satellite and terrestrial leased capacity .... 3,852 5,007
Cost of sold equipment ....................... 737 762
--------- ---------
Total direct costs ........................ 9,876 11,662
--------- ---------
Salaries and wages ............................... 4,386 5,913
Selling, general and administrative .............. 3,715 6,428
Depreciation and amortization .................... 5,746 9,052
--------- ---------
Total costs and expenses .................. 23,723 33,055
--------- ---------
Operating income (loss) ............................ 2,774 (6,251)
--------- ---------
OTHER INCOME (EXPENSES):
Interest expense, net (2,897) (2,830)
Other income (loss), net 6 (8)
--------- ---------
Total other expense (2,891) (2,838)
--------- ---------
LOSS BEFORE INCOME TAXES (117) (9,089)
PROVISION FOR INCOME TAXES (40) (601)
--------- ---------
NET LOSS $ (157) $ (9,690)
========= =========
</TABLE>
See notes to financial statements.
F-21
<PAGE> 24
IMPSAT S.A.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF U.S. DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS(*) TOTAL
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1999 $ 3 $ 82,442 $ (5,658) $ 76,787
Shareholders' contribution 67,243 67,243
Net loss (9,690) (9,690)
--------- --------- --------- ---------
BALANCE AT MARCH 31, 2000 $ 3 $ 149,685 $ (15,348) $ 134,340
========= ========= ========= =========
</TABLE>
(*) Includes an appropriation of retained earnings, amounting to $1,890, to
comply with legal reserve requirements in Argentina.
See notes to financial statements.
F-22
<PAGE> 25
IMPSAT S.A.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1999 2000
------------------------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (157) $ (9,690)
Adjustment to reconcile net loss to net cash
(used in) provided by operating activities:
Amortization and depreciation 5,746 9,052
Deferred income tax provision 40
Changes in assets and liabilities:
(Increase) decrease in trade accounts receivable, net (1,536) 36
Decrease (increase) in prepaid expenses 42 (13)
(Increase) decrease in other receivables and other non-current
assets (173) 1,839
Decrease in accounts payable - trade (6,389) (1,251)
Increase (decrease) in accrued and other liabilities 84 (786)
Increase in customer advances on broadband network 9,591
Increase in other long-term liabilities 499 367
-------- --------
Net cash (used in) provided by operating activities (1,844) 9,145
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (332) (15,296)
Build-out of broadband network (19,817)
Increase in investment (56) (26)
-------- --------
Net cash used in investing activities (388) (35,139)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments of) borrowings from short-term debt (1,962) 1,201
Changes in advances from \ to affiliates 18 (46,813)
Proceeds from long-term debt 228 8,244
Repayment of long-term debt (643) (1,416)
Capital contribution 67,243
-------- --------
Net cash (used in) provided by financing activities (2,359) 28,459
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (4,591) 2,465
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE
PERIOD 13,849 4,199
-------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 9,258 $ 6,664
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 4,270 $ 2,761
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Broadband network vendor financing $ 6,745
========
</TABLE>
See notes to financial statements.
F-23
<PAGE> 26
IMPSAT S.A.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF U. S. DOLLARS)
- --------------------------------------------------------------------------------
1. BACKGROUND
The Company provides and operates private networks of integrated data and
voice telecommunications systems in Argentina. The Company'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. During the present period IMPSAT
Fiber Networks, Inc. (a Delaware Holding company (the "Parent Company")
exchanged shares of its common stock for the minority interests in the
Company. As of March 31, 2000, the Company is a 100% owned subsidiary of
the Parent Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information - The unaudited statements as of March 31,
2000 and for the three months ended March 31, 1999 and 2000 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 2000 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 with maturities of three
months or less at the time of purchase. Cash equivalents and short-term
investments are stated at cost, which approximates fair 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 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 2000.
In connection with the Company's build out of the Broadband Network, the
Company has granted Global Crossing Development Co., a subsidiary of
Global Crossings Ltd. ("Global Crossing") an indefeasible right of use
("IRU") to a portion of its broadband network capacity (see Note 5) when
the Broadband Network is completed. The Company received a fixed advance
payment and will recognize the revenue from the IRU ratably over the life
of the IRU.
Broadband Network -- The broadband network is under construction. Costs
in connection with the construction, installation and expansion of the
network are capitalized.
F-24
<PAGE> 27
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:
<TABLE>
<S> <C>
Building and improvement 10-25 years
Operating communications equipment 5-10 years
Furniture, fixtures and other equipment 2-10 years
</TABLE>
The operating communications equipment owned by the Company is subject to
rapid technological obsolescence, therefore it is reasonably possible
that the equipment's estimated useful lives could change in the near
future.
