Item 1. Business
General
We are a leading provider of private telecommunications network and Internet services in Latin America. We offer integrated data, voice and Internet solutions, with an emphasis on broadband transmission, for national and multinational companies, financial institutions, governmental agencies and other business customers. We also offer dedicated Internet services to Internet service and content providers.
We have operations in Argentina, Colombia, Venezuela, Ecuador, Mexico, Brazil, Chile, Peru and the United States and also provide our services in other countries in Latin America. We provide telecommunications and Internet services through our networks, which consist of owned fiber optic and wireless links, teleports, earth stations and leased fiber optic and satellite links. We own and operate 15 metropolitan area networks in some of the largest cities in Latin America, including Buenos Aires, Bogotá, Caracas and São Paulo.
In the fourth quarter of 2000, we completed the construction of an extensive pan-Latin American broadband fiber optic network (which we call our Broadband Network) connecting major cities across Argentina and Brazil, and the commencement of commercial operation of the full Broadband Network in those locations. Our Broadband Network allows us to enhance the services we presently provide and significantly increase our transmission speed and capacity. The Broadband Network is comprised of eight metropolitan area fiber optic networks and wireless links, which extends over 830 route kilometers in the largest cities in Argentina and Brazil, and long-haul fiber optic backbones in Brazil, Argentina, Chile and Colombia extending over 6,400 route kilometers. It stretches from the Pacific Ocean at Valparaiso, Chile to the Atlantic Ocean, at Las Toninas, Argentina and between Curitiba, Rio de Janeiro and São Paulo, Brazil. Our new network uses advanced transmission technologies, including dense wave division multiplexing, or DWDM, asynchronous transfer mode, or ATM, and Internet protocol, or IP.
IMPSAT Fiber Networks, Inc. was organized in 1994 as a Delaware holding company to combine the IMPSAT businesses in Argentina, Colombia and Venezuela. Our operations started in Argentina in 1990 under the name IMPSAT S.A. (IMPSAT Argentina). We began operations outside of Argentina with the establishment of IMPSAT Colombia in 1991 and the establishment of IMPSAT Venezuela in 1992. New operating subsidiaries were created in Ecuador (IMPSAT Ecuador) and Mexico (IMPSAT Mexico) in 1994, in the United States (IMPSAT USA) in 1995 and in Brazil (IMPSAT Brazil) in 1998. In January 2000, we changed our company’s name from IMPSAT Corporation to IMPSAT Fiber Networks, Inc.
In February 2000, we completed the initial public offering of 11,500,000 shares of our common stock, representing approximately 12.6% of our current total outstanding common stock, for total proceeds after expenses and commissions of approximately $180.8 million. In addition, we raised approximately $48.0 million after expenses through the simultaneous sale, through a private placement, of 2,850,000 shares of common stock to British Telecommunications plc, one of our existing stockholders. We refer to this transaction as the British Telecommunications private placement. We also exchanged shares of our common stock for the minority interests in some of our subsidiaries, and the holders of our preferred stock converted the preferred stock into shares of our common stock. On February 11, 2000, we completed the private placement of our $300,000,000 12 3/4% Senior Notes due 2005 (the “Notes due 2005”), pursuant to Rule 144A under the U.S. Securities Act of 1933. On July 26, 2000, we completed our exchange offer pursuant to which all outstanding Notes due 2005 were exchanged for identical notes that are registered under the Securities Act of 1933.
Services
Our comprehensive telecommunications solutions consist of any combination of our service offerings, including the enhanced and additional services that we are able to offer using our Broadband Network in Argentina and Brazil. We currently classify these service offerings into four categories: data and value added services, Internet services, carrier’s carrier services, and telephony services.
Data and Value Added Services. We offer our customers a broad range of end-to-end network service combinations for their point-to-point and point-to-multipoint telecommunications needs, ranging from simple connections to customized private network solutions. We offer our network services over our existing and planned networks, which are comprised of metropolitan area fiber optic rings and wireless networks, fiber optic and satellite links. We also offer value-added services, including secure web and applications hosting services through our advanced data center facilities located in São Paulo, Brazil; Buenos Aires, Argentina; Santiago, Chile; Mexico City, Mexico; and Fort Lauderdale, Florida.
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Connection Services. Our customers can purchase leased 	lines, frame relay services, ATM services and Internet protocol 	digital connection services to support their specific 	transmission requirements. Leased lines are typically purchased 	by customers that constantly transmit large amounts of voice, 	data and video traffic. Frame relay and ATM services are 	typically purchased by customers requiring reliable and rapid 	transmission of variable amounts of voice, data and video 	traffic. We typically offer our leased line connection service 	from 64 Kbps to 2 Mbps, and we intend to expand this offering to 	155 Mbps of capacity. Our frame relay services are typically 	offered from 64 Kbps to 2 Mbps and we intend to offer our ATM 	services from 2 Mbps to 155 Mbps. In addition, we offer digital 	connections using Internet protocol with interfaces of 10 Mbps 	to 100 Mbps as one of our options for local data network 	solutions.
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Private Network Services. For customers that require 	significant bandwidth and reliable data transmission between a 	number of sites, we offer customized private networks that 	combine fiber optic, fixed wireless and satellite technology. We 	also provide them with a variety of other services including 	network management services, trouble shooting reports, quality 	control and value-added services. Our consultative sales process 	ensures that each private network is designed to meet the 	evolving specific business and systems requirements of each 	customer. We also offer services such as video conferencing and 	remote learning as part of our private network services.
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Other Services. We offer information technology solutions 	and transactional services designed to facilitate our 	customer’s e-business and e-commerce needs and optimize our 	customers’ business processes.
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Information Technology Solutions. As part of our 	end-to-end solutions, we also offer a variety of information 	technology services, including the design, installation and 	integration of intranets, extranets and virtual private data 	networks, through which our customers can conduct business in a 	secure environment as well as integrate these new systems with 	their legacy telecommunications systems. In addition, we offer 	an outsourcing solution for customers that do not have the 	technical personnel or choose not to operate, manage and 	maintain their telecommunications systems and networks.
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Transactional Services. Our transactional services are 	designed to facilitate the e-commerce and e-business initiatives 	of our customers. For example, we provide our ConeXia service to 	customers in the healthcare sector for HMO membership 	verification, and we intend to expand our service to 	interconnect healthcare service providers (such as doctors, 	pharmacies, hospitals) to allow online prescription 	authorization for patients. We intend to provide additional 	business-to-business e-commerce solutions, primarily to retail 	businesses and financial institutions that conduct high volumes 	of transactions with their suppliers and business 	customers that increasingly want to establish on-line 	transaction capabilities.
Internet Services. We have offered Internet access services to corporate and ISP customers since 1996. These services are offered through our U.S.-based point of presence that link us to the U.S. Internet backbone. We are leader in the region in Internet services, as demonstrated by our being among the first Internet2 carriers in Latin America and a founding member of NAP of the Americas, which is one of only five Tier-1 Internet network access points (NAPs) in the world. With the completion of our Broadband Network in Argentina and Brazil, we can link our Latin American Internet backbone, as part of the Broadband Network, to the U.S. Internet through our fiber optic links in addition to our leased satellite links. With the objective of positioning ourselves as the Latin America Internet Backbone, we have deployed a series of data
centers along the region. We also launched our data center facilities during 2000 to integrate our broadband services with advanced value-added solutions in the region, and now offer hosting services in our data centers in Buenos Aires, São Paulo, Rio de Janeiro and Santiago de Chile.
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Wholesale Internet Services. We provide a complete 	Internet service for ISPs, including managed line provisioning 	for domestic and international backbone connections between 	points of presence, access to our co-location sites and server 	services (e-mail and hosting services), managed modem and 	roaming services, as well as the use of our network operation 	and help desk services.
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Corporate Internet Services. As part of providing our 	investors with a total telecommunications solution, we currently 	offer our corporate customers Internet access services including 	line provisioning, equipment provisioning and installation, 	primary and secondary domain registration and maintenance and 	technical support.
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Data Center Services. We offer our clients a complete set 	of data center services ranging from housing, shared and 	dedicated hosting to more complex managed hosting solutions, 	including disaster recovery and applications management and 	outsourcing services.
Services to Carriers. Having put the Broadband Network into operation across Argentina and Brazil, we intend to grow our offerings of dark fiber capacity, “lit fiber” services and duct capacity to ISPs and telecommunications carriers. Our fiber optic cable will provide customers with reliable, broadband connections between and among our metropolitan area networks at high speeds. Customers that choose to purchase “lit” capacity will be able to purchase an initial amount of capacity (typically 45 Mbps) and increase that capacity on demand. We also offer co-location services including the rental of secure space, equipment provisioning and operation and maintenance services.
In the third quarter of 2000 we entered into an agreement with 360networks, Inc., a Canadian fiber optic network provider, which contemplated our sale to 360networks of IRUs on the Broadband Network in Argentina and Brazil, and definitive contracts regarding the IRU capacity were signed in the first quarter of 2001. The sale of capacity on an IRU basis to 360networks should generate cash receipts of $96.0 million in 2001. Earlier in 2000, the Company entered into similar agreements with Global Crossing for our sale of IRU capacity on the Broadband Network in Argentina, Brazil and Peru for a total of $23.3 million, and in February 2001 the Company announced the signing of an agreement with Nextel for the sale of IRU capacity in Argentina for approximately $10 million.
Telephony Services. Following the completion of our Broadband Network in Argentina and the effectiveness of our license in Argentina to offer telephony services, we provide switched-voice domestic and international long distance telephony services to corporate customers and resellers in Argentina, international long distance service in the United States, where we have our international hub, and international long distance service in Peru. We plan to expand these offerings to other countries in the region, with the most significant opportunity being the deregulation of the Brazilian telephony market in January 2002. As components of our telephony services, we currently offer local, national and international long-distance services, Private Branch Exchange (PBX), toll free services and local numbering to our corporate customers as well as wholesale voice services to other carriers and resellers.
The following table shows our company’s net revenues breakdown by service for the years ended December 31, 1998, 1999 and 2000:
(1)
	Compared to previous year.
(2)
	Other value added services includes revenues from our 	transactional services, such as ConeXia, and our information 	technology solutions services.
The Broadband Network
The Latin American markets in which we operate are expected to experience compounded annual telecommunications and data services revenue growth of approximately 14% and 30%, respectively, from 1998 through 2004. We believe that this forecasted growth, coupled with continued deregulation in Latin America, will fuel demand for additional broadband capacity. To take advantage of this demand, in the fourth quarter of 1999 we commenced the construction of our Broadband Network, which enables us to provide high capacity, high speed telecommunications services across Latin America. Our Broadband Network, which went into full commercial operation in Argentina and Brazil at the end of 2000, consists of:
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	fiber optic local rings and wireless access points within major 	cities in Latin America, including Buenos Aires, São Paulo 	and Rio de Janeiro
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	long-haul, high capacity fiber optic backbones linking major 	cities in Latin America
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	capacity on undersea cable systems to provide connections among 	major Latin American cities, as well as global 	telecommunications connections and Internet access
We believe that our Broadband Network will enable us to:
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	cost-effectively offer more bandwidth-intensive services, 	including intranet and extranet services
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	substantially reduce our costs for leased satellite capacity and 	leased telecommunications links as a percentage of our net 	revenues
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	create a high capacity, pan-Latin American Internet backbone
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	offer Latin American companies more efficient access to the U.S. 	Internet backbone
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	continue to provide consistent, high quality service by keeping 	our customer traffic on our network
Our Broadband Network has the capacity to transmit up to 5.7 terabits, or 5.7 trillion bits, of data per second.
Capacity Agreements. We have signed an agreement with Global Crossing Development Co. for the purchase of at least $46 million in indefeasible rights of use of capacity on Global Crossing’s South American fiber optic network and on other segments of its networks. These rights enable us to interconnect our networks
in Argentina and Brazil and other Latin American markets, while giving us global telecommunications access. In addition, in February 2001, we entered into a Capacity IRU Agreement with 360networks pursuant to which we are obligated to purchase a minimum of $46 million of capacity IRUs on the 360americas System, 360networks’s undersea network between the United States and South America.
Customers
Overview. We have grown rapidly since the commencement of our operations in 1990. Our customer base has increased from 125 corporate customers in two countries at December 31, 1992 to 2,656 corporate customers in nine countries at December 31, 2000. Larger entities, which often have significant needs for reliable, cost-effective data transmissions and other telecommunications services, were the first to use our customized telecommunications services. As a result, a significant portion of our revenues has been derived from our largest customers. In addition, because of our relatively short operating history outside of Argentina and Colombia, a significant number of our customers, including our largest customers, are located in those two countries. As our business further matures and as we extend the operation of the Broadband Network, we expect that the average size of our customers will decline.
Our customers consist of major governmental agencies, financial institutions and leading national and multinational corporations and private sector companies, including YPF/ Repsol, Royal Dutch Shell, Banco de Galicia y Buenos Aires, Siemens and Reuters. Our ten largest customers accounted for approximately 22% of our revenues in 2000 and approximately 17.1% in 1999.
