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UNITED STATES

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                               to                               

Commission File Number: 000-29085

IMPSAT Fiber Networks, Inc.

Alférez Pareja 256 (1107)

      Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.     YES x     NO o

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

      Indicate by check mark whether the Company has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES n/a     NO n/a

APPLICABLE ONLY TO CORPORATE ISSUERS

      Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of June 30, 2002, the Company had outstanding 91,428,570 shares of Common Stock, $0.01 par value.

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INDEX

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PART I

Item 1.     Financial Statements

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

See notes to condensed consolidated financial statements.

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IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY

See notes to condensed consolidated financial statements.

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IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.     GENERAL

      IMPSAT Fiber Networks, Inc., a Delaware holding company (the “Holding Company”), and subsidiaries (collectively, 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”).

      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, the Company has 500,000 gross square feet of premises housing advanced hosting capabilities.

      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:

      In addition, the Company owns other subsidiaries, which serve intermediary functions to the Company and its operating subsidiaries.

      Petition for Relief Under Chapter 11 — On June 11, 2002, the Holding Company filed a petition for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court for the Southern District of New York. Under Chapter 11, certain claims against the Holding Company in existence prior to the filing of the petition for relief under the federal bankruptcy laws are stayed while the Holding Company continues business operations as debtor-in-possession. These claims are reflected in the June 30, 2002 consolidated balance sheet as “liabilities subject to compromise”. Additional claims (liabilities subject to compromise) may arise subsequent to the filing date resulting from rejection of executory contracts, including leases, and from the determination of the Bankruptcy Court (or agreed to by parties in interest) of allowed claims for contingencies and other disputed amounts.

      The Holding Company anticipates it will file a reorganization plan in accordance with the terms of the Restructuring Term Sheet (described below under “Financial Restructuring”) during the third quarter of 2002 that will provide for emergence from bankruptcy upon completion of a financial restructuring described below. There can be no assurances that any reorganization will be approved by the Bankruptcy Court. If the Holding Company is unable to obtain confirmation of a plan of reorganization, the Holding Company’s creditors may seek other alternatives for the Holding Company, including accepting bids for the Holding

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Company or parts thereof through an auction process or forcing the Holding Company into a liquidation proceeding under the federal bankruptcy laws. The Holding Company’s operating subsidiaries did not commence bankruptcy proceedings and we expect them to continue to operate in the ordinary course of business without any court-imposed restrictions.

      The Holding Company’s balance sheet as of June 30, 2002 consists primarily of cash and trading investments of approximately $26.0 million, other assets of approximately $9.0 million and the net investment in each of its consolidated subsidiaries. The Holding Company’s liabilities are described in Note 11 under “liabilities subject to compromise.”

      The Holding Company’s statement of operations for the six months ended June 30, 2002 consists of the equity in the earnings of its consolidated subsidiaries, interest income earned on its trading investment, offset by the interest expense on the Senior Notes, certain general and administrative expenses and the reorganization items described in Note 11.

      Financial Restructuring — On March 11, 2002, the Holding Company, which has been advised by Houlihan Lokey Howard & Zukin Capital, concluded negotiations with an ad hoc committee (the “Committee”) representing certain creditors under the Holding Company’s Broadband Network Vendor Financing Agreements, and certain holders of its $125.0 million 12.125% Senior Guaranteed Notes due 2003, $300.0 million 13.75% Senior Notes due 2005 and $225.0 million 12.375% Senior Notes due 2008 (collectively, the “Senior Notes”) of a non-binding term sheet agreement in principle (the “Restructuring Term Sheet”) relating to the terms of a proposed restructuring of these long-term obligations, as part of a comprehensive financial restructuring of the Company. The Restructuring Term Sheet, contemplates the following principal components of the proposed restructuring plan:

	•	all of the shares of the Holding Company’s existing common stock, options granted under the Holding Company’s stock option plans, and any other equity interests would be cancelled, retired and eliminated with no consideration paid therefore, and the Holding Company would issue “new common stock” in accordance with the proposed restructuring plan;
	•	creditors under the Broadband Network Vendor Financing Agreements would receive

	—	$140.7 million senior secured debt issued by IMPSAT Argentina and IMPSAT Brazil and guaranteed by the Holding Company;
	—	$22.5 million of new senior convertible notes guaranteed by IMPSAT Argentina and initially convertible into 5% of the Holding Company’s new common stock on a fully-diluted basis; and
	—	warrants to acquire up to 15% of the Holding Company’s new common stock on a fully-diluted basis.