Investment - Investment represents a less than 1.0% ownership interest
(at December 31, 1999 and 2000) by the Company in unaffiliated entities
established for the purchase and leasing of satellite capacity time and
are accounted for under the cost method.
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 three months ended March 31, 1999 and 2000.
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 Statements of Financial Accounting
Standards ("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 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.
Reclassifications - Certain amounts in the 1999 financial statements have
been reclassified to conform with the 2000 presentation.
New Accounting Pronouncement - In June 1998, the Financial Accounting
Standards Board ("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. In June 1999, the
FASB issued SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133, an amendment to SFAS No. 133. SFAS No. 137 deferred the effective
date of adoption of SFAS No. 133 to fiscal years beginning after June 15,
2000. Management has not determined what effects, if any, the adoption of
SFAS No. 133 will have on the Company's financial statements.
F-25
<PAGE> 28
3. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable at December 31 and March 31, are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 MARCH 31,
2000
-----------------------------------
(UNAUDITED)
<S> <C> <C>
Trade accounts receivable $ 49,989 $ 49,690
Less: allowance for doubtful accounts (13,943) (13,680)
---------- ----------
Trade accounts receivable, net $ 36,046 $ 36,010
---------- ----------
</TABLE>
The Company provides trade credit to its customers in the normal course
of business. Prior to extending credit, the customers' financial history
is analyzed.
The activity for the allowance for doubtful accounts for the year ended
December 31, 1999 and for the three months ended March 31, 2000, is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
-----------------------------------
(UNAUDITED)
<S> <C> <C>
Beginning balance $ 8,310 $ 13,943
Provision for doubtful accounts 6,280 2,298
Write-offs, net of recoveries (647) (2,561)
---------- ----------
Ending balance $ 13,943 $ 13,680
========== ==========
</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, and other miscellaneous amounts due to the
Company.
5. BROADBAND NETWORK AND AGREEMENTS
Broadband network and related equipment consists of the following at
December 31 and March 31:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31
1999 2000
------------------------------------
(UNAUDITED)
<S> <C> <C>
Under construction - Broadband Network $ 26,967 $ 43,899
Under construction - Global Crossing ducts 1,977 11,607
------------- -------------
Total $ 28,944 $ 55,506
============= =============
</TABLE>
NORTEL NETWORKS AGREEMENTS - On September 6, 1999, the Company executed a
turnkey agreement with Nortel Networks Corporation ("Nortel") relating to
Nortel's design and construction of segments of the Broadband Network in
Argentina for approximately $133.1 million. Pursuant to this agreement,
Nortel will construct:
- long-haul, high capacity fiber optic backbones linking major
cities in Argentina;
F-26
<PAGE> 29
- fiber optic and wireless radio local rings and access points
within major cities in Argentina; and
- connections in Argentina that will integrate the Company's
networks with other providers' facilities, including submarine
cable systems, and provide the Company with access to global
telecommunications links.
In addition, Nortel will provide, as part of the turnkey agreement:
- required equipment and components;
- civil infrastructure design and engineering;
- civil works supervision;
- network infrastructure and configuration planning and engineering;
- formulation of network quality and performance specifications;
- compilation of network testing procedures and protocols; and
- preparation of network maintenance and operations plans and
procedures.
On October 25, 1999, the Company signed a definitive agreement with
Nortel to borrow an aggregate of up to approximately $149.1 million of
long term vendor financing. The financing, which will be disbursed over a
two year period with final maturity in 2006, will be used to finance
Nortel's construction of the segments of the Broadband Network in
Argentina and the purchase of additional equipment to be used by the
Company in connection with the operation of the Broadband Network. The
Parent Company has agreed to guarantee the obligations of the Company
under the Nortel financing agreements.
FRAMEWORK AGREEMENT WITH GLOBAL CROSSING - On July 27, 1999, the Parent
Company entered into an agreement with Global Crossing that contemplates
the Parent Company or its affiliates entering into a series of definitive
agreements. As part of these arrangements, Parent Company or its
affiliates will purchase from Global Crossing indefeasible rights of use
of capacity valued at not less than $46 million on any of Global
Crossing's fiber optic cable networks worldwide.
On September 22, 1999, the Company entered into a definitive agreement
with Global Crossing to construct the terrestrial portion of the Global
Crossing's South American network between Las Toninas, Argentina on the
Atlantic Ocean and Valparaiso, Chile on the Pacific Ocean (the
"Trans-Andean Crossing System"). Construction of the Trans-Andean
Crossing System commenced in September 1999. Global Crossing will pay the
Company $50.7 million a for the turnkey construction of the Trans-Andean
Crossing System, which includes:
- construction of three ducts and related facilities over 230 route
miles between Las Toninas and Buenos Aires, Argentina and over 290
route miles between Mendoza, Argentina and Valparaiso, Chile, for
approximately $26 million.
