<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 June 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 ORGANIZATION) (IRS EMPLOYER IDENTIFICATION NUMBER)
</TABLE>
Alferez Pareja 256 (1107)
Buenos Aires, Argentina
(5411) 4300-4007
--------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. YES [X] NO [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
INDICATE BY CHECK MARK WHETHER THE COMPANY HAS FILED ALL DOCUMENTS AND REPORTS
REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN CONFIRMED BY A
COURT. YES n/a NO n/a
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: As of June 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.....................................................1
Item 1. Financial Statements....................................................1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................28
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............34
PART II OTHER INFORMATION.......................................................36
Item 1. Legal Proceedings......................................................36
Item 2. Changes in Securities..................................................36
Item 3. Defaults Upon Senior Securities........................................36
Item 4. Submission of Matters to a Vote of Security-Holders....................36
Item 5. Other Information......................................................36
Item 6. Exhibits and Reports on Form 8-K.......................................36
</TABLE>
<PAGE> 3
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .......................................... $ 97,507 $ 109,595
Trading investments ................................................ 388,410
Trade accounts receivable, net ..................................... 52,176 56,242
Other receivables .................................................. 27,640 37,176
Prepaid expenses ................................................... 1,703 3,096
--------- -----------
Total current assets .............................................. 179,026 594,519
--------- -----------
BROADBAND NETWORK, Net ............................................... 71,868 186,073
--------- -----------
PROPERTY, PLANT AND EQUIPMENT, Net ................................... 310,330 341,308
--------- -----------
NON-CURRENT ASSETS:
Investments ........................................................ 235,925 54,017
Intangible assets .................................................. 442 85,886
Deferred income taxes, net ......................................... 15,927
Deferred financing costs, net ...................................... 8,985 13,872
Other non-current assets ........................................... 21,756 19,292
--------- -----------
Total non-current assets .......................................... 267,108 188,994
--------- -----------
TOTAL ................................................................ $ 828,332 $ 1,310,894
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable -- trade .......................................... $ 53,678 $ 60,227
Short-term debt .................................................... 15,670 14,567
Current portion of long-term debt .................................. 23,007 22,558
Accrued and other liabilities ...................................... 29,506 42,867
Deferred income taxes, net ......................................... 51,870
Customer advances on broadband network ............................. 23,200 54,806
--------- -----------
Total current liabilities ......................................... 196,931 195,025
--------- -----------
LONG-TERM DEBT, Net .................................................. 445,634 811,036
--------- -----------
OTHER LONG-TERM LIABILITIES .......................................... 16,406 32,686
--------- -----------
COMMITMENTS AND CONTINGENCIES (Note 13)
MINORITY INTEREST .................................................... 4,985
--------- -----------
REDEEMABLE PREFERRED STOCK, Convertible, Series A, 10%,
cumulative dividend; 25,000 shares authorized, issued and
outstanding, converted and redeemed on February 4, 2000 ............ 149,035
--------- -----------
STOCKHOLDERS' EQUITY:
Common Stock $0.01 par value; 300,000,000 shares authorized,
71,605,993 shares issued and outstanding at December 31, 1999,
and 91,428,570 shares issued and outstanding at June 30, 2000 ... 716 914
Additional paid in capital ......................................... 221,013 541,615
Accumulated deficit ................................................ (202,934) (271,826)
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) (4,543)
Deferred stock-based compensation .................................. (5,438)
Accumulated other comprehensive income ............................. 126,373 11,425
--------- -----------
Total stockholders' equity ........................................ 15,341 272,147
--------- -----------
TOTAL ................................................................ $ 828,332 $ 1,310,894
========= ===========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 4
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1999 2000 1999 2000
-------- -------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUES FROM SERVICES:
Network services ......................... $ 44,756 $ 46,013 $ 87,105 $ 91,005
Internet ................................. 6,600 7,598 12,622 14,312
Other .................................... 6,302 11,143 11,491 18,200
-------- -------- --------- ---------
Total net revenues from services ........ 57,658 64,754 111,218 123,517
-------- -------- --------- ---------
COSTS AND EXPENSES:
Direct costs:
Contracted services ................... 5,967 6,787 11,596 13,261
Other direct costs .................... 5,779 5,803 9,764 10,986
Leased capacity ....................... 11,944 17,503 22,464 31,585
Cost of sold equipment ................ 785 3,777 1,686 4,597
-------- -------- --------- ---------
Total direct costs ................... 24,475 33,870 45,510 60,429
Salaries and wages ....................... 11,377 15,940 22,192 30,170
Selling, general and administrative ...... 9,350 12,987 18,520 24,488
Depreciation and amortization ............ 12,414 20,873 23,329 40,809
-------- -------- --------- ---------
Total costs and expenses ............... 57,616 83,670 109,551 155,896
-------- -------- --------- ---------
Operating income (loss) .................... 42 (18,916) 1,667 (32,379)
-------- -------- --------- ---------
OTHER INCOME (EXPENSES):
Interest income and investment gains ..... 1,973 8,378 2,994 13,145
Interest expense ......................... (15,719) (28,102) (31,100) (50,483)
Net (loss) gain on foreign exchange ...... (1,774) (1,761) (7,986) 804
Other (expense) income, net .............. (83) 2,306 (564) 2,484
-------- -------- --------- ---------
Total other expenses .................... (15,603) (19,179) (36,656) (34,050)
-------- -------- --------- ---------
LOSS BEFORE INCOME TAXES
AND MINORITY INTEREST .................... (15,561) (38,095) (34,989) (66,429)
BENEFIT FROM (PROVISION FOR) INCOME TAXES .. 1,874 (1,730) 4,017 (1,070)
-------- -------- --------- ---------
LOSS BEFORE MINORITY INTEREST .............. (13,687) (39,825) (30,972) (67,499)
LOSS ATTRIBUTABLE TO MINORITY INTEREST ..... (305) (141)
-------- -------- --------- ---------
NET LOSS BEFORE DIVIDENDS ON REDEEMABLE
PREFERRED STOCK .......................... (13,992) (39,825) (31,113) (67,499)
DIVIDENDS ON REDEEMABLE PREFERRED STOCK .... (3,460) (6,835) (1,393)
-------- -------- --------- ---------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS ............................. $(17,452) $(39,825) $ (37,948) $ (68,892)
======== ======== ========= =========
NET LOSS PER COMMON SHARE:
BASIC AND DILUTED ........................ $ (0.24) $ (0.44) $ (0.75) $ (0.80)
======== ======== ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
BASIC AND DILUTED ........................ 71,603 91,428 50,719 85,638
======== ======== ========= =========
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE> 5
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1999 2000 1999 2000
-------- -------- -------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS ................................................. $(17,452) $(39,825) $(37,948) $ (68,892)
OTHER COMPREHENSIVE LOSS, net of tax:
Foreign currency translation adjustment ...................... 36 (633) (3,173) (330)
Change on unrealized gain on investment available for sale,
net of taxes ................................................ -- (55,374) -- (114,618)
-------- -------- -------- ---------
TOTAL ........................................................ 36 (56,007) (3,173) (114,948)
-------- -------- -------- ---------
COMPREHENSIVE LOSS ............................................. $(17,416) $(95,832) $(41,121) $(183,840)
======== ======== ======== =========
</TABLE>
See notes to consolidated financial statements
-3-
<PAGE> 6
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
AMOUNT PAID IN
EXCESS OF
COMMON STOCK ADDITIONAL CARRYING VALUE OF
---------------------- PAID IN ACCUMULATED TREASURY NET ASSETS ACQUIRED
SHARES STOCK CAPITAL DEFICIT STOCK FROM RELATED PARTY
---------- ------- ----------- ------------ ---------- -------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1999............ 56,688,076 $ 716 $ 221,013 $ (202,934) $(125,000) $ (4,827)
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........ 284
Change on unrealized gain on
investment available for sale, net
of taxes...........................
