<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|X| FOR THE QUARTERLY PERIOD ENDED September 30, 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 (IRS EMPLOYER IDENTIFICATION NUMBER)
ORGANIZATION)
</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 September 30, 2000, the
Company had outstanding 91,428,570 shares of Common Stock, $0.01 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.............................................................................1
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............1
PART II OTHER INFORMATION...............................................................................13
Item 1. Legal Proceedings...............................................................................13
Item 2. Changes in Securities...........................................................................13
Item 3. Defaults Upon Senior Securities.................................................................13
Item 4. Submission of Matters to a Vote of Security-Holders.............................................13
Item 5. Other Information...............................................................................13
Item 6. Exhibits and Reports on Form 8-K................................................................13
</TABLE>
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<PAGE> 4
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, 1999 SEPTEMBER 30, 2000
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ 97,507 $ 114,766
Trading investments................................... 305,963
Trade accounts receivable, net........................ 52,176 70,650
Other receivables..................................... 27,640 48,148
Prepaid expenses...................................... 1,703 3,810
----------------- ------------------
Total current assets................................. 179,026 543,337
----------------- ------------------
BROADBAND NETWORK, Net.................................. 71,868 237,799
----------------- ------------------
PROPERTY, PLANT AND EQUIPMENT, Net...................... 310,330 379,696
----------------- ------------------
NON-CURRENT ASSETS:
Investments........................................... 235,925 33,433
Intangible assets..................................... 442 84,338
Deferred income taxes, net............................ 24,690
Deferred financing costs, net......................... 8,985 13,362
Other non-current assets.............................. 21,756 20,314
----------------- ------------------
Total non-current assets............................. 267,108 176,137
----------------- ------------------
TOTAL................................................... $ 828,332 $ 1,336,969
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable -- trade............................. $ 53,678 $ 84,116
Short-term debt....................................... 15,670 8,306
Current portion of long-term debt..................... 23,007 16,904
Accrued and other liabilities......................... 29,506 43,230
Deferred income taxes, net............................ 51,870 -
Customer advances on broadband network................ 23,200 49,171
----------------- ------------------
Total current liabilities............................ 196,931 201,727
----------------- ------------------
LONG-TERM DEBT, Net..................................... 445,634 873,984
----------------- ------------------
OTHER LONG-TERM LIABILITIES............................. 21,391 30,771
----------------- ------------------
COMMITMENTS AND CONTINGENCIES (Note 13).................
----------------- ------------------
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
September 30, 2000.................................. 716 914
Additional paid in capital............................ 221,013 541,615
Accumulated deficit................................... (202,934) (298,486)
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) (4,401)
Deferred stock-based compensation..................... (5,438)
Accumulated other comprehensive income (loss) ........ 126,373 (3,717)
----------------- ------------------
Total stockholders' equity .......................... 15,341 230,487
----------------- ------------------
TOTAL................................................... $ 828,332 $ 1,336,969
================= ==================
</TABLE>
See notes to consolidated financial statements.
F-1
<PAGE> 5
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
----------- ----------- ---------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUES:
Net revenues from services:
Network services......................... $ 43,036 $ 45,568 $ 130,141 $ 136,573
Internet................................. 7,016 9,409 19,638 23,721
Other.................................... 5,859 12,622 17,350 30,822
--------- --------- --------- ---------
Total net revenues from services....... 55,911 67,599 167,129 191,116
Broadband network development revenues..... 43,077 43,077
--------- --------- --------- ---------
Total net revenues..................... 55,911 110,676 167,129 234,193
--------- --------- --------- ---------
COSTS AND EXPENSES:
Direct costs:
Contracted services..................... 5,177 7,369 16,773 20,630
Other direct costs...................... 14,967 3,901 24,731 14,887
Leased capacity......................... 12,884 20,628 35,348 52,213
Broadband network cost.................. 25,382 25,382
Cost of sold equipment.................. 398 4,478 2,084 9,075
--------- --------- --------- ---------
Total direct costs..................... 33,426 61,758 78,936 122,187
Salaries and wages......................... 12,030 16,104 34,222 46,274
Selling, general and administrative........ 10,331 13,805 28,851 38,293
Depreciation and amortization.............. 64,761 20,942 88,090 61,751
--------- --------- --------- ---------
Total costs and expenses..................... 120,548 112,609 230,099 268,505
--------- --------- --------- ---------
Operating loss............................... (64,637) (1,933) (62,970) (34,312)
--------- --------- --------- ---------
OTHER INCOME (EXPENSES):
Interest income and investment gains....... 2,100 7,370 5,094 20,515
Interest expense........................... (15,970) (29,568) (47,070) (80,051)
Net loss on foreign exchange............... (1,514) (2,294) (9,500) (1,490)
Other (expense) income, net................ (151) (397) (715) 2,087
--------- --------- --------- ---------
Total other expenses................... (15,535) (24,889) (52,191) (58,939)
--------- --------- --------- ---------
LOSS BEFORE INCOME TAXES
AND MINORITY INTEREST...................... (80,172) (26,822) (115,161) (93,251)
BENEFIT FROM (PROVISION FOR) INCOME TAXES.... 14,935 162 18,952 (908)
--------- --------- --------- ---------
LOSS BEFORE MINORITY INTEREST................ (65,237) (26,660) (96,209) (94,159)
LOSS ATTRIBUTABLE TO MINORITY INTEREST....... 5,744 5,603
--------- --------- --------- ---------
NET LOSS BEFORE DIVIDENDS ON REDEEMABLE
PREFERRED STOCK............................ (59,493) (26,660) (90,606) (94,159)
DIVIDENDS ON REDEEMABLE PREFERRED STOCK...... (3,536) (10,371) (1,393)
--------- --------- --------- ---------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS............................... $ (63,029) $ (26,660) $(100,977) $ (95,552)
========= ========= ========= =========
NET LOSS PER COMMON SHARE:
BASIC AND DILUTED.......................... $ (0.88) $ (0.29) $ (1.92) $ (1.09)
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
BASIC AND DILUTED.......................... 71,603 91,429 52,708 87,569
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 6
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 2000 1999 2000
----------- ------------ ------------ ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS............................... $ (63,029) $ (26,660) $(100,977) $ (95,552)
OTHER COMPREHENSIVE LOSS, net of tax:
Foreign currency translation adjustment.... (373) (2,085) (3,546) (2,415)
Change on unrealized gain on investment
available for sale, net of taxes.......... -- (13,057) -- (127,675)
---------- ---------- --------- ---------
TOTAL...................................... (373) (15,142) (3,546) (130,090)
---------- ---------- --------- ---------
COMPREHENSIVE LOSS........................... $ (63,402) $ (41,802) $(104,523) $(225,642)
========= ========== ========= ==========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 7
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------ PAID IN ACCUMULATED TREASURY
SHARES STOCK CAPITAL DEFICIT STOCK
------------- --------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1999............ 56,688,076 $ 716 $ 221,013 $ (202,934) $(125,000)
Dividends on redeemable preferred stock (1,393)
Issuance of common shares in Initial
Public Offering, net of offering
expenses........................... 14,350,000 144 229,206
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) 125,000
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, net
of taxes...........................