- licensing to Global Crossing of one duct on our Broadband Network
between the cities of Buenos Aires and Mendoza in Argentina, for
approximately $25 million.
During September 1999, Global Crossing paid the Company $32.8 million in
respect of the ongoing construction of the Trans-Andean Crossing System.
The Company will accumulate all construction costs for the Global
Crossing Ducts in projects under construction and will defer all payment
received from Global Crossing until completion and deliver of the
respective ducts.
F-27
<PAGE> 30
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 and March 31 (exclusive of
the Broadband Network) consists of:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
--------------------------------
(UNAUDITED)
<S> <C> <C>
Land $ 1,538 $ 2,653
Building, installations and improvements 19,536 22,417
Operating communications equipment 265,276 271,978
Furniture, fixtures and other equipment 10,403 11,368
--------- ---------
Total 296,753 308,416
Less: accumulated depreciation (145,564) (148,197)
--------- ---------
Total 151,189 160,219
Works in process 3,856 1,070
--------- ---------
Property, plant and equipment, net $ 155,045 $ 161,289
========= =========
</TABLE>
The recap of accumulated depreciation for the year ended December 31,
1999 and for the three months period ended March 31, 2000, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------------------------------
(UNAUDITED)
<S> <C> <C>
Beginning balance $ 87,641 $ 145,564
Depreciation expense 59,039 9,052
Disposals and retirements (1,116) (6,419)
----------- -----------
Ending balance $ 145,564 $ 148,197
=========== ===========
</TABLE>
7. SHORT-TERM DEBT
The Company's short-term debt consists of short-term credit facilities,
denominated in U.S. dollars with interest rates ranging from 8% to
12.75%. Amounts outstanding under these facilities totaled approximately
$10,707 and $11,908 at December 31, 1999 and March 31, 2000. The Company
has historically refinanced its short-term credit facilities on an annual
basis.
F-28
<PAGE> 31
8. LONG-TERM DEBT
The Company long-term debt at December 31 and March 31, is detailed as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------------------------------
(UNAUDITED)
<S> <C> <C>
Term notes payable (6.63% - 12.63%) maturing
semiannually through 2007, collateralized by certain assets $ 3,799 $ 3,271
Eximbank notes payable (8%), maturing
semiannually through 2003 and 2004 7,285 7,820
Broadband vendor financing (11.78%) due 2007 39,451 53,017
---------- ----------
Total long-term debt 50,535 64,108
Less: current portion (4,411) (4,282)
---------- ----------
Long-term debt, net $ 46,124 $ 59,826
========== ==========
</TABLE>
9. INCOME TAXES
During the three months ended March 31, 1999 and 2000, the Company
recorded a current provision for income taxes of $40,000 and $602,000
respectively. The statutory tax rate in Argentina was 35%.
10. COMMITMENTS AND CONTINGENCIES
Commitments - The Company leases leased telecommunications link with
annual rental commitments of approximately $10.5 million through the year
2001. In addition, the company has commitments to purchase communications
equipment amounting to approximately $6.5 million at March 31, 2000.
Guarantees - The Company is guarantor on the $125 million 12 1/8% Senior
Guaranteed Notes Due 2003 issued on July 30, 1996 by the Parent Company.
IMPSAT Brazil has entered into a $5.2 million term note with El Camino
Resources, which is guaranteed by the Company and Impsat Fiber Networks,
Inc. At March 31, 2000, the balance outstanding was approximately $5.2
million.
Litigation - 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 a former customer,
ENCOTESA, for amounts due and arising under IMPSAT Argentina's contracts
with ENCOTESA, the Argentine national postal service for $7.3 million.
The ultimate collectivity of this matter continues to be negotiated for
settlement, however, the Company has valued this receivable at a net
realizable value of zero.
