IMPSAT FIBER NETWORKS INC - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2004 OR

¨	Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 000-29085

IMPSAT Fiber Networks, Inc.

(Exact name of registrant as specified in its charter)

Delaware

52-1910372

(state or other jurisdiction

incorporation or organization)

(IRS employer

identification number)

Elvira Rawson de Dellepiane 150

Piso 8, C1107BCA

Buenos Aires, Argentina

(5411) 5170-0000

(Address, including zip code, and telephone number, including area code, of registrants’ principal executive offices)

Indicate by check mark whether the registrant (1) has 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Securities Exchange Act Rule 12b-2). YES ¨ NO x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant 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 x NO ¨

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of September 30, 2004, the registrant had outstanding 10,116,100 shares of common stock, $0.01 par value.

IMPSAT FIBER NETWORKS, INC.


			Page No.
PART I FINANCIAL INFORMATION			F-1

	ITEM 1.	FINANCIAL STATEMENTS	F-1

	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	1

	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	15

	ITEM 4.	CONTROLS AND PROCEDURES	17

PART II OTHER INFORMATION			17

	ITEM 1.	LEGAL PROCEEDINGS	17

	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	17

	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	17

	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS	18

	ITEM 5.	OTHER INFORMATION	18

	ITEM 6.	EXHIBITS	18

SIGNATURES

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (SUCCESSOR COMPANY)

AS OF DECEMBER 31, 2003 AND SEPTEMBER 30, 2004

(In thousands of U.S. Dollars, except share amounts)

(Unaudited)


	Successor Company
	December 31, 2003			September 30, 2004
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	61,498		$	57,078
Trading investments		2,474
Trade accounts receivable, net		31,213			31,831
Other receivables		11,630			11,989
Prepaid expenses		2,249			3,619

Total current assets		109,064			104,517

PROPERTY, PLANT AND EQUIPMENT, Net		315,817			309,039

NON-CURRENT ASSETS:
Investments in common stock		1,873
Other non-current assets		13,875			16,411

Total non-current assets		15,748			16,411

TOTAL	$	440,629		$	429,967

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable — trade	$	37,095		$	33,412
Short term debt					174
Current portion of long-term debt		11,851			44,959
Accrued and other liabilities		33,140			30,184

Total current liabilities		82,086			108,729
LONG-TERM DEBT, Net		249,394			226,435
OTHER LONG-TERM LIABILITIES		11,904			15,340

Total liabilities		343,384			350,504

COMMITMENTS AND CONTINGENCIES (NOTE 14)
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 5,000,000 shares authorized, no shares outstanding as of December 31, 2003 and September 30,2004		—			—
Common stock, $0.01 par value; 50,000,000 shares authorized, 10,100,000 and 10,116,100 shares issued and outstanding (including 150,000 and 100,000 restricted shares held in the 2003 Stock Incentive Plan as of December 31, 2003 and September 30, 2004, respectively)		101			101
Additional paid in capital		90,294			90,534
Retained earnings (accumulated deficit)		9,477			(6,331	)
Deferred stock-based compensation		(1,320	)		(880	)
Accumulated other comprehensive loss		(1,307	)		(3,961	)

Total stockholders’ equity		97,245			79,463

TOTAL	$	440,629		$	429,967

See notes to condensed consolidated financial statements.

F-1

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2003 (PREDECESSOR COMPANY), FOR THE THREE AND SIX

MONTHS ENDED SEPTEMBER 30, 2003 (SUCCESSOR COMPANY) AND FOR THE THREE AND NINE MONTHS

ENDED SEPTEMBER 30, 2004 (SUCCESSOR COMPANY)

(In thousands of U.S. Dollars, except per share amounts)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	Successor Company			Successor Company			Predecessor Company			Successor Company			Successor Company
	2003			2004			Three Months Ended March 31, 2003			Six Months Ended September 30, 2003			2004
NET REVENUES:
Broadband and satellite	$	40,754		$	40,577		$	41,382		$	82,534		$	120,156
Internet		6,199			6,542			5,733			11,960			19,242
Value added services		4,031			4,270			4,781			7,883			12,306
Telephony		4,844			5,479			4,106			9,440			15,527
Sales of equipment		611			722			74			996			964

Total net revenues		56,439			57,590			56,076			112,813			168,195

COSTS AND EXPENSES:
Direct costs:
Contracted services		4,218			5,364			4,125			8,744			14,756
Other direct costs		5,902			5,343			4,696			13,770			14,862
Leased capacity		16,757			16,960			17,407			34,315			48,695
Cost of equipment sold		245			571			48			353			747

Total direct costs		27,122			28,238			26,276			57,182			79,060
Salaries and wages		11,983			11,961			10,727			23,825			35,941
Selling, general and administrative		6,249			6,254			5,553			13,375			17,719
Gain on extinguishment of debt		(5,460	)		(115	)					(14,253	)		(115	)
Depreciation and amortization		10,312			11,525			19,358			19,281			32,246

Total costs and expenses		50,206			57,863			61,914			99,410			164,851

Operating income (loss)		6,233			(273	)		(5,838	)		13,403			3,344

OTHER INCOME (EXPENSE):
Interest income		328			262			200			690			870
Interest expense (contractual interest of $21,801 for the three months ended March 31, 2003 (Predecessor))		(4,493	)		(5,429	)		(1,909	)		(10,165	)		(15,635	)
Net (loss) gain on foreign exchange		(3,611	)		7,159			9,969			17,834			(2,751	)
Reorganization items								726,127
Other (loss) income, net		(894	)		64			2,923			(1,208	)		1,353

Total other (expense) income		(8,670	)		2,056			737,310			7,151			(16,163	)

(Loss) Income before income taxes		(2,437	)		1,783			731,472			20,554			(12,819	)
Provision for foreign income taxes		(605	)		(1,108	)		(406	)		(1,349	)		(2,989	)

NET (LOSS) INCOME	$	(3,042	)	$	675		$	731,066		$	19,205		$	(15,808	)

NET (LOSS) INCOME PER COMMON SHARE:
BASIC	$	(0.31	)	$	0.07		$	8.00		$	1.94		$	(1.58	)

DILUTED	$	(0.31	)	$	0.07		$	8.00		$	1.36		$	(1.58	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
BASIC		9,931			10,011			91,429			9,891			9,987

DILUTED		9,931			10,011			91,429			15,969			9,987

See notes to condensed consolidated financial statements.

F-2

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2003 (PREDECESSOR COMPANY), FOR THE THREE AND SIX

MONTHS ENDED SEPTEMBER 30, 2003 (SUCCESSOR COMPANY) AND FOR THE THREE AND NINE MONTHS

ENDED SEPTEMBER 30, 2004 (SUCCESSOR COMPANY)

(In thousands of U.S. Dollars)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	Successor Company			Successor Company			Predecessor Company			Successor Company			Successor Company
	2003			2004			Three Months Ended March 31, 2003			Six Months Ended September 30, 2003			2004
NET (LOSS) INCOME	$	(3,042	)	$	675		$	731,066		$	19,205		$	(15,808	)

OTHER COMPREHENSIVE (LOSS) INCOME
Foreign currency translation adjustment		(1,009	)		(1,679	)		(4,097	)		(5,547	)		(922	)
Unrealized gain on investments available for sale		184						55			246			122
Reclassification adjustment for gains included in net income														(1,854	)

TOTAL		(825	)		(1,679	)		(4,042	)		(5,301	)		(2,654	)

COMPREHENSIVE (LOSS) INCOME	$	(3,867	)	$	(1,004	)	$	727,024		$	13,904		$	(18,462	)

See notes to condensed consolidated financial statements.

F-3

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 (SUCCESSOR COMPANY)

(In thousands of U.S. Dollars)

(Unaudited)


	Common Stock			Additional Paid In Capital		Retained Earnings (Accumulated Deficit)			Deferred Stock- Based Compensation			Accumulated Other Comprehensive Loss			Total
	Shares	Amount		Additional Paid In Capital		Retained Earnings (Accumulated Deficit)			Deferred Stock- Based Compensation			Accumulated Other Comprehensive Loss			Total
BALANCE AT DECEMBER 31, 2003 (SUCCESSOR COMPANY)	10,100,000	$	101	$	90,294	$	9,477		$	(1,320	)	$	(1,307	)	$	97,245
Issuance of common stock	16,100				99											99
Issuance of stock options to stockholder					141											141
Recognition of deferred compensation										440						440
Unrealized loss on investment available for sale													(1,732	)		(1,732	)
Foreign currency translation adjustment													(922	)		(922	)
Net loss for the period							(15,808	)								(15,808	)

BALANCE AT SEPTEMBER 30, 2004 (SUCCESSOR COMPANY)	10,116,100	$	101	$	90,534	$	(6,331	)	$	(880	)	$	(3,961	)	$	79,463

See notes to condensed consolidated financial statements

F-4

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2003 (PREDECESSOR COMPANY),

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2003 (SUCCESSOR COMPANY)

AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 (SUCCESSOR COMPANY)

(In thousands of U.S. Dollars)

(Unaudited)


	Nine Months Ended September 30,
	Predecessor Company			Successor Company			Successor Company
	Three Months Ended March 31, 2003			Six Months Ended September 30, 2003			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	731,066		$	19,205		$	(15,808	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization and depreciation		19,358			19,281			32,246
Gain on extinguishment of debt		(728,203	)		(14,253	)		(115	)
Stock-based compensation		440						440
Issuance of stock options to stockholder								141
Deferred income tax provision		82			312			1,366
Provision for (reversal of allowance for) doubtful accounts		515			2,906			(3,073	)
Paid-in-kind interest on Senior Notes					6,602			10,196
Loss on sale of assets held for disposal					94
Net (gain) loss on foreign exchange		(9,969	)		(17,834	)		2,751
Net gain on sale of investments								(1,854	)
Net loss on disposals of property, plant and equipment		772			2,153			1,308
Changes in assets and liabilities:
(Increase) decrease in trade accounts receivable		(3,816	)		(1,956	)		2,480
(Increase) decrease in prepaid expenses		(943	)		415			(1,369	)
Decrease (increase) in other receivables and other non-current assets		1,214			5,197			(3,299	)
(Decrease) in accounts payable — trade		(2,709	)		(6,109	)		(3,754	)
Increase (decrease) in accrued and other liabilities		5,549			(750	)		(5,627	)
Decrease in deferred revenues		(1,132	)
(Decrease) increase in other long-term liabilities		(721	)		(1,245	)		3,394

Net cash provided by operating activities		11,503			14,018			19,423

CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in trading investments		(3,303	)		24,392			2,474
Purchases of property, plant and equipment		(3,266	)		(10,385	)		(26,522	)
Proceeds from sale of property, plant and equipment		340			701			193
Proceeds from sale of assets held for disposal					2,435
Proceeds from the sale of investment								1,995

Net cash (used in) provided by investing activities		(6,229	)		17,143			(21,860	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from short-term debt								174
Proceeds from long-term debt					1,037			2,211
Repayments of long-term debt		(1,857	)		(5,484	)		(3,661	)

Net cash used in financing activities		(1,857	)		(4,447	)		(1,276	)

EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS		(415	)		366			(707	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		3,002			27,080			(4,420	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD		32,563			35,565			61,498

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD	$	35,565		$	62,645		$	57,078

SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	940		$	3,486		$	2,606

Foreign income taxes paid	$	594		$	2,851		$	3,494

CASH PAID DURING THE PERIOD FOR REORGANIZATION ITEMS:
Professional fees and other reorganization payments	$	1,714		$	5,841

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Change in unrealized gain in investment available for sale.	$	55		$	246		$	122

Issuance of Series B Notes in settlement of certain vendor financing obligations				$	1,075

Issuance of common stock upon conversion of Series A Notes							$	99

See notes to condensed consolidated financial statements.

F-5

IMPSAT FIBER NETWORKS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(TABLES IN THOUSANDS OF U.S. DOLLARS, EXCEPT FOR PER SHARE AMOUNTS)

(Unaudited)

1. GENERAL

IMPSAT Fiber Networks, Inc., a Delaware holding company (the “Holding Company”), and subsidiaries (collectively the “Company” or the “Successor Company”) is a provider of integrated broadband, data, Internet, voice and data center 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.

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

The Holding 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 Holding 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.
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 Holding Company and its operating subsidiaries.

2. FINANCIAL RESTRUCTURING, PETITION FOR RELIEF UNDER CHAPTER 11 AND EMERGENCE

On March 11, 2002, the Holding Company concluded negotiations with an ad hoc committee representing certain creditors under the Holding Company’s Broadband Network Vendor Financing Agreements, and certain holders of its (a) $125.0 million 12¹/8% Senior Guaranteed Notes due 2003, (b) $300.0 million 13³/4% Senior Notes due 2005 and (c) $225.0 million 12³/8% Senior Notes due 2008 (collectively, the “Senior Notes”) regarding a non-binding term sheet (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.

In connection with the Restructuring Term Sheet, on June 11, 2002 (the “Petition Date”), the Holding Company filed a voluntary petition for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). 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 were stayed while the Holding Company continued business operations as Debtor-in-Possession.

F-6

On September 4, 2002, the Holding Company filed a Disclosure Statement (the “Disclosure Statement”) and a Plan of Reorganization (the “Plan”) with the Bankruptcy Court. The Plan reflected the terms of the pre-arranged plan of reorganization that a majority of the holders of the indebtedness under the Company’s Vendor Financing Agreements and the holders of the Senior Notes agreed to support. The Disclosure Statement summarized the Plan and contained information concerning, among other matters, the history, business, results of operations, management, properties, liabilities and the assets available for distribution under the Plan as well as the anticipated organization and operation of a reorganized Holding Company. The Disclosure Statement also described certain effects of Plan confirmation, certain risk factors associated with the Plan, the manner in which distributions would be made to the Holding Company’s creditors under the Plan for all amounts that were owed to such parties on the Petition Date and the confirmation process and voting procedures that holders of claims in impaired classes must follow for their votes to be counted.

The Plan received the affirmative vote of the Holding Company’s creditors in accordance with the Bankruptcy Code in December 2002 and was confirmed by order of the Bankruptcy Court on December 16, 2002. In accordance with the Plan, the Holding Company emerged from bankruptcy on March 25, 2003 (the “Effective Date”). Pursuant to the Plan, on the Effective Date, all of the shares of the Company’s old common stock, options granted under the Company’s stock option plans and all other equity interests were cancelled, retired and eliminated with no consideration paid thereon. The Company also adopted a new 2003 Stock Incentive Plan and terminated all the previous stock options plans.

Although the Holding Company has emerged from bankruptcy, the Company remains in default under indebtedness owed to a creditor who voted against the Plan. Under the Plan, the claims of this creditor were a contingent obligation arising under a guarantee by the Holding Company of certain primary indebtedness of IMPSAT Argentina. Notwithstanding the Company’s emergence from bankruptcy and the extinguishment of Company’s guarantee as a result, an event of default has occurred and is continuing with respect to the related primary underlying indebtedness of IMPSAT Argentina. This default, which relates to indebtedness totaling approximately $7.6 million in outstanding principal amount as of September 30, 2004, gives the creditor the right to accelerate such indebtedness and seek immediate repayment of all outstanding amounts and accrued interest thereon. The Company is currently conducting negotiations at the level of IMPSAT Argentina with this creditor with a view to rescheduling or otherwise restructuring the defaulted debt obligation. There is no assurance, however, that the Company will be successful in these negotiations or that the Company will reach a definitive agreement with this creditor to reschedule or restructure such obligations.

Following is a summary of the significant transactions consummated on March 25, 2003 under the Plan:

•

issued shares of the Holding Company’s new common stock (the “New Common Stock”) to holders of the Company’s 13³/4% Senior Notes due 2005 and 12³/8% Senior Notes due 2008 (the “2005/2008 Holders”) in full satisfaction of their claims thereunder, including the outstanding principal and all accrued and unpaid interest. The 2005/2008 Holders received their ratable portion of 9.8 million shares of New Common Stock, less an allocation of a ratable number of such shares of New Common Stock to the holders of certain other claims of unsecured creditors of the Holding Company. Under the Plan, the dollar value of such other unsecured claims was determined after the Effective Date based on factors at the level of the Holding Company’s operating subsidiaries. Accordingly, the Plan required the Company to establish on the Effective Date a reserve (the “Common Stock Reserve Pool”) consisting of an estimated portion of such 9.8 million shares of New Common Stock sufficient to enable the Company to make any distributions after the Effective Date on account of such other unsecured claims. To this end, based on the estimated maximum value of the post-Effective Date contingencies and other unsecured claims, the Company and the creditors committee under the Plan determined that the Common Stock Reserve Pool should be composed of 686,000 shares of New Common Stock. The 2005/2008 Holders initially received on the Effective Date 9.1 million shares of New Common Stock, net of the Common Stock Reserve Pool. Pursuant to the Plan, any settlements or distributions from the Common Stock Reserve Pool with the holders of other unsecured claims were to be made in accordance with the disputed claims resolution process contained therein. Following the resolution of these claims, the Plan provided that the Company would distribute any shares of New Common Stock remaining in the Common Stock Reserve Pool ratably among the 2005/2008 Holders in accordance with the terms of the Plan. In accordance with such disputed claims resolution procedure, in December 2003, the Holding Company issued 11,564 shares of New Common Stock to holders of allowed unsecured claims and the remainder of the Common Stock Reserve Pool to the 2005/2008 Holders. Holders of the Company’s pre-Chapter 11 common stock (the “Old Common Stock”) and holders of any other equity interest received no distribution under the Plan. All Old Common Stock and all other equity interests were cancelled on the Effective Date;

•

filed with the Delaware Secretary of State a Restated Certificate of Incorporation (“Certificate of Incorporation”);

•

amended and restated the Company’s Bylaws (“Bylaws”);

F-7

•

cancelled all Old Common Stock, and all other existing securities and agreements to issue or purchase any equity interest;

•

issued $67.5 million in aggregate principal amount of Series A 6% Senior Guaranteed Notes due 2011 (the “Series A Notes”) (initially convertible, in the aggregate, into 22.8% of the New Common Stock on a fully diluted basis) to holders of the Holding Company’s former 12¹/8% Senior Guaranteed Notes due 2003 (the “2003 Noteholders”), in full satisfaction of the claims of the 2003 Noteholders, including the outstanding principal and all accrued and unpaid interest thereon;

•

issued to (i) holders of debt under the Company’s pre-Effective Date Broadband Network vendor financing agreements (the “Original Vendor Financing Agreements”) and (ii) other creditors of the Company’s operating subsidiaries holding guarantees by the Holding Company of such indebtedness who voted to accept the Plan, a combination of new senior indebtedness totaling $144.0 million, $23.9 million in the aggregate of new Series B 6% Senior Guaranteed Notes due 2011 (the “Series B Notes”) (initially convertible in the aggregate into 5.3% of the New Common Stock on a fully diluted basis), and eight-year warrants to acquire 15.3% in the aggregate of the New Common Stock (on a fully diluted basis);

•

issued 200,000 shares of restricted New Common Stock to certain officers of the Company in accordance with the Company’s 2003 Stock Incentive Plan; and

•

approved stock options for 1,646,332 shares of New Common Stock to senior officers.

Under the Holding Company’s Certificate of Incorporation, the authorized capital stock as of the Effective Date consists of (i) 50,000,000 shares of the New Common Stock, with a par value of $0.01 per share and (ii) 5,000,000 shares of Preferred Stock, with a par value of $0.01 per share (the “Preferred Stock”). No Preferred Stock has been issued. Pursuant to the Certificate of Incorporation, Preferred Stock may be issued in one or more series as determined from time to time by the Company’s Board of Directors (the “Board”) without further approval of the Holding Company’s stockholders. Upon issuance of any series of Preferred Stock, the Board will fix the voting powers, designations, preferences, and relative, participating, optional, redemption, conversion, exchange or other special rights, qualifications, limitations or restrictions of such Preferred Stock, to the extent permitted by law. Pursuant to the Certificate of Incorporation, the Holding Company may not create, designate, authorize or cause to be issued any class or series of nonvoting stock to the extent prohibited by Section 1123 of the United States Bankruptcy Code.

As a result of these transactions, as of March 31, 2003, the Holding Company had 10,000,000 shares of New Common Stock issued and outstanding (including 686,000 shares held in the Common Stock Reserve Pool pending the resolution of disputed claims and 150,000 shares of unvested restricted stock issued under the 2003 Stock Incentive Plan).

Because the Holding Company emerged from bankruptcy on March 25, 2003 (referred to as the “Successor Company” as of and subsequent to March 31, 2003), for financial reporting purposes the Company used an effective date of March 31, 2003 and applied fresh-start accounting to the condensed consolidated balance sheet as of that date in accordance with the American Institute of Certified Public Accountants’ Statement of Position (“SOP”) 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code. In accordance with SOP 90-7, the Company adopted fresh-start accounting because (i) the holders of the existing voting shares immediately before filing and confirmation of the Plan received less than 50% of the voting shares of the emerging company and (ii) the Company’s reorganization value, which served as the basis for the Plan approved by the Bankruptcy Court, was less than the Company’s post-petition liabilities and allowed claims, as shown below:


Post-petition current liabilities	$	8,070
Liabilities deferred under the Chapter 11 proceedings		727,522

Total post-petition liabilities and allowed claims		735,592
Reorganization value		(557,000	)

Excess of liabilities over reorganization value	$	178,592

F-8

Under fresh-start accounting, a new reporting entity is considered to be created and the Company adjusts the recorded amounts of assets and liabilities to reflect their estimated fair values at the date fresh-start accounting is applied. Accordingly, the estimated reorganization value of the Company of $557.0 million represents the total fair value that the Company allocated to the assets of the Company. In conformity with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations, the Holding Company has used purchase accounting (“pushed down” to its operating subsidiaries) to account for the assets and liabilities as of the fresh-start date.

The Company’s financial advisors assisted the Company in determining its estimated reorganization value of $557.0 million and its reorganization equity value of the Company of approximately $88.0 million. The financial advisors used two methodologies to derive the total estimated reorganization value: (a) the application of comparable company multiples to the Company’s historical and projected financial results; and (b) a calculation of the present value of the Company’s free cash flows under the Company’s revised business plan using financial projections through 2010, including an assumption for a terminal value, discounted at the Company’s estimated post-restructuring weighted-average cost of capital. In estimating the total reorganization value, the Company’s advisors considered the Company’s market share and position, competition and general economic considerations, projected revenue growth, potential profitability, working capital requirements and other relevant factors.

As a result of the Company’s reorganization and application of fresh-start accounting, during the three months ended March 31, 2003, the Predecessor Company recognized a gain of approximately $728.2 million on the extinguishment of the Predecessor Company’s Senior Notes, Broadband Vendor Financing agreements and other trade accounts payable.

The effect of the Plan and the resulting fresh-start accounting adjustments on the Company’s condensed consolidated balance sheet as of March 31, 2003, is as follows:


	Pre Reorganization Balance Sheet March 31, 2003		Debt Extinguishment and Reorganization		Common Stock Reserve Pool		2003 Stock Incentive Plan		Elimination of Equity and Fresh Start Adjustments					Post Reorganization Balance Sheet March 31, 2003
	Pre Reorganization Balance Sheet March 31, 2003		Debt Extinguishment and Reorganization		Common Stock Reserve Pool		2003 Stock Incentive Plan		Equity Elimination		Allocation of Reorganization Value			Post Reorganization Balance Sheet March 31, 2003
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	35,565												$	35,565
Trading investments		26,324													26,324
Trade accounts receivable, net		34,493													34,493
Other receivables		13,235													13,235
Prepaid expenses		3,696													3,696
Assets held for disposal		5,222									$	263			5,485

Total current assets		118,535		—				—		—		263			118,798

PROPERTY, PLANT AND EQUIPMENT, Net		390,674										(72,871	)		317,803

NON-CURRENT ASSETS:
Investments in common stock		141													141
Other non-current assets		10,987													10,987

Total non-current assets		11,128		—				—		—		—			11,128

TOTAL	$	520,337	$	—	$	—	$	—	$	—	$	(72,608	)	$	447,729

F-9


	Pre Reorganization Balance Sheet March 31, 2003			Debt Extinguishment and Reorganization			Common Stock Reserve Pool			2003 Stock Incentive Plan			Elimination of Equity and Fresh Start Adjustments						Post Reorganization Balance Sheet March 31, 2003
	Pre Reorganization Balance Sheet March 31, 2003			Debt Extinguishment and Reorganization			Common Stock Reserve Pool			2003 Stock Incentive Plan			Equity Elimination			Allocation of Reorganization Value			Post Reorganization Balance Sheet March 31, 2003
LIABILITIES AND STOCKHOLDERS’ (DEFICIENCY) EQUITY
LIABILITIES NOT SUBJECT TO COMPROMISE:
CURRENT LIABILITIES:
Accounts payable – trade	$	74,444		$	(22,442	)													$	52,002
Current portion of long-term debt		282,474			(258,832	)														23,642
Accrued and other liabilities		51,633			(25,137	)														26,496

Total current liabilities		408,551			(306,411	)					—			—			—			102,140

LONG-TERM DEBT, Net		24,334			219,490															243,824

OTHER LONG-TERM LIABILITIES		13,765																		13,765

DEFERRED REVENUES		69,377														$	(69,377	)		—

LIABILITIES SUBJECT TO COMPROMISE		727,522			(727,522	)														—

Total liabilities		1,243,549			(814,443	)								—			(69,377	)		359,729

STOCKHOLDERS’ (DEFICIENCY) EQUITY:
Common Stock – old		914											$	(914	)					—
Common Stock – new					98					$	2									100
Additional paid in capital – old		537,725												(537,725	)					—
Additional paid in capital – new					86,142		$	6,037			1,758						1,320			95,257
Accumulated deficit		(1,273,542	)		728,203						(440	)		550,330			(4,551	)		—
Common stock reserve pool								(6,037	)											(6,037	)
Deferred stock-based compensation		(4,530	)								(1,320	)		4,530						(1,320	)
Accumulated other comprehensive income		16,221												(16,221	)					—

Total stockholders’ (deficiency) equity		(723,212	)		814,443			—			—			—			(3,231	)		88,000

TOTAL	$	520,337		$	—		$	—		$	—		$	—		$	(72,608	)	$	447,729

These adjustments primarily include the following:

Debt Extinguishment and Reorganization

•

The extinguishment of the Holding Company’s 2005/2008 Senior Notes plus accrued interest in exchange for the issuance of 9.8 million shares of the Holding Company’s New Common Stock (including 686,000 shares held in the Common Stock Reserve Pool pending the resolution of the Post-Effective Date Contingencies);

•

The extinguishment of the Holding Company’s 2003 Senior Notes plus accrued interest in exchange for the issuance of $67.5 million in aggregate principal amount of Series A Notes ($60.0 million as of March 31, 2003);

•

The extinguishment of the Company’s Broadband Vendor Financing agreements that voted in favor of the plan plus accrued interest in exchange for the issuance of a combination of $144.0 million in senior indebtedness issued by IMPSAT Argentina and IMPSAT Brazil ($128.0 million as of March 31, 2003), $23.9 million in aggregate principal amount of Series B Notes ($21.2 million as of March 31, 2003) and eight-year warrants to acquire 15.3% in the aggregate of the Holding Company’s New Common Stock;

F-10

Common Stock Reserve Pool

•

The establishment of the Common Stock Reserve Pool of 686,000 shares.

2003 Stock Incentive Plan

•

The issuance of 200,000 shares of the New Common Stock to certain officers of the Company in accordance with the 2003 Stock Incentive Plan, of which