	•	holders of the Notes due 2003 would receive $67.5 million of new senior convertible notes of the Holding Company guaranteed by IMPSAT Argentina and initially convertible into 23% of the Holding Company’s new common stock on a fully-diluted basis
	•	holders of the Notes due 2005 and the Notes due 2008 would exchange those securities for 98% of the Company’s new common stock, subject to certain dilutive events
	•	the Holding Company’s guarantees of certain indebtedness owed by the Holding Company’s operating subsidiaries to certain of their respective creditors will either be restructured in exchange for new senior convertible notes and warrants consistent with and proportionate to the restructuring treatment of analogous indebtedness under the Broadband Network Vendor Financing Agreements, or canceled in exchange for equity in the Holding Company
	•	no distribution to the existing stockholders of the Holding Company

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	•	management would receive 2% of the Holding Company’s new common stock plus stock options representing 8% of the Holding Company’s new common stock.

      The Restructuring Term Sheet provided that completion of the proposed restructuring plan would be subject to certain conditions, including the plan’s acceptance by affected classes of the Holding Company’s securities holders in accordance with the United States Bankruptcy Code (the “Bankruptcy Code”).

      Going Concern Matters — The Company’s history of losses, negative working capital, stockholders’ deficit and the Chapter 11 proceedings raise substantial doubt about the Holding Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Holding Company be unable to continue as a going concern. The ability of the Holding Company to continue as a going concern and to appropriately use the going concern basis is dependent upon, among other things, (i) the Holding Company’s ability to revise and implement its business plan, (ii) confirmation of the reorganization plan under the Bankruptcy Code, (iii) the Holding Company’s ability to achieve profitable operations after such confirmation, and (iv) the Holding Company’s ability to generate sufficient cash from operations to meet its obligations. The consolidated financial statements do not give effect to any adjustment to the carrying value of assets or amounts and classifications of liabilities that might result from the uncertainties described above.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Basis of Presentation — The financial statements are presented on a condensed consolidated basis and include the accounts of IMPSAT Fiber Networks, Inc and its subsidiaries. All significant intercompany transactions and balances have been eliminated. AICPA Statement of Position (“SOP”) 90–7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code, was followed in the preparation of these consolidated financial statements.

      Interim Financial Information — The unaudited condensed consolidated financial statements as of June 30, 2002 and for the three and six months ended June 30, 2001 and 2002 have been prepared on the same basis as the Company’s audited consolidated financial statements. In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the results for such period. The operating results for the three and six months ended June 30, 2002 are not necessarily indicative of the operating results to be expected for the full fiscal year or for any future period.

      Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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. Significant assumptions and estimates were used in determining the carrying values of the Company’s telecommunication infrastructure and collectibility of receivables. Actual results could differ from those estimates.

      Market Risk — The Company currently operates in countries throughout Latin America. The Company’s financial performance may be affected by inflation, exchange rates and controls, price controls, interest rates, changes in governmental economic policy, taxation and political, economic or other developments in or affecting the Latin America countries in which the Company operates. The Company has not entered into derivative transactions to hedge against potential foreign exchange or interest rate risks.

      Currency Risks — In early January 2002, as Argentina’s ongoing political and financial crisis deepened, the country defaulted on its massive foreign debt and the government of President Eduardo Duhalde, who entered office on January 1, 2002, abandoned the decade-old fixed peso-dollar exchange rate and permitted

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the peso to float freely against the U.S. dollar. The peso free market opened on January 11, 2002 at 1.65 pesos to the U.S. dollar and has been volatile since. At June 30, 2002, the Argentine peso traded at pesos 3.90 to the U.S. dollar. The devaluation of the Argentine peso will generally affect the Company’s condensed consolidated financial statements by generating foreign exchange gains or losses on peso-denominated monetary liabilities and assets of IMPSAT Argentina and will generally result in a decrease, in U.S. dollar terms, in the Company’s revenues, costs and expenses in Argentina.