* * * * * *
F-29
<PAGE> 32
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following financial table summarizes our results of operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------
1999 2000
------------------------- ---------------------
(IN THOUSANDS AND AS A PERCENTAGE OF
CONSOLIDATED REVENUES)
<S> <C> <C> <C> <C>
Net revenues from services................................... $ 53,560 100.0% $ 58,763 100.0%
Contracted services.......................................... 6,433 12.0 8,082 13.8
Other direct costs........................................... 3,425 6.4 4,339 7.4
Leased capacity.............................................. 9,717 18.1 13,037 22.2
Cost of sold equipment....................................... 901 1.7 820 1.4
Salaries and wages........................................... 10,815 20.2 12,981 22.1
Selling, general and administrative.......................... 9,729 18.2 13,031 22.2
Depreciation and amortization................................ 10,915 20.4 19,936 33.9
Interest expense, net........................................ 14,360 26.8 17,614 30.0
Net (loss) gain on foreign exchange.......................... (6,212) (11.6) 2,565 4.4
Benefit from income taxes.................................... 2,143 4.0 660 1.1
Net loss attributable to common stockholders................. 20,496 38.3 29,067 49.5
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Revenues. Our net revenues for the first quarter of 2000 totaled $58.8
million, an increase of $5.2 million, or 9.7%, from net revenues for the same
period in 1999. The following table shows our revenues by operating subsidiary
(including intercompany transactions) for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------------
1999 2000
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
IMPSAT Argentina................ $26,497 $26,804
IMPSAT Colombia................. 14,885 13,815
IMPSAT Venezuela................ 5,072 6,535
IMPSAT Ecuador.................. 3,083 3,495
IMPSAT Mexico................... 811 827
IMPSAT Brazil(1)................ 1,021 5,096
Mandic S.A(1)................... 2,033 --
IMPSAT USA...................... 4,175 5,743
</TABLE>
-------------------------
(1) On October 5, 1999, we transferred the retail dial-up Internet
business of Mandic to El Sitio, Inc., and merged Mandic's remaining operations
into IMPSAT Brazil.
Growth in our net revenues resulted primarily from non-satellite
services, including terrestrial-based network services and corporate Internet
services. The following table shows our revenues by business lines (after
elimination of intercompany transactions) for the periods indicated:
<PAGE> 33
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1999 2000
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Network services
Terrestrial ........................ $ 7,603 $ 9,465
Satellite .......................... 34,722 35,526
-------- --------
Total network services ......... $ 2,349 $ 44,992
-------- --------
Internet
Corporate .......................... $ 1,723 $ 4,274
Wholesale .......................... 4,299 2,440
-------- --------
Total Internet ................. $ 6,022 $ 6,714
-------- --------
Other ................................ $ 5,189 $ 7,057
-------- --------
Total net revenues from services ....... $ 53,560 $ 58,763
======== ========
</TABLE>
Despite the economic recessions experienced in many of our countries of
operation during 1999 and into the first quarter of 2000, we achieved revenue
growth for the first three months of 2000. This revenue growth was achieved
principally because of an overall increase in the number of customers and
services we provided to them offset, in part, by decreasing prices. Excluding
Internet and fax store and forward customers, we had a total of 1,913 customers
at March 31, 2000, compared to 1,534 customers at March 31, 1999. Customer
growth was most pronounced in Brazil, Argentina and the United States.
Significant new customers we obtained during the first quarter of 2000 included
IFX, a U.S. Internet access provider that has commenced operations in Latin
America, Banque Nationale de Paris, and the Buenos Aires Stock Exchange Clearing
House in Argentina.
In August 1999, we entered into an agreement with El Sitio, Inc., an
Internet content provider, for the sale of our retail Internet businesses in
Argentina, Brazil and Colombia for approximately $21.5 million. We concluded the
sale of our Brazilian retail Internet business to El Sitio in October 1999, the
sale of our Argentine retail Internet business to El Sitio in November 1999, and
the sale of our Colombian retail Internet business during April 2000. Our
revenue for the first quarter of 1999 includes $1.6 million from retail Internet
business in Argentina, Brazil and Colombia, and our first quarter 2000 revenue
includes $0.2 million from retail Internet business in Colombia.
The Company's operations in Brazil recorded the highest revenue growth
rate among our countries of operation. Revenues at IMPSAT Brazil during the
first quarter of 2000 totaled $5.1 million, an increase of $4.1 million, or
399.1%, compared to the same period in 1999. IMPSAT Brazil's revenues for the
first quarter of 2000 included:
- - $1.3 million in wholesale Internet revenues, including revenues from
Mandic's operations, which were merged into IMPSAT Brazil in October
1999
- - $0.1 million in wholesale Internet revenues from El Sitio, Inc., which
relates to our telecommunications services used by El Sitio to provide
Internet access to the retail Internet business we sold to El Sitio in
October 1999
Our operations in the United States and Venezuela also showed improved
results. IMPSAT USA's revenues totaled $5.7 million in the first quarter of
2000, a 37.5% increase as compared to the first quarter of 1999. This is
primarily a result of increased network services and Internet backbone access
services to multinational corporations with operations in Latin America. IMPSAT
Venezuela's revenues totaled $6.5 million for the first three months of 2000,
28.8% higher than in the first quarter of 1999.