Foreign currency translation adjustment
Net loss for the period.............. (67,499)
---------- ------- ----------- ------------ ---------- -------------------
BALANCE AT JUNE 30, 2000 (Unaudited).... 91,428,570 $ 914 $ 541,615 $ (271,826) $ (4,543)
========== ======= ========== ============ ========== ===================
<CAPTION>
ACCUMULATED
DEFERRED OTHER
STOCK-BASED COMPREHENSIVE
COMPENSATION (LOSS) INCOME TOTAL
------------ -------------- ----------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1999............ $ 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........ 284
Change on unrealized gain on
investment available for sale, net
of taxes........................... (114,618) (114,618)
Foreign currency translation adjustment (330) (330)
Net loss for the period.............. (67,499)
------------ -------------- -----------
BALANCE AT JUNE 30, 2000 (Unaudited).... $ (5,438) $ 11,425 $ 272,147
============ ============== ===========
</TABLE>
-4-
<PAGE> 7
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1999 2000
--------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................ $ (31,113) $ (67,499)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Amortization and depreciation ............................................ 23,329 40,809
Deferred income tax benefit .............................................. (3,368) (481)
Change in minority interest .............................................. (146)
Changes in assets and liabilities:
Increase in trade accounts receivable, net ............................. (7,120) (4,066)
Decrease (increase) in prepaid expenses ................................ 5 (1,393)
Increase in other receivables and other
non-current assets ...................................................... (5,231) (6,376)
Increase in accounts payable -- trade .................................. 3,004 6,549
Increase in customer advances on broadband network ..................... 31,606
Increase in accrued and other liabilities .............................. 97 17,068
Decrease in other long-term liabilities ................................ (1,392)
--------- ---------
Net cash (used in) provided by operating activities ..................... (21,935) 16,217
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of trading investments ....................................... (388,410)
Build-out of broadband network .......................................... (31,281)
Purchases of property, plant and equipment ............................. (40,338) (68,472)
Decrease (increase) in investment ...................................... 306 (26)
--------- ---------
Net cash used in investing activities ................................... (40,032) (488,189)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from (repayments of) short-term debt ..................... 1,745 (1,103)
Proceeds from long-term debt, net ....................................... 16,681 297,679
Repayments of long-term debt ............................................ (12,742) (9,696)
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 ............................... 126,620 483,730
--------- ---------
EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS ............... (3,173) 330
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................................. 61,480 12,088
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD ...................... 90,021 97,507
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD ............................ $ 151,501 $ 109,595
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid ........................................................... $ 32,314 $ 32,611
========= =========
Foreign income taxes paid ............................................... $ 1,225 $ --
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Accrued dividends on redeemable preferred stock ......................... $ 6,835 $ 1,393
========= =========
Change to unrealized gain on investment available for sale, net of tax .. $(114,618)
=========
Broadband network vendor financing ...................................... $ 70,935
=========
Broadband network financed through other long-term liabilities .......... $ 12,573
=========
Issuance of treasury stock upon conversion of preferred stock ........... $ 115,142
=========
Issuance of common stock in exchange of minority interest of IMPSAT
Argentina, Colombia and Venezuela ..................................... $ 93,034
=========
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE> 8
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 expects that the first phase of the Broadband Network
(see Note 6), which will connect points across Argentina, Brazil and Chile, will
be completed by December 2000.
The Company currently provides telecommunications and data services
through its advanced fiber optic, satellite and microwave telecommunications
networks. These networks consist of owned teleports, earth stations, fiber optic
and microwave links, and leased satellite and fiber optic links. The Company
operates 12 metropolitan area networks in some of the largest cities in Latin
America, including: Buenos Aires, Sao Paulo, Bogota and Caracas.
The Company's operating subsidiaries and percentages owned by the Company
are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Argentina Impsat S.A. 100.0%
Brazil Impsat Comunicacoes Ltda. 99.9
Chile Impsat Chile S.A. 100.0
Colombia Impsat S.A. 100.0
Ecuador Impsatel del Ecuador S.A. 100.0
Mexico Impsat S.A. de C.V. 99.9
Peru Impsat S.A. 100.0
USA Impsat USA, Inc. 100.0
Venezuela Telecomunicaciones Impsat S.A. 100.0
</TABLE>
In addition, the Company owns International Satellite Capacity Holdings,
NG (Liechtenstein) and Filcrown International Corporation (BVI), which serve
intermediary functions to the Company and its operating subsidiaries.
2. INITIAL PUBLIC OFFERING
The Company 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
-6-
<PAGE> 9
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.
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 intercompany transactions and balances have been eliminated.
Interim Financial Information - The unaudited consolidated statements as
of June 30, 2000 and for the six months ended June 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 six-month periods ended June 30, 1999 and 2000 are not
necessarily indicative of the operating results to be expected for the full
fiscal year or for any future period.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents -- Cash and cash equivalents are 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. dollars equivalents. Services are billed on a
monthly, predetermined basis, which coincides with when the services are
rendered. No single customer accounted for greater than 10% of total net revenue
from services for the six months ended June 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)
when the Broadband Network is completed. Pursuant to these agreements, the
Company will receive fixed advance payments from the IRUs and will recognize the
revenue from the IRUs ratably over the life of the IRUs. The Company expects to
have other similar transactions in the future.
-7-
<PAGE> 10
Broadband Network -- The Broadband Network is under construction. Costs
in connection with the construction, installation and expansion of the Broadband
Network are capitalized. Depreciation will be computed using the straight-line
method over the life of the rights of way for the related network. Rights of way
agreements represent the fees paid and the net present value of fees to be paid
per signed agreements entered into for obtaining rights of way and other permits
for the Broadband Network. These capitalized agreements are being amortized over
the term of the rights of way, which range from 5 to 20 years.
Property, Plant and Equipment -- Property, plant and equipment are
recorded at cost and depreciated using the straight-line method over the
following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements ................. 10-25 years
Operating communications equipment ......... 5-10 years
Furniture, fixtures and other equipment .... 2-10 years
</TABLE>
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 gain or loss, 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 June 30, 2000:
<TABLE>
<CAPTION>
1999 2000
-------- --------
<S> <C> <C>
Trading investment, at fair value ................................ $ $388,410
======== ========
Investment, at cost .............................................. $ 10,235 $ 10,261
========
Available for sale investment, at fair value ($21,527 at cost) ... 225,690 43,756
======== --------
Total ...................................................... $235,925 $ 54,017
======== ========
</TABLE>
The Company's trading investments consist of high-quality, short-term
investments. The Company's trading investments represent the unused proceeds of
the IPO and 13 3/4% Senior notes due 2005 (the "Senior Notes 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 14.2% 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"), 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.
-8-
<PAGE> 11
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 six months
ended June 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, investment, 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 June 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 June 30, 2000.
At December 31, 1999 and June 30, 2000, the fair value of the Company's
financial instruments was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
<S> <C> <C>
12.125% Senior Guaranteed Notes due 2003 ... $119,000 $113,750
13.75% Senior Notes due 2005 ............... -- 273,000
12.375% Senior Notes due 2008 .............. 205,000 178,875
Investment in El Sitio Common Stock ........ 225,700 44,100
</TABLE>
The fair value of all other financial instruments were not materially
different from their carrying value.
Stock-Based Compensation -- SFAS No. 123, Accounting for Stock-Based
Compensation, encourages, but does not require, companies to record compensation
cost for stock-based employee and non-employee members of the board 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.
-9-
<PAGE> 12
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
June 30, are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(UNAUDITED)
<S> <C> <C>
IMPSAT Argentina ......................... $ 49,989 $ 54,034
IMPSAT Colombia .......................... 6,655 5,653
IMPSAT Venezuela ......................... 7,074 6,701
IMPSAT Ecuador ........................... 1,943 2,249
IMPSAT USA ............................... 2,807 2,797
IMPSAT Brazil ............................ 1,791 3,612
Others ................................... 1,737 3,195
-------- --------
Total ................................ 71,996 78,241
Less: allowance for doubtful accounts .... (19,820) (21,999)
-------- --------
Trade accounts receivable, net ........... $ 52,176 $ 56,242
======== ========
</TABLE>
The Company's subsidiaries provide trade credit to their customers in the
normal course of business. The collection of a substantial portion of the trade
receivables are susceptible to changes in the Latin American economies and
political climates. Prior to extending credit, the customers' financial history
is analyzed.