Our ten largest customers as of December 31, 2000 were:
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	The Government of the Province of Cordoba, Argentina
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	The Government of the Province of Buenos Aires, Argentina
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	CNI (Confederação Nacional de Industrias), 	Brazil’s national association of private industrial 	companies
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	Banco de la Nación Argentina, or BNA, a state-owned bank 	and the largest bank in Argentina, with over 500 branches 	throughout Argentina
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	Corporacion Nacional de Ahorro y Vivienda, or Conavi, one of 	Colombia’s largest financial institutions
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	YPF/ Repsol, a multinational integrated oil company that is one 	of the largest companies in Argentina and has operations in 	other Latin American countries
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	Banco Mercantil SAICA, one of the largest financial institutions 	in Venezuela
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	O Site Entretenimentos Ltda., an Internet service provider 	subsidiary of El Sitio, Inc.
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	Perez Companc S.A., an Argentine energy conglomerate
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	Citicorp Global Technology, Inc.
The following table shows our customer concentration by country as of the dates indicated. Totals presented do not include customers from our fax, store and forward service.
Customer Contracts. Our contracts with our customers typically range in duration from six months to five years and contracts with our private telecommunications network customers are generally for three years. Contracts generally may be terminated by the customer without penalty. The private telecommunications network customers generally pay a one-time installation fee and a fixed, monthly fee. We believe that as we further commercialize our Broadband Network, we will develop a more flexible pricing structure, using both a usage- based billing and fixed fee-based billing model.
Except in Brazil, our contracts generally provide for payment in U.S. dollars or for payment in local currency linked to the exchange rate at the time of invoicing between the local currency and the U.S. dollar. The revenues of our customers are generally denominated in local currencies. Although our customers include some of the largest and most financially sound companies and financial institutions in their markets, devaluation of such currencies relative to the U.S. dollar could have a material adverse effect on the ability of our customers to pay us for our services. A currency devaluation could also result in our customers seeking to renegotiate their contracts with us or, alternatively, defaulting on their contracts.
Sales, Marketing and Customer Services
We view our relationship with our customers as a long-term partnership in which customer satisfaction is of paramount importance. For this reason, we apply an integrated approach to our sales, marketing and customer service functions. We provide customer service 24 hours a day, 365 days a year. We use customer service teams to develop and maintain long-term, cooperative relationships with our customers. These relationships provide us with an in-depth understanding of our customers’ evolving telecommunications service requirements and levels of service satisfaction. As a result of this approach, we achieve high levels of customer satisfaction while being able to identify new revenue generating opportunities, customer telecommunications solution enhancements and product or service improvements previously overlooked or not adequately addressed by the client.
Within each segment of our market, the respective service team is responsible both for sales to new customers as well as for service to existing customers. In addition, each customer is assigned an account manager, who has overall responsibility for relations with that customer. An important function of the account manager is to identify new or enhanced services for existing customers. We will use this team-oriented approach to service our private network, Internet and other customer groups.
For our private network customers, we designate a customer service team to oversee all phases of initial customer contact, service planning, installation and ongoing service. After we establish initial contact with a potential customer, the service team conducts a thorough evaluation of the customer’s telecommunications needs. Following the completion of this evaluation, we create a plan for these customers which describes our proposed tailor-made solution using the appropriate components of our private telecommunications network
services. When we provide services to governmental agency customers, we often submit these proposals in response to public bid solicitations and related governmental bidding procedures that govern the contracting of services by governmental agencies.
To market our new and enhanced services, we are developing several service teams, each focusing on a particular type of services. For example, our telephony services will be marketed to resellers by a team focused only on telephony service.
In addition to salaried sales and marketing personnel, we often use the services of third-party sales representatives to assist in generating sales and managing the contract process between ourselves and our potential customers. We typically pay these third parties a commission and royalties equal to a percentage of the revenues we collect from any contract with those customers obtained as a result of the efforts of the third-party sales representative.
We observe and measure the satisfaction of our customers through our service teams’ frequent customer interaction and, more formally, through a comprehensive annual survey conducted by an outside consultant hired by us. We use the results of these surveys to evaluate the performance of our service teams, to formulate annual customer service plans and to implement improvements to meet and exceed customer expectations.
Competition
We compete on the basis of our experience, network quality, customer service, range of services offered and price. Our competitors fall into three broad categories:
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	PTOs in each country where we operate
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	other companies that operate competing satellite and terrestrial 	data transmission businesses, including newer entrants from more 	developed telecommunications markets outside of Latin America
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	large international telecommunications carriers
In the past, the PTOs and international telecommunications carriers have focused on local and long-distance telephony services. In the future, however, they may focus on the private telecommunications network systems segment of the telecommunications market. These entities have significantly greater financial and other resources than we do, including greater access to financing. These competitors may also be able to subsidize their private telecommunications network businesses with revenues from public telephony.
With the first group of competitors, our further expansion into the telecommunications services market along with continued deregulation of the telecommunications industry in Latin America, has brought us into more direct competition with the PTOs. Many of the PTOs in the countries where we operate have established and marketed “large customer” or “grand user” business teams in an attempt to provide dedicated services to the type of customer that represents our most important target market.
We believe that by maintaining our position as a reliable, high quality provider of telecommunications services, while strengthening the quality of our network and the breadth of service offerings through the Broadband Network, we will be able to maintain our current customers and successfully attract new customers. We might consider strategic alliances and other cooperative ventures with the PTOs to take advantage of each partner’s relative strengths.
In the second category, our competitors include international satellite telecommunications providers and local data transmission providers. We believe that we are able to compete successfully in data transmission services because we offer a broad array of services, provide high quality, custom-designed services that are tailored to meet the specific needs of each customer and have a greater geographical footprint for our Broadband Network than all of our current competitors among these providers. Among our competitors in this category are a number of new market entrants, including:
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	Diveo Broadband Networks, a fixed wireless broadband services 	provider that is building a network in metropolitan Buenos Aires 	and has announced plans to enter the Brazilian 	telecommunications market
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	MetroRED Telecomunicaciones, owned by Fidelity Investments, a 	data transmission service operator in Argentina, Brazil and 	Mexico that offers local network services in the cities of 	Buenos Aires in Argentina, São Paulo and Rio de Janeiro in 	Brazil, and Mexico City in Mexico
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	Engeredes S.A., an infrastructure and data services provider 	that will use both fiber optic and wireless links to connect the 	cities of Belo Horizonte, Rio de Janeiro and São Paulo in 	Brazil
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	NetUno, a local exchange carrier and provider of broadband local 	access, Internet and private network services in Venezuela, and
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	TechTel (an Argentine telecommunications company jointly owned 	by Grupo Techint SA, one of Argentina’s largest industrial 	groups, and Telmex (Telefonos de Mexico S.A. de C.V.) 	Mexico’s dominant telecommunications carrier), which offers 	long distance, data transmission and basic telephony services in 	Argentina and has announced plans to expand its operations into 	Uruguay.
In the third category, major telecommunications carriers have indicated their intention to enter the market as deregulation in Latin America and elsewhere opens new market opportunities. For example, AT&T Latin America Corp., which is controlled by AT&T Corporation, was formed in October 1999 by merging the operations of FirstCom Corp., which has operations in Chile, Colombia and Peru, Brazil-based Netstream, and Keytech LD, a local exchange carrier that is licensed to offer wireless, high-speed internet and other telecommunications services in Argentina. AT&T Latin America has operations in Argentina, Brazil, Chile, Colombia and Peru. NetStream, an established fiber optic network service provider that AT&T recently acquired, began providing fiber optic cable local network services earlier this year to businesses in São Paulo and Rio de Janeiro, Brazil and plans to build fiber optic networks in Belo Horizonte, Curitiba, Brasília and Porto Alegre in 2000. Increasing competition may significantly affect our pricing policies. We cannot assure you that competition from these alliances will not adversely affect our financial condition or results of operations.
Furthermore, we cannot assure you that competing technologies will not become available that will negatively affect our position, although we believe that we have the flexibility to act quickly to take advantage of any significant technological development. For example, new technologies such as DSL can significantly enhance the speed of traditional copper lines. These technologies could enable our PTO competitors to offer customers new high speed services without undergoing the expense of replacing their existing twisted-pair copper networks. This, in turn, could negate our last mile advantage. Our private telecommunications services could also face future competition from entities using or proposing to use new or emerging voice and data transmission services or technologies which are not widely available in Latin America, such as space based systems dedicated to data distribution services.
Rates are not regulated in our countries of operation, and the prices for our services are strongly influenced by market forces. We believe that increasing competition will result in increased pricing pressures. We have faced and expect to continue to face declining prices and may experience margin pressure as the PTOs in the countries where we have operations modernize their facilities, adapt to a competitive marketplace and place greater emphasis on data telecommunications and as other companies enter the Latin American telecommunications market. These price and margin declines may accelerate if new competitors enter our markets.
The principal barriers to entry for prospective providers of private telecommunications network services such as ours are the development of the requisite understanding of customer needs and the technological and commercial experience and know-how, infrastructure to provide quality services to meet those needs and capital.
Regulation
Domestic Service. We are subject to regulation by the national telecommunications authorities of the countries where we operate, and our operations require us to procure permits and licenses from these authorities. While we believe that we have received all required authorizations from regulatory authorities for
us to offer our services in the countries in which we operate, the conditions governing our service offerings may be altered by future legislation or regulation which could affect our business and operations.
Cross-Border Service. We provide integrated data, voice and video transmission services under the Interplus name between and among nineteen Latin American and Caribbean countries and the United States. In November 2000, we were granted a license to provide switched voice services to or from Argentina, and expect to receive authorization to provide these services in Brazil in 2004. International private line services such as Interplus are traditionally provided by local carriers in each country acting as correspondents and establishing dedicated telecommunications links between their facilities. Due to our pan-Latin American presence, we are often able to offer our Interplus service using our own facilities and personnel at both ends of the private line circuit. As a result of this end-to-end control, we maintain customer service and quality assurance at both ends of an Interplus link and realize better margins than when we use a correspondent carrier.
In countries where we do not maintain customer premises equipment or where we are not authorized to operate in that fashion, our Interplus service uses our facilities in the originating country to connect with a correspondent local carrier in the destination country or vice-versa. To date, we have signed Interplus correspondent agreements with carriers in several Latin American and Caribbean countries. We charge customers a monthly fee for Interplus which is based on the capacity of the circuit provided.
Deregulation. Various countries in Latin America have taken initial steps towards deregulation in the telecommunications market during the last few years. Several Latin American countries have completely or partially privatized their national carriers, including Argentina, Brazil, Mexico and Venezuela. Furthermore, some countries have scheduled the demonopolization of their dominant telecommunications providers. For example, Argentina and Venezuela completed the demonopolization of public telephone services by their PTOs during 2000. We believe that this trend toward deregulation, while likely to increase competition, will also present significant opportunities for us to expand our private telecommunications network services to, from and within the region, as well as to present opportunities for us in areas of telecommunications currently permitted to be conducted only by the PTOs.
Employees
As of December 31, 2000, we employed a total of 1,711 persons, of whom 587 were employed by IMPSAT Argentina, 438 were employed by IMPSAT Brazil, and 261 were employed by IMPSAT Colombia. The number of our employees has generally increased and is expected to continue to increase as a result of our expansion in the countries in which we operate, including as a result of our development of the Broadband Network. We do not have any long-term employment contracts with any of our employees, including management, and none of our employees are members of any union. We believe that our relations with our employees are good.
Item 2.
Item 2. Properties
Metropolitan Area Networks. We operate 15 metropolitan area networks, composed of a combination of owned and leased fiber optic and microwave links covering a total of 830 route kilometers. Our first metropolitan area network was established in Buenos Aires, Argentina in 1990. In addition, we currently provide services over our metropolitan area networks, in Córdoba, Mendoza and Rosario, in Argentina; Medellín and Cali, Colombia; Rio de Janeiro, Curitiba, São Paulo and Belo Horizonte in Brazil; Caracas, Venezuela; Quito and Guayaquil, Ecuador; and Lima, Peru. We also manage and operate a fiber optic network covering 352 route kilometers in Bogotá, Colombia, pursuant to a joint venture with Empresa de Telecomunicaciones de Santafe de Bogotá, the Colombian PTO that provides local telephone service in the Bogotá region. In addition, we own and control several microwave links in smaller cities in Latin America.
Fiber Optic Long-Haul Capacity. The long-haul segment of our Broadband Network, which is currently comprised of long-haul, high capacity fiber optic backbones extending over 6,400 route kilometers, stretches from the Pacific Ocean at Valparaiso, Chile to the Atlantic Ocean, at Los Toninas, Argentina and between Curitiba, Rio de Janeiro and São Paulo, Brazil. We also own and operate a long haul fiber optic networks
connecting the cities of Cali, Medellín and Bogotá in Colombia. To link the Broadband Network to other parts of Latin America and the world, we have purchased indefeasible rights of use (IRU) capacity valued at $46 million on Global Crossing’s undersea digital fiber optic cable systems (and associated terrestrial capacity) worldwide, including Global Crossing’s South American network. Global Crossing’s South American network is an 18,000 km undersea and terrestrial fiber optic network that encircles that continent. This capacity enables the Company to transmit telecommunications traffic seamlessly from the United States to both Brazil and Argentina using the latest fiber optic technology. In February 2001 we entered into a Capacity IRU Agreement with 360networks pursuant to which we are obligated to purchase a minimum of $46 million of capacity IRUs on the 360americas System, 360networks’s undersea network between the United States and South America.