Foreign currency translation adjustment
Net loss for the period.............. (94,159)
------------- --------- ----------- -------------- ----------
BALANCE AT SEPTEMBER 30, 2000 (Unaudited) 91,428,570 $ 914 $ 541,615 $ (298,486) -
============= ========= =========== ============== ==========
</TABLE>
<TABLE>
<CAPTION>
AMOUNT PAID IN
EXCESS OF ACCUMULATED
CARRYING VALUE OF DEFERRED OTHER
NET ASSETS ACQUIRED STOCK-BASED COMPREHENSIVE
FROM RELATED PARTY COMPENSATION (LOSS) INCOME TOTAL
------------------- -------------- ----------------- -------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1999............ $ (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........................... 229,350
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............................. 117,978
Deferred stock-based compensation.... (5,438)
Amortization of amount paid in excess
of carrying value of net assets
acquired from related party........ 426 426
Change on unrealized gain on
investment available for sale, net
of taxes........................... (127,675) (127,675)
Foreign currency translation adjustment (2,415) (2,415)
Net loss for the period.............. (94,159)
------------------- -------------- ----------------- -------------
BALANCE AT SEPTEMBER 30, 2000 (Unaudited) $ (4,401) $ (5,438) $ (3,717) $ 230,487
=================== ============== ================= =============
</TABLE>
F-4
<PAGE> 8
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1999 2000
-------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $(90,606) $ (94,159)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Amortization and depreciation............................ 88,090 61,998
Deferred income tax benefit.............................. (17,995) (1,575)
Proceeds from delivery of broadband network.............. 28,869
Gross profit from delivery of broadband network.......... (17,695)
Changes in assets and liabilities:
Decrease (Increase) in trade accounts receivable, net.. 25 (14,486)
Decrease (Increase) in prepaid expenses................ 742 (2,107)
Decrease (Increase) in other receivables and other
non-current assets...................................... 1,856 (19,066)
Increase in accounts payable -- trade.................. 9,475 30,438
Increase in customer advances on broadband network..... 22,736 36,191
Increase in accrued and other liabilities.............. 7,046 13,774
(Decrease) Increase in other long-term liabilities..... (7,045) (8,665)
-------- ---------
Net cash provided by operating activities............... 14,324 13,517
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in trading investments.................... (305,963)
Build-out of broadband network.......................... (33,552)
Purchases of property, plant and equipment............. (74,262) (125,754)
Cash paid in Mandic S.A. acquisition, net.............. (3,700)
Decrease (increase) in investment...................... 421 (168)
-------- ---------
Net cash used in investing activities................... (77,541) (465,437)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments of short-term debt....................... (3,287) (7,364)
Proceeds from long-term debt, net....................... 26,924 304,088
Repayments of long-term debt............................ (21,753) (21,980)
Proceeds from issuance of common stock, net............. 120,936 229,350
Cash paid in redemption of preferred stock.............. (32,500)
-------- ---------
Net cash provided by financing activities............... 122,820 471,594
-------- ---------
EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH
EQUIVALENTS............................................. (3,546) (2,415)
-------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................. 56,057 17,259
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD...... 90,021 97,507
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD............ $146,078 $ 114,766
======== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid.......................................... $ 44,787 $ 66,491
======== =========
Foreign income taxes paid.............................. $ 1,155 $ 2,893
======== =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Accrued dividends on redeemable preferred stock........ $ 10,371 $ 1,393
======== =========
Change to unrealized gain on investment available for
sale, net of tax....................................... $(127,675)
=========
Broadband network vendor financing..................... $ 135,762
=========
Broadband network financed through other long-term
liabilities............................................ $ 23,030
=========
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
=========
Delivery of broadband network:
Application of customer advances..................... $ 10,220
=========
Accounts receivable.................................. $ 3,988
=========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 9
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 Internet and private network integrated data and voice
telecommunications 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 has completed the initial phase of the Broadband Network
(see Note 6), which connects points across Argentina and Chile, during September
of 2000. The Company expects to complete the remaining phases, which connects
points across Argentina and Brazil during 2001.
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>
2. INITIAL PUBLIC OFFERING
The Company 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 $88.1
million in goodwill.
F-6
<PAGE> 10
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.
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 financial
statements as of September 30, 2000 and for the nine months ended September 30,
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 nine-month period ended September 30, 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 accounting principles generally accepted in the United States of America
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 time deposits
with maturities of three months or less at the time of purchase. Cash
equivalents 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. dollar 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 nine months ended September 30, 1999 and 2000.
In December 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements. SAB No. 101 summarizes the SEC's views on the application of
generally accepted accounting principles to revenue recognition. The Company has
reviewed SAB No. 101 and believes that it is in compliance with the SEC's
interpretation of revenue recognition
In connection with the Company's construction of the Broadband Network, the
Company has entered into agreements with Global Crossing Development Co., a
subsidiary of Global Crossings Ltd. ("Global Crossing"), granting indefeasible
rights of use ("IRU") to portions of its broadband network capacity (see Note
6). Pursuant to these agreements, the Company will receive fixed advance
payments from the IRU and will recognize the revenue from the IRU ratably over
the life of the IRU. In addition to the IRU granted to Global Crossing, the
Company has entered into a framework agreement with 360networks, Inc., which
contemplates the grant of an IRU over the Broadband Network, and expects to have
other similar transactions in the future.
F-7
<PAGE> 11
Broadband Network -- The initial phase of the Broadband Network has been
completed and the remaining phases are under construction. Costs in connection
with the construction, installation and expansion of the Broadband Network are
capitalized. 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.
Depreciation is computed using the straight-line method over the following
estimated useful lives:
<TABLE>
<S> <C>
Broadband Network .......... 20 years
Rights of way .............. 20 years
Equipment and materials .... 10 years
</TABLE>
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>
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 by the Company as
either "trading" for short term investments and "available for sale" for long
term investments and are carried at fair value. Unrealized gains or losses, net
of tax, for available for sale investments are included in accumulated other
comprehensive income within stockholders' equity. Gains and losses for trading
investments are recorded into income. All other investments are carried at cost.
The Company's investments consist of the following at December 31, 1999 and
September 30, 2000:
<TABLE>
<CAPTION>
1999 2000
----------------------------
<S> <C> <C>
Trading investments, at fair value......... $ -- $ 305,963
========= ===========
Investment, at cost........................ $ 10,235 $ 10,403
Available for sale investment, at fair value
($21,527 at cost).......................... 225,690 23,030
--------- -----------
Total................................. $ 235,925 $ 33,433
========= ===========
</TABLE>
The Company's trading investments consist of high-quality, short-term
investments with maturities of less than 360 days. The Company's trading
investments represent the unused proceeds of the IPO and 13 3/4% Senior Notes
due 2005.
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 available for sale investment represents a 14.0% 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"),
F-8
<PAGE> 12
the 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 nine months
ended September 30, 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, investments, payables, short- and long-term
debt. The Company's Senior Guaranteed Notes, Senior Notes 2005 and 2008, and
trading and available for sale investments were valued at market closing prices
at December 31, 1999 and September 30, 2000. The fair value of all other
financial instruments have been determined using available market information
and interest rates as of December 31, 1999 and September 30, 2000.
At December 31, 1999 and September 30, 2000, the fair value of the
Company's financial instruments was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 SEPTEMBER 30, 2000
----------------- ------------------
<S> <C> <C>
12.125% Senior Guaranteed Notes due 2003.......... $ 119,000 $ 108,125
13.75% Senior Notes due 2005...................... -- 255,000
12.375% Senior Notes due 2008..................... 205,000 166,500
Investment in El Sitio Common Stock............... 225,700 23,030
Trading Investments............................... -- 305,963
</TABLE>
The fair value of all other financial instruments was 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
F-9
<PAGE> 13
members of the board or directors (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.
4. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable, by operating subsidiaries, at December 31 and
September 30, are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 SEPTEMBER 30, 2000
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
IMPSAT Argentina.................................. $ 49,989 $ 66,755
IMPSAT Colombia................................... 6,655 6,075
IMPSAT Venezuela.................................. 7,074 6,435
IMPSAT Ecuador.................................... 1,943 2,200
IMPSAT USA........................................ 2,807 3,625
IMPSAT Brazil..................................... 1,791 4,150
Others............................................ 1,737 2,540
---------- ----------
Total......................................... 71,996 91,780
Less: allowance for doubtful accounts............. (19,820) (21,130)
---------- ----------
Trade accounts receivable, net.................... $ 52,176 $ 70,650
========== ==========
</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
F-10
<PAGE> 14
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 nine months ended September 30, 2000, is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 SEPTEMBER 30, 2000
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Beginning balance........................................... $10,109 $19,820
Provision for doubtful accounts............................. 11,134 2,852
Write-offs.................................................. (1,423) (1,542)
------ ------
Ending balance.............................................. $19,820 $21,130
======= =======
</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 are as follows at December 31 and September 30:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
---------- ------------
(UNAUDITED)
<S> <C> <C>
IMPSAT Argentina........ $ 13,606 $ 23,289
IMPSAT Colombia......... 5,269 2,825
IMPSAT Venezuela........ 1,757 2,611
IMPSAT Ecuador.......... 314 456
IMPSAT Mexico........... 2,662 2,491
IMPSAT Brazil........... 1,122 12,483
Others.................. 2,910 3,993
---------- -----------
Total............... $ 27,640 $ 48,148
========== ===========
</TABLE>
6. BROADBAND NETWORK AND AGREEMENTS
Broadband network and related equipment consists of the following at December 31
and September 30:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ --------------
(UNAUDITED)
<S> <C> <C>
Equipment and materials $ 4,018 $ 8,342
Right of ways 15,134 35,473
--------- -----------
Total 19,152 43,815
Less: accumulated depreciation (1,318) (2,349)
--------- -----------
Total 17,834 41,466
Under construction - Broadband Network 51,966 195,206
Under construction - Global Crossing ducts 2,068 1,127
--------- -----------
Total $ 71,868 $ 237,799
========= ===========
</TABLE>
The recap of accumulated depreciation for the year ended December 31,
1999 and for the nine months ended September 30, 2000, is as follows:
F-11
<PAGE> 15
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
--------- --------------
(UNAUDITED)
<S> <C> <C>
Beginning balance...... $ 296 $ 1,318
Depreciation expense... 1,022 1,031
----------- -----------
Ending balance......... $ 1,318 $ 2,349
=========== ===========
</TABLE>
NORTEL NETWORKS AGREEMENTS - On September 6, 1999, the Company executed two
turnkey agreements with Nortel Networks, Inc. ("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 is
constructing:
- 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 is providing, 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 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 is being 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 Brazil. The Company has agreed to
guarantee the obligations of each of IMPSAT Argentina and IMPSAT Brazil under
the Nortel financing agreements. The Company had amounts due under Broadband
Network vendor financing totaling $60.0 million and $179.7 million as of
December 31, 1999 and September 30, 2000, respectively.
FRAMEWORK AGREEMENTS 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
F-12
<PAGE> 16
System"). The Company commenced construction of the Trans-Andean Crossing System
in September 1999. Payments expected for the Company's turnkey construction of
the Trans-Andean Crossing System are 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.
The Company accumulated construction costs for the Global Crossing Ducts in
projects under construction and deferred recognition of all payments received
from Global Crossing until completion and delivery of the respective ducts. The
Company will lease space in its telehouses in Buenos Aires, Argentina and
Santiago, Chile to Global Crossing for Global Crossing's network operations.
On September of 2000 the Company completed and delivered to Global Crossing the
portion of the Trans-Andean Crossing System connecting Los Toninas, Argentina
and Santiago, Chile. In connection with the delivery, the Company recognized
revenues and costs totaling $43.1 million and $25.4 million, respectively. In
addition, at September 30, 2000, the Company has received $24.3 million of
advance payments through such date from Global Crossing in respect of ongoing
construction of the uncompleted Global Crossing ducts and IRUs, which payments
have been recorded as part of Customer Advances on Broadband Network.
During the first nine months of 2000, Global Crossing paid the Company $0.8
million in respect of the licensing of IRUs in Peru from the Company, which
payment has been recorded as part of Customer Advances on Broadband Network.
During the first quarter of 2000, the Company entered into further 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 and for leases of space in its telehouses 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
Global Crossing's points-of-presence to be co-located in the Company's
telehouses in those cities. During the first nine months of 2000, Global
Crossing paid the Company $19.1 million in respect of the backhauls in Brazil
and the telehouses in Brazil and Chile.
In addition to the Trans-Andean Crossing System and the IRUs in Brazil, the
Company will:
- construct fiber optic terrestrial backhauls that will connect
Global Crossing's submarine cable landing points in Colombia and
Peru to major cities in these countries
- sell co-location space in our telehouses in 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.
In August 2000, the Company entered into a framework agreement with 360networks
that contemplates the Company providing 360networks with IRUs for a period of
20-25 years on the Company's Broadband Network across Argentina and Brazil and
maintenance services and telehousing space in the Company facilities in
Argentina, Brazil and Venezuela. During the nine-month period ended September
30, 2000, the Company received $5.0 million of advance payments from
360networks, which payment has been recorded as part of Customer Advances on
Broadband Network.
F-13
<PAGE> 17
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 and September 30 (exclusive
of the Broadband Network, which is described in Note 6 above) consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
----------- -------------
(UNAUDITED)
<S> <C> <C>
Land ................................... $ 3,985 $ 9,235
Building and improvements .............. 31,102 46,304
Operating communications equipment ..... 486,528 573,544
Furniture, fixtures and other equipment. 21,337 25,963
----------- ------------
Total .............................. 542,952 655,046
Less: accumulated depreciation.......... (242,706) (289,996)
----------- ------------
Total .............................. 300,246 365,050
Work in process ........................ 10,084 14,646
----------- ------------
Property, plant and equipment, net ..... $ 310,330 $ 379,696
=========== ============
</TABLE>
The recap of accumulated depreciation for the year ended December 31,
1999 and for the nine months ended September 30, 2000, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
--------- --------------
(UNAUDITED)
<S> <C> <C>
Beginning balance .......... $ 126,728 $ 242,706
Depreciation expense ....... 118,834 56,388
Disposals and retirements .. (2,856) (9,098)
----------- -----------
Ending balance ............. $ 242,706 $ 289,996
=========== ===========
</TABLE>
8. SHORT-TERM DEBT
The Company's short-term debt at December 31 and September 30, is
detailed as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
----------- --------------
(UNAUDITED)
<S> <C> <C>
Short-term credit facilities,
denominated in U.S. dollars;
interest rates ranging from
10.0% to 16.0%;
IMPSAT Argentina..................... $ 10,707 $ 6,708
IMPSAT Colombia...................... 4,756 1,248
IMPSAT Chile......................... 212
Others............................... 207 138
---------- -----------
Total short-term debt.............. $ 15,670 $ 8,306
========= ==========
</TABLE>
The Company has historically refinanced its short term credit facilities
on an annual basis.
F-14
<PAGE> 18
9. LONG-TERM DEBT
The Company's long-term debt at December 31 and September 30, is detailed as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
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 totaling
approximately $4,800 Denominated in:
U.S. dollars (interest rates 7.02% -- 12,50%)............. 23,175 17,114
Local currency (interest rates 12.3% -- 35.40%)........... 15,509 12,131
IMPSAT Argentina (6.63% -- 12.63%), maturing
Semiannually through 2003, collateralized by
Investment................................................ 3,799 2,446
IMPSAT USA (8.25% -- 8.75%), mortgage and
equipment notes........................................... 1,731 1,480
IMPSAT Venezuela (9.00% -- 10.75%), maturing during
2001...................................................... 2,383 481
IMPSAT Brazil (13%), maturing during 2004 ................ 4,718 4,581
IMPSAT Argentina Eximbank notes payable (8 - 9.78%),
maturing semiannually through 2003 and 2004............... 7,285 6,932
Broadband Network vendor financing (11.78%) due 2006...... 59,961 195,723
Other....................................................... 80
---------- ------------
Total long-term debt.................................... 468,641 890,888
Less: current portion....................................... (23,007) (16,904)
---------- ------------
Long-term debt, net......................................... $ 445,634 $ 873,984
========== ============
</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 nine months ended September 30, 1999 and
2000 is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 2000
---------- ----------
(UNAUDITED)
<S> <C> <C>
Current income taxes......... $ (974) $ (3,174)
Deferred income taxes........ 19,926 2,266
--------- ----------
Total.................... $ 18,952 $ (908)
========= ===========
</TABLE>
The foreign statutory tax rates range from 15% 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 thereof, the Board, administers and
interprets the
F-15
<PAGE> 19
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, options for
393,340 shares at an exercise price of $10.47 during the year ended December 31,
1999 and options for 502,080 shares at an exercise price of $17.00 during the
period ended September 30, 2000. 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. The options
vest fully upon a change of control of the Company.
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 nine months ended September 30, 1999 and 2000, is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1999 2000
---------- ---------
<S> <C> <C>
TOTAL ASSETS
IMPSAT Argentina......... $ 226,743 $ 383,927
IMPSAT Colombia.......... 92,733 101,267
IMPSAT Venezuela......... 38,426 52,938
IMPSAT Mexico............ 10,424 12,247
IMPSAT Ecuador........... 21,839 18,606
IMPSAT USA............... 16,750 25,451
IMPSAT Brazil............ 55,473 203,898
Parent Company, Others
and eliminations.......... 136,804 538,635
--------- -----------
CONSOLIDATED TOTAL..... $ 599,192 $ 1,336,969
========= ===========
</TABLE>
F-16
<PAGE> 20
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1999 2000
---------- ---------
<S> <C> <C>
NET REVENUES
NET REVENUES FROM SERVICES:
NETWORK SERVICES
IMPSAT Argentina...... $ 62,747 $ 63,067
IMPSAT Colombia....... 38,746 31,158
IMPSAT Venezuela...... 14,300 18,744
IMPSAT Ecuador........ 7,428 7,543
IMPSAT USA............ 6,306 9,136
IMPSAT Brazil......... 3,483 10,798
Other................. 1,889 2,596
Eliminations.......... (4,758) (6,469)
--------- -----------
CONSOLIDATED TOTAL..... $ 130,141 $ 136,573
========= ===========
INTERNET
IMPSAT Argentina...... $ 6,335 $ 8,095
IMPSAT Colombia....... 2,136 2,162
IMPSAT Venezuela...... 901 958
IMPSAT Ecuador........ 2,081 2,677
IMPSAT USA............ 4,576 7,233
IMPSAT Brazil......... 543 6,242
Others................ 5,997 167
Eliminations.......... (2,931) (3,813)
--------- -----------
CONSOLIDATED TOTAL..... $ 19,638 $ 23,721
========= ===========
OTHER
IMPSAT Argentina...... $ 10,685 $ 18,905
IMPSAT Colombia....... 5,098 6,764
IMPSAT Venezuela...... 1,575 1,231
IMPSAT Ecuador........ 241 621
IMPSAT USA............ 1,750 2,561
IMPSAT Brazil......... 580 1,795
Others................ 1,164 1,057
Eliminations.......... (3,743) (2,112)
--------- -----------
CONSOLIDATED TOTAL..... $ 17,350 $ 30,822
========= ===========
TOTAL NET REVENUES FROM SERVICES
IMPSAT Argentina...... $ 79,767 $ 90,067
IMPSAT Colombia....... 45,980 40,084
IMPSAT Venezuela...... 16,776 20,933
IMPSAT Ecuador........ 9,750 10,841
IMPSAT USA............ 12,632 18,930
IMPSAT Brazil......... 4,606 18,835
Others................ 9,050 3,820
Eliminations.......... (11,432) (12,394)
--------- -----------
CONSOLIDATED TOTAL..... $ 167,129 $ 191,116
========= ===========
BROADBAND NETWORK DEVELOPMENT REVENUES:
IMPSAT Argentina...... $ $ 32,272
IMPSAT Colombia.......
IMPSAT Venezuela......
IMPSAT Ecuador........
IMPSAT USA............
IMPSAT Brazil.........
IMPSAT Chile.......... 10,805
Eliminations..........
--------- -----------
CONSOLIDATED TOTAL..... $ - $ 43,077
========= ===========
TOTAL NET REVENUES
IMPSAT Argentina......... $ 79,767 $ 122,339
IMPSAT Colombia.......... 45,980 40,084
IMPSAT Venezuela......... 16,776 20,933
IMPSAT Ecuador........... 9,750 10,841
IMPSAT USA............... 12,632 18,930
IMPSAT Brazil............ 4,606 18,835
Others.................... 9,050 14,625
Eliminations............. (11,432) (12,394)
--------- -----------
CONSOLIDATED TOTAL..... $ 167,129 $ 234,193
========= ===========
OPERATING INCOME (LOSS)
IMPSAT Argentina......... (32,164) $ (7,049)
</TABLE>
F-17
<PAGE> 21
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1999 2000
---------- ---------
<S> <C> <C>
IMPSAT Colombia.......... (3,434) 1,194
IMPSAT Venezuela......... (1,662) 538
IMPSAT Mexico............ (3,017) (1,739)
IMPSAT Ecuador........... 256 (114)
IMPSAT USA............... (293) 58
IMPSAT Brazil............ (11,887) (18,862)
Others................... (10,769) (8,338)
---------- ------------
CONSOLIDATED TOTAL..... $ (62,970) $ (34,312)
========== ============
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
COMMITMENTS - The Company leases satellite capacity with average annual
rental commitments of approximately $25.5 million through the year 2010. In
addition, the Company has commitments to purchase communications equipment
amounting to approximately $27.3 million at September 30, 2000.
In addition to the foregoing commitments, the Company anticipates that
it will purchase submarine cable capacity from Global Crossing and 360networks
totaling $92.0 million in the aggregate.
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 September 30, 2000, the balance outstanding on the credit
facility amounted to approximately $0.9 million.
IMPSAT Brazil has entered into a $5.8 million term note with El Camino
Resources, which is guaranteed by the Company and IMPSAT Argentina. At September
30, 2000, the balance outstanding was approximately $4.9 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.
RECIPROCAL SERVICE AGREEMENTS - During the first quarter of 2000, IMPSAT
Argentina signed agreements with Movicom/Bell South for the exchange of capacity
on the two companies' respective networks in Argentina. This agreement will
enable IMPSAT Argentina to expand its footprint in the Buenos Aires metropolitan
area beyond that originally included in the Broadband Network.
* * * * * *
F-18
<PAGE> 22
<TABLE>
<CAPTION>
IMPSAT S.A.
BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
-------------------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30,
1999 2000
--------------------------------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,199 $ 2,390
Trade accounts receivable, net 36,046 51,962
Receivable from affiliated companies 4,130 5,741
Other receivables 13,605 23,289
Prepaid expenses 825 1,394
---- ----------
Total current assets 58,805 84,776
--------- ----------
BROADBAND NETWORK, Net 28,944 91,325
--------- ----------
PROPERTY, PLANT AND EQUIPMENT, Net 155,045 185,304
--------- ----------
NON-CURRENT ASSETS:
Investment 10,235 10,403
Deferred income taxes, net 3,622 3,622
Other non-current assets 16,327 8,498
--------- ----------
Total non-current assets 30,184 22,523
--------- ----------
TOTAL $ 272,978 $ 383,928
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 32,732 $ 47,906
Short-term debt 10,707 6,708
Advances from affiliated companies 68,959 14,790
Current portion of long-term debt 4,411 3,517
Accrued and other liabilities 9,548 10,528
Customer advances on broadband network 23,200 28,422
--------- ----------
Total current liabilities 149,557 111,871
--------- ----------
LONG-TERM DEBT, Net 46,124 110,309
--------- ----------
OTHER LONG-TERM LIABILITIES 510 85
---- ----------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY:
Common stock $0.01 par value; 14,755 shares issued and
outstanding at December 31, 1999 and September 30, 2000 3 3
Paid in capital 82,442 184,464
Accumulated deficit (5,658) (22,804)
--------- ----------
Total stockholders' equity 76,787 161,663
--------- ----------
TOTAL $ 272,978 $ 383,928
========= ==========
</TABLE>
See notes to financial statements.
F-19
<PAGE> 23
IMPSAT S.A.
STATEMENTS OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS)
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-----------------------------------------------------------------
1999 2000 1999 2000
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUES:
Net revenues from services:
Network services ........................ $ 20,426 $ 21,239 $ 62,747 $ 63,067
Internet ................................ 2,164 3,102 6,335 8,095
Other ................................... 2,790 8,153 10,685 18,905
---------- ----------- ---------- ----------
Total net revenues from services ..... 25,380 32,494 79,767 90,067
Broadband network development revenues ..... 32,272 32,272
---------- ----------- ---------- ----------
Total net revenues ................... 25,380 64,766 79,767 122,339
---------- ----------- ---------- ----------
COSTS AND EXPENSES:
Direct Costs:
Contracted services .................... 2,361 3,732 8,663 10,608
Other direct costs ..................... 11,724 2,045 17,295 7,976
Leased capacity ........................ 5,007 8,400 13,618 20,831
Broadband network construction costs ... 18,057 18,057
Cost of sold equipment ................. 282 4,292 1,735 8,549
---------- ----------- ---------- ----------
Total direct costs ..................... 19,374 36,526 41,311 66,021
Salaries and wages ......................... 5,195 6,826 14,455 19,566
Selling, general and administrative ........ 4,395 5,409 11,933 17,906
Depreciation and amortization .............. 36,951 8,900 49,191 26,344
---------- ----------- ---------- ----------
Total costs and expenses .................. 65,915 57,661 116,890 129,837
---------- ----------- ---------- ----------
Operating (loss) income ...................... (40,535) 7,105 (37,123) (7,498)
---------- ----------- ----------- -----------
OTHER INCOME (EXPENSES):
Interest expense, net ...................... (3,701) (2,576) (9,861) (7,688)
Other income, net .......................... -- 2 6 6
------ ------ ------ ------
Total other expense ..................... (3,701) (2,574) (9,855) (7,682)
------ ------ ------ ------
(LOSS) INCOME BEFORE INCOME TAXES ............ (44,236) 4,531 (46,978) (15,180)
BENEFIT FROM (PROVISION FOR) INCOME TAXES .... 12,252 (630) 12,212 (1,966)
------ ------ ------ ------
NET (LOSS) INCOME ............................ $(31,984) $3,901 $ (34,766) $ (17,146)
=========== =========== ========== ==========
</TABLE>
See notes to financial statements.
F-20
<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 102,022 102,022
Net loss (17,146) (17,146)
--------- ---------- --------- --------
BALANCE AT SEPTEMBER 30, 2000 $ 3 $ 184,464 $ (22,804) $ 161,663
=== ========= ========== =========
</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-21
<PAGE> 25
IMPSAT S.A.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1999 2000
-----------------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(34,766) $ (17,146)
Adjustment to reconcile net loss to net cash
provided by operating activities:
Amortization and depreciation 49,191 26,344
Proceeds on delivery of Broadband Network 18,064
Gross profit on delivery of Broadband Network (14,215)
Deferred income tax provision (12,212)
Changes in assets and liabilities:
Increase in trade accounts receivable, net (2,423) (11,926)
Decrease (increase) in prepaid expenses 76 (569)
Increase in other receivables and other
non-current assets 1,831 (3,466)
Increase in accounts payable - trade 3,065 15,174
Increase in accrued and other liabilities 7,150 980
Increase in customer advances on broadband
network 22,736 15,442
Increase in other long-term liabilities (767) (425)
------ -------
Net cash provided by operating activities 33,881 28,257
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (34,699) (56,603)
Build-out of broadband network (16,253)
Increase (decrease) in investment 421 (168)
--------- -------
Net cash used in investing activities (34,278) (73,024)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments of short-term debt (2,762) (3,999)
Changes in advances from \ to affiliates (4,051) (54,169)
Proceeds from long-term debt 10,126
Repayment of long-term debt (4,715) (896)
Capital contribution . 102,022
------- ---------
Net cash provided by financing activities (1,402) 42,958
------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,799) (1,809)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE
PERIOD 13,849 4,199
-------- ------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 12,050 $ 2,390
======== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 4,561 $ 5,184
======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Broadband network vendor financing $64,185
=======
Delivery of broadband network:
Application of customer advances............... $10,220
=======
Accounts receivable............................ $ 3,988
=======
</TABLE>
See notes to financial statements.
F-22
<PAGE> 26
IMPSAT S.A.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF U. S. DOLLARS)
--------------------------------------------------------------------------------
1. GENERAL
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 nine months ended
September 30, 2000 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 September 30, 2000, the
Company is a 100% owned subsidiary of the Parent Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information - The unaudited financial statements as of
September 30, 2000 and for the nine months ended September 30, 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 nine month period ended September 30, 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 accounting principles generally accepted in the United States of
America 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
nine months ended September 30, 1999 and 2000.
In December 1999, the Securities and Exchange Commission (the "SEC")
issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in
Financial Statements. SAB No. 101 summarizes the SEC's views on the
application of generally accepted accounting principles to revenue
recognition. The Company has reviewed SAB No. 101 and believes that it is
in compliance with the SEC's interpretation of revenue recognition
F-23
<PAGE> 27
In connection with the Company's construction of the Broadband Network,
the Company with the Parent Company has entered into agreements with
Global Crossing Development Co., a subsidiary of Global Crossing Ltd.
("Global Crossing"), granting indefeasible right of use ("IRU") to
portions of its broadband network capacity (see Note 5). Pursuant to
these agreements, the Company will receive fixed advance payments from
the IRU and will recognize the revenue from the IRU ratably over the life
of the IRU. In addition to the IRU granted to Global Crossing, the
Company has entered into a framework agreement with 360networks, Inc.,
which contemplates the grant of an IRU over the Broadband Network, and
expects to have other similar transactions in the future.
Broadband Network -- The initial phase of the Broadband Network has been
completed and the remaining phases are under construction. Costs in
connection with the construction, installation and expansion of the
Broadband Network are capitalized.
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% ownership interest 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 nine months ended September 30, 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.
F-24
<PAGE> 28
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.
3. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable at December 31 and September 30, are summarized
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
---------------------------
(UNAUDITED)
<S> <C> <C>
Trade accounts receivable $ 49,989 $ 66,755
Less: allowance for doubtful accounts (13,943) (14,793)
---------- ---------
Trade accounts receivable, net $ 36,046 $51,962
---------- ---------
</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 nine months ended September 30, 2000, is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
----------------------------------
(UNAUDITED)
<S> <C> <C>
Beginning balance $ 8,310 $ 13,943
Provision for doubtful accounts 6,280 1,371
Write-offs, net of recoveries (647) (521)
----- ------
Ending balance $13,943 $14,793
======= =======
</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.
F-25
<PAGE> 29
5. BROADBAND NETWORK AND AGREEMENTS
Broadband network and related equipment consists of the following at
December 31 and September 30:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30
1999 2000
---------------- --------------
(UNAUDITED)
<S> <C> <C>
Under construction - Broadband Network $ 26,967 $ 91,325
Under construction - Global Crossing
ducts 1,977
------------ -----------
Total $ 28,944 $ 91,325
============ ===========
</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 is constructing construct:
- long-haul, high capacity fiber optic backbones linking major
cities in Argentina;
- 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 is providing, 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 is being 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 guaranteed the obligations of the Company under the
Nortel financing agreements. The Company had amounts due under Broadband
Network vendor financing totaled $39.5 million and $88.4 million as of
December 31, 1999 and September 30, 2000, respectively.
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.
F-26
<PAGE> 30
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. Payments expected for the
turnkey construction of the Trans-Andean Crossing System are as follows:
- 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.
The Company will accumulate all construction costs for the Global
Crossing Ducts in projects under construction and will defer recognition
of all payments received from Global Crossing until completion and
delivery of the respective ducts. The Company will lease space in its
telehouse in Buenos Aires to Global Crossing for Global Crossing's
network operations.
On September 2000, the Company completed and delivered the Global
Crossing ducts of the Trans-Andean Crossing System between Los Toninas
and the border crossing with Chile. In connection with the delivery, the
Company recognized revenues and costs totalling $32.3 million and $18.1
million, respectively. In addition, at September 30, 2000, the Company
has received $23.4 million of advance payments through such date from
Global Crossing in respect of ongoing construction of the uncompleted
Global Crossing ducts and IRUs, which payments have been recorded as part
of Customer Advances on Broadband Network.
In August 2000, the Parent Company entered into a framework agreement
with 360networks whereby the Company will provide 360networks with IRUs
for a period of 20-25 years on the Company's Broadband Network and
maintenance services and telehousing space in the Company facilities.
During the nine-month period ended September 30, 2000, the Company
received $5.0 million of advance payments from 360networks, which have
been included as part of Customer Advances on Broadband Network.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 and September 30 (exclusive
of the Broadband Network, which is described in Note 5 above) consists
of:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------------------------
(UNAUDITED)
<S> <C> <C>
Land $ 1,538 $ 3,114
Building, installations and improvements 19,536 31,979
Operating communications equipment 265,276 298,990
Furniture, fixtures and other equipment 10,403 12,602
------- -------
Total 296,753 346,685
Less: accumulated depreciation (145,564) (163,864)
--------- ---------
</TABLE>
F-27
<PAGE> 31
<TABLE>
<S> <C> <C>
Total 151,189 182,821
Work in process 3,856 2,483
------- -------
Property, plant and equipment, net $ 155,045 $ 185,304
========= ==========
</TABLE>
The recap of accumulated depreciation for the year ended December 31,
1999 and for the nine months period ended September 30, 2000, is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
---------------------------------
(UNAUDITED)
<S> <S> <C>
Beginning balance $ 87,641 $145,564
Depreciation expense 59,039 26,344
Disposals and retirements (1,116) (8,044)
-------- ---------
Ending balance $ 145,564 $ 163,864
========= =========
</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
$10.7 million and $6.7 million at December 31, 1999 and September 30,
2000. The Company has historically refinanced its short-term credit
facilities on an annual basis.
8. LONG-TERM DEBT
The Company long-term debt at December 31 and September 30, is detailed
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
--------------------------------
(UNAUDITED)
<S> <C> <C>
Term notes payable (6.63% - 12.63%) maturing
semiannually through 2006, collateralized by
certain assets $ 3,799 $ 2,446
Eximbank notes payable (8% - 9.78%), maturing
semiannually through 2003 and 2004 7,285 6,932
Broadband Network vendor financing (11.78%) due 2006 39,451 104,448
-------- ---------
Total long-term debt 50,535 113,826
Less: current portion (4,411) (3,517)
-------- ---------
Long-term debt, net $46,124 $110,309
======== =========
</TABLE>
9. INCOME TAXES
During the nine months ended September 30, 1999 and 2000, the Company
recorded a deferred benefit from income taxes of $12.2 million and a
current provision for income taxes of $2.0 million, respectively. The
statutory tax rate is 35%.
F-28
<PAGE> 32
10. COMMITMENTS AND CONTINGENCIES
Commitments - The Company leases leased telecommunications link with
annual rental commitments of approximately $6.0 million through the year
2001. In addition, the company has commitments to purchase communications
equipment amounting to approximately $8.5 million at September 30, 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 $5.8 million term note with El Camino
Resources, which is guaranteed by the Company and Impsat Fiber Networks,
Inc. At September 30, 2000, the balance outstanding was approximately
$4.6 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, the Company filed suit against a former customer,
ENCOTESA, for amounts due and arising under the Company'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.
RECIPROCAL SERVICE AGREEMENTS - During the first quarter of 2000, the
Company signed agreements with Movicom/Bell South for the exchange of capacity
on the two companies' respective networks in Argentina. This agreement will
enable the Company to expand its footprint in the Buenos Aires metropolitan area
beyond that originally included in the Broadband Network.