The activity for the allowance for doubtful accounts for the year ended
December 31, 1999, and for the six months ended June 30, 2000, is as follows:
-10-
<PAGE> 13
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(UNAUDITED)
<S> <C> <C>
Beginning balance ................. $ 10,109 $ 19,820
Provision for doubtful accounts ... 11,134 3,018
Write-offs ........................ (1,423) (839)
-------- --------
Ending balance .................... $ 19,820 $ 21,999
======== ========
</TABLE>
5. OTHER RECEIVABLES
Other receivables consist primarily of refunds or credits pending from
local governments for taxes other than income, advances to suppliers, and other
miscellaneous amounts due to the Company and its operating subsidiaries as
follows at December 31 and June 30:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
<S> <C> <C>
IMPSAT Argentina ... $13,606 $16,497
IMPSAT Colombia .... 5,269 2,329
IMPSAT Venezuela ... 1,757 1,687
IMPSAT Ecuador ..... 314 502
IMPSAT Mexico ...... 2,662 3,446
IMPSAT Brazil ...... 1,122 10,591
Others ............. 2,910 2,124
Total .......... $27,640 $37,176
</TABLE>
6. BROADBAND NETWORK AND AGREEMENTS
Broadband network and related equipment consists of the following at
December 31 and June 30:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(UNAUDITED)
<S> <C> <C>
Equipment and materials $ 4,018 $ 8,188
Right of ways 15,134 35,791
-------- ---------
Total 19,152 43,979
Less: accumulated depreciation (1,318) (1,902)
-------- ---------
Total 17,834 42,077
Under construction - Broadband Network 51,966 126,011
Under construction - Global Crossing ducts 2,068 17,985
-------- ---------
Total $ 71,868 $ 186,073
======== =========
</TABLE>
The recap of accumulated depreciation for the year ended December 31,
1999 and for the six months ended June 30, 2000, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(UNAUDITED)
<S> <C> <C>
Beginning balance ...... $ 296 $1,318
Depreciation expense ... 1,022 584
------ ------
Ending balance ......... $1,318 $1,902
====== ======
</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 will construct:
-11-
<PAGE> 14
- long-haul, high capacity fiber optic backbones linking major
cities in Argentina and Brazil;
- fiber optic and wireless radio local rings and access points
within major cities in Argentina and Brazil; and
- connections in Argentina and Brazil that will integrate the
Company's networks with other providers' facilities, including
submarine cable systems, and provide the Company with access to
global telecommunications links.
In addition, Nortel will provide, as part of the turnkey agreements:
- required equipment and components;
- civil infrastructure design and engineering;
- civil works supervision;
- network infrastructure and configuration planning and engineering;
- formulation of network quality and performance specifications;
- compilation of network testing procedures and protocols; and
- preparation of network maintenance and operations plans and
procedures.
On October 25, 1999, each of IMPSAT Argentina and IMPSAT Brazil signed
definitive agreements with Nortel to borrow an aggregate of up to approximately
$149.1 million and $148.3 million, respectively, of long term vendor financing.
The financing, which will be disbursed over a two year period with final
maturity in 2006, will be used to finance Nortel's construction of the segments
of the Broadband Network in Argentina and Brazil. The Company has guaranteed the
obligations of each of IMPSAT Argentina and IMPSAT Brazil under the Nortel
financing agreements.
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 Global Crossing's
South American network between Las Toninas, Argentina on the Atlantic Ocean and
Valparaiso, Chile on the Pacific Ocean (the "Trans-Andean Crossing System"). The
Company commenced construction of the Trans-Andean Crossing System in September
1999. Global Crossing will pay the Company $64 million for the Company's turnkey
construction of the Trans-Andean Crossing System, as follows:
- construction of three ducts (the "Global Crossing Ducts") and
related facilities over 230 route miles between Las Toninas and
Buenos Aires, Argentina and over 290 route miles between Mendoza,
Argentina and Valparaiso, Chile for approximately $39 million.
- licensing to Global Crossing of one duct on our Broadband Network
between the cities of Buenos Aires and Mendoza in Argentina for
approximately $25 million.
During 1999 and the first six months of 2000, Global Crossing paid the
Company $43.3 million in respect of the ongoing construction of the Global
Crossing Ducts. The Company will accumulate all construction costs for the
Global Crossing Ducts in projects under construction and will defer recognition
of all payments received from Global Crossing until completion and delivery of
the respective ducts. The
-12-
<PAGE> 15
Company will lease space in its telehouses in Buenos Aires, Argentina and
Santiago, Chile to Global Crossing for Global Crossing's network operations.
During the first quarter of 2000, the Company entered into agreements
with Global Crossing to provide Global Crossing with IRUs of up to 25 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 six months of 2000, Global Crossing
paid the Company $11.4 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.
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 and June 30 (exclusive of
the Broadband Network, which is described in note 6 above) consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
---------------- -------------
(UNAUDITED)
<S> <C> <C>
Land ....................................... $ 3,985 $ 7,175
Building and improvements .................. 31,102 39,657
Operating communications equipment ......... 486,528 534,096
Furniture, fixtures and other equipment .... 21,337 24,101
--------- ---------
Total .................................. 542,952 605,029
Less: accumulated depreciation ............. (242,706) (273,335)
--------- ---------
Total .................................. 300,246 331,694
Works in process ........................... 10,084 9,614
--------- ---------
Property, plant and equipment, net ......... $ 310,330 $ 341,308
========= =========
</TABLE>
The recap of accumulated depreciation for the year ended December 31,
1999 and for the six months ended June 30, 2000, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
(UNAUDITED)
<S> <C> <C>
Beginning balance ........... $ 126,728 $ 242,706
Depreciation expense ........ 118,834 37,494
Disposals and retirements ... (2,856) (6,865)
--------- ---------
Ending balance .............. $ 242,706 $ 273,335
========= =========
</TABLE>
-13-
<PAGE> 16
8. SHORT-TERM DEBT
The Company's short-term debt at December 31 and June 30, is detailed as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 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 $ 9,105
IMPSAT Colombia ............................................ 4,756 2,197
IMPSAT Brazil .............................................. 2,505
IMPSAT Chile ............................................... 760
Others ..................................................... 207
------- -------
Total short-term debt .................................... $15,670 $14,567
======= =======
</TABLE>
The Company has historically refinanced its short term credit facilities
on an annual basis.
9. LONG-TERM DEBT
The Company's long-term debt at December 31 and June 30, is detailed as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 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 18,131
Local currency (interest rates 12.3% -- 35.40%) .............. 15,509 16,047
IMPSAT Argentina (6.63% -- 12.63%), maturing Semiannually
through 2003, collateralized by Investment .................. 3,799 2,811
IMPSAT USA (8.25% -- 8.75%), mortgage and equipment notes ... 1,731 1,566
IMPSAT Venezuela (9.00% -- 10.75%), maturing during 2001 ..... 2,383 1,392
IMPSAT Brazil (13%), maturing during 2004 .................... 4,718 4,931
IMPSAT Argentina Eximbank notes payable (8.00%), maturing
semiannually through 2003 and 2004 .......................... 7,285 7,820
Broadband Network vendor financing (11.78%) due 2006 ......... 59,961 130,896
Other .......................................................... 80
--------- ---------
Total long-term debt ....................................... 468,641 833,594
Less: current portion .......................................... (23,007) (22,558)
--------- ---------
Long-term debt, net ............................................ $ 445,634 $ 811,036
========= =========
</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.