In addition to our IRU capacity on Global Crossing’s and 360networks’s undersea fiber optic networks, we are a member of the Americas-1 and Columbus-II undersea fiber optic cable consortia, and have purchased an initial total capacity of 2 Mbps on each system for use in our Interplus service. Americas-1, which commenced commercial operation in December 1994, is a 4,960 mile fiber optic cable system connecting Vero Beach, Florida with the U.S. Virgin Islands, Trinidad, Brazil and Venezuela. Columbus-II links Mexico, the United States, the U.S. Virgin Islands, Spain, Portugal and Italy with about 7,440 miles of fiber optic cable. We also have reserved up to 18 Mbps, 4 Mbps and 24 Mbps of capacity on the Americas-II, Pan American and Arcos I undersea fiber optic cable networks, respectively. The Americas-II submarine cable, which is under development, will connect St. Croix, Puerto Rico, Curacao, Venezuela and Brazil. Pan American began operations in mid-February 1999 and runs between the U.S. Virgin Islands, Aruba, Venezuela, Colombia, Panama, Ecuador, Peru and Chile. Arcos I, an 8,600 km fiber optic cable system under construction with a planned third quarter 2001 completion date, is expected to connect the United States with numerous Caribbean and Latin American nations.
Data Centers. To complement our Broadband Network infrastructure, during December 2000 IMPSAT inaugurated our advanced data center hosting facilities, in Buenos Aires, São Paulo and Santiago, with an aggregate of 160,000 square feet. Similar facilities are being constructed in Fort Lauderdale and Mexico City. These state-of-the-art facilities, capable of supporting the most advanced application hosting services, will add to the Company’s existing hosting facilities in its operating centers located in nine other cities of the Latin American region. In addition, we have reserved approximately 70,000 square feet of operating space in our teleports for the provision of hosting services.
Teleports. We own and operate teleports in Buenos Aires, Argentina; São Paulo, Brazil; Bogotá, Colombia; Caracas, Venezuela; Quito, Ecuador; Mexico City, Mexico; Lima, Peru; and Florida, United States. In addition to the teleport in Fort Lauderdale, Florida, which commenced operations in January 1999, IMPSAT USA operates leased teleport facilities in New Jersey. We also own and operate regional teleports in Mendoza, Córdoba, Rosario, Tucumán, Mar del Plata, La Plata and Neuquén in Argentina; Medellín, Cali and Barranquilla in Colombia; Guayaquil, Ecuador; and Rio de Janeiro and Curitiba, Brazil.
Satellite Capacity. Our satellite transmissions use both C-band (4-7 GHz) and Ku-band (10-18 GHz) frequencies. As of December 31, 2000, we had a total available leased capacity of 1,203 MHz. Our lease payments for satellite capacity totaled approximately $40.7 million in 2000. We will contract for additional leased satellite capacity as business requires. A portion of our satellite capacity is leased by our wholly owned subsidiary, International Satellite Capacity Holding, NG. This subsidiary’s principal function is to lease private satellite capacity from satellite carriers and then sublease this capacity at market rates to our operating subsidiaries. We believe that this method of centralizing our leasing of satellite capacity provides us with better terms.
Item 3.
Item 3. Legal Proceedings
We are involved in or subject to various litigation and legal proceedings incidental to the normal conduct of our business, including with respect to regulatory matters. We were not during 2000, and currently are not, involved in any material legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security-Holders
There were no matters submitted by the Company during the fourth quarter of 2000 to a vote of security holders, through the solicitation of proxies or otherwise.
PART II
Item 5.
Item 5. Market for Registrants’ Common Equity and Related Stockholder Matters
Our common stock has been traded on the Nasdaq National Market under the symbol “IMPT” since the effective date of our initial public offering on February 1, 2000. Prior to that time, including during the period covered by this Report, there was no public market for our common stock. On March 21, the last reported price of our common stock on the Nasdaq National Market was $4.19 per share. Based upon information supplied to us by the registrar and transfer agent for our common stock, the number of common stockholders of record on March 15, 2001 was 46, not including beneficial owners in nominee or street name. We believe that a significant number of shares of our common stock are held in nominee name for beneficial owners.
The following table shows the high and low sales price of our common stock for each fiscal quarter during the year ended December 31, 2000, as reported on the NASDAQ National Market System.
Our Board of Directors has not declared any dividends on our common stock since its organization.
Item 6.
Item 6. Selected Financial Data
The following selected financial and other data are for our company on a consolidated basis and separately for IMPSAT Argentina, in each case in accordance with U.S. GAAP. The following financial data have been derived from our company’s audited consolidated financial statements and IMPSAT Argentina’s audited financial statements for the respective years. The selected financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and notes included at the back of this Report.
OUR COMPANY
IMPSAT ARGENTINA
(footnotes on next page)
(1)
	“EBITDA” is defined as operating income plus 	depreciation and amortization expense. We are presenting EBITDA 	because some investors use it as a measure of a company’s 	ability to service its debt and as a measure of operating 	performance. However, EBITDA is not determined using generally 	accepted accounting principles, and therefore our EBITDA is not 	necessarily comparable to EBITDA of other companies. Investors 	should not view EBITDA as an alternative to cash flows 	calculated under generally accepted accounting principles, which 	we have also presented. EBITDA is not “free cash 	flow,” because it will be used to pay interest expense and 	remaining amounts after we pay our interest expense will be used 	to pay taxes and make capital expenditures.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
IMPSAT Fiber Networks, Inc. is a holding company whose subsidiaries and affiliates operate in the telecommunications industry. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and the notes accompanying them.
Results of Operations
The following table summarizes our results of operations:
2000 Compared to 1999
Revenues. Our total net revenues for 1999 and 2000 equaled $228.5 million and $322.1 million. Net revenues in 2000 were composed of net revenues from services and Broadband Network development revenues.
Our net revenues from services for 2000 totaled $264.5 million, an increase of $36.0 million (or 15.8%) from 1999. Our net revenues from services during 2000 included net revenues from:
•
	data and value added services, which include satellite and 	broadband data transmission services revenue, systems 	integration and other information technology services revenues 	and other value-added services
•
	Internet, which is composed of our Internet backbone access and 	managed modem services to ISPs and other telecommunications 	providers, and related collocation and web hosting services 	which we will be providing through our advanced hosting 	facilities
•
	carrier’s carrier services, which consist of our wholesale 	long-haul services to other telecommunications carriers 	(including accruals from our sale of IRU capacity on our 	Broadband Network to, and our provision of switching and 	transportation of telecommunications traffic services for, such 	carriers), and related maintenance and collocation services to 	those carriers, and
•
	sales of equipment.
Our total net revenues for 2000 included $57.7 million of Broadband Network development revenues, which related to our turnkey construction on behalf of Global Crossing Development Co. of the Trans-Andean Crossing System (also called the “TAC”) that we contracted to build for Global Crossing in the third quarter of 1999 and additional backhaul construction that we performed for Global Crossing in Brazil and Peru. See Note 6 to our consolidated financial statements.
The following table shows our revenues by operating subsidiary (including intercompany transactions):
(1)
	Other includes IMPSAT Ecuador, IMPSAT Mexico, IMPSAT USA, IMPSAT 	Chile, IMPSAT Peru and, prior to 2000, Mandic S.A. On 	October 5, 1999, we sold the retail dial-up Internet 	business of Mandic to El Sitio, Inc., and merged Mandic’s 	remaining operations into IMPSAT Brazil.
Our Broadband Network development revenues of $57.7 million for 2000, which we discussed above, were recorded upon our delivery to, and provisional acceptance by, Global Crossing of those segments of the TAC between Global Crossing’s submarine cable landing point at Las Toninas, Argentina and Santiago, Chile and other backhaul segments in Brazil and Peru. These revenues included a bonus payment of $4.0 million earned under our contract with Global Crossing for early delivery of the TAC segment. We delivered the final segment of the TAC, between Santiago, Chile and Global Crossing’s submarine landing point at Valparaiso, Chile, in March 2001.
Growth in our revenues from services resulted primarily from broadband data services, Internet services and equipment sales. The following table shows our revenues from services by business lines (after elimination of intercompany transactions) for the periods indicated:
(1)
	Increase (decrease) compared to previous year.
Despite the continued economic stagnation that we experienced during 2000 in many of our countries of operation, including Argentina and Colombia, we were able to achieve services revenue growth of 15.8% for 2000 as compared to 1999. Our services revenue growth was achieved principally because of an overall increase in the number of customers and services we provided, offset in part by decreasing prices. Excluding fax store and forward customers, we had 2,656 customers at December 31, 2000, compared to 1,745 customers at December 31, 1999. As we continue marketing services over our Broadband Network, we intend to continue to aggressively market our services to existing and new customers, including smaller and medium-sized corporate customers who desire to contract for capacity on our Broadband Network for their telecommunications needs. In 2000, we gained a total of 911 new customers, an increase of 52.2% from 1999. We expect that the average revenues from many of our newer customers will be less than those realized in the past from our larger corporate and governmental customers. Customer growth was most pronounced in Argentina and Brazil, where the bulk of our marketing and sales efforts are taking place in connection with the introduction of service on our Broadband Network.
Our operations in Brazil recorded the highest revenue growth rate for services revenues among our countries of operation. Net revenue from services relating to our Brazilian operations during 2000 totaled $28.3 million, an increase of $19.7 million (or 229.8%) compared to 1999. In Brazil, the increase in our net revenues from services resulted from increased data and value added services to our expanding customer base and from increased revenues for Internet access services to the U.S. Internet backbone. During 2000, we entered into several contracts with Brazilian telecommunications companies for access to the U.S. Internet backbone.
Our net revenue from services in Argentina for 2000 totaled $128.2 million, an increase of $18.0 million (or 16.3%) from 1999. While our revenue in Argentina from our satellite-based network services declined as compared to 1999, our broadband data and value added services revenues and Internet services revenues increased. The decline in revenue from satellite-based network services is due to the continuing trend among our customers and business segment for higher bandwidth services, increased competition and continued downward pressure on pricing for low and medium bandwidth service offerings. The increase in Internet services resulted from several new contracts entered into for access to the U.S. Internet backbone. Our growth of Internet access services in Argentina included the commencement of such service to AOL Argentina S.R.L., an affiliate of America Online, Inc., upon AOL Argentina’s launch in August of 2000. In addition, IMPSAT Argentina’s services revenues for 2000 included $12.9 million in equipment sales. This amount related principally to a contract entered into in January 2000 with the Government of the Province of Cordoba for the provision of equipment and information technology solutions for the automation and updating of the Province’s revenue collection and auditing functions. It is our goal to utilize contracts for the development of
systems integration services and related equipment sales to become the telecommunications provider of choice for clients desiring to outsource their integrated telecommunications needs.
Our improved results in Brazil and Argentina were offset by a decrease in services revenue at IMPSAT Colombia. During the 2000, our operations in Colombia, our second oldest market, continued to be adversely affected by that country’s economic recession, which intensified pricing pressures. IMPSAT Colombia’s services revenue totaled $54.8 million for 2000, a $6.2 million (or 10.2%) decrease from 1999. Due to the recession in Colombia, a number of our customers either cancelled their contracts with us or reduced the amount of services contracted. In January 2001, we announced the acquisition by IMPSAT Colombia of the customer contracts of Americatel S.A., the private network telecommunications service provider owned by the Grupo Santo Domingo, one of Colombia’s largest business conglomerate. We expect that our revenues in Colombia will improve slightly throughout the course of 2001 as a result of our acquisition of Americatel’s customer contracts and the marginal improvement anticipated for the Colombian economy.
Direct Costs. Our direct costs for 2000 totaled $172.1 million. This amount includes $34.7 million in direct costs associated with the construction and delivery of the TAC segments and other backhaul links delivered to Global Crossing during 2000, which amounts related principally to cost of equipment and contracted third-party construction services. Other costs related to our turnkey contracts with Global Crossing, including salary and SG&A expenses, have been accrued and recorded in the periods in which such expenses were incurred, and reported among our expenses from general operations.
Excluding direct costs related to the Broadband Network development for Global Crossing, our direct costs for 2000 totaled $137.4 million, an increase of $29.7 million (or 27.5%) compared to 1999. Of these direct costs for 2000, $68.1 million related to the operations of IMPSAT Argentina. This compares to $55.6 million at IMPSAT Argentina for 1999. Direct costs for our Brazilian operations totaled $25.0 million for 2000, compared to $5.3 million for 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 2000, contracted services costs totaled 	$29.6 million, an increase of $7.7 million (or 35.3%) 	from 1999. Of this amount, maintenance costs for our 	telecommunications network infrastructure totaled 	$17.0 million for 2000, compared to $12.4 million 	during 1999. Our maintenance costs increased because we had more 	infrastructure. In addition, our installation costs totaled 	$12.6 million for 2000, compared to $9.4 million for 1999.
	We expect that our contracted services costs will increase in 	2001. As we migrate clients in Argentina and Brazil to the 	Broadband Network from their existing satellite-based equipment 	and as we add new clients to the Broadband Network, we will 	incur higher de-installation and installation costs. In 	addition, we will incur associated utility and maintenance costs 	for our Broadband Network, including our state-of-the-art data 	centers and our telehouses. Management is considering whether 	such Broadband Network maintenance services will be contracted 	from third parties or whether we will hire qualified personnel 	to perform such services.
	(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 	2000 totaled $8.1 million, compared to $8.0 million 	for 1999. The majority of these commissions related to customers 	of IMPSAT Argentina.