* * * * * *
F-29
<PAGE> 33
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table summarizes our results of operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------------------
1999 2000
---------------------------- ----------------------------
(IN THOUSANDS AND AS A PERCENTAGE OF CONSOLIDATED REVENUES)
<S> <C> <C> <C> <C>
Net revenues:
Services ............................. $ 55,911 100.0% $ 67,599 61.1%
Broadband network development ........ -- 43,077 38.9
Total net revenues ..................... 55,911 100.0 110,676 100.0
Direct Costs:
Contracted services .................. 5,177 9.3 7,369 6.7
Other direct costs ................... 14,967 26.8 3,901 3.5
Leased capacity ...................... 12,884 23.0 20,628 18.6
Broadband network development ........ -- -- 25,382 22.9
Cost of sold equipment ............... 398 0.7 4,478 4.0
Total Direct Costs ..................... 33,426 59.8 61,758 55.8
Salaries and wages ....................... 12,030 21.5 16,104 14.6
Selling, general and administrative
expenses ................................. 10,331 18.5 13,805 12.5
Depreciation and amortization ............ 64,761 115.8 20,942 18.9
Interest expense, net .................... (13,870) (24.8) (22,198) (20.1)
Net loss on foreign exchange ............. (1,514) (2.7) (2,294) (2.1)
Other (expense) income, net .............. (151) (0.3) (397) (0.4)
Benefit from (provision for) foreign
income taxes ............................. 14,935 26.7 162 (0.1)
Net loss attributable to common
stockholders ............................. (63,029) (112.7) (26,660) (24.1)
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------------------
1999 2000
---------------------------- ----------------------------
(IN THOUSANDS AND AS A PERCENTAGE OF CONSOLIDATED REVENUES)
<S> <C> <C> <C> <C>
Net revenues:
Services ............................. $ 167,129 100.0% $ 191,116 81.6%
Broadband network development ........ -- -- 43,077 18.4
Total net revenues ..................... 167,129 100.0 234,193 100.0
Direct Costs:
Contracted services .................. 16,773 10.0 20,630 8.8
Other direct costs ................... 24,731 14.8 14,887 6.4
Leased capacity ...................... 35,348 21.2 52,213 22.3
Broadband network development ........ -- -- 25,382 10.8
Cost of sold equipment ............... 2,084 1.2 9,075 3.9
Total Direct Costs ..................... 78,936 47.2 122,187 52.2
Salaries and wages ....................... 34,222 20.5 46,274 19.8
Selling, general and administrative
expenses ................................. 28,851 17.3 38,293 16.4
Depreciation and amortization ............ 88,090 52.7 61,751 26.4
Interest expense, net .................... (41,976) (25.1) (59,536) (25.4)
Net loss on foreign exchange ............. (9,500) (5.7) (1,490) (0.6)
Other (expense) income, net .............. (715) (0.4) 2,087 0.9
Benefit from (provision for) foreign
income taxes ............................. 18,952 11.3 (908) (0.4)
Net loss attributable to common
stockholders ............................. (100,977) (62.5) (95,552) (40.8)
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
Revenues. Our net revenues are composed of net revenues from services and
Broadband Network development revenues. Our total net revenues for the three and
nine months ended September 30, 2000 equaled $110.7 million and $234.2 million.
Our net revenues from services for the three and nine months ended
September 30, 2000 totaled $67.6 million and $191.1 million. These amounts
represent increases of $11.7 million (or 20.9%) and $24.0 million (or 14.4%)
from the corresponding periods in 1999. Our net revenues from services for the
three months ended September 30, 2000 also represented an increase of $2.9
million, or 4.4%, from those revenues for the three months ended June 30, 2000.
Our total net revenues for the three and nine months ended September 30,
2000 included $43.1 million of Broadband Network development revenues, which
related to
-1-
<PAGE> 34
our turnkey construction on behalf of Global Crossing Development Co. of the
Trans-Andean Crossing System (also called the "TAC") that we contracted to build
for Global Crossing in the third quarter of 1999. See Note 6 to our consolidated
financial statements.
The following table shows our revenues by operating subsidiary (including
intercompany transactions) for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1999 2000 1999 2000
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
IMPSAT Argentina ....................... $ 25,380 $ 64,766 $ 79,767 $122,339
Services ........................... 25,380 32,494 79,767 90,067
Broadband network development ...... -- 32,272 -- 32,272
IMPSAT Colombia ........................ 15,093 12,974 45,980 40,084
IMPSAT Venezuela ....................... 6,176 6,894 16,776 20,933
IMPSAT Ecuador ......................... 3,379 3,813 9,750 10,841
IMPSAT Mexico .......................... 805 1,016 2,529 2,699
IMPSAT Brazil (1) ...................... 1,970 7,293 4,606 18,835
Mandic S.A. (1) ........................ 2,099 -- 6,362 --
IMPSAT USA ............................. 4,370 7,157 12,632 18,930
Other .................................. 102 11,327 159 11,926
Services ........................... 102 522 159 1,121
Broadband Network development ...... -- 10,805 -- 10,805
</TABLE>
(1) On October 5, 1999, we sold the retail dial-up Internet business of
Mandic to El Sitio, Inc., and merged Mandic's remaining operations into
IMPSAT Brazil.
Our Broadband Network development revenues of $43.1 million for the third
quarter of 2000, which we discussed above, were recorded upon our delivery to,
and provisional acceptance by, Global Crossing of those segments of the TAC
between Global Crossing's submarine cable landing point at Las Toninas,
Argentina and Santiago, Chile. These revenues included a bonus payment of $4.0
million earned under our contract with Global Crossing for early delivery of the
TAC segment. We currently expect to deliver the final segment of the TAC,
between Santiago, Chile and Global Crossing's submarine landing point at
Valparaiso, Chile, during the first quarter of 2001, at which time we would
record additional construction revenue of approximately $8.1 million. With the
exception of the bonus payment due under the TAC contract, Global Crossing paid
us in advance over the fourth quarter of 1999 and the first three quarters of
2000 for the amounts recorded in this period.
Growth in our revenues from services resulted primarily from
non-satellite services, including terrestrial-based network services, Internet
services and equipment sales. The following table shows our revenues from
services by business lines (after elimination of intercompany transactions) for
the periods indicated:
-2-
<PAGE> 35
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------- ----------------------
1999 2000 1999 2000
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Network services
Terrestrial .................... $ 8,980 $ 10,526 $ 24,752 $ 29,481
Satellite ...................... 34,056 35,042 105,389 107,092
-------- -------- -------- --------
Total network services ..... 43,036 45,568 130,141 136,573
Internet ........................... 7,016 9,409 19,638 23,721
Other .............................. 5,859 12,622 17,350 30,822
-------- -------- -------- --------
Total net revenues from services ... $ 55,911 $ 67,599 $167,129 $191,116
======== ======== ======== ========
</TABLE>
Despite the continued economic stagnation that we experienced during the
first nine months of 2000 in many of our countries of operation, including
Argentina and Colombia, we were able to achieve services revenue growth for the
first nine months of 2000 as compared to the prior year's period and to the
second quarter of 2000. Our services revenue growth was achieved principally
because of an overall increase in the number of customers and services we
provided, offset in part by decreasing prices. Excluding fax store and forward
customers, we had 2,402 customers at September 30, 2000, compared to 1,707
customers at September 30, 1999 and 2,127 customers at June 30, 2000. As we
begin the commercialization of our Broadband Network, we intend to continue to
aggressively market our services to existing and new customers, including
smaller corporate customers who desire to contract for capacity on our Broadband
Network for their telecommunications needs. In the three months ended September
30, 2000, we gained a total of 275 new customers, an increase of 11.2% from the
period ended June 30, 2000. We expect that the average revenues from many of our
newer customers will be less than realized in the past from our larger corporate
and governmental customers. Customer growth was most pronounced in Argentina and
Brazil, where the bulk of our marketing and sales efforts are taking place in
connection with the introduction of service on our Broadband Network.
The Company's operations in the United States and Brazil recorded the
highest revenue growth rate for services revenues among our countries of
operation. Net revenues from services in the United States during the three and
nine months ended September 30, 2000 totaled $7.2 million and $18.9 million, an
increase of $2.8 million (or 63.8%) and $6.3 million (or 49.9%) from the
corresponding periods in 1999. Net revenues from services relating to our
Brazilian operations during the three and nine months ended September 30, 2000
totaled $7.3 million and $18.8 million, an increase of $3.2 million (or 79.2%)
and $7.9 million (or 71.7%), compared to the same periods in 1999. The growth in
services revenues in our United States operations was derived from international
Internet backbone access services and other corporate business services. In
Brazil, the increase in our net revenues from services resulted principally from
increased revenues for Internet access services to the U.S. Internet backbone.
During the first nine months of 2000, we have entered into several contracts
with Brazilian telecommunications companies for access to the U.S. Internet
backbone.
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<PAGE> 36
The Company's net revenues from services in Argentina for the three and
nine months ended September 30, 2000 totaled $32.5 million and $90.1 million.
These amounts represented an increase of $7.1 million (or 28.0%) and an increase
of $10.3 million (or 12.9%) from the corresponding periods in 1999 and an
increase of $1.7 million (or 5.6%) from the three months ended June 30, 2000.
In Argentina, revenues for the Company's satellite-based network services
declined as compared to the three and nine months ended September 30, 2000 while
Internet services increased. The decline in revenues from satellite-based
network services is due to increased competition and continued downward pressure
on pricing. The increase in Internet services resulted from several new
contracts entered into for access to the U.S. Internet backbone. Our growth of
Internet access services in Argentina included the commencement of such service
to AOL Argentina S.R.L., an affiliate of America Online, Inc., upon AOL
Argentina's launch in August of 2000. In addition, IMPSAT Argentina's services
revenues for the third quarter included $4.7 million in equipment sales. This
amount related principally to a contract entered into in January 2000 with the
Government of the Province of Cordoba for the provision of equipment and
information technology solutions for the automation and updating of the
Province's revenue collection and auditing functions.
Our improved results in Brazil and the United States were offset by a
decrease in services revenues at IMPSAT Colombia. During the third quarter of
2000, our operations in Colombia, our second oldest market, continued to be
adversely affected by that country's economic recession, which intensified
pricing pressures. IMPSAT Colombia's services revenues totaled $13.0 million and
$40.1 million for the three and nine months ended September 30, 2000, a $2.1
million (or 14.0%) and $5.9 million (or 12.8%) decrease from the same periods in
1999. We do not foresee any significant improvement in services revenues from
our Colombian operations in the near term.
Direct Costs. Our direct costs for the three and nine months ended
September 30, 2000 totaled $61.8 million and $122.2 million. These amounts
include $25.4 million in direct costs associated with the construction and
delivery of the TAC segments delivered to Global Crossing at the end of
September 2000, which amounts related principally to cost of equipment and
contracted third-party construction services. Other costs related to the
construction of the TAC, including salary and SG&A expenses, have been accrued
and recorded in the periods in which such expenses were incurred.
Excluding direct costs related to the TAC, our direct costs for the three
and nine months ended September 30, 2000 totaled $36.4 million and $96.8
million, an increase of $2.9 million (or 8.8%) and $17.9 million (or 22.6%),
compared to the same periods in 1999. Of these direct costs for the third
quarter of 2000, $18.5 million related to the operations of IMPSAT Argentina.
This compares to $19.4 million at IMPSAT Argentina for the third quarter of
1999. Direct costs for our Brazilian operations totaled $6.7 million for the
third quarter of 2000, compared to $3.4 million for the corresponding period in
1999. Direct costs of our subsidiaries are described prior to the elimination of
intercompany transactions.
-4-
<PAGE> 37
(1) Contracted Services. Contracted services costs include costs of
maintenance and installation (and de-installation) services provided by outside
contractors. During the three and nine months ended September 30, 2000, our
contracted services costs totaled $7.4 million and $20.6 million, an increase of
$2.2 million (or 42.3%) and $3.9 million (or 23.0%) from the same periods in
1999. Of this amount, maintenance costs for our telecommunications network
infrastructure totaled $4.7 million and $12.0 million for the three and nine
months ended September 30, 2000, compared to $2.9 million and $10.0 million
during the same periods in 1999. Our maintenance costs increased because we had
more infrastructure. In addition, our installation costs totaled $2.7 million
and $8.6 million for the three and nine months ended September 30, 2000,
compared to $2.3 million and $6.7 million for the same periods in 1999.
(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 for
the three and nine months ended September 30, 2000 totaled $2.1 million and $6.2
million, compared to $2.1 million and $5.7 million for the corresponding periods
in 1999. The majority of these commissions related to customers of IMPSAT
Argentina.
During the third quarter of 2000, we recorded net recoveries of
doubtful accounts that exceeded the provisions for doubtful accounts, resulting
in a net credit position of $0.2 million for the three months ended September
30, 2000 compared to a net provision for doubtful accounts of $11.6 million for
the same period in 1999. During the third quarter of 2000, we obtained payment
of certain past due receivables from certain customers in Argentina and
Colombia. The increase in the provision for doubtful accounts for the three
months ended September 30, 1999 related principally to a change in our
provisioning policy. At September 30, 2000 approximately 29.0% of our gross
trade accounts receivable were past due more than six months compared to 28.3%
for the same period in 1999. At September 30, 2000, average days of gross trade
accounts receivable equaled 60, compared to 61 days at September 30, 1999 and 55
days at June 30, 2000.
(3) Leased Capacity. Our leased capacity costs for the three and nine
months ended September 30, 2000 totaled $20.6 million and $52.2 million, which
represented an increase of $7.7 million (or 60.1%) and $16.9 million (or 47.7%)
from the corresponding periods in 1999. We had approximately 1,099 MHz of leased
satellite capacity at September 30, 2000 and 745 MHz at September 30, 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 three and nine months ended
September 30, 2000 we increased our leased dedicated capacity on third-party
fiber optic networks, spending $8.7 million and $20.9 million for the three and
nine months ended September 30, 2000, an increase of $5.4 million (or 164.2%)
and $12.6 million (or 151.7%) from the same
-5-
<PAGE> 38
periods in 1999. These costs were incurred principally in Argentina, Brazil and
the United States. We have incurred these higher costs of leased fiber optic
capacity due to the continued demand by some of our customers for greater
bandwidth while we have deployed our Broadband Network. Upon the complete
deployment of the Broadband Network in December 2000, we will begin to switch
our telecommunications traffic to the Broadband Network. We believe that our
leased fiber optic capacity costs for 2001 should remain at the levels recorded
for the year 2000 but should decrease as a percentage of 2001 revenues.
(4) Costs of Equipment Sold. Excluding cost of equipment related to
the TAC, we incurred costs of equipment sold in the three and nine months ended
September 30, 2000, of $4.5 million and $9.1 million, a $4.1 million (or
1,025.1%) and $7.0 million increase (or 335.5%) from the same periods in 1999.
We expect to enter into additional equipment sales for some of our customers in
the remainder of 2000.
Salaries and Wages. Salaries and wages for the three and nine months
ended September 30, 2000 totaled $16.1 million and $46.3 million, an increase of
$4.1 million (or 33.9%) and $12.1 million (or 35.2%), from the same periods in
1999. The increase resulted primarily from:
- an increase in the number of employees, from 1,133 at September
30, 1999 to 1,611 at September 30, 2000, particularly in
connection with the expansion of our operations in Brazil and the
development of the Broadband Network. During the third quarter of
2000, our employee headcount increased by 347 from June 30, 2000
- increases in the salaries, wages and recruiting costs 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 three and nine
months ended September 30, 2000, of $6.8 million and $19.6 million, an increase
of $1.6 million (or 31.4%) and $5.1 million (or 35.4%) over the same periods in
1999. Our Brazil operations incurred salaries and wages for the three and nine
months ended September 30, 2000, of $3.6 million and $8.0 million, an increase
of $1.9 million (or 109.5%) and $3.2 million (or 64.7%) over the same periods in
1999. IMPSAT Brazil increased its number of employees to 390 persons at
September 30, 2000, compared to 195 persons at September 30, 1999. As many of
these new personnel commenced employment only towards the end of the third
quarter, the full impact of the increase in the number of employees will not be
recognized in our salaries and wages expenses until the fourth quarter of 2000.
We expect salaries and wages expenses to increase as we commence the operations
of the Broadband Network in Argentina and Brazil.
Selling, General and Administrative Expenses. Our SG&A expenses consist
principally of:
-6-
<PAGE> 39
- publicity and promotion costs
- fees and other remuneration
- travel and entertainment
- rent
- plant services, telephone and energy expenses
We incurred SG&A expenses of $13.8 million and $38.3 million for the
three and nine months ended September 30, 2000. SG&A expenses increased $3.5
million (or 33.6%) and $9.4 million (or 32.7%), from the three and nine months
ended September 30, 1999. SG&A expenses at IMPSAT Argentina for the three and
nine months ended September 30, 2000 totaled $5.4 million and $17.9 million, an
increase of $1.0 million (or 23.1%) and $6.0 million (or 50.1%), from SG&A
expenses incurred by IMPSAT Argentina for the three and nine months ended
September 30, 1999. Compared to the corresponding periods in 1999, the increase
in SG&A expenses reflect higher publicity and promotion expenses, travelling
expenses and advisory services related to the deployment of the Broadband
Network. Although management is taking steps to ensure the SG&A expenses remain
within budgeted parameters, we expect SG&A expenses to continue to increase as
we begin the deployment of the Broadband Network and seek to expand our customer
and services base to take advantage of our new infrastructure.
Depreciation and Amortization. Our depreciation and amortization expenses
for the three and nine months ended September 30, 2000 totaled $20.9 million and
$61.8 million. This represents decreases of $43.8 million (or 67.7%) and $26.3
million (or 29.9%), compared to our depreciation and amortization for the three
and nine months ended September 30, 1999. Depreciation and amortization for
IMPSAT Argentina for the three and nine months ended September 30, 2000, totaled
$8.9 million and $26.3 million. The decrease in our depreciation and
amortization expense reflects our decision at the end of the third quarter of
1999 to change the depreciable life of some of our customers' premises
telecommunications equipment in light of technological advances, which resulted
in a one-time extraordinary depreciation and amortization charge in that
quarter. Depreciation and amortization expenses for the three months ended June
30, 2000 totaled $20.9 million. We expect depreciation and amortization expenses
to increase in future periods due to our plans to invest significant capital
expanding our network capacity in connection with the development of the
Broadband Network.
Interest Expense, Net. Our net interest expense for the three months
ended September 30, 2000 totaled $22.2 million, consisting of interest expense
of $29.6 million and interest income of $7.4 million for the third quarter of
2000. Our net interest expense for the nine months ended September 30, 2000
totaled $59.5 million, consisting of interest expense of approximately $80.1
million and interest income of $20.5 million. At September 30, 2000, we had
cash, cash equivalents and other short-term investments of $420.7 million. Our
net interest expense increased $8.3 million (or 60.0%) and
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<PAGE> 40
$17.6 million (or 41.8%) for the three and nine months ended September 30, 2000
from net interest expense for the same periods in 1999.