2
<PAGE> 34
In Argentina, revenues for the Company's satellite-based services
declined as compared to the prior year's first quarter while non-satellite-based
services, including terrestrial-based network services and corporate Internet
services, increased.
Our improved results in Brazil, Venezuela and the United States were
offset by a decrease in revenues at IMPSAT Colombia. During the first quarter of
2000, our operations in Colombia, our second oldest market, continued to be
adversely affected by that country's economic recession. IMPSAT Colombia's
revenues totaled $13.8 million during the first quarter of 2000, a 7.2% decrease
from the same period in 1999. Due to continuing effects of the recession, we
expect IMPSAT Colombia to continue to experience declining prices and margin
pressure for the remainder of 2000.
Our revenue for the first quarter of 2000 includes $1.0 million that we
generated from equipment sales during that period, compared to $1.4 million
during the first quarter of 1999.
Direct Costs. Our direct costs for the first quarter of 2000 totaled
$26.3 million, an increase of $5.8 million, or 28.3%, compared to the first
quarter of 1999. Of our total direct costs for the first quarter of 2000, $11.7
million related to the operations of IMPSAT Argentina and $5.3 million related
to the operations of IMPSAT Colombia. This compares to $9.9 million at IMPSAT
Argentina and $5.1 million at IMPSAT Colombia for the first quarter of 1999.
Direct costs for IMPSAT Brazil totaled $4.0 million for the first quarter of
2000, compared to $0.7 million for the corresponding period in 1999. Direct
costs of our subsidiaries are described prior to the elimination of intercompany
transactions.
(1) Contracted Services. Contracted services costs include costs
of maintenance and installation (and de-installation) services provided
by outside contractors. In the first quarter of 2000, our contracted
services costs totaled $8.1 million, compared to $6.4 million in the
first quarter of 1999. Of this amount, maintenance costs for our
telecommunications network infrastructure totaled $5.0 million, compared
to $4.2 million during the same period in 1999. Our maintenance costs
increased because we had more infrastructure. In addition, our
installation costs totaled $3.1 million, compared to $2.3 million for the
first quarter of 1999. The increase in these costs was due in part to a
higher number of de-installations of VSAT microstations due to customer
cancellations and customer upgrades to SCPC technology.
(2) Other Direct Costs. Other direct costs principally include
licenses and other fees; sales commissions paid to third-party sales
representatives; and our allowance for doubtful accounts.
Sales commissions paid to third-party sales representatives
totaled $2.1 million, compared to $1.6 million for the corresponding
period in 1999. Most of these commissions related to customers of IMPSAT
Argentina.
We recorded a net provision for doubtful accounts of $1.2 million
compared to $0.7 million for the same period in 1999. At March 31, 2000
approximately 13% of our gross trade accounts receivable were past due
more than six months but less than one year and approximately 15% were
past due more than one year. In February, 2000, we reached an agreement
with IBM de Argentina for the settlement of amounts owed to us, for which
we received approximately $2.0 million, representing a recovery of 89.7%
of the approximately $2.3 million amount reserved. As a result of the IBM
de Argentina recovery, a lower provision for doubtful accounts was
recorded during the period.
(3) Leased Capacity. Our leased capacity costs totaled $13.0
million, which represented an increase of $3.3 million, or 34.1%, from
the corresponding period in 1999. We had
3
<PAGE> 35
approximately 810 MHz of leased satellite capacity at March 31, 2000 and
680 MHz at March 31, 1999. The expansion of our satellite capacity was
primarily attributable to contractually scheduled increases in satellite
capacity to match anticipated growth in customer demand.
In addition, to satisfy increasing customer demand for higher
bandwidth telecommunications links, during the first quarter of 2000 we
increased our leased dedicated capacity on third-party fiber optic
networks, spending $3.3 million, compared to $1.6 million for the same
period in 1999. These costs were incurred principally in Argentina and
Brazil. Leased fiber optic capacity in Argentina and Brazil is quite
expensive due to the very limited number of providers. Due to these
higher costs of leased fiber optic capacity and the continued preference
by some of our customers for greater bandwidth, we expect our leased
capacity costs to increase until the scheduled year-end 2000
implementation of the Broadband Network in Argentina and Brazil.
(4) Costs of Equipment Sold. We incurred costs of equipment sold
of $0.8 million, compared to $0.9 million in the first quarter of 1999.
Salaries and Wages. Salaries and wages totaled $13.0 million, an increase
of $2.2 million, or 20.0%, from the first quarter of 1999. The increase resulted
primarily from:
- an increase in the number of employees, from 1,088 at March 31,
1999 to 1,153 at March 31, 2000, particularly in connection with
the progression of our operations in Brazil, the development of
the Broadband Network and changes in our corporate staff as a
result of our completed initial public offering
- increases in the salaries and wages of our personnel to match
market rates for personnel with the expertise we require and
increases in cost of living
IMPSAT Argentina incurred salaries and wages for the first quarter of
2000 of $5.9 million compared to $4.4 million during the same period in 1999.