	During 2000, we recorded a provision for doubtful accounts of 	$4.8 million compared to a provision for doubtful accounts 	of $11.2 million for 1999. During 2000, we obtained payment 	of certain past due receivables from certain customers in 	Argentina and Colombia totaling $3.9 million. The increase 	in the provision for doubtful accounts for 1999 related 	principally to a change in our provisioning policy. At 	December 31, 2000, approximately 26.4% of our gross trade 	accounts receivable were past due more than six months compared 	to approximately 19% for 1999. At December 31, 2000, 	average days of gross trade accounts receivable equaled 	71 days, compared to 90 days at December 31, 	1999. While we analyze the creditworthiness of our customers and 	potential customers prior to entering into service contracts, we
	expect that as we expand our client base in the future upon the 	development of the Broadband Network, including services to 	small and medium-size corporate customers, our provisions for 	doubtful accounts will increase.
	(3) Leased Capacity. Our leased capacity costs for 	2000 totaled $74.2 million, which represents an increase of 	$24.5 million (or 49.4%) from 1999. We had approximately 	1,203 MHz of leased satellite capacity at December 31, 2000 	and 801 MHz at December 31, 1999. The expansion of our 	satellite capacity was primarily attributable to contractually 	scheduled increases in satellite capacity to match anticipated 	growth in customer demand. As we migrate certain of our 	customers in Argentina and Brazil to the Broadband Network in 	2001, we expect that the increase in satellite capacity costs 	will decline in percentage terms as compared to prior years and 	as a percentage of revenues in those countries.
	In addition, to satisfy increasing customer demand for higher 	bandwidth telecommunications links, during 2000 we increased our 	leased dedicated capacity on third-party fiber optic networks, 	spending $30.8 million for 2000, an increase of 	$17.8 million (or 136.6%) from 1999. These costs were 	incurred principally in Argentina, Brazil and the United States. 	We incurred these higher costs of leased fiber optic capacity in 	Argentina and Brazil due to the continued demand by some of our 	customers for greater bandwidth while we were deploying our 	Broadband Network and in the United States due to the expansion 	of our Internet service offerings in Latin America where we 	provide a link between Latin America and the U.S. Internet 	backbone. As we further deploy the Broadband Network during 	2001, we anticipate transferring increasing amounts of our 	telecommunications traffic to the Broadband Network.
	We believe that our leased satellite and fiber optic capacity 	costs will continue to increase in 2001 in absolute terms but 	that the rate of growth in such costs will decrease and that 	such costs should decrease as a percentage of 2001 revenues. We 	will continue to require leased capacity to provide 	telecommunications services to clients with facilities outside 	of the footprint of our Broadband Network in order to provide 	end-to-end telecommunications services.
	In connection with certain new services which we are offering in 	2001 as a result of the implementation of our Broadband Network 	and the effectiveness of our new license in Argentina to provide 	domestic and international long distance services, we will incur 	costs for interconnection and telephony termination costs and 	frequency rights. Pursuant to regulations adopted in Argentina 	in connection with the de-monopolization of telephony in 	November 2000, the Argentine government adopted a rate of 	$0.011 per minute for interconnection charges for new telephony 	providers to terminate calls with other providers.
	(4) Costs of Equipment Sold. Excluding cost of 	equipment related to our Broadband Network development costs for 	Global Crossing, we incurred costs of equipment sold in 2000 of 	$12.3 million, a $7.1 million (or 137.3%) increase 	from 1999.
Salaries and Wages. Salaries and wages for 2000 totaled $68.9 million, an increase of $22.7 million (or 49.3%) from 1999. The increase resulted primarily from:
•
	an increase in the number of employees, from 1,107 at 	December 31, 1999 to 1,711 at December 31, 2000, 	particularly in connection with the expansion of our operations 	in Brazil and the development of the Broadband Network, and
•
	increases in the salaries, wages and recruiting costs of our 	personnel to match market rates for personnel with the expertise 	we require and increases in cost of living.
IMPSAT Argentina incurred salaries and wages for 2000 of $29.1 million, an increase of $9.3 million (or 47.4%) from 1999. IMPSAT Argentina increased its number of employees from 385 at December 31, 1999 to 587 at December 31, 2000. Our Brazil operations incurred salaries and wages for the fourth quarter of 2000 and during the entire year totaling $6.1 million and $14.1 million, respectively. These amounts represent an increase of $4.5 million and $9.2 million (or 300.2% and 187.0%) from the corresponding periods during 1999. IMPSAT Brazil increased its number of employees to 438 persons at December 31, 2000, compared to 60 persons at December 31, 1999. Because many of these new personnel commenced employment only
towards the end of the third quarter, the impact of the increase in the number of employees was not recognized in our salaries and wages expenses until the fourth quarter of 2000. We expect salaries and wages expenses to increase as we expand our business over the Broadband Network in Argentina and Brazil. We also expect to increase the number of employees throughout 2001, although at a much lower level than during 2000. However, because most of our recruitment and hiring for the operation of the Broadband Network has now been completed, we expect that increases in our salaries and wages costs in future periods will decline as percentage of revenues for such periods as compared to prior periods.
Selling, General and Administrative Expenses. Our SG&A expenses consist principally of:
•
	publicity and promotion costs
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	professional fees and other remuneration
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	travel and entertainment
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	rent, and
•
	plant services, telephone and energy expenses.
We incurred SG&A expenses of $58.5 million for 2000. SG&A expenses increased $17.8 million (or 43.9%) from 1999. SG&A expenses at IMPSAT Argentina for 2000 totaled $26.1 million, an increase of $9.2 million (or 54.3%) from SG&A expenses incurred by IMPSAT Argentina for 1999. Compared to 1999, the increase in SG&A expenses reflect higher publicity and promotion expenses, travelling expenses and advisory services related to the deployment of the Broadband Network. We expect SG&A expenses to continue to increase as we grow our operation of the Broadband Network and seek to expand our customer and services base to take advantage of our new infrastructure. The operation of the Broadband Network and the development of a new structure for sales and customer expansion, including sales to small and medium-size corporate customers, will cause higher levels of SG&A expenses.
Depreciation and Amortization. Our depreciation and amortization expenses for 2000 totaled $84.5 million, a decrease of $45.6 million (or 35.0%) compared to our depreciation and amortization for 1999. Depreciation and amortization for IMPSAT Argentina for 2000 totaled $38.2 million. The decrease in our depreciation and amortization expense reflects our decision at the end of the third quarter of 1999 to change the depreciable life of some of our customers’ premises telecommunications equipment in light of technological advances, which resulted in a one-time depreciation and amortization charge in that quarter. Depreciation and amortization expenses will increase in future periods due to the development of the Broadband Network and our acquisition of additional associated customer premises equipment. We monitor technological advances to determine whether additional adjustments in the depreciable life of certain of our telecommunications equipment will be appropriate in future periods.
Interest Expense, Net. During 2000, we incurred interest expense of $112.9 million and earned interest income of $27.4 million. This compares to interest expense of $63.0 million and interest income of $7.4 million during 1999. For 2000, IMPSAT Argentina’s interest expense totaled $12.5 million ($11.1 million after eliminating intercompany items), compared to $13.7 million ($6.1 million after eliminating intercompany items) for 1999.
Our higher levels of interest income in 2000 related to our increased holdings of cash and other trading investments resulting from the unused proceeds of our debt and equity offerings completed in the first quarter of 2000. As we utilize such cash and investments for capital expenditures and general corporate purposes throughout 2001, we expect our interest income to decrease.
Our total indebtedness at December 31, 2000 was $968.2 million, compared to $484.3 million at December 31, 1999. At December 31, 2000, total outstanding indebtedness at IMPSAT Argentina totaled $159.4 million ($151.9 million after eliminating intercompany items), compared to $130.2 million ($61.2 million after eliminating intercompany items) as of December 31, 1999. The increase in our interest expense reflects higher interest bearing indebtedness in 2000 compared to 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 and Lucent Technologies in September 2000 for a total of up to $313.4 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 December 31, 2000 we had borrowed a total of $243.4 million under our vendor financing agreements for the Broadband Network and have unused commitments of $70.0 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 and additional financing arrangements which we expect to enter into with other vendors. See “- Liquidity and Capital Resources.” For 2000, the average interest rate on our indebtedness was 12.7%, compared to an average interest rate of 11.3% for 1999.
Net (Loss) Gain on Foreign Exchange. We recorded net losses on foreign exchange for 2000 of $10.6 million. This compares to net losses of $8.0 million for 1999. The increase in our net losses on foreign exchange was principally caused by the devaluation of the Brazilian real against the U.S. dollar.
Other Income, Net. We recorded other income, net, for 2000 of $0.7 million, compared to other income, net, of $15.3 million for 1999. During 1999, we recorded other income, net, of $13.9 million in connection with the sale of our retail internet businesses in Argentina and Brazil to El Sitio, Inc.
Benefit from (Provision for) Income Taxes. We recorded a benefit for income taxes (all of which are for foreign taxes) of $4.5 million for 2000, compared to a benefit from income taxes of $20.7 million for 1999. The decrease in benefit from income taxes relates to a higher net loss carry-forward recorded in 1999 as a result of the one-time increased depreciation expense which we realized upon a change in our depreciation policy on certain of our customer premises telecommunication equipment in September 1999.
Net Loss Attributable to Common Stockholders. For 2000, we incurred a net loss attributable to common stockholders of $154.1 million, an increase of $22.6 million (or 17.2%) from 1999.
1999 Compared to 1998
Revenues. Our net revenues for 1999 totaled $228.5 million, an increase of $20.4 million, or 9.8%, from net revenues for the same period in 1998. Growth in net revenues was achieved despite a significant economic recession through the Latin american region, especially in the countries where most of our operations were deployed (Argentina, Colombia, Venezuela). In addition to its general adverse effect on revenue and client growth, the recession in certain cases accelerated pricing pressures then existing in the Company’s more mature markets.
Our revenue growth for 1999 was attributable to an overall increase in the number of customers and services we provided to them offset, in part, by decreasing prices. Excluding Internet and fax store and forward customers, we had a total of 1,745 customers at December 31, 1999, compared to 1,467 customers at year end 1998.
Revenue figures included $8.6 million from retail internet services in Argentina and Brazil, which were sold to El Sitio, Inc. in the fourth quarter of 1999, and $2.0 million in retail internet services in Colombia that was transferred to El Sitio in April 2000.
The recessions in Argentina and Colombia and, to a lesser extent, increased competition resulted in some of our customers canceling their contracts or reducing the services we provided to them. Our business in Colombia, our second oldest market, was adversely affected by the severe economic recession experienced during 1999.
We completed our first full year of operations in Brazil in 1999. Although IMPSAT Brazil’s expansion of its customer base (90 customers as of December 31, 1999 compared to 48 customers as of the same date in 1998) and operations continued, adverse economic conditions in Brazil, including the devaluation of the real against the U.S. dollar, caused IMPSAT Brazil’s revenues in U.S. dollar terms to be lower than expected. Revenues recorded by Mandic during 1999 as compared to 1998 were also negatively affected by the devaluation of the Brazilian real against the U.S. dollar during 1999.
On October 5, 1999, we merged Mandic into IMPSAT Brazil, and Mandic S.A. ceased operations. On October 6, 1999, IMPSAT Brazil sold the retail internet business acquired in the Mandic merger for $12.3 million to O Site Entretenimentos Ltda., a subsidiary of El Sitio.
Direct Costs. Our direct costs for 1999 totaled $107.8 million, an increase of $38.9 million, or 56.4%, compared to 1998. Of our total direct costs for 1999, $54.4 million related to the operations of IMPSAT Argentina and $20.3 million related to the operations of IMPSAT Colombia. This compared to $32.0 million at IMPSAT Argentina and $17.3 million at IMPSAT Colombia for 1998. Direct costs for IMPSAT Brazil, which commenced operations towards the end of the second quarter of 1998, totaled $8.8 million for 1999. Direct costs of our subsidiaries are described prior to the elimination of intercompany transactions.
	(1) Contracted Services. In 1999, our contracted 	services costs totaled $21.9 million, compared to 	$17.9 million in 1998. Of this amount, maintenance costs 	for our telecommunications network infrastructure totaled 	$17.4 million, compared to $12.7 million for 1998. 	IMPSAT Argentina’s maintenance costs totaled 	$7.8 million, compared to $5.9 million in 1998. Our 	maintenance costs increased because we had more infrastructure. 	In addition, our installation costs totaled $9.4 million, 	compared to $7.6 million for 1998. Installation costs at 	IMPSAT Argentina totaled $5.3 million for 1999 as compared 	to $4.3 million for 1998.
	(2) Other Direct Costs. Other direct costs 	principally included licenses and other fees; sales commissions 	paid to third-party sales representatives; and our allowance for 	doubtful accounts.
	Sales commissions paid to third-party sales representatives 	totaled $8.0 million, compared to $6.8 million for 	1998. Most of these commissions related to customers of IMPSAT 	Argentina.
	We recorded a provision for doubtful accounts of 	$11.2 million compared to $5.3 million for the same 	period in 1998. At December 31, 1999, excluding amounts 	owed by two large former customers (Empresa Nacional de Correos 	y Telégrafos S.A., the former Argentine national 	postal service known as ENCOTESA, and IBM de Argentina) that 	were the subject of litigation at that date, approximately 19% 	of our gross trade accounts receivable were past due more than 	six months.
	During the third quarter of 1999, we amended our provisioning 	policy to remove the discretion previously granted to the 	presidents of our operating subsidiaries to override the 	provisioning of amounts more than 180 days past due and to 	reserve 100% of our outstanding receivables due from IBM de 	Argentina. During that quarter we recognized a charge of 	approximately $1.1 million with respect to receivables due 	from IBM de Argentina and additional charges of approximately 	$4.1 million. In addition, at December 31, 1999, we 	also estimated that the net realizable value on the ENCOTESA 	receivable to be zero, and accordingly we recorded an adjustment 	of $5.1 million relating to this receivable.
	In addition, due to a general slowdown in the collection of 	receivables that commenced in the second quarter of 1999 in 	Argentina and some of the other countries of our operations, 	which we attributed to economic difficulties experienced in 	those countries, we added approximately $2.5 million to our 	allowance for doubtful accounts in the third quarter of 1999. In 	particular, our collection of receivables in Argentina was 	adversely affected by the recession in that country during 1999. 	IMPSAT Argentina’s average days outstanding for net trade 	receivables due was 90 days at December 31, 1999. This 	represented an improvement from IMPSAT Argentina’s average 	days outstanding for net trade receivables due of 97 days 	at June 30, 1999, but a decline from 69 days at 	December 31, 1998.
	In February, 2000, IMPSAT reached an agreement with IBM de 	Argentina for the settlement of its receivables due from that 	company, for which we received approximately $2.0 million 	of the approximately $2.3 million amount reserved.
	(3) Leased Capacity. Our leased capacity cost 	totaled $49.7 million, which represented an increase of 	$18.4 million, or 59.0%, from the corresponding period in 	1998. We had approximately 801 MHz of leased satellite capacity 	at December 31, 1999 and 650 MHz at December 31, 1998.
	The expansion of our satellite capacity was primarily 	attributable to contractually scheduled increases in satellite 	capacity to match anticipated growth in customer demand. A 	portion of this increase was related to the growth in our SCPC 	services compared to our VSAT services. SCPC earth stations use 	larger amounts of satellite capacity than do VSAT microstations. 	However, we did not need as much satellite capacity as we 	contracted for, due to adverse economic conditions in Latin 	America. As a result, our satellite capacity cost as a 	percentage of revenues increased substantially from prior 	periods.
	In addition, to satisfy increasing customer demand for high 	bandwidth telecommunications links, during 1999, we increased 	our leased dedicated capacity on third-party fiber optic 	networks in Argentina, spending $16.9 million compared to 	$10.0 million for 1998.
	(4) Costs of Equipment Sold. We incurred costs of 	equipment sold of $5.2 million, compared to 	$3.7 million in 1998.
Salaries and Wages. Salaries and wages totaled $46.2 million, an increase of $8.0 million, or 20.9%, from the 1998. The increase resulted primarily from:
•
	an increase in the number of employees, from 1,029 at 	December 31, 1998 to 1,107 at December 31, 1999, 	particularly in connection with the progression of our 	operations in Brazil, and the development of the Broadband 	Network
•
	increases in the salaries and wages of our personnel to match 	market rates for personnel with the expertise we require and 	increases in cost of living
IMPSAT Argentina incurred salaries and wages for 1999 of $19.7 million compared to $16.3 million in 1998. Salaries and wages for 1999 relating to the Broadband Network totaled $3.0 million. Salaries and wages for 1999 paid with respect to IMPSAT Brazil and Mandic totaled $4.7 million. IMPSAT Brazil increased its number of employees by 60 persons, or 50.4%, during 1999 in connection with the Company’s development of operations in that country.
Selling, General and Administrative Expenses. We incurred SG&A expenses of $40.6 million for 1999. SG&A expenses increased $3.4 million, or 9.3%, from 1998. SG&A expenses at IMPSAT Argentina totaled $18.1 million, an increase of $1.2 million, or 6.9%, from SG&A expenses incurred by IMPSAT Argentina for 1998.
The increase in SG&A expenses principally reflected increased SG&A expenses incurred by our then two newest subsidiaries, IMPSAT Brazil and Mandic, both of which had commenced operations around the end of the second quarter of 1998. SG&A expenses incurred by IMPSAT Brazil totaled $5.9 million compared to $5.6 million in the corresponding period in 1998. Mandic’s SG&A expenses totaled $1.6 million compared to $2.2 million in the corresponding period in 1998.
The increased SG&A expenses also reflected growth in our operations and the development and implementation of the Broadband Network. For example, the increase in our expenses for legal, tax and consultancy advice to $8.5 million compared to $7.1 million for 1998 was attributable to the expansion of our operations, including the financing and development of the Broadband Network.
Depreciation and Amortization. Our depreciation and amortization expenses for 1999 totaled $130.1 million, an increase of $93.1 million, or 252.1%, from 1998. The increase primarily reflected accelerated depreciation resulting from our decision in the third quarter of 1999 to change the depreciable life of some of our customer premises telecommunications equipment from 10 years to 5 years in view of technological advances in our industry.
Interest Expense, Net. Our net interest expense totaled $55.6 million. This consisted of interest expense of $63.0 million and interest income of $7.4 million. Our net interest expense increased $10.9 million, or 24.3%, from net interest expense for 1998. Our net interest expense for 1998 was $49.4 million.
The increase in our net interest expense reflected higher average outstanding indebtedness in 1999 compared to 1998 as a result of our issuance in June 1998 of $225 million principal amount of 12 3/8% Senior Notes due 2008. For 1999, the average interest rate on our indebtedness was 11.3%, compared to an average
interest rate of 12.1% for 1998. Our total indebtedness as of December 31, 1999 was $438.1 million, as compared to $419.7 million as of December 31, 1998.
Net Loss on Foreign Exchange. We recorded a net loss on foreign exchange of $8.0 million, compared to a net gain of $0.7 million for 1998. The increase was principally caused by the devaluation of the Brazilian real against the U.S. dollar.
Benefit from (Provision for) Income Taxes. We recorded a benefit from income taxes (all of which are for foreign taxes) of $20.7 million compared to a provision for income taxes of $3.8 million for 1998. The increased benefit from income taxes was attributable to the expected net loss carry-forwards that we were able to use in later periods as a result of the accelerated depreciation expense taken beginning the third quarter of 1999 with respect to some of our customer premises telecommunications equipment.
Net Loss Attributable to Common Stockholders. For 1999, we incurred a net loss attributable to common stockholders of $131.5 million, compared to $34.0 million for 1998. In addition to other items described in the preceding paragraphs, the principal reasons for the increase in our net loss attributable to common stockholders as compared to prior periods related to:
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	our foreign exchange losses caused by the devaluation of the 	Brazilian real against the U.S. dollar
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	accrued dividends of $14.0 million on our preferred stock, 	compared to $10.0 million during 1998
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 December 31, 2000, we had total cash, cash equivalents and short-term investments of $308.6 million. These amounts relate principally to:
•
	unused proceeds from our $300 million 13 3/4 Senior 	Notes Due 2005 offering in February 2000
•
	unused proceeds of our initial public offering in February 2000 	of 11,500,000 shares of our common stock and from our 	simultaneous private placement of 2,850,000 shares of common 	stock to British Telecommunications plc, one of our existing 	stockholders
On September 13, 2000, we announced plans to extend the Broadband Network by constructing a 2,000 kilometer long-haul link between the cities of Curitiba and Porto Alegre in Brazil and the city of Parana in Argentina. Civil construction on the new link was commenced in September 2000. The new link will connect with the Broadband Network that is currently deployed in Argentina, Brazil and Chile and will result in the creation of a fully integrated fiber optic network connecting Santiago, Chile, Buenos Aires, Argentina and São Paulo and Rio de Janeiro, Brazil with points in between. We anticipate that the cost of the new link will be approximately $100 million and will be financed through the sale of IRUs over the link to 360networks, vendor financing and/or from our existing cash, cash equivalents and short-term investments. We expect to complete the link by the end of the third quarter of 2001.
Including the costs of the new link described in the preceding paragraph, our budget contemplates that we will need during 2001 approximately $330 million (including amounts spent to date) for capital expenditures. We have executed definitive long-term vendor financing agreements with
•
	Nortel for commitments of up to approximately 	$297.4 million, which we are using to pay for Nortel’s 	construction of the segments of our Broadband Network in 	Argentina and Brazil (of which $221.6 million had been disbursed 	at December 31, 2000)
•
	Lucent for commitments of up to $16.0 million for the 	purchase of fiber optic cable for the long-haul segments of the 	Broadband Network in Argentina (all of which has been disbursed 	at the end of 2000), and
•
	Ericcson for commitments of up to $9.0 million for the 	purchase of telephony equipment which will be used in the 	Broadband Network in Argentina in connection with our new 	license to provide telephony services in Argentina (of which 	$3.7 million had been disbursed at December 31, 2000).
In addition, we are negotiating additional vendor financing arrangements with our current and other potential vendors.
As set forth in our consolidated statement of cash flow, our operating activities used $87,000 of net cash flow during 2000, compared to $3.9 million generated during 1999. The decrease in cash flow from operating activities in 2000 was primarily attributable to an increase in our net loss, an increase in our net trade receivables and other receivables and other non-current assets and a decrease in our depreciation and amortization expense.
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 $486.0 million in net cash for 2000, compared with $139.3 million for 1999. For 2000, we used $511.5 million in net cash flow for investing activities, compared to $134.0 million in 1999. Of this amount, $240.9 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 $203.1 million in non-cash investing and financing activities related to the development of the Broadband Network for 2000, principally as a result of disbursements under the vendor financing agreements with Nortel and Lucent.
At December 31, 2000, we had leased satellite and fiber optic capacity with total annual rental commitments of approximately $30.0 million through the year 2005. In addition, at December 31, 2000, we had commitments to purchase telecommunications equipment amounting to approximately $25.8 million. We also have commitments of approximately $79.5 million with respect to purchases of IRUs for undersea submarine fiber optic capacity with which we intend to link our telecommunications networks in our countries of operation with and among each other and other parts of the World.
Forward Looking Statements and General Description of Accounts
Forward Looking Statements. Some of the statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include but are not limited to:
•
	our expectations and estimates as to completion dates, 	construction costs and subsequent maintenance and growth of the 	broadband network we are building
•
	our ability to implement successfully our operating strategy and 	to sell capacity on our Broadband Network, and
•
	future financial performance, including growth in sales and 	income.
Factors that could cause our actual results to differ materially from those expressed in any forward-looking statements we make include those in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2000, and the following factors, among others:
•
	the rate of expansion of our network and/or customer base
•
	inaccuracies in our forecasts of customer or market demand
•
	loss of a customer that provides us with significant revenues
•
	highly competitive market conditions
•
	changes in or developments under laws, regulations and licensing 	requirements
•
	changes in telecommunications technology
•
	currency fluctuations, and
•
	changes in economic conditions in the Latin American countries 	where we operate.
These factors should not be construed as exhaustive. We will not update or revise any forward-looking statements.
Broadband Network. During 2000, we deployed our new Broadband Network in Argentina, Brazil and Chile. Our Broadband Network, which is comprised of 6,455 kilometers of long-haul fiber optic backbones and 830 kilometers of metropolitan area fiber optic and wireless links, stretches from the Pacific Ocean at Valparaiso, Chile to the Atlantic Ocean, at Las Toninas, Argentina and between Curitiba, Rio de Janeiro, São Paulo and Belo Horizonte, Brazil. The Broadband Network, which uses advanced transmission technologies including dense wave division multiplexing (DWDM), asynchronous transfer mode (ATM) and Internet protocol (IP), links major metropolitan areas throughout Argentina and Brazil along the long-haul routes and includes fiber optic and wireless metropolitan area local loops in those cities. In addition, we own and operate a 1,500 route kilometer long-haul fiber optic network in Colombia.
We are currently constructing an additional link between Parana, Argentina and Curitiba, Brazil to create the first high-speed broadband network connecting Argentina, Brazil and Chile which will be ready for operation by the end of 2001. At the end of this year, we expect that the Broadband Network will extend 9,660 kilometers of long-haul fiber optic backbones and 1,160 kilometers of metropolitan area backbones.
In order to provide our customers with connectivity to other parts of the Latin American region and worldwide and to expand the reach of the Broadband Network, we have acquired on an indefeasible right of use (IRU) basis capacity on undersea submarine cables that enable us to link our Broadband Network to other parts of Latin America, North America, Europe and Asia.
We have a total of approximately 210,000 square feet of advanced data center space in Argentina, Brazil, Chile, Mexico and the United States. Our data centers will complement our existing hosting facilities, which collectively occupy approximately 70,000 square feet of building space in those countries.
Revenues. During 2000, our revenues were derived from five principal types of services. Those telecommunications services were (i) data and value added services; (ii) Internet services; (iii) services to carriers; (iv) sales of equipment; and (v) Broadband Network development services. With the exception of the Broadband Network development services revenues, the final installment of which we expect to receive during the first half of 2001, our revenues for 2001 and thereafter will be concentrated along these lines of service.
With respect to data and value added services and Internet services, we provide those services to our customers under contracts which typically range from six months to five years, but generally are for three years. Where applicable, the customer generally pays an installation charge at the beginning of the contract, and thereafter the customer pays a monthly fee based on the quantity and type of equipment installed and the type and level of telecommunications capacity provided. Except in Brazil, the fees stipulated in the contracts are generally denominated in U.S. dollar equivalents. Services (other than installation fees) are billed on a monthly or quarterly, predetermined basis, which coincide with the rendering of the services. We report our revenues net of deductions for sales taxes.