-14-
<PAGE> 17
10. INCOME TAXES
The composition of the benefit (provision) from income taxes, all of
which are for foreign taxes, for the six months ended June 30, 1999 and 2000 is
as follows:
<TABLE>
<CAPTION>
JUNE 30,
1999 2000
------- --------
(UNAUDITED)
<S> <C> <C>
Current income taxes .... $ (788) $(1,901)
Deferred income taxes ... 4,805 831
------- -------
Total ............... $ 4,017 $(1,070)
======= =======
</TABLE>
The foreign statutory tax rates range from 20% to 35% depending on the
particular country.
11. STOCK OPTION PLANS
In December 1998, the Company adopted the 1998 Stock Option Plan (the
"1998 Plan"), pursuant to which 4,776,016 shares of Company's Common Stock were
reserved for issuance upon exercise of options. The 1998 Plan is designed as a
means to retain and motivate key employees and directors. The Company's
compensation committee, or in the absence thereof, the Board, administers and
interprets the 1998 Plan and is authorized to grant options thereunder to all
eligible employees of the Company, including executive officers and directors
(whether or not they are employees) of the Company or affiliated companies.
Options granted under the 1998 Plan are on such terms and at such prices as
determined by the compensation committee, except that the per share exercise
price of incentive stock options cannot be less than the fair market value of
the Common Stock on the date of grant. The 1998 Plan will terminate on December
1, 2008, unless sooner terminated by the Company's Board.
Under the 1998 Plan, the Company granted options for 441,650 shares at an
exercise price of $8.38 during the year ended December 31, 1998, 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 June 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.
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
-15-
<PAGE> 18
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 six months ended June 30, 1999 and 2000, is as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------
1999 2000
--------- -----------
<S> <C> <C>
TOTAL ASSETS
IMPSAT Argentina .......... $ 230,704 $ 337,708
IMPSAT Colombia ........... 107,864 92,017
IMPSAT Venezuela .......... 40,822 45,880
IMPSAT Mexico ............. 10,217 12,628
IMPSAT Ecuador ............ 23,742 18,421
IMPSAT USA ................ 15,488 22,067
IMPSAT Brazil ............. 49,206 158,353
Parent Company, Others
and eliminations ........... 153,980 623,820
CONSOLIDATED TOTAL ...... $ 632,023 $ 1,310,894
NET REVENUES FROM SERVICES
NETWORK SERVICES
IMPSAT Argentina .......... $ 42,321 $ 41,828
IMPSAT Colombia ........... 26,351 21,181
IMPSAT Venezuela .......... 9,187 12,705
IMPSAT Ecuador ............ 4,818 5,078
IMPSAT USA ................ 4,607 5,528
IMPSAT Brazil ............. 1,900 6,776
Other ..................... 1,405 1,668
Eliminations .............. (3,484) (3,759)
CONSOLIDATED TOTAL ...... $ 87,105 $ 91,005
INTERNET
IMPSAT Argentina .......... $ 4,171 $ 4,993
IMPSAT Colombia ........... 1,375 1,413
IMPSAT Venezuela .......... 481 583
IMPSAT Ecuador ............ 1,335 1,712
IMPSAT USA ................ 2,690 4,738
IMPSAT Brazil ............. 338 3,438
Others .................... 3,900 107
Eliminations .............. (1,668) (2,672)
CONSOLIDATED TOTAL ...... $ 12,622 $ 14,312
OTHER
IMPSAT Argentina .......... $ 7,895 $ 10,752
IMPSAT Colombia ........... 3,161 4,516
IMPSAT Venezuela .......... 932 751
IMPSAT Ecuador ............ 218 238
IMPSAT USA ................ 965 1,507
IMPSAT Brazil ............. 398 1,328
Others .................... 739 507
Eliminations .............. (2,817) (1,399)
CONSOLIDATED TOTAL ...... $ 11,491 $ 18,200
</TABLE>
-16-
<PAGE> 19
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------
1999 2000
--------- ---------
<S> <C> <C>
TOTAL NET REVENUE FROM SERVICES
IMPSAT Argentina ................ $ 54,387 $ 57,573
IMPSAT Colombia ................. 30,887 27,110
IMPSAT Venezuela ................ 10,600 14,039
IMPSAT Ecuador .................. 6,371 7,028
IMPSAT USA ...................... 8,262 11,773
IMPSAT Brazil ................... 2,636 11,542
Others ........................... 6,044 2,282
Eliminations .................... (7,969) (7,830)
CONSOLIDATED TOTAL ............ $ 111,218 $ 123,517
OPERATING INCOME (LOSS)
IMPSAT Argentina ................ 3,412 $ (14,603)
IMPSAT Colombia ................. 7,784 743
IMPSAT Venezuela ................ 957 405
IMPSAT Mexico ................... (1,780) (942)
IMPSAT Ecuador .................. 1,318 147
IMPSAT USA ...................... (291) 373
IMPSAT Brazil ................... (5,865) (11,345)
Others .......................... (3,868) (7,157)
CONSOLIDATED TOTAL ............ $ 1,667 $ (32,379)
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
COMMITMENTS - The Company leases satellite capacity with average annual
rental commitments of approximately $24.0 million, through the year 2010. In
addition, the Company has commitments to purchase communications equipment
amounting to approximately $15.8 million at June 30, 2000.
GUARANTEES - The Company is a third party guarantor of up to 75% of a
$6.0 million credit facility provided to IMPSAT Venezuela by a regional
development fund. At June 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 June 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.
* * * * * *
-17-
<PAGE> 20
IMPSAT S.A.
BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
-----------------------------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,199 $ 1,516
Trade accounts receivable, net 36,046 38,769
Receivable from affiliated companies 4,130 5,086
Other receivables 13,605 16,497
Prepaid expenses 825 869
--------- ---------
Total current assets 58,805 62,737
--------- ---------
BROADBAND NETWORK, Net 28,944 78,409
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, Net 155,045 170,052
--------- ---------
NON-CURRENT ASSETS:
Investment 10,235 10,261
Deferred income taxes, net 3,622 3,622
Other non-current assets 16,327 12,627
--------- ---------
Total non-current assets 30,184 26,510
--------- ---------
TOTAL $ 272,978 $ 337,708
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 32,732 $ 35,641
Short-term debt 10,707 9,105
Advances from affiliated companies 68,959 7,641
Current portion of long-term debt 4,411 3,883
Accrued and other liabilities 9,548 7,061
Customer advances on broadband network 23,200 43,256
--------- ---------
Total current liabilities 149,557 106,587
--------- ---------
LONG-TERM DEBT, Net 46,124 83,207
--------- ---------
OTHER LONG-TERM LIABILITIES 510 152
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY:
Common stock $0.01 par value; 14,755 shares issued and
outstanding at December 31, 1999 and June 30, 2000 3 3
Paid in capital 82,442 174,464
Accumulated deficit (5,658) (26,705)
--------- ---------
Total stockholders' equity 76,787 147,762
--------- ---------
TOTAL $ 272,978 $ 337,708
========= =========
</TABLE>
See notes to financial statements.
-18-
<PAGE> 21
IMPSAT S.A.
STATEMENTS OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-----------------------------------------------------------------
1999 2000 1999 2000
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUES FROM SERVICES:
Network services ...................... $ 21,757 $ 21,034 $ 42,321 $ 41,828
Internet .............................. 2,329 2,582 4,171 4,993
Other ................................. 3,804 7,153 7,895 10,752
-------- -------- -------- --------
Total net revenues from services ..... 27,890 30,769 54,387 57,573
-------- -------- -------- --------
COSTS AND EXPENSES:
Direct Costs:
Contracted services ................ 3,151 3,771 6,302 6,876
Other direct costs ................. 3,459 3,748 5,571 5,931
Leased capacity .................... 4,567 6,512 8,611 12,431
Cost of sold equipment ............. 716 3,495 1,453 4,257
-------- -------- -------- --------
Total direct costs ................. 11,893 17,526 21,937 29,495
Salaries and wages .................... 4,874 6,827 9,260 12,740
Selling, general and administrative ... 3,991 6,376 7,538 12,497
Depreciation and amortization ......... 6,494 8,392 12,240 17,444
-------- -------- -------- --------
Total costs and expenses ............. 27,252 39,121 50,975 72,176
-------- -------- -------- --------
Operating income (loss) ................. 638 (8,352) 3,412 (14,603)
-------- -------- -------- --------
OTHER INCOME (EXPENSES):
Interest expense, net (3,263) (2,282) (6,160) (5,112)
Other income, net -- 12 6 4
-------- -------- -------- --------
Total other expense (3,263) (2,270) (6,154) (5,108)
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES (2,625) (10,622) (2,742) (19,711)
PROVISION FOR INCOME TAXES -- (735) (40) (1,336)
-------- -------- -------- --------
NET LOSS $ (2,625) $(11,357) $ (2,782) $(21,047)
======== ======== ======== ========
</TABLE>
See notes to financial statements.
-19-
<PAGE> 22
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 92,022 92,022
Net loss (21,047) (21,047)
---- -------- -------- ---------
BALANCE AT JUNE 30, 2000 $ 3 $174,464 $(26,705) $ 147,762
==== ======== ======== =========
</TABLE>
(*) Includes an appropriation of retained earnings, amounting to $1,890, to
comply with legal reserve requirements in Argentina.
See notes to financial statements.
-20-
<PAGE> 23
IMPSAT S.A.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 2000
-------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,782) $(21,047)
Adjustment to reconcile net loss to net cash
(used in) provided by operating activities:
Amortization and depreciation 12,240 17,444
Deferred income tax provision 40
Changes in assets and liabilities:
Increase in trade accounts receivable, net (8,139) (2,723)
Decrease (increase) in prepaid expenses 78 (44)
Increase in other receivables and other non-current assets (2,614) (148)
(Decrease) increase in accounts payable - trade (1,387) 2,913
Increase (decrease) in accrued and other liabilities 1,547 (2,487)
Increase in customer advances on broadband network 20,056
Increase in other long-term liabilities (683) (358)
-------- --------
Net cash (used in) provided by operating activities (1,700) 13,606
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (15,197) (32,451)
Build-out of broadband network (12,457)
(Decrease) increase in investment 306 (26)
-------- --------
Net cash used in investing activities (14,891) (44,934)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from (repayments of) short-term debt 2,213 (1,602)
Changes in advances from \ to affiliates 419 (61,322)
Proceeds from (repayment of) long-term debt 698 (453)
Capital contribution 92,022
--------
Net cash provided by financing activities 3,330 28,645
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (13,261) (2,683)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE
PERIOD 13,849 4,199
-------- --------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 588 $ 1,516
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 5,183 $ 3,933
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Broadband network vendor financing $ 37,008
========
</TABLE>
See notes to financial statements.
-21-
<PAGE> 24
IMPSAT S.A.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS OF U. S. DOLLARS)
--------------------------------------------------------------------------------
1. BACKGROUND
The Company provides and operates private networks of integrated data and
voice telecommunications systems in Argentina. The Company's principal line
of business comprises the provision of data transmission services for large
national and multinational companies, financial institutions, governmental
agencies and other business customers in Argentina. It provides its services
through its advanced telecommunications networks comprised of owned
teleports, earth stations, fiber optic and microwave links and leased
satellite capacity. During the six months ended June 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
June 30, 2000, the Company is a 100% owned subsidiary of the Parent Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information - The unaudited statements as of June 30, 2000
and for the six months ended June 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 six months
ended June 30, 1999 and 2000 are not necessarily indicative of the operating
results to be expected for the full fiscal year or for any future period.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents - Cash and cash equivalents are highly liquid
investments, including short-term investments with maturities of three
months or less at the time of purchase. Cash equivalents and short-term
investments are stated at cost, which approximates fair value.
Revenue Recognition - The Company provides services to its customers
pursuant to contracts which range from six months to five years but
generally are for three years. The customer generally pays a monthly fee
based on the quantity and type of equipment installed. The fees stipulated
in the contracts are generally denominated in U.S. dollars equivalents.
Services are billed on a monthly, predetermined basis, which coincides with
when the services are rendered. No single customer accounted for greater
than 10% of total revenue from services for the six months ended June 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
-22-
<PAGE> 25
In connection with the Company's build out of the Broadband Network, the
Company has granted Global Crossing Development Co., a subsidiary of Global
Crossings Ltd. ("Global Crossing") an indefeasible right of use ("IRU") to a
portion of its broadband network capacity (see Note 5) when the Broadband
Network is completed. Pursuant to this agreement, the Company received a
fixed advance payment and will recognize the revenue from the IRU ratably
over the life of the IRU. The Company expects to have other similar
transactions in the future.
Broadband Network -- The broadband network is under construction. Costs in
connection with the construction, installation and expansion of the 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>
<CAPTION>
<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 six months
ended June 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.
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
-23-
<PAGE> 26
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 June 30, are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
----------------------------
(UNAUDITED)
<S> <C> <C>
Trade accounts receivable $ 49,989 $ 54,033
Less: allowance for doubtful accounts (13,943) (15,264)
-------- --------
Trade accounts receivable, net $ 36,046 $ 38,769
-------- --------
</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 six months ended June 30, 2000, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
---------------------------
(UNAUDITED)
<S> <C> <C>
Beginning balance $ 8,310 $ 13,943
Provision for doubtful accounts 6,280 3,667
Write-offs, net of recoveries (647) (2,346)
-------- --------
Ending balance $ 13,943 $ 15,264
======== ========
</TABLE>
4. OTHER RECEIVABLES
Other receivables consist primarily of refunds or credits pending from local
government for taxes other than income, advances to suppliers other than for
fixed assets, and other miscellaneous amounts due to the Company.
5. BROADBAND NETWORK AND AGREEMENTS
Broadband network and related equipment consists of the following at
December 31 and June 30:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30
1999 2000
--------------------------
(UNAUDITED)
<S> <C> <C>
Under construction - Broadband Network $26,967 $64,537
Under construction - Global Crossing ducts 1,977 13,872
------- -------
Total $28,944 $78,409
======= =======
</TABLE>
-24-
<PAGE> 27
NORTEL NETWORKS AGREEMENTS - On September 6, 1999, the Company executed a
turnkey agreement with Nortel Networks Corporation ("Nortel") relating to
Nortel's design and construction of segments of the Broadband Network in
Argentina for approximately $133.1 million. Pursuant to this agreement,
Nortel will construct:
- long-haul, high capacity fiber optic backbones linking major
cities in Argentina;
- fiber optic and wireless radio local rings and access points
within major cities in Argentina; and
- connections in Argentina that will integrate the Company's
networks with other providers' facilities, including submarine
cable systems, and provide the Company with access to global
telecommunications links.
In addition, Nortel will provide, as part of the turnkey agreement:
- required equipment and components;
- civil infrastructure design and engineering;
- civil works supervision;
- network infrastructure and configuration planning and engineering;
- formulation of network quality and performance specifications;
- compilation of network testing procedures and protocols; and
- preparation of network maintenance and operations plans and
procedures.
On October 25, 1999, the Company signed a definitive agreement with Nortel
to borrow an aggregate of up to approximately $149.1 million of long term
vendor financing. The financing, which will be disbursed over a two year
period with final maturity in 2006, will be used to finance Nortel's
construction of the segments of the Broadband Network in Argentina and the
purchase of additional equipment to be used by the Company in connection
with the operation of the Broadband Network. The Parent Company has
guaranteed the obligations of the Company under the Nortel financing
agreements.
FRAMEWORK AGREEMENT WITH GLOBAL CROSSING - On July 27, 1999, the Parent
Company entered into an agreement with Global Crossing that contemplates the
Parent Company or its affiliates entering into a series of definitive
agreements. As part of these arrangements, Parent Company or its affiliates
will purchase from Global Crossing indefeasible rights of use of capacity
valued at not less than $46 million on any of Global Crossing's fiber optic
cable networks worldwide. On September 22, 1999, the Company entered into a
definitive agreement with Global Crossing to construct the terrestrial
portion of Global Crossing's South American network between Las Toninas,
Argentina on the Atlantic Ocean and Valparaiso, Chile on the Pacific Ocean
(the "Trans-Andean Crossing System"). Construction of the Trans-Andean
Crossing System commenced in September 1999. Global Crossing will pay the
Company $50.7 million a for the turnkey construction of the Trans-Andean
Crossing System, which includes:
- construction of three ducts and related facilities over 230 route
miles between Las Toninas and Buenos Aires, Argentina and over 290
route miles between Mendoza, Argentina and Valparaiso, Chile, for
approximately $26 million.
- licensing to Global Crossing of one duct on our Broadband Network
between the cities of Buenos Aires and Mendoza in Argentina, for
approximately $25 million.
During 1999 and the first six months of 2000, Global Crossing paid the
Company $43.3 million in respect of the ongoing construction of the
Trans-Andean Crossing System. The Company will accumulate all construction
costs for the Global Crossing Ducts in projects under construction and will
defer recognition of all payments received from Global Crossing until
completion and delivery of the respective ducts.
-25-
<PAGE> 28
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 and June 30 (exclusive of the
Broadband Network) consists of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
----------------------------
(UNAUDITED)
<S> <C> <C>
Land $ 1,538 $ 3,044
Building, installations and improvements 19,536 27,850
Operating communications equipment 265,276 281,245
Furniture, fixtures and other equipment 10,403 11,416
--------- ---------
Total 296,753 323,555
Less: accumulated depreciation (145,564) (156,321)
--------- ---------
Total 151,189 167,234
Works in process 3,856 2,818
--------- ---------
Property, plant and equipment, net $ 155,045 $ 170,052
========= =========
</TABLE>
The recap of accumulated depreciation for the year ended December 31, 1999
and for the six months period ended June 30, 2000, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
----------------------------
(UNAUDITED)
<S> <C> <C>
Beginning balance $ 87,641 $ 145,564
Depreciation expense 59,039 17,444
Disposals and retirements (1,116) (6,687)
--------- ---------
Ending balance $ 145,564 $ 156,321
========= =========
</TABLE>
7. SHORT-TERM DEBT
The Company's short-term debt consists of short-term credit facilities,
denominated in U.S. dollars with interest rates ranging from 8% to 12.75%.
Amounts outstanding under these facilities totaled approximately $10,707 and
$9,105 at December 31, 1999 and June 30, 2000. The Company has historically
refinanced its short-term credit facilities on an annual basis.
-26-
<PAGE> 29
8. LONG-TERM DEBT
The Company long-term debt at December 31 and June 30, is detailed as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
----------------------------
(UNAUDITED)
<S> <C> <C>
Term notes payable (6.63% - 12.63%) maturing
semiannually through 2006, collateralized by certain assets $ 3,799 $ 2,811
Eximbank notes payable (8%), maturing
semiannually through 2003 and 2004 7,285 7,820
Broadband Network vendor financing (11.78%) due 2006 39,451 76,459
-------- --------
Total long-term debt 50,535 87,090
Less: current portion (4,411) (3,883)
-------- --------
Long-term debt, net $ 46,124 $ 83,207
======== ========
</TABLE>
9. INCOME TAXES
During the six months ended June 30, 1999 and 2000, the Company recorded a
current provision for income taxes of $40 and $1,336, respectively. The
statutory tax rate in Argentina was 35%.
10. COMMITMENTS AND CONTINGENCIES
Commitments - The Company leases leased telecommunications link with annual
rental commitments of approximately $6.0 million through the year 2001. In
addition, the company has commitments to purchase communications equipment
amounting to approximately $8.5 million at June 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 June 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, 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.
* * * * * *
-27-
<PAGE> 30
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following financial table summarizes our results of operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------------- -----------------------------------------
1999 2000 1999 2000
------------------ ----------------- ------------------- ------------------
(IN THOUSANDS AND AS A PERCENTAGE OF CONSOLIDATED REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues from services ........... $ 57,658 100.0% 64,754 100.0% $ 111,218 100.0% 123,517 100.0%
Direct Costs:
Contracted services .............. 5,967 10.3 6,787 10.5 11,596 10.4 13,261 10.7
Other direct costs ............... 5,779 10.0 5,803 9.0 9,764 8.8 10,986 8.9
Leased capacity .................. 11,944 20.7 17,503 27.0 22,464 20.2 31,585 25.6
Cost of sold equipment ........... 785 1.3 3,777 5.8 1,686 1.5 4,597 3.7
-------- ----- ------- ----- --------- ----- -------- -----
Total Direct Costs .......... 24,475 42.3 33,870 52.3 45,510 40.9 60,429 48.9
Salaries and wages ................... 11,377 19.7 15,940 24.6 22,192 20.0 30,170 24.4
Selling, general and administrative
expenses ............................. 9,350 16.2 12,987 20.0 18,520 16.7 24,488 19.8
Depreciation and amortization ........ 12,414 21.5 20,873 32.2 23,329 21.0 40,809 33.0
Interest expense, net ................ (13,746) (23.8) (19,724) (30.5) (28,106) (25.3) (37,338) (30.2)
Net (loss) gain on foreign exchange .. (1,774) (3.1) (1,761) (2.7) (7,986) (7.2) 804 0.7
Other (expense) income, net .......... (83) (0.1) 2,306 (3.6) (564) (0.5) 2,484 2.0
Benefit from (provision for)
foreign income taxes ................. 1,874 3.3 (1,730) (2.7) 4,017 3.6 (1,070) (0.9)
Net loss attributable to common
stockholders ......................... (17,452) (30.3) (39,825) (61.5) (37,948) 34.1 (68,892) (55.8)
</TABLE>
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Revenues. Our net revenues for the three and six months ended June 30,
2000 totaled $64.8 million and $123.5 million, an increase of $7.1 million (or
12.3%) and $12.3 million (or 11.1%) from net revenues for the same periods in
1999.
-28-
<PAGE> 31
The following table shows our revenues by operating subsidiary (including
intercompany transactions) for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1999 2000 1999 2000
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
IMPSAT Argentina .... $27,890 $30,769 $54,387 $57,573
IMPSAT Colombia ..... 16,002 13,295 30,887 27,110
IMPSAT Venezuela .... 5,528 7,504 10,600 14,039
IMPSAT Ecuador ...... 3,288 3,533 6,371 7,028
IMPSAT Mexico ....... 913 855 1,724 1,683
IMPSAT Brazil (1) ... 1,615 6,447 2,636 11,542
Mandic S.A. (1) ..... 2,232 -- 4,263 --
IMPSAT USA .......... 4,086 6,030 8,262 11,773
Other ............... 56 441 57 599
</TABLE>
(1) On October 5, 1999, we transferred the retail dial-up Internet business
of Mandic to El Sitio, Inc., and merged Mandic's remaining operations
into IMPSAT Brazil.
Growth in our net revenues resulted primarily from non-satellite
services, including terrestrial-based network services, Internet services and
other services. Our revenue for the three months ended June 30, 2000 includes
$3.7 million that we generated from equipment sales during that period, a $2.4
million increase (or 170%) from the same period in 1999. The following table
shows our revenues by business lines (after elimination of intercompany
transactions) for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- -----------------------
1999 2000 1999 2000
------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Network services
Terrestrial .................... $ 8,169 $ 9,490 $ 15,772 $ 18,955
Satellite ...................... 36,587 36,523 71,333 72,050
------- ------- -------- --------
Total network services ...... $44,756 $46,013 $ 87,105 $ 91,005
Internet ........................... $ 6,600 $ 7,598 $ 12,622 $ 14,312
Other .............................. $ 6,302 $11,143 $ 11,491 $ 18,200
------- ------- -------- --------
Total net revenues from services ... $57,658 $64,754 $111,218 $123,517
======= ======= ======== ========
</TABLE>
Despite the economic recessions experienced in many of our countries of
operation that prevailed in 1999 and continued throughout the first half of
2000, we were able to achieve revenue growth for the first six months of 2000 as
compared to the prior year's period. This 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 2,127 customers at June 30, 2000, compared to
1,579 customers at June 30, 1999. In connection with the development and
deployment of our Broadband Network, we intend to aggressively market our
services to existing and new customers, including smaller corporate customers.
In the three months ended June 30, 2000, we gained a total of 214 new
-29-
<PAGE> 32
customers, an increase of 11.2% from the period ended March 31, 2000. Customer
growth was most pronounced in Brazil.
The Company's operations in Brazil recorded the highest revenue growth
rate among our countries of operation. Revenues from our Brazilian operations
during the three and six months ended June 30, 2000 totaled $6.4 million and
$11.5 million, an increase of $2.6 million (or 67.4%) and $4.6 million (or
67.3%), compared to the same period in 1999.
In Argentina, revenues for the Company's network services declined as
compared to the three and six months ended June 30, 2000 while Internet services
increased. In addition, revenue for the second quarter included $3.7 million in
equipment sales. This amount related principally to a contract entered into in
January 2000 with the Government of the Province of Cordoba in the amount of
$9.8 million for the provision of equipment and information technology solutions
for the automation and updating of the Province's revenue collection and
auditing functions. The decline in revenues from network services is due to
continued downward pressure on pricing and increased competition.
Our operations in the United States and Venezuela also showed improved
results. IMPSAT USA's revenues totaled $6.0 and $11.8 million for the three and
six months ended June 30, 2000, an increase of $1.9 million (or 47.6%) and $3.5
million (or 42.5%) as compared to the same periods in 1999. This is primarily a
result of increased network services and Internet backbone access services to
multinational corporations with operations in Latin America. IMPSAT Venezuela's
revenues totaled $7.5 million and $14.0 million for the three and six months
ended June 30, 2000, a $2.0 million (or 35.7%) and $3.4 million (or 32.4%)
increase compared to the same periods in 1999.
Our improved results in Brazil, Venezuela and the United States were
offset by a decrease in revenues at IMPSAT Colombia. During the second 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 revenues totaled $13.3 million and $27.1
million for the three and six months ended June 30, 2000, a $2.7 million (or
16.9%) and $3.8 million (or 12.2%) decrease from the same periods in 1999.
Direct Costs. Our direct costs for the three and six months ended June
30, 2000 totaled $33.9 million and $60.4 million, an increase of $9.4 million
(or 28%) and $14.9 million (or 33%), compared to the same periods in 1999. Of
our total direct costs for the second quarter of 2000, $17.5 million related to
the operations of IMPSAT Argentina. This compares to $11.9 million at IMPSAT
Argentina for the second quarter of 1999. Direct costs for IMPSAT Brazil totaled
$6.7 million for the second quarter of 2000, compared to $2.2 million for the
corresponding period in 1999. Direct costs of our subsidiaries are described
prior to the elimination of intercompany transactions.
(1) Contracted Services. Contracted services costs include costs of
maintenance and installation (and de-installation) services provided by outside
contractors. During the three and six months ended June 30, 2000, our contracted
services costs totaled $6.8 million and $13.3 million, an increase of $0.8
million (or 14%) and $1.7 million (or 14%) from the same periods in 1999. Of
this amount, maintenance costs for our telecommunications network infrastructure
totaled $4.0 million and $7.4 million for the three and six months ended June
30, 2000, compared to $3.8 million and $7.1 million during the same periods in
1999. Our maintenance costs increased because we had more infrastructure. In
addition, our installation costs totaled
-30-
<PAGE> 33
$2.8 million and $5.9 million for the three and six months ended June 30, 2000,
compared to $2.2 million and $4.5 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 six months ended June 30, 2000 totaled $2.0 million and $4.2
million, compared to $2.0 million and $3.6 million for the corresponding periods
in 1999. The majority of these commissions related to customers of IMPSAT
Argentina.
We recorded a net provision for doubtful accounts of $1.8 million
for the three months ended June 30, 2000 compared to $2.3 million for the same
period in 1999. At June 30, 2000 approximately 30.4% of our gross trade accounts
receivable were past due more than six months compared to 25.0% for the same
period in 1999. The average days in gross trade accounts receivable decreased
from 91 at March 31, 2000 to 76 at June 30, 2000. At June 30, 1999, average days
of gross trade accounts receivable equaled 86.
(3) Leased Capacity. Our leased capacity costs for the three and six
months ended June 30, 2000 totaled $17.5 million and $31.6 million, which
represented an increase of $5.6 million (or 46.5%) and $9.1 million (or 41%)
from the corresponding periods in 1999. We had approximately 912.4 MHz of leased
satellite capacity at June 30, 2000 and 696.4 MHz at June 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 six months ended June
30, 2000 we increased our leased dedicated capacity on third-party fiber optic
networks, spending $7.3 million and $12.2 million for the three and six months
ended June 30, 2000, an increase of $4.7 million (or 180%) and $7.2 million (or
69.7%) from the same periods in 1999. These costs were incurred principally in
Argentina and Brazil. Leased fiber optic capacity in Argentina and Brazil is
quite expensive due to the very limited number of providers. We have incurred
these higher costs of leased fiber optic capacity due to the continued
preference by some of our customers for greater bandwidth. We believe that our
leased fiber optic capacity costs should decrease as we begin to switch our
customers to the Broadband Network in Argentina and Brazil at the end of 2000.
(4) Costs of Equipment Sold. In the three and six months ended June
30, 2000, we incurred costs of equipment sold of $3.8 million and $4.6 million,
a $3.0 million (or 381.1%) and $2.9 million increase (or 172.7%) 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 six months ended
June 30, 2000 totaled $15.9 million and $30.2 million, an increase of $4.6
million (or 40.1%) and $8.0 million (or 36%), from the same periods in 1999. The
increase resulted primarily from:
- an increase in the number of employees, from 1,156 at June 30, 1999 to
1,264 at June 30, 2000, particularly in connection with the expansion of
our operations in Brazil and the development of the Broadband Network
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- 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
- $1.5 million payment of bonuses granted to key employees for 1999 that
were paid in the second quarter of 2000. During 1999, we had paid our
annual bonuses of $1.5 million in two installments during the third and
fourth quarters of that year.
IMPSAT Argentina incurred salaries and wages for the three and six months
ended June 30, 2000, of $6.8 million and $12.7 million, an increase of $2.0
million (or 40.0%) and $3.5 million (or 38.0%) over the same periods in 1999.
IMPSAT Brazil incurred salaries and wages for the three and six months ended
June 30, 2000, of $2.3 million and $4.4 million, an increase of $1.1 million (or
104.9%) and $2.3 million (or 111.1%) over the same periods in 1999. IMPSAT
Brazil increased its number of employees to 219 persons at June 30, 2000,
compared to 164 persons at June 30, 1999.
Selling, General and Administrative Expenses. Our SG&A expenses consist
principally of:
- publicity and promotion costs
- fees and other remuneration
- travel and entertainment
- rent
- plant services, telephone and energy expenses
We incurred SG&A expenses of $13.0 million and $24.5 million for the
three and six months ended June 30, 2000. SG&A expenses increased $3.6 million
(or 38.9%) and $6.0 million (or 32.2%), from the three and six months ended June
30, 1999. SG&A expenses at IMPSAT Argentina for the three and six months ended
June 30, 2000 totaled $6.4 million and $12.5 million, an increase of $2.4
million (or 59.7%) and an increase of $5.0 million (or 65.8%), from SG&A
expenses incurred by IMPSAT Argentina for the three and six months ended June
30, 1999. Compared to the corresponding periods in 1999, the increase in SG&A
expenses compared to the corresponding periods in 1999 reflect higher publicity
and promotion expenses, travelling expenses and advisory services related to the
development of our Broadband strategy.
Depreciation and Amortization. Our depreciation and amortization expenses
for the three and six months ended June 30, 2000 totaled $20.9 million and $40.8
million. This represents an increase of $8.5 million (or 68.1%) and $17.5
million (or 74.9%), compared to our depreciation and amortization for the three
and six months ended June 30, 1999. The increase in our depreciation and
amortization expense reflects the continued growth in our asset base as well as
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. We expect these 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.
Depreciation and amortization for IMPSAT Argentina for the three and six
months ended June 30, 2000, totaled $8.4 million and $17.4 million. This
represents an increase of $1.9 million
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(or 29.2%) and $5.2 million (or 42.5%), compared to IMPSAT Argentina's
depreciation and amortization for the three and six months ended June 30, 1999.
Interest Expense, Net. Our net interest expense for the three months
ended June 30, 2000 totaled $19.7 million, consisting of interest expense of
$28.1 million and interest income of $8.4 million for the second quarter of
2000. Our net interest expense for the six months ended June 30, 2000 totaled
$37.3 million, consisting of interest expense of approximately $50.5 million and
interest income of $13.2 million. At June 30, 2000, we had cash, cash
equivalents and other short-term investments of $498.0 million. Our net interest
expense increased $6.0 million (or 43%) and $9.2 million (or 33%) for the three
and six months ended June 30, 2000 from net interest expense for the same
periods in 1999.
For the three and six months ended June 30, 2000 IMPSAT Argentina's net
interest expense totaled $2.3 million and $5.1 million ($2.3 million and $4.1
million, after eliminating intercompany items), compared to $3.3 million and
$6.2 million, ($1.2 million and $2.2 million after eliminating intercompany
items) for the corresponding periods in 1999.
Our total indebtedness as of June 30, 2000 was $848.2 million as compared
to $426.7 million as of June 30, 1999. As of June 30, 2000, total outstanding
indebtedness at IMPSAT Argentina totaled $103.8 million ($96.2 million after
eliminating intercompany items), compared to $145.5 million ($22.4 million after
eliminating intercompany items) as of June 30, 1999. The increase in our net
interest expense reflects higher interest bearing indebtedness in the first half
of 2000 compared to the first half of 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 June 30, 2000 we had borrowed a total
$130.9 million from Nortel and have unused commitments of $166.5 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 a net loss on foreign
exchange for the three months ended June 30, 2000 of $1.8 million and a net gain
of $0.8 million for the six months ended June 30, 2000. These numbers can be
compared to net losses of $1.8 million and $8.0 million for the same periods in
1999.
Other Income, Net. We recorded other income, net, for the three and six
months ended June 30, 2000 of $2.3 million and $2.5 million, respectively, as
compared to other expense, net, of $0.1 million and $0.6 million for the
corresponding periods in 1999. We recorded a non-recurring gain of $2.8 million
in the second quarter of 2000 as a result of the sale of our Colombian retail
dial-up internet business to El Sitio, Inc. In accordance with the purchase and
sale contract entered into with El Sitio, the parties are conducting a
post-closing audit of the Colombian retail internet operations. In the event
that the audit indicates that an adjustment of the purchase price is
appropriate, such adjustment will be made in future periods.
Benefit from (Provision for) Income Taxes. We recorded a provision for
income taxes (all of which are for foreign taxes) of $1.7 million and $1.1
million, for the three and six months ended June 30, 2000 compared to a benefit
from income taxes of $1.9 million and $4.0 million for the corresponding periods
in 1999. The reason for this change relates to a determination that we are no
longer able to avail ourselves of certain tax credits.
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Net Loss Attributable to Common Stockholders. For the three and six
months ended June 30, 2000, we incurred a net loss attributable to common
stockholders of $39.8 million and $68.9 million, an increase of $22.4 million
(or 128%) and $30.9 million (or 82%) for same periods in 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 June 30, 2000, we had total cash, cash equivalents and short-term
investments of $498.0 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
Our budget contemplates that we will need approximately $170 million
during the period from June 30, 2000 (including amounts spent to date) through
the end of 2000 for capital expenditures related to the Broadband Network in
Argentina, Brazil, and Chile. In October 1999, we executed definitive agreements
with Nortel for long term vendor financing commitments of up to approximately
$297 million, which we plan to use to pay for Nortel's construction of the
segments of our Broadband Network in Argentina and Brazil. In addition, we are
negotiating a vendor financing agreement of approximately $16 million with
Lucent Technologies, Inc. as part of our agreement to purchase Lucent fiber
optic cable for the long-haul portions of the Broadband Network in Argentina. We
do not have any other commitments regarding financing for the Broadband Network.
On June 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. The new link would
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
receiving technical and financing proposals from a pre-qualified list of
vendors. We anticipate that the cost of the new link will be approximately $100
million. We anticipate that the cost of the new link will be financed through
vendor financing from the selected vendor and/or from our existing cash, cash
equivalents and short-term investments. We expect to commence construction in
the fourth quarter of this year and complete the link by the end of the third
quarter of 2001.
The further expansion and development of the Broadband Network beyond its
current and planned footprint in Argentina, Brazil, and Chile will depend upon
our ability to obtain additional financing. If we are unable to obtain
additional financing, we will not be able to maintain our levels of growth and
market position in any of the countries in which we operate, which could have a
material adverse effect on our results of operations.
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In addition, we anticipate that we will require approximately $75 million
for other capital expenditures, including those related to our existing
telecommunications business (including amounts spent to date) through the end of
2000, and significant amounts thereafter.
Our operating activities used $1.8 million for the three months ended
June 30, 2000 and generated $16.2 million for the six months ended June 30,
2000, compared with $15.4 million used and $21.9 used during the same periods in
1999.
Financing activities, principally our offering of our 13 3/4 Senior Notes
due 2005, our initial public offering and our private placement of common stock
to British Telecommunications, provided $483.7 million in net cash for the six
months ended June 30, 2000, compared with $126.6 million for the same period in
1999. For the six months ended June 30, 2000, we used $488.2 in net cash flow
for investing activities, compared to $40.0 million for the six months ended
June 30, in 1999. Of this amount, $388.4 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 13 3/4% 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 $83.5 million in non-cash investing and
financing activities related to the development of the Broadband Network for the
six months ended June 30, 2000, principally as a result of disbursements under
the vendor financing agreements with Nortel.
At June 30, 2000, we had leased satellite capacity with annual rental
commitments of approximately $24.0 million through the year 2010. In addition,
at June 30, 2000, we had commitments to purchase telecommunications equipment
amounting to approximately $15.8 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 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 June 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. 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 first
half or second quarter of 2000. Our floating rate indebtedness is expected to
increase in the future as we draw down commitments under the Nortel financing
agreements to cover expenditures relating to our contracts with Nortel to
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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 for the
year ending December 31, 1999 and the six month period ending June 30, 2000 that
were not denominated in U.S. dollars represented approximately 6.7% and 9.3% of
our total net revenues for 1999 and the second quarter of 2000, respectively.
However, this proportion can be expected to increase significantly in future
periods in connection with the progression of our operations in Brazil and the
development of the Broadband Network. The effect of foreign exchange rate
fluctuations on our consolidated results in 1999 and the three and six months
ended June 30, 2000 was not material.
Changes in Market Value of Investment. We hold a fair value basis
investment of approximately 14.2% 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 June 30, 2000 would decrease the fair value of
our investment by $8.8 million.
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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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. On May 2, 2000, the registrants filed with
the Commission a current report on Form 8-K which disclosed a public
announcement on May 1, 2000 of IMPSAT Fiber Networks, Inc.'s consolidated
operating results for the first quarter of 2000.
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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: August 14, 2000
IMPSAT S.A.
By: /s/ Jose Torres
---------------
Jose Torres
Director and
Chief Accounting Officer
Date: August 14, 2000
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