For the three and nine months ended September 30, 2000 IMPSAT Argentina's
net interest expense totaled $2.6 million and $7.7 million ($2.6 million and
$6.7 million, after eliminating intercompany items), compared to $3.7 million
and $9.9 million, ($1.8 million and $4.4 million after eliminating intercompany
items) for the corresponding periods in 1999.
Our total indebtedness at September 30, 2000 was $899.2 million, compared
to $423.8 million at September 30, 1999. At September 30, 2000, total
outstanding indebtedness at IMPSAT Argentina totaled $135.3 million ($120.5
million after eliminating intercompany items), compared to $140.8 million ($82.1
million after eliminating intercompany items) as of September 30, 1999. The
increase in our net interest expense reflects higher interest bearing
indebtedness in the first nine months of 2000 compared to the corresponding
period in 1999, which resulted from increased levels of borrowing associated
with our development of the Broadband Network, including the vendor financing
agreements that we signed with Nortel Networks, Inc. in October 1999 for a total
of up to $297.4 million to construct the Broadband Network in Argentina and
Brazil and the issuance in February 2000 of our $300 million 13 3/4% Senior
Notes due 2005. At September 30, 2000 we had borrowed a total of $179.7 million
from Nortel and have unused commitments of $117.7 million under these
agreements. We anticipate that interest expense will increase in the future
based on expected increased levels of borrowing under the Nortel financing
agreements. See "-- Liquidity and Capital Resources."
Net (Loss) Gain on Foreign Exchange. We recorded net losses on foreign
exchange for the three and nine months ended September 30, 2000 of $2.3 million
and $1.5 million. These numbers can be compared to net losses of $1.5 million
and $9.5 million for the same periods in 1999.
Other Expense (Income), Net. We recorded other expense, net, for the
three months ended September 30, 2000 of $0.4 million and other income, net, of
$2.1 million for the nine months ended September 30, 2000, as compared to other
expense, net, of $0.2 million and $0.7 million for the corresponding periods in
1999.
Benefit from (Provision for) Income Taxes. We recorded a benefit from
income taxes (all of which are for foreign taxes) of $0.2 million for the three
months ended September 30, 2000, and a provision for income taxes of $0.9
million for the nine months ended September 30, 2000, compared to benefits for
income taxes of $14.9 million and $19.0 million for the corresponding periods in
1999. The principal reason for this change relates to a determination that we
are no longer able to avail ourselves of certain tax credits.
Net Loss Attributable to Common Stockholders. For the three and nine
months ended September 30, 2000, we incurred a net loss attributable to common
stockholders of $26.7 million and $95.6 million, a decrease of $36.4 million (or
57.7%) and $5.4 million
-8-
<PAGE> 41
(or 5.4%) for same periods in 1999. The decrease in net loss is attributable
primarily to certain changes that we made in our depreciation and amortization
policies and in our provisioning policy for doubtful accounts at the end of the
third quarter of 1999 that resulted in extraordinary losses for the three and
nine months ended September 30, 1999.
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 September 30, 2000, we had total cash, cash equivalents and short-term
investments of $420.7 million. These amounts relate principally to:
- unused proceeds from our $300 million 133/4 Senior Notes Due 2005
offering in February 2000
- unused proceeds of our initial public offering in February 2000 of
11,500,000 shares of our common stock and from our simultaneous
private placement of 2,850,000 shares of common stock to British
Telecommunications plc, one of our existing stockholders
On September 13, 2000, we announced plans to extend the Broadband Network
by constructing a 2,000 kilometer long-haul link between the cities of Curitiba
and Porto Alegre in Brazil and the city of Parana in Argentina. Civil
construction on the new link was commenced later in September 2000. The new link
will connect with the Broadband Network that is currently being deployed in
Argentina and Brazil and would result in the creation of a single fiber optic
network connecting Santiago, Chile, Buenos Aires, Argentina and Sao Paulo and
Rio de Janeiro, Brazil with points in between. We are currently in the process
of finalizing our selection of the equipment providers for the
telecommunications equipment to be included in the new link. We anticipate that
the cost of the new link will be approximately $100 million and will be financed
through the sale of our planned IRUs over the link to 360networks, vendor
financing from the selected vendors and/or from our existing cash, cash
equivalents and short-term investments. We expect to complete the link by the
end of the third quarter of 2001.
Including the costs of the new link described in the preceding paragraph,
our budget contemplates that we will need approximately $470 million during the
period from September 30, 2000 (including amounts spent to date) through the end
of 2001 for capital expenditures related to the Broadband Network and $35
million during the same period for capital expenditures relating to our
satellite-based telecommunications business. We have executed definitive
long-term vendor financing agreements with Nortel for commitments of up to
approximately $297.4 million, which we are using to pay for Nortel's
construction of the segments of our Broadband Network in Argentina and Brazil
(of which we had undisbursed commitments of $117.7 million at September 30,
2000), with Lucent for commitments of up to $16.0 million for the purchase of
fiber optic
-9-
<PAGE> 42
cable for the long-haul segments of the Broadband Network in Argentina (all of
which has been disbursed), and with Ericcson for commitments of up to $9.0
million for the purchase of telephony equipment which will be used in the
Broadband Network in Argentina in connection with our new license to provide
telephony services in Argentina. We are also discussing additional vendor
financing arrangements with our current and other potential vendors, although we
do not have any other binding commitments regarding financing for the Broadband
Network as of this date.
The further expansion and development of the Broadband Network beyond its
current and planned footprint will depend upon our ability to obtain additional
financing. If we are unable to obtain additional financing, we may not be able
to maintain our levels of growth and market position, which could have a
material adverse effect on our results of operations.
Our operating activities generated $13.5 million for the nine months
ended September 30, 2000, compared to $14.3 million generated 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 $471.6 million in net cash for the nine
months ended September 30, 2000, compared with $122.8 million for the same
period in 1999. For the nine months ended September 30, 2000, we used $465.4
million in net cash flow for investing activities, compared to $77.5 million for
the nine months ended September 30, in 1999. Of this amount, $306.0 million is
represented by the purchase of high-quality short-term investments with the
proceeds of our initial public offering, private placement and the $300 million
133/4% Senior Notes due 2005. We plan to use these amounts for capital
expenditures, general corporate purposes and working capital as needed in coming
periods.
In addition, we have used $135.8 million in non-cash investing and
financing activities related to the development of the Broadband Network for the
nine months ended September 30, 2000, principally as a result of disbursements
under the vendor financing agreements with Nortel.
At September 30, 2000, we had leased satellite capacity with annual
rental commitments of approximately $25.5 million through the year 2003. In
addition, at September 30, 2000, we had commitments to purchase
telecommunications equipment amounting to approximately $27.3 million.
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
-10-
<PAGE> 43
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 September 30, 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, cash equivalents and short-term investments
consist of highly liquid investments with a maturity of less than 360 days. As a
result of the short-term nature of these instruments, we do not believe that a
hypothetical 10% change in interest rates would have a material 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 exposed to interest rate risk on our floating rate indebtedness,
which affects our cost of financing. A hypothetical 10% change in interest rates
would not have had a material impact on our interest expense during the three or
nine months ended September 30, 2000. Our floating rate indebtedness has
increased and is expected to increase further as we draw down commitments under
the Nortel financing agreements to cover expenditures relating to our contracts
with Nortel to construct the Broadband Network in Argentina and Brazil.
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 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 September 30, 2000 that were not denominated in U.S.
dollars represented approximately 6.7% and 7.9% of our total net revenues for
1999 and the first three quarters 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 three and nine months ended September
30, 2000 was not material.
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<PAGE> 44
Changes in Market Value of Investment. We hold a fair value basis
investment of approximately 14.0% of the common stock of El Sitio, Inc., which
is publicly traded on the Nasdaq National Market System. 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 Sitio'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 September 30, 2000 would decrease the fair value
of our investment by $4.6 million.
On October 31, 2000, El Sitio announced that it had entered into an
agreement with affiliates of Ibero-American Media Partners II Ltd., a joint
venture between the Cisneros Group of Companies and Hicks, Muse, Tate & Furst
Incorporated, to combine El Sitio's interactive assets with Ibero-American Media
Partners' media assets in the Latin American region to form a new company to be
called Claxson Interactive Group. As part of the combination, our shares in El
Sitio would be converted into an equal number of shares in Claxson Interactive
Group. We have agreed with Ibero-American Media Partners to vote our shares of
El Sitio common stock in favor of the combination. El Sitio has announced that
it expects that the combination will be consummated in the first quarter of
2001.
In the future, we may make additional equity investments in other
privately or publicly held corporations for business and strategic purposes.
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<PAGE> 45
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
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. Not Applicable.
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<PAGE> 46
SIGNATURES
Pursuant to the requirements of the Securities Exchange 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
Vice President, Finance and
Chief Financial Officer
Date: November 13, 2000
IMPSAT S.A.
By: /s/ Jose Torres
---------------
Jose Torres
Director and
Chief Accounting Officer
Date: November 13, 2000
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