Salaries and wages for the first three months of 2000 with respect to IMPSAT
Brazil totaled $2.1 million. IMPSAT Brazil increased its number of employees to
184 persons at March 31, 2000, compared to 134 persons at March 31, 1999, in
connection with our continued development of operations in that country.
Selling, General and Administrative Expenses. We incurred SG&A expenses
totaling $13.0 million for the first quarter of 2000, compared to $9.7 million
for the same period in 1999. The increase in SG&A expenses results from:
- the expansion strategy we have undertaken commencing in the second
half of 1999, including our development and implementation of our
Broadband Network and strategy
- our capital raising efforts in support of our Broadband Network
strategy, including our initial public offering in February 2000
Depreciation and Amortization. Our depreciation and amortization expense
for the first quarter of 2000 totaled $19.9 million, an increase of $9.0
million, or 82.6%, compared to the same period in 1999. The significant increase
in depreciation and amortization expense reflects the our decision at the end of
the third quarter of 1999 to change the depreciable life of some of our customer
premises telecommunications equipment from ten years to five years, as well as
the continued growth in our infrastructure, including the Broadband Network. The
change in our depreciation policy was in response to technological advances in
our industry.
4
<PAGE> 36
Interest Expense, Net. Our net interest expense totaled $17.6 million.
This consists of interest expense of $22.4 million and interest income of $4.8
million. Our net interest expense increased $3.2 million, or 22.6%, from net
interest expense for the first quarter of 1999.
For the first quarter of 2000, the average interest rate on our
indebtedness was 12.2%, compared to an average interest rate of 12.4% for the
corresponding period in 1999. Our total indebtedness as of March 31, 2000 was
$820.2 million, as compared to $484.3 million as of March 31, 1999. We
anticipate that interest expense will increase in the future based on:
- expected increased levels of borrowing associated with our
development of the Broadband Network, including the vendor
financing agreements that we signed with Nortel in October 1999
for a total of up to $297.4 million to construct the Broadband
Network in Argentina and Brazil
- the issuance in February 2000 of our 133/4 Senior Notes Due 2005
See "-- Liquidity and Capital Resources."
Net (Loss) Gain on Foreign Exchange. We recorded a net gain on foreign
exchange of $2.6 million, compared to a net loss of $6.2 million for the same
period in 1999. The net gain on foreign exchange reflects the appreciation of
the Brazilian real against the U.S. dollar in the first quarter of 2000 compared
to the first quarter of 1999. At March 31, 2000, the exchange rate for the
Brazilian real equaled R1.75 = $1.00, compared to R1.81 = $1.00 at December 31,
1999. The rapid devaluation of the real during the first quarter of 1999 upon
the decision of the Brazilian government to permit the real to float against the
U.S. dollar has moderated and reversed in recent periods as the Brazilian
economy has improved over the corresponding period.
Benefit from Income Taxes. We recorded a benefit from income taxes (all
of which are for foreign taxes) of $0.7 million compared to a benefit for income
taxes of $2.1 million for the first quarter of 1999.
Net Loss Attributable to Common Stockholders. For the first quarter of
2000, we incurred a net loss attributable to common stockholders of $29.1
million, an increase of 41.8% compared to $20.5 million for same period in 1999.
The increase in our net loss attributable to common stockholders was principally
due to the change in our depreciation policy discussed above, and an increase in
net interest expense due to higher average outstanding indebtedness.
LIQUIDITY AND CAPITAL RESOURCES
We will continue to make significant capital expenditures in the next
several years in connection with the Broadband Network, the further development
of our operations in Brazil and new customer accounts (for which we install our
equipment on customer premises). We also have, and will continue to have,
substantial interest expense.
At March 31, 2000, we had total cash and cash equivalents of $557.5
million. Our cash and cash equivalents relate principally to:
- unused proceeds from our $300 million 13 3/4 Senior Notes Due 2005
offering in February 2000
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<PAGE> 37
- unused proceeds of our initial public offering in February 2000 of
11,500,000 shares of our common stock
- unused proceeds from our private placement in February 2000 of
2,850,000 shares of common stock to British Telecommunications
plc, one of our existing stockholders
The net proceeds from the offering of our 133/4 Senior Notes Due 2005 was
approximately $294.1 million. The net proceeds from our initial public offering
and the British Telecommunications private placement totaled approximately
$228.8 million.