      During December 2001, the Argentine government instituted a system for the freezing of the deposits in its financial system. In February 2002, these measures led to, among other things, the “pesification” decree. Generally, this decree mandates that all monetary obligations arising from agreements subject to Argentine law denominated in foreign currency and existing as of January 6, 2002 are mandatorily converted into monetary obligations denominated in pesos at an exchange rate of one U.S. dollar to one peso. Such obligations generally may be adjusted pursuant to the “coeficiente de estabilizacion de referencia” (“CER”), as published by the Argentine central bank based on the Argentine consumer price index. Under the “pesification” decree, after the foreign currency denominated contracts are converted to pesos (at the rate of one peso to one U.S. dollar), the contracts may be privately renegotiated by the parties back into foreign currency denominated terms. Under the “pesification” decree, if a contract governed by Argentine law is entered into after the decree’s enactment, that contract may be denominated in either U.S. dollars or pesos. However, if the parties choose to denominate the new contract in pesos, payments under that contract are not entitled to be adjusted according to the CER or any other consumer price index. Contracts denominated in pesos before the decree continue to be denominated in pesos, unaffected by the decree. Finally, the decree provides that if the value of the goods sold or services rendered is higher or lesser than the price payable after the mandatory “pesification”, either party may request an “equitable adjustment” of such price. If the parties do not agree on the “equitable adjustment”, the dispute is to be settled by the courts, which will attempt to preserve the contractual agreement between the parties. The devaluation and the “pesification” of agreements of the Company governed by Argentine law may have adverse, unknown and unforeseeable effects on the Company.

      Since the “pesification” decree, IMPSAT Argentina’s customer contracts and operating cash inflows are now predominantly denominated in pesos while its debt service payments and a portion of its costs (including capital equipment purchases and payments for certain leased telecommunication capacity) are denominated in U.S. dollars. Accordingly, the Company’s financial condition and results of operations in Argentina are dependent upon IMPSAT Argentina’s ability to generate sufficient pesos (in U.S. dollar terms) to pay its costs, expenses and to satisfy its debt service requirements. Because of the recent nature of these events and the significant uncertainties regarding the extent and duration of the devaluation and the direction of the fiscal policies in Argentina, management cannot presently determine or reasonably estimate the impact a continued economic crisis in that country could possibly have on IMPSAT Argentina’s and the Company’s overall cash flows, financial condition, and results of operations.

      Numerous uncertainties exist surrounding the ultimate resolution of Argentina’s economic and political instability and actual results could differ from those estimates and assumptions utilized. The Argentine economic and political situation continues to evolve and the Argentine government may enact future regulations or policies that, when finalized and adopted, may adversely and materially impact, among other items, (i) the realized revenues the Company receives for services offered in Argentina; (ii) the timing of repatriations of any dividends or other cash flows from IMPSAT Argentina to the Company in the United States; (iii) the Company’s asset valuations; and (iv) the Company’s peso-denominated monetary assets and liabilities.

      The Company’s results in Brazil also were adversely affected during the period by the devaluation of the Brazilian real against the U.S. dollar. At June 30, 2001, the real traded at a rate of R$2.31 = $1.00, and at June 30, 2002 it had depreciated to R$2.83 = $1.00. As of August 9, 2002, the real traded at a rate of

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R$2.94 = $1.00. These and prior devaluations have had a negative effect on the Company’s real-denominated revenues. The devaluation of the real and the decline in growth in the Brazilian economy have been caused in part by the continued recession in the region, a general aversion to emerging markets by foreign direct and financial investors and the overall decline in worldwide economic production. Recently, fears have mounted in the international investor community that left-wing candidate, Luiz Inacio Lula da Silva, could win Brazil’s upcoming presidential elections and cause Brazil to alter its policies in a manner that would adversely affect its economy. These conditions have had, and can be expected to continue to have, an adverse effect on IMPSAT Brazil’s and the Company’s overall financial condition and results of operations.

      Cash and Cash Equivalents — Cash and cash equivalents are time deposits with original 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 telephony, IT Solutions and Internet services are recognized monthly as the services are provided. Equipment sales are recorded upon delivery to and acceptance by the customer. In addition, the Company has entered into, and may enter into in the future, agreements with carriers granting indefeasible rights of use (“IRUs”) and access to portions the Company’s broadband network capacity and infrastructure. 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 condensed 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 three and six months ended June 30, 2001 and 2002.

      Non-Monetary Transactions — The Company may exchange capacity on its Broadband Network for capacity from other carriers through the exchange of IRUs. These transactions are accounted for in accordance with Accounting Principles Board Opinion No. 29, Accounting for Nonmonetary Transactions, where an exchange of similar IRUs is recorded at a historical carryover basis with no revenue or any gain or loss being recorded.