With the introduction and commissioning of our Broadband Network, we have commenced the sale of wholesale connectivity services to other telecommunications carriers on an IRU and other long-term basis. In 2000, we entered into IRU sales with Global Crossing over portions of our Broadband Network in Argentina, Brazil and Peru, and in February 2001 entered into IRU sales with 360 networks, Inc. over portions of our Broadband Network in Argentina, Brazil and Chile. We have or will receive fixed advance payments for the IRUs upon the execution of the IRU capacity agreements and the initiation into service of the IRUs and will recognize revenue from the IRU sales ratably over the life of the IRU, which we expect generally will cover a
period of 20 to 25 years. Amounts received in advance and not recognized in a particular reporting period are recorded as deferred revenue in our consolidated balance sheets. As part of our service offerings to telecommunications carriers, we will provide IRU maintenance services and collocation services in our telehouses located in the major metropolitan areas of the countries in which we are located. IRU maintenance services and collocation services will be billed on a monthly or quarterly predetermined basis and recognized upon the provision of the services.
We have sold, and expect to continue to sell telecommunications equipment to certain of our customers in connection with our providing telecommunications solutions to those customers and as part of a package of integrated telecommunications solutions. Over the life of our Company, we have been able to obtain important telecommunications services contracts as a result of our initial implementation of a tailor-made telecommunications solution to address the specific needs of a customer, and several of these solutions have included the initial sale of telecommunications equipment. We record revenue from equipment sales upon delivery and acceptance by our customers.
Finally, during 2000, we recorded Broadband Network development revenues from our turnkey construction for Global Crossing of certain dedicated ducts for the terrestrial portions of Global Crossing’s Southern Crossing system. These portions included the construction of ducts and other backhaul provisioning between the submarine cable landing points of Global Crossing’s Southern Crossing in Argentina, Brazil, Chile and Peru. Revenues relating to our Broadband Network development for Global Crossing were recorded upon our delivery to, and provisional acceptance by, Global Crossing of the respective terrestrial segments. We recorded revenues of $57.7 million for this construction in 2000 and expect to finish the delivery of the contracted segments during the first half of 2001. We do not currently have any additional plans to enter into similar contracts in the future with Global Crossing or other parties.
We have experienced, and anticipate that we will continue to experience, downward pressure on our prices for our telecommunications service offerings as we continue to expand our customer base and as competition for telecommunications services grows upon the continuing deregulation of the telecommunications sector in Latin America. When we have renewed and/or expanded our contracts with existing customers, the prices we charge have generally declined. We believe, however, that our construction and operation of the Broadband Network will help us to improve our competitive position in the Latin American telecommunications sector by enabling us to offer new higher-bandwidth products and services to a wider array of existing and new customers.
Costs and Expenses. Our costs and expenses principally include:
•
	direct costs
•
	salaries and wages
•
	selling, general and administrative expenses, and
•
	depreciation and amortization.
Our direct costs include payments for leased satellite transponder and fiber optic capacity, interconnection and termination costs for our new telephony offerings and frequency rights. Building the Broadband Network will decrease our payments for leased capacity as a percentage of revenues. However, we will continue to incur leased capacity and related costs in order to address our customers’ telecommunications needs in areas beyond the geographical reach of our Broadband Network. The other principal items comprising direct costs are contracted services costs and other direct costs. Contracted services costs include costs of maintenance and installation (and de-installation) services provided by outside contractors. Beginning in 2001, we will incur additional maintenance costs with respect to the Broadband Network. Installation and de-installation costs are the costs we incur when we install or remove earth stations, microstations and other equipment from customer premises. Other direct costs principally include:
•
	Licenses and other fees
•
	Sales commissions paid to third-party sales representatives, and
•
	Allowance for doubtful accounts
Our selling, general and administrative expenses consist principally of:
•
	publicity and promotion costs
•
	professional fees and other remuneration
•
	travel and entertainment
•
	rent, and
•
	plant services and corporate telecommunication and energy 	expenses.
Currency Risks. Except in Brazil, our contracts with 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. Accordingly, inflationary pressures on local economies in the other countries in which we operate did not have a material effect on our revenues during 2000. Given that the exchange rate is generally set at the date of invoicing and that we in some cases experience substantial delays in collecting receivables, we are exposed to exchange rate risk. Furthermore, under Brazilian law, our contracts with customers in Brazil cannot be linked to the exchange rate between the Brazilian real and the U.S. dollar. Our expansion in Brazil will increase our exposure to exchange rate risks. To date, we have not hedged any of these exposures.
Item 7a.
Item 7a. Quantitative and Qualitative Disclosure 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 December 31, 2000 and assuming that the hypothetical interest rate and foreign exchange rate changes used in the analyses occurred during year 2000. We do not hold or issue any market risk sensitive instruments for trading purposes.
Interest Rate Risk. Our cash, cash equivalents and short-term investments consist of highly liquid investments with a maturity of less than 360 days. As a result of the short-term nature of these instruments, we do not believe that a hypothetical 10% change in interest rates would have a material impact on our future earnings and cash flows related to these instruments. A hypothetical 10% change in interest rates would also have an immaterial impact on the fair values of these instruments.
We are exposed to interest rate risk on our floating rate indebtedness, which affects our cost of financing. Our floating rate indebtedness has increased and is expected to increase further as we draw down commitments under the Nortel financing agreements to cover expenditures relating to our contracts with Nortel to construct the Broadband Network in Argentina and Brazil. Our actual interest rate is not quantifiable or predictable because of the variability of future interest rates and business requirements. We do not believe such risk is material and we do not customarily use derivative instruments to adjust interest rate risk.
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 services from our Brazilian operations for 1999 and 2000 represented approximately 6.7% and 10.4% of our total net revenues from services for 1999 and for 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. At March 15, 2001, the real traded at a rate of R$2.08 = $1.00. We do not believe that a hypothetical 10% devaluation in the market exchange rate of the real over the remaining eight and one half months ending December 31, 2001 would result in a material reduction in potential revenues from our Brazilian operations during 2001.
Changes in Market Value of Investment. We hold a fair value basis investment of approximately 14.0% of the common stock of El Sitio, Inc., which is publicly traded on the Nasdaq National Market System. Our investment in El Sitio is subject to equity price and overall stock market risk. See Note 4 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 December 31, 2000 would decrease the fair value of our investment by $0.7 million.
On October 30, 2000, El Sitio announced that it had entered into an agreement with affiliates of Ibero-American Media Partners II Ltd., a joint venture between the Cisneros Group of Companies and Hicks, Muse, Tate & Furst Incorporated, to combine El Sitio’s interactive assets with Ibero-American Media Partners’ media assets in the Latin American region to form a new company to be called Claxson Interactive Group. As part of the combination, our shares in El Sitio would be converted into an equal number of shares in Claxson Interactive Group. We have agreed with Ibero-American Media Partners to vote our shares of El Sitio common stock in favor of the combination. El Sitio has announced that it expects that the combination will be consummated in the first half of 2001.
In the future, we may make additional equity investments in other privately or publicly held corporations for business and strategic purposes.
Item 8.
Item 8. Financial Statements and Supplementary Data
Information required by this Item is included herein beginning on page.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.
Item 10. Directors and Officers
Information required by this Item is included in the registrant’s definitive proxy statement, dated March 30, 2001, under the heading “Proposal One - Election of Directors - Information as to Directors and Nominees” and “Further Information - Board of Directors and Executive Officers,” each of which is incorporated herein by reference pursuant to General Instruction G(3).
Item 11.
Item 11. Executive Compensation
Information required by this Item is included in the registrant’s definitive proxy statement, dated March 30, 2001, under the headings “Further Information - Executive Compensation,” which is incorporated herein by reference pursuant to General Instruction G(3).
Item 12.
Item 12.
Security Ownership of Certain Beneficial Owners and 	Management
Information required by this Item is included in the registrant’s definitive proxy statement, dated March 30, 2001, under the heading “Security Ownership of Management and Certain Beneficial Owners”, which is incorporated herein by reference pursuant to General Instruction G(3).
Item 13.
Item 13. Certain Relationships and Related Transactions
Information required by this Item is included in the registrant’s definitive proxy statement dated March 30, 2001, under the heading “Certain Relationships and Related Transactions,” which is incorporated herein by reference pursuant to General Instruction G(3).
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) List of Financial Statements
Consolidated Financial Statements of IMPSAT Fiber Networks, Inc. and Subsidiaries
•
	Consolidated Balance Sheets as of December 31, 2000 and 1999
•
	Consolidated Statements of Operations for Each of the Three 	Years in the Period Ended December 31, 2000
•
	Consolidated Statements of Comprehensive Loss for Each of the 	Three Years in the Period Ended December 31, 2000.
•
	Consolidated Statements of Stockholders’ Equity for Each of 	the Three Years in the Period Ended December 31, 2000
•
	Consolidated Statements of Cash Flows for Each of the Three 	Years in the Period Ended December 31, 2000
Consolidated Financial Statements of IMPSAT S.A. and Subsidiaries
•
	Balance Sheets as of December 31, 2000 and 1999
•
	Statements of Operations for Each of the Three Years in the 	Period Ended December 31, 2000
•
	Statements of Comprehensive Loss for Each of the Three Years in 	the Period Ended December 31, 2000.
•
	Statements of Stockholder’s Equity for Each of the Three 	Years in the Period Ended December 31, 2000
•
	Statements of Cash Flows for Each of the Three Years in the 	Period Ended December 31, 2000
(a)(2) List of Schedules.
All schedules for which provision is made in the applicable accounting regulations of the Commission are omitted because they are not applicable, or the information is included in the financial statements included herein.
(a)(3) Exhibits
The exhibits listed in the accompanying Exhibit Index and required by Item 601 of Regulation S-K (numbered in accordance with Item 601 of Regulation S-K) are filed or incorporated by reference as part of this Report.
(b) Reports on Form 8-K.
During the period covered by this Report, the registrants filed with the Commission the following current reports on Form 8-K:
•
	On February 16, 2000, announcing the consummation on 	February 16, 2000 of the sale of IMPSAT Fiber Networks, 	Inc.’s $300,000,000 13- 3/4% Senior Notes due 2005 	pursuant to Rule 144A under the U.S. Securities Act of 	1933, as amended
•
	On March 1, 2000, announcing IMPSAT Fiber Networks, 	Inc.’s consolidated operating results for the fourth 	quarter and full year 1999
•
	On May 2, 2000, announcing IMPSAT Fiber Networks, 	Inc.’s consolidated operating results for the first quarter
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, each of the registrants has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Buenos Aires in the Republic of Argentina, on March 30, 2001.
	IMPSAT Fiber Networks, Inc.
By:
	/s/RICARDO A. VERDAGUER
	Ricardo A. Verdaguer,
	President and Chief
	Executive Officer
Date:
	 March 30, 2001
	IMPSAT S.A.
By:
	/s/MARCELO GIROTTI
	Marcelo Girotti
	Director and Regional Manager
Date:
	 March 30, 2001
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below (each, a “Signatory”) constitutes and appoints Guillermo Jofré and José R. Torres and Enrique Diz (each, an “Agent,” and collectively, “Agents”) or either of them, his true and lawful attorney-in-fact and agent, each with full power of substitution and resubstitution, for and in his name, place and stead, in any and all capacities, to sign this Report and any and all amendments thereto and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission. Each Signatory further grants to the Agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary, in the judgment of such Agent, to be done in connection with any such signing and filing, as full to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all that said Agents, or any of them, or their or his other substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed by the following persons in the capacities and on the dates indicated.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below (each, a “Signatory”) constitutes and appoints Guillermo Jofre, Jose R. Torres and Enrique Diz (each, an “Agent,” and collectively, “Agents”) and each or any of them, his true and lawful attorney-in-fact and agent, each with full power of substitution and resubstitution, for and in his name, place and stead, in any and all capacities, to sign this Report and any and all amendments thereto and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission. Each Signatory further grants to the Agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary, in the judgment of such Agent, to be done in connection with any such signing and filing, as full to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all that said Agents, or any of them, or their or his other substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed by the following persons in the capacities and on the dates indicated.
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Stockholders of IMPSAT Fiber Networks, Inc.:
We have audited the accompanying consolidated balance sheets of IMPSAT Fiber Networks, Inc. and its subsidiaries (the “Company”) as of December 31, 1999 and 2000, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 1999 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
February 9, 2001
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars)
See notes to consolidated financial statements.
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars, except per share amounts)
See notes to consolidated financial statements.
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands of U.S. dollars)
See notes to consolidated financial statements
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands of U.S. dollars)
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands of U.S. dollars)
See notes to consolidated financial statements.
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
See notes to consolidated financial statements.
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tables in thousands of U.S. dollars, except for per share amounts)
1. General
IMPSAT Fiber Networks, Inc., a Delaware holding company (the “Company”), is a leading integrated provider of broadband Internet, data and voice services in Latin America. The Company offers integrated telecommunications solutions, with an emphasis on end-to-end broadband data transmission, for national and multinational companies, financial institutions, governmental agencies and other business customers. In addition, the Company has built an extensive pan-Latin American high capacity fiber optic network (“Broadband Network”) and is currently undertaking its second phase of extension which it expects to complete during 2001.
The Company currently provides telecommunications services to its customers using its local access and long haul fiber optic and satellite networks. The deployed facilities include 15 metropolitan area networks in the largest cities of the region, long haul networks across Argentina, Brazil, Chile and Colombia, and leased submarine capacity to link South America to the United States. Finally, during 2000 the Company deployed 210,000 square feet of advanced data centers in Argentina, Brazil, Chile, Mexico and United States to complement its existing hosting facilities of 70,000 square feet.
The Company’s operating subsidiaries are wholly owned (except for a small number of shares issued to other persons to comply with local corporate law requirements). A listing of the Company’s operating subsidiaries is as follows:
	Argentina
	Impsat S.A.
	Brazil
	Impsat Comunicacoes Ltda.
	Chile
	Impsat Chile S.A.
	Colombia
	Impsat S.A.
	Ecuador
	Impsatel del Ecuador S.A.
	Mexico
	Impsat S.A. de C.V.
	Peru
	Impsat S.A.
	USA
	Impsat USA, Inc.
	Venezuela
	Telecomunicaciones Impsat S.A.
In addition, the Company owns other subsidiaries, 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 (“BT”) purchased 2,850,000 shares of the Company’s common stock simultaneously with the IPO to maintain its approximate current ownership share in the Company. In anticipation of the IPO, on January 11, 2000, the Company’s Board of Directors (the “Board”) amended and restated the articles of incorporation of the Company to change the name of the Company to IMPSAT Fiber Networks, Inc. and authorized 300,000,000 shares of common stock, $0.01 par value, and 5,000,000 shares of “blank check” preferred stock, $0.01 par value. In addition, the Board approved a .592 for 1 reverse common stock split (see Note 3), adopted a stockholders rights plan and approved the issuance of 5,472,579 shares of common stock to the minority shareholders in IMPSAT Argentina, IMPSAT Venezuela and IMPSAT Colombia in exchange for their minority interests in those subsidiaries. The acquisition of these minority interests was accounted for under the purchase method and resulted in approximately $88.1 million in goodwill.
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In addition, the Company redeemed approximately $32.5 million of the redeemable preferred stock and the holders converted their remaining preferred shares into 14,917,915 shares of common stock.
3. Summary of Significant Accounting Policies
Basis of Presentation - The financial statements are presented on a consolidated basis and include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated.
Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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 and short-term investments are stated at cost, which approximates fair value.
Revenue Recognition - Revenues from data, value-added and Internet services are recognized monthly as the services are provided. Equipment sales are recorded upon delivery and acceptance by customer. In addition, the Company has entered into, and expects to enter into in the future, agreements granting indefeasible rights of use (“IRUs”) to portions of its broadband network capacity. Pursuant to these agreements, the Company will receive fixed advance payments for the IRU and will recognize the revenue from the IRU ratably over the life of the IRU. Amounts received in advance are recorded as deferred revenue in the accompanying consolidated balance sheets. 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.
No single customer accounted for greater than 10% of total net revenues from services for the years ended December 31, 1998, 1999 or 2000.
Broadband Network - Portions of the Broadband Network are 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 10 to 20 years.
In addition, the Company during 2000 acquired IRUs from other entities for its own purposes. Such IRU investments are capitalized and amortized over their estimated useful lives, not to exceed 15 years. The acquired IRUs have a 25-year term. In those cases where the right of use has been acquired for a longer period of time (25 years) management believes that, due to anticipated advances in technology, the Company’s IRUs are not likely to be productive assets beyond 15 years.
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The components of the Broadbond Network are depreciated and amortized over the following estimated useful lines:
	Network infrastructure
	10-15 years
	Right of way
	10-20 years
	IRU investments
	15 years
	Equipment and materials
	10 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:
	Buildings and improvements
	10-25 years
	Operating communications equipment
	5-10 years
	Furniture, fixtures and other equipment
	2-10 years
The operating communications equipment owned by the Company is subject to rapid technological obsolescence; therefore it is reasonably possible that the equipment’s estimated useful lives could change in the near future.
Investments - Investments covered under the scope of Statement of Financial Accounting Standards (“SFAS”) No. 115, Accounting for Certain Investments in Debt and Equity Securities, are classified by the Company as either “trading” for short term investments and “available for sale” for long term investments and are carried at fair value. Unrealized gains or losses, net of tax, for available for sale investments are included in accumulated other comprehensive income (loss) within stockholders’ equity. Unrealized gains and losses for trading investments are recorded into income. All other investments are carried at cost.
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 13 3/4% Senior Notes due 2005 (the “Senior Notes 2005”) and the 12 3/8% Senior Notes due 2008 (the “Senior Notes 2008”) are being amortized (and charged to interest expense) over the term of the related notes on a method which approximates the level yield method.
Intangible Assets - Intangible assets consist of goodwill of $88.1 million, created in the acquisition of the minority interest of certain operating subsidiaries discussed in Note 2, and $4.9 million, created by the acquisition of certain assets, licenses and permits by IMPSAT Colombia. These intangible assets are being amortized on a straight-line basis over a period of 15 and 4 years, respectively.
The Company reviews the carrying value of goodwill on an ongoing basis. If such review indicates that these values may not be recoverable, the Company’s carrying value will be reduced to its estimated fair value.
Long-Lived Assets - Long-lived assets are reviewed on an ongoing basis for impairment based on comparison of carrying value against undiscounted future cash flows. If an impairment is identified, the assets carrying amount is adjusted to fair value. No such adjustments were recorded for the years ended December 31, 1998, 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 subsidiaries were remeasured. The effects of foreign currency transactions and of remeasuring the financial position and results of operations into the
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 which is included in accumulated other comprehensive income (loss) in stockholders’ equity.
Fair Value of Financial Instruments - The Company’s financial instruments include receivables, investments, payables, short- and long-term debt. The Company’s Senior Guaranteed Notes, Senior Notes 2005 and 2008 and trading and available for sale investments, were valued at market closing prices at December 31, 1999 and 2000. The fair value of all other financial instruments, which approximate their carrying value, have been determined using available market information and interest rates as of December 31, 1999 and 2000.
At December 31, 1999 and 2000, the fair value of the Company’s financial instruments was as follows:
Stock-Based Compensation - SFAS No. 123, Accounting for Stock-Based Compensation, encourages, but does not require, companies to record compensation cost for stock-based employee and non-employee members of the Board compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation to employees and non-employee members of the Board using the intrinsic value method as prescribed by Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, compensation cost for stock options issued to employees and non-employee 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. The Company also provides the required disclosures of SFAS No. 123.
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.
Accumulated Other Comprehensive Income (Loss) - Accumulated other comprehensive income (loss) is comprised as follows:
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Reclassifications - Certain amounts in the 1998 and 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. The adoption of SFAS No. 133 on January 1, 2001 did not have a material impact on the Company’s consolidated financial statements.
4. Investments
The Company’s investments consist of the following at December 31, 1999 and 2000:
The Company’s trading investments consist of high-quality, short-term investments with maturities of less than 360 days. The Company’s trading investments represent the unused proceeds of the IPO and Senior Notes 2005.
The Company’s cost basis investment represents a less than 1% ownership in an unaffiliated entity established for the purchase and leasing of satellite capacity time. The Company’s investment in common stock is subject to equity price risk. The Company has not taken any actions to hedge this market risk exposure.
5. Trade Accounts Receivable
Trade accounts receivable, by operating subsidiaries, at December 31 are summarized as follows:
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 years ended December 31, 1998, 1999 and 2000 is as follows:
6. 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:
7. Broadband Network and Agreements
Broadband network and related equipment consists of the following at December 31, 2000:
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The recap of accumulated depreciation for the years ended December 31, 1998, 1999 and 2000, is as follows:
Nortel Networks Agreements - On September 6, 1999, the Company executed two turnkey agreements with Nortel Networks Limited (“Nortel”) relating to Nortel’s design and construction of segments of the Broadband Network in Argentina and Brazil for approximately $265 million.
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 as well as additional purchases of telecommunications equipment. The Company has guaranteed the obligations of each of IMPSAT Argentina and IMPSAT Brazil under the Nortel financing agreements. Additionally, the Company has obtained additional vendor financing from Lucent Technologies, Ericsson and Tellabs OY for the acquisition of fiber optic cable and other telecommunications equipment for the Broadband Network for an aggregate of up to approximately $28.2 million. The Company had amounts due under Broadband Network vendor financing totaling approximately $60.0 million and $247.1 million as of December 31, 1999 and 2000, respectively.
Agreements with Global Crossing - The Company during 1999 and 2000 entered into a series of definitive agreements with Global Crossing Ltd. and its subsidiaries (“Global Crossing”) in connection with the development of the Broadband Network and with Global Crossing’s development of its South American Crossing undersea cable project (“South American Crossing”).
On September 22, 1999, the Company entered into an agreement with Global Crossing to construct the terrestrial portion of the South American Crossing between Las Toninas, Argentina on the Atlantic Ocean and Valparaiso, Chile on the Pacific Ocean (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.
The Company commenced construction of the Trans-Andean Crossing System in September 1999. The Company accumulated construction costs for the Global Crossing Ducts in projects under construction and deferred recognition of all payments received from Global Crossing until completion and delivery of the respective ducts. In September 2000, the Company completed and delivered to Global Crossing the portion of the Trans-Andean Crossing System connecting Las Toninas, Argentina and Santiago, Chile. The Company expects to complete the delivery of a final segment between Santiago, Chile and Global Crossing’s landing point in Valparaiso, Chile in the first quarter of 2001. As part of the Broadband Network and the South American Crossing, the Company also constructed turnkey backhaul segments and granted IRUs to Global Crossing in Peru and Brazil between Global Crossing’s landing points in those countries and its metropolitan
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
points of presence located at the Company’s telehouses in Lima, Peru and Sao Paulo and Rio de Janeiro, Brazil. In connection with the delivery of such infrastructure to Global Crossing during 2000, the Company recognized revenues and direct costs totaling $57.7 million and $34.7 million, respectively.
As part of its arrangements with Global Crossing, the Company has agreed 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 enable the Company to interconnect the Company’s networks in Argentina and Brazil and give the Company global international access. The Company had purchased approximately $12.6 million under this agreement as of December 31, 2000.
Agreements with 360networks - In addition to its agreements with Global Crossing, during the year ended December 31, 2000, the Company entered into a framework agreement with 360networks, Inc. with respect to the grant of IRUs of up to 25 years on the Company’s Broadband Network, including network maintenance services and telehousing space. During 2000, the Company received approximately $5 million from 360networks related to these agreements.
8. Property, Plant and Equipment
Property, plant and equipment at December 31, consisted of:
The recap of accumulated depreciation for the years ended December 31, 1998, 1999 and 2000 is as follows:
9. Short-Term Debt
Several of the Company’s subsidiaries maintain short-term credit facilities with local banks. These credit facilities are denominated in U.S. dollars, with interest rates ranging from 7.95% to 18.40%. The Company’s subsidiaries have historically refinanced these short term credit facilities on an annual basis. As of
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1999 and 2000, amounts outstanding under these credit facilities totaled approximately $15.7 million and $14.6 million, respectively.
10. Long-Term Debt
The Company’s long-term debt at December 31, is detailed as follows:
The scheduled maturities of long-term debt at December 31, 2000 are as follows:
The Senior Guaranteed Notes, the Senior Notes 2005 and 2008, the vendor financing and some of the term notes contain certain covenants requiring certain financial ratios, limiting the incurrence of additional indebtedness and capital expenditures, and restricting the ability to pay dividends.
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. Income Taxes
The composition of the (provision for) benefit from income taxes, all of which are for foreign taxes, for the years ended December 31, 1998, 1999 and 2000 is as follows:
The foreign statutory tax rates range from 15% to 35% depending on the particular country. There is no provision or benefit for U.S. income taxes, as the Company has net operating loss carryforwards in the amount of approximately $41.4 million, which begin to expire in the year 2010. Deferred taxes result from temporary differences in revenue recognition, depreciation methods and net operating loss carryforwards. The composition of net deferred tax (liability) asset at December 31 is as follows:
As there is no assurance that the Company will generate sufficient earnings to utilize its available tax assets, a valuation allowance has been established to offset deferred tax assets.
12. Stock Option Plans
1998 Plan - 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.
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Under the 1998 Plan, the Company granted options for 441,650 shares at an exercise price of $8.38 during the year ended December 31, 1998 and options for 393,340 shares at an exercise price of $10.47 during the year ended December 31, 1999 and options for 507,100 shares at an exercise price of $17.00 during the year ended December 31, 2000. These options vest on each of the first, second and third anniversaries of the date of grant, as to 10%, 30%, and 30%, respectively, of the granted shares. On the fourth anniversary of the date of grant, the option vests as to the remainder of the granted shares. The options vest fully upon a change of control of the Company.
1999 Plan - 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 the Company’s common stock 	for which options may be and were granted pursuant to the 1999 	Plan is 355,214;
•
	The exercise price is $1.69 per share of common stock; and
•
	Ten percent, twenty percent, thirty percent and forty percent of 	the options granted vest on each of the fourth, fifth, sixth and 	seventh anniversaries, respectively, of the date of grant or 	upon a change of control of the Company.
The expiration date of the 1999 Plan is January 5, 2010.
In connection with the stock options granted under the 1999 Plan, the Company recorded $5.4 million in stockholders’ equity as deferred compensation during January 2000. The deferred compensation will be amortized to expense over the vesting period, which commences four years after the date of grant.
A summary of stock option transactions during each of the three years in the period ended December 31, 2000 is presented below:
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table summarizes information concerning outstanding stock options at December 31, 2000:
The Company has adopted the disclosure-only provisions of SFAS No. 123. Had compensation costs been recognized based on the fair value at the date of grant for options awarded under the 1998 and 1999 Plans, the pro forma amounts of the Company’s net loss attributable to common stockholders and net loss per common share for the years ended December 31, 1998, 1999 and 2000 would have been as follows:
The fair value of the options granted in 1998 and 1999 was estimated using the minimum value method prescribed by SFAS No. 123 for nonpublic entities and the fair value of the options granted in 2000 was estimated using the Black-Scholes option-pricing model assuming no dividend yield and the following weighted average assumptions:
The weighted average fair value of options granted during 1998, 1999 and 2000 was $1.21, $1.51 and $14.95, respectively.
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. Operating Segment Information
The Company’s operating segment information, by subsidiary, is as follows for the years ended December 31, 1998, 1999 and 2000:
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. Related Party Transactions
The Company in the normal course of its business provides telecommunications network services to affiliates of stockholders. During the years ended December 31, 1998, 1999 and 2000, such services totaled approximately $10.1 million, $11.0 million and $18.9 million, respectively. In addition, the Company also enters into transactions with such affiliates, which primarily include financial (borrowings), insurance, and employee benefits services. During the years ended December 31, 1998, 1999 and 2000, such transactions totaled approximately $4.3 million, $9.1 million and $10.7 million, respectively.
During 2000, the Company made approximately $1.1 million in payments to BT for satellite capacity.
Investment banking fees amounting to $5.9 million, $4.1 million and $18.3 million, respectively were paid to representative affiliates of the former holders of the Company’s redeemable preferred stock during 1998, 1999 and 2000. These representative affiliates are current stockholders of the Company.
15. Commitments and Contingencies
Commitments - The Company leases satellite capacity with average annual rental commitments of approximately $30.0 million, through the year 2005. The Company has commitments to purchase communications equipment amounting to approximately $25.8 million at December 31, 2000, and was not obligated under any letters of credit at December 31, 2000. The Company has commitments for additional IRU investments totaling approximately $79.5 million in the aggregate under its various IRU agreements.
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 December 31, 2000, the balance outstanding on the credit facility amounted to approximately $0.4 million.
IMPSAT Brazil has entered into a $5.9 million term note with El Camino Resources, which is guaranteed by the Company and IMPSAT Argentina. At December 31, 2000, the balance outstanding was approximately $4.2 million.
Litigation - The Company is involved in or subject to various litigation and legal proceedings incidental to the normal conduct of its business. Whenever justified, the Company expects to vigorously prosecute or defend such claims, although there can be no assurance that the Company will ultimately prevail with respect to any such matters.
In November 1996, IMPSAT Argentina filed suit against a former customer, ENCOTESA, for amounts due and arising under IMPSAT Argentina’s contracts with ENCOTESA, the Argentine national postal
IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
service for $7.3 million. The ultimate ability of the Company to collect on 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.
16. Selected Quarterly Financial Information (Unaudited)
Selected financial information for the quarterly periods in 2000 and 1999 is presented below:
Since there are changes in the weighted average number of shares outstanding each quarter, the sum of net loss per common share by quarter may not equal the total net loss per common share for the applicable year.
* * * * * *
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Shareholders of IMPSAT S.A.:
We have audited the accompanying balance sheets of IMPSAT S.A. (the “Company”) as of December 31, 1999 and 2000, and the related statements of operations, stockholders’ equity and cash flow for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1999 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE
Buenos Aires, Argentina
February 9, 2001
IMPSAT S.A.
BALANCE SHEETS
(In thousands of U.S. dollars)
See notes to financial statements.
IMPSAT S.A.
STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars)
See notes to financial statements.
IMPSAT S.A.
STATEMENT OF COMPREHENSIVE LOSS
(In thousands of U.S. dollars)
See notes to financial statements.
IMPSAT S.A.
STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands of U.S. dollars)
(*)
	Includes an appropriation of retained earnings, amounting to 	$1,622 in 1998, and $1,890 in 1999 and 2000, to comply with 	legal reserve requirements in Argentina.
See notes to financial statements.
IMPSAT S.A.
STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
See notes to financial statements.
IMPSAT S.A.
NOTES TO FINANCIAL STATEMENTS
(In thousands of U. S. dollars)
1. General
IMPSAT S.A. (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 year ended December 31, 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 December 31, 2000, the Company is a 100% owned subsidiary of the Parent Company.
2. Summary of Significant Accounting Policies
Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents - Cash and cash equivalents are highly liquid investments, including short-term investments and time deposits with maturities of three months or less at the time of purchase. Cash equivalents and short-term investments are stated at cost, which approximates fair value.
Revenue Recognition - Revenues from services is recognized monthly as the services are provided. Equipment sales are recorded upon deliver and acceptance by customer.
The Company enters into agreements granting indefeasible rights of use (“IRU”) to portions of its broadband network capacity. Pursuant to these agreements, the Company will receive fixed advance payments for the IRU and will recognize the revenue from the IRU ratably over the life of the IRU. Amounts received in advance are recorded as deferred revenue in the accompanying consolidated balance sheets.
No single customer accounted for greater than 10% of total net revenues from services for the years ended December 31, 1998, 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 right of use (“IRU”) to portions of its broadband network capacity (see Note 5). Pursuant to these agreements, the Company received fixed advance payments from the IRU and will recognize the revenue from the IRU ratably over the life of the IRU. In addition to the IRU granted to Global Crossing, the Company has entered into a framework agreement with 360networks, Inc., which contemplates the grant of an IRU over the Broadband Network, and expects to have other similar transactions in the future.
IMPSAT S.A.
NOTES TO FINANCIAL STATEMENT - (Continued)
Broadband Network - The Broadband Network has been finished during the fourth quarter of 2000. These assets are recorded at cost and depreciated using the straight-line method over the following estimated useful lives:
	Network Infrastructure
	10-15 years
	IRU investment
	15 years
	Equipment and materials
	10 years
Property, Plant and Equipment Costs - Property, plant and equipment are recorded at cost and depreciated using the straight-line method over the following estimated useful lives:
	Building and improvement
	10-25 years
	Operating communications equipment
	5-10 years
	Furniture, fixtures and other equipment
	2-10 years
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 “available for sale” and are carried at fair value. Unrealized gains or losses, net of tax, for available for sale investments are included in accumulated other comprehensive income (loss) within stockholders’ equity. All other investments are carried at cost.
Long-Lived Assets - Long-lived assets are reviewed on an ongoing basis for impairment based on comparison of carrying value against undiscounted future cash flows. If an impairment is identified, the assets carrying amount is adjusted to fair value. No such adjustments were recorded for the years ended December 31, 1998, 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.
Fair Value of Financial Instruments - The Company’s financial instruments include receivables, payables, short- and long-term debt. The available for sale investments were valued at market closing prices at December 31, 2000. The fair value of all other financial instruments which approximate their carrying (or contract) values have been determined using interest rates as of December 31, 1999 and 2000.
Reclassifications - Certain amounts in the 1998 and 1999 financial statements have been reclassified to conform with the 2000 presentation.
IMPSAT S.A.
NOTES TO FINANCIAL STATEMENT - (Continued)
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. The adoption of SFAS No. 13 on January 1, 2001 did not have a material impact on the Company’s financial statements.
3. Trade Accounts Receivable
Trade accounts receivable at December 31 are summarized as follows:
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 years ended December 31, 1998, 1999 and 2000 is as follows:
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.
IMPSAT S.A.
NOTES TO FINANCIAL STATEMENT - (Continued)
5. Broadband Network and Agreements
Broadband network and related equipment consists of the following at December 31:
The recap of accumulated depreciation for the year ended December 31, is as follows:
Nortel Networks Agreements - On September 6, 1999, the Company executed a turnkey agreement with Nortel Networks Inc. (“Nortel”) relating to Nortel’s design and construction of segments of the Broadband Network in Argentina for approximately $133.1 million.
On October 25, 1999, the Company signed a definitive agreement with an affiliate of Nortel Networks to borrow an aggregate of up to approximately $149.1 million of long term vendor financing. The financing, which will be disbursed over a two year period with final maturity in 2006, will be used to finance Nortel’s construction of the segments of the Broadband Network in Argentina and the purchase of additional equipment to be used by the Company in connection with the operation of the Broadband Network. The Parent Company has agreed to guarantee the obligations of the Company under the Nortel financing agreements. The Company had amounts due under Broadband Network vendor financing totaled $39.5 million and $123.2 million as of December 31, 1999 and 2000, respectively.
Framework Agreement with Global Crossing - On July 27, 1999, the Parent Company entered into an agreement with Global Crossing that contemplates the Parent Company or its affiliates entering into a series of definitive agreements. As part of these arrangements, Parent Company or its affiliates will purchase from Global Crossing indefeasible rights of use of capacity valued at not less than $46 million on any of Global Crossing’s fiber optic cable networks worldwide. The Parent Company has purchased approximately $12.6 million under this agreement as of December 31, 2000.
On September 22, 1999, the Company entered into a definitive agreement with Global Crossing to construct the terrestrial portion of the Global Crossing’s South American network between Las Toninas, Argentina on the Atlantic Ocean and Frontier with Chile, a portion of the “Trans-Andean Crossing System”.
IMPSAT S.A.
NOTES TO FINANCIAL STATEMENT - (Continued)
Construction of the Trans-Andean Crossing System commenced in September 1999. Payments expected for the turnkey construction of this portion of Trans-Andean Crossing System, are as follows:
•
	construction of three ducts and related facilities over 230 	route miles between Las Toninas and Buenos Aires, Argentina and 	between Mendoza, Argentina and Frontier with Chile, for 	approximately $26 million.
•
	licensing to Global Crossing of one duct on our Broadband 	Network between the cities of Buenos Aires and Mendoza in 	Argentina, for approximately $25 million.
The Company accumulated all construction costs for the Global Crossing Ducts in projects under construction and deferred all payment received from Global Crossing until completion and deliver of the respective ducts. The Company will lease space in its telehouse in Buenos Aires to Global Crossing for Global Crossing’s network operations.
On September 2000, the Company completed and delivered the Global Crossing ducts of the Trans-Andean Crossing System between Los Toninas and the border crossing with Chile. In connection with the delivery, the Company recognized revenues and costs totalling $32.3 million and $18.1 million, respectively.
In August 2000, the Parent Company entered into a framework agreement with 360networks whereby the Company will provide 360networks with IRUs for a period of 20-25 years on the Company’s Broadband Network and maintenance services and telehousing space in the Company facilities. During the year ended December 31, 2000, the Company received $5.0 million of advance payments from 360networks, which payments have been recorded as part of Customer Advances on Broadband Network.
6. Property, Plant and Equipment
Property, plant and equipment at December 31, consisted of:
The recap of accumulated depreciation for the years ended December 31, 1998, 1999 and 2000 is as follows:
IMPSAT S.A.
NOTES TO FINANCIAL STATEMENT - (Continued)
7. Investments
The Company’s investments consist of the following at December 31, 1999 and 2000:
The Company’s cost basis investment represents a less than 1% ownership in an unaffiliated entity established for the purchase and leasing of satellite capacity time. The Company’s investment in common stock is subject to equity price risk. The Company has not taken any actions to hedge this market risk exposure.
8. 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 11% to 17%. Amounts outstanding under these facilities totaled approximately $10.7 million and $8.8 million at December 31, 1999 and 2000. The Company has historically refinanced its short-term credit facilities on an annual basis.
9. Long-Term Debt
The Company long-term debt is detailed as follows:
The scheduled maturities of debt and credit facilities at December 31, 2000 are as follows:
IMPSAT S.A.
NOTES TO FINANCIAL STATEMENT - (Continued)
10. Income Taxes
The components of the (provision for) benefit from income taxes, for the years ended December 31, 1998, 1999 and 2000 is as follows:
The statutory tax rate in Argentina was 35% in 1998, 1999 and 2000.
11. Commitments and Contingencies
Commitments - The Company leases telecommunications link with annual rental commitments of approximately $8.1 million through the year 2005. In addition, the Company has commitments to purchase communications equipment amounting to approximately $14.9 million at December 31, 2000.
Guarantees - The Company is guarantor on the $125 million 12 1/8% Senior Guaranteed Notes Due 2003 issued on July 30, 1996 by the Parent Company.
IMPSAT Brazil has entered into a $5.9 million term note with El Camino Resources, which is guaranteed by the Company and Impsat Fiber Networks, Inc. At December 31, 2000, the balance outstanding was approximately $4.2 million.
Litigation - The Company is involved in or subject to various litigation and legal proceedings incidental to the normal conduct of its business. Whenever justified, the Company expects to vigorously prosecute or defend such claims, although there can be no assurance that the Company will ultimately prevail with respect to any such matters.
In November 1996, 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.
IMPSAT S.A.
NOTES TO FINANCIAL STATEMENT - (Continued)
EXHIBIT INDEX
	 Confidential treatment requested as to certain 	portions, which portions were omitted and filed separately with 	the Commission.