Our budget contemplates that we will need approximately $246.1 million
during the period from March 31, 2000 (including amounts spent to date) through
the end of 2000 for capital expenditures related to the Broadband Network in
Argentina and Brazil. In October 1999, we executed definitive agreements with
Nortel for long term vendor financing commitments of up to approximately $297
million, which we can use to pay for Nortel's construction of the segments of
our Broadband Network in Argentina and Brazil. In addition, we are negotiating a
vendor financing agreement of approximately $20 million with Lucent
Technologies, Inc. as part of our agreement to purchase Lucent fiber optic cable
for the long-haul portions of the Broadband Network in Argentina.
We do not have any other commitments regarding financing for the
Broadband Network. As a result, the further expansion and development of the
Broadband Network will depend upon our ability to obtain additional financing.
If we are unable to obtain additional financing, we will not be able to maintain
our levels of growth and market position in any of the countries in which we
operate, which could have a material adverse effect on our results of
operations.
In addition, we anticipate that we will require approximately $148.2
million for other capital expenditures, including those related to our existing
telecommunications business (including amounts spent to date) through the end of
2000, and significant amounts thereafter.
In the three months ended March 31, 2000, our operating activities
generated $18.1 million, compared with $6.5 million used during the same period
in 1999. Financing activities, principally our offering of our 133/4 Senior
Notes Due 2005, our initial public offering and our private placement of common
stock to British Telecommunications, provided $492.1 million in net cash for the
three months ended March 31, 2000, compared with $1.5 million for the same
period in 1999. During the first quarter of 2000, we used $50.4 million net cash
for investing activities, compared to $17.2 million in the first quarter of
1999.
At March 31, 2000, we had leased satellite capacity with annual rental
commitments of approximately $33.0 million through the year 2003. In addition,
at March 31, 2000, we had commitments to purchase telecommunications equipment
amounting to approximately $10.0 million.
YEAR 2000
The year 2000 problem refers to the failure of installed computerized
systems and software products to recognize or accept four digit date entries. In
this case, systems that have date-sensitive features might, for example,
recognize a date using "00" as the year 1900 rather than the year 2000. This
problem could cause malfunctions in certain computer systems, software and
databases with respect to dates on or after January 1, 2000, unless corrected.
We did not experience any difficulties related to the year 2000 problem
on January 1, 2000 and have not experienced any year 2000 difficulties since
that date. We believe that we have been successful
6
<PAGE> 38
in our efforts to address the year 2000 issue and will, therefore, not suffer
any material adverse effect on its operations or financial condition due to the
year 2000 problem. We will, however, continue to monitor our systems for
potential year 2000 difficulties.
We continue to face risks to the extent that the business systems or
products of our suppliers, satellite providers, customers and others with whom
we transact business are not year 2000 compliant. In providing our services, our
systems are required to communicate electronically with customer-owned systems
with respect to a variety of functions. Failure of our customers' systems to be
year 2000 compliant, particularly satellite providers, could impair our ability
to perform these functions. Furthermore, if any of our suppliers cannot provide
us with products, services or systems that meet the year 2000 requirements, our
operating results could be materially adversely affected. We cannot assure you
that the systems of our customers and suppliers will continue to be year 2000
compliant. We could be adversely affected by the year 2000 problem if we or our
suppliers, customers and other businesses have not addressed this issue
successfully.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The sections below highlight our exposure to interest rate and foreign
exchange rate risks and change in the market values of our investment in equity
securities. The analyses presented below are illustrative and should not be
viewed as predictive of our future financial performance. Additionally, we
cannot assure you that our actual results in any particular year will not differ
from the amounts indicated below. However, we believe that these results are
reasonable based on our financial instrument portfolio at March 31, 2000 and
assuming that the hypothetical interest rate and foreign exchange rate changes
used in the analyses occurred during year 2000. We do not hold or issue any
market risk sensitive instruments for trading purposes.
Interest Rate Risk. Our cash and cash equivalents consist of highly
liquid investments with a maturity of less than three months. As a result of
the short-term nature of the our cash instruments, we do not believe that a
hypothetical 10% change in interest rates would have an impact on our future
earnings and cash flows related to these instruments. A hypothetical 10% change
in interest rates would also have an immaterial impact on the fair values of
these instruments. We are also exposed to interest rate risk on our floating
rate indebtedness and financial assets, which affects our cost of financing and
interest income we derive from, and the fair value of, our financial assets. As
of March 31, 2000, $99.5 million of our long-term debt bears interest at
variable rates. Because these rates are variable, a hypothetical 10% change in
interest rates would result in a related increase or decrease in interest
expense of approximately $61,000 during the first quarter of 2000. The
remaining $678.8 million of long-term debt bears interest at fixed rates.
Because these rates are fixed, a hypothetical 10% change in interest rates
would have no material impact on interest expense or the fair value of these
instruments. Financial instruments which we hold are disclosed in Note 3 to
our Consolidated Financial Statements.
Foreign Currency Risk. A substantial portion of our costs, including
lease payments for satellite transponder capacity, purchases of capital
equipment, and payments of interest and principal on our indebtedness, is
payable in U.S. dollars. To date, we have not entered into hedging or swap
contracts to address currency risks because our contracts with our customers
generally provide for payment in U.S. dollars or for payment in local currency
linked to the exchange rate between the local currency and the U.S. dollar at
the time of invoicing. These contractual provisions are structured to reduce our
risk if currency exchange rates fluctuate. However, given that the exchange rate
is generally set at the date of
7
<PAGE> 39
invoicing and that in some cases we experience substantial delays in collecting
receivables, we are exposed to exchange rate risk.
Pursuant to Brazilian law, our contracts with customers in Brazil cannot
be denominated in dollars or linked to the exchange rate between the Brazilian
real and the U.S. dollar. Our expansion in Brazil, including our development of
the Broadband Network in Brazil, has, and will continue to, increase our
exposure to exchange rate risks. Revenues from our Brazilian operations as of
December 31, 1999 and March 31, 2000 that are not denominated in the U.S. dollar
represented approximately 3.8% and 8.7% of our total net revenues for 1999 and
the first quarter of 2000, respectively. However, this proportion can be
expected to increase significantly in future periods in connection with the
progression of our operations in Brazil, and the development of the Broadband
Network. The effect of foreign exchange rate fluctuations on our consolidated
results in 1999 and the quarter ended March 31, 2000 was not material.
Changes in Market Value of Investment. We hold a fair value basis
investment of approximately 15.3% of the common stock of El Sitio, which is
publicly traded on the Nasdaq National Market Syetem. Our investment in El Sitio
is subject to equity price and overall stock market risk. See Note 3 to our
Consolidated Financial Statements. Our El Sitio investment is included in
non-current assets and is accounted for as "available for sale" securities under
SFAS No. 115 because our ownership is less than 20% and we do not have the
ability to exercise significant influence over El Sito's operations.
Our investment in El Sitio, which is in the Internet industry, is subject
to significant fluctuations in fair market value due to the volatility of the
stock market. A hypothetical 20% decrease in the share price of El Sitio's
common stock from the price at March 31, 2000 would decrease the fair value of
our investment by $26.3 million.
In the future, we may make additional equity investments in other
privately or publicly held corporations for business and strategic purposes.
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
Not Applicable.
8
<PAGE> 40
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.
(1) On March 2, 2000, the registrants filed with the Commission
a current report on Form 8-K, which disclosed a public announcement on March 1,
2000 of IMPSAT Fiber Networks, Inc.'s consolidated operating results for the
fourth quarter and full year 1999.
(2) On February 17, 2000, the registrants filed with the
Commission a current report on Form 8-K, which disclosed a public announcement
on February 16, 2000 of the consummation on February 16, 2000 of the sale by
IMPSAT Fiber Networks, Inc. of US$300,000,000 13-3/4% Senior Notes due 2005
pursuant to Rule 144A under the U.S. Securities Act of 1933, as amended.
9
<PAGE> 41
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 Fiber Networks, Inc.
By: /s/ Guillermo Jofre
----------------------------------------
Guillermo Jofre
Chief Financial Officer
Date: May 15, 2000
IMPSAT S.A.
By: /s/ Jose Torres
----------------------------------------
Jose Torres
Director and
Chief Accounting Officer
Date: May 15, 2000
10
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF IMPSAT FIBER NETWORKS, INC. AND ITS
CONSOLIDATED SUBSIDIARIES AS OF AND FOR THE QUARTER ENDED MARCH 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 557,545
<SECURITIES> 141,914
<RECEIVABLES> 52,878
<ALLOWANCES> 20,610
<INVENTORY> 0
<CURRENT-ASSETS> 643,830
<PP&E> 321,963
<DEPRECIATION> 254,868
<TOTAL-ASSETS> 1,357,406
<CURRENT-LIABILITIES> 195,210
<BONDS> 778,205
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<COMMON> 914
<OTHER-SE> 541,710
<TOTAL-LIABILITY-AND-EQUITY> 1,357,406
<SALES> 0
<TOTAL-REVENUES> 58,763
<CGS> 0
<TOTAL-COSTS> 72,226
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<LOSS-PROVISION> 3,726
<INTEREST-EXPENSE> 17,614
<INCOME-PRETAX> (28,334)
<INCOME-TAX> 660
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