      Broadband Network — Costs in connection with the construction, installation and expansion of the Broadband Network are capitalized. Rights of way agreements represent the fees paid and the net present value of fees to be paid per signed agreements entered into for obtaining rights of way and other permits for the Broadband Network. 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 has 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.

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      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:

      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 or “available for sale” for long term investments and are carried at fair value. Unrealized gains and losses for trading investments are included in the Company’s results of operations. Unrealized gains or losses, net of tax, for available for sale investments are included in accumulated other comprehensive loss within stockholders’ equity. All other investments are carried at cost.

      Deferred Financing Costs — Debt issuance costs and transaction fees, which are associated with the issuance of the Senior Notes, are being amortized (and charged to interest expense) over the term of the related Senior Notes on a method which approximates the level yield method.

      Long-Lived Assets — Long-lived assets, including goodwill, are reviewed on an ongoing basis for impairment based on a comparison of carrying values to the related undiscounted future cash flows. If the carrying amounts exceed such cash flows, identifying a possible impairment, the assets’ carrying amount is adjusted to fair value. During the three and six month periods ended June 30, 2001 and 2002, no impairments were recorded.

      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 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.

      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 director compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation to employees and non-employee directors 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 directors 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 director must pay for the stock. The Company also provides the required disclosures of SFAS No. 123.

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      Net Loss Per Common Share — Basic earnings (loss) per share is computed based on the average number of common shares outstanding and diluted earnings (loss) per share is computed based on the average number of common and potential common shares outstanding under the treasury stock method.

      Accumulated Other Comprehensive Loss — Accumulated other comprehensive loss is comprised as follows:

      New Accounting Pronouncements — In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002, with early adoption encouraged. The Company does not expect the adoption of SFAS No. 143 to have a material effect on its consolidated financial statements or disclosures.

      In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early adoption encouraged. The provisions of SFAS No. 144 generally are to be applied prospectively. The adoption of SFAS No. 144 did not have a material effect on the Company’s consolidated financial statements or disclosures.

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      In April 2002, the FASB issued SFAS No. 145, Rescission of the FASB Statements No. 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 eliminates the requirement to classify gains and losses from the extinguishment of indebtedness as extraordinary, requires certain lease modifications to be treated the same as a sale-leaseback transaction, and makes other non-substantive technical corrections to existing pronouncements. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002, with earlier adoption encouraged. The Company does not expect the adoption of SFAS 145 to have a material effect on its consolidated financial statements.

      In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operations, plant closing, or other exit or disposal activities. SFAS No. 146 is effective prospectively for exit or disposal activities initiated after December 31, 2002, with earlier adoption encouraged. As the provisions of SFAS No. 146 are required to be applied prospectively after the adoption date, the Company cannot determine the potential effects that adoption of SFAS No. 146 will have on its consolidated financial statements.

      Reclassifications — Certain amounts in the 2001 condensed consolidated financial statements have been reclassified to conform with the 2002 presentation.

3.     INVESTMENTS

      The Company’s investments consist of the following at December 31, 2001 and June 30, 2002:

      The Company’s trading investments consist of high-quality, short-term investments with maturities of less than 360 days.

      The Company’s investments in common stock includes a 3.3% ownership interest in the outstanding common stock of Claxson Interactive Group Inc., an integrated media company with operations in Latin America. This investment is subject to equity price risk. The Company has not taken any actions to hedge this market risk exposure. During the period ended June 30, 2002, the Company recorded a non-cash charge of $0.8 million, which reflected an other-than-temporary decline in value of this investment based upon a sustained reduction in the quoted market price of $0.10 per share compared to the adjusted cost basis of $1.43 per share.

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4.  TRADE ACCOUNTS RECEIVABLE

      Trade accounts receivable, by operating subsidiaries, at December 31, 2001 and June 30, 2002, are summarized as follows:

      The Company’s subsidiaries provide trade credit to their customers in the normal course of business. The collection of a substantial portion of the trade receivables are susceptible to changes in the Latin American economies and political climates. Prior to extending credit, the customers’ financial history is analyzed.

      The activity for the allowance for doubtful accounts for the year ended December 31, 2001 and for the six months ended June 30, 2002 is as follows:

5.  OTHER RECEIVABLES

      Other receivables consist primarily of refunds or credits pending from local governments for taxes other than income, advances to suppliers, and other miscellaneous amounts due to the Company and its operating subsidiaries and are as follows at December 31, 2001 and June 30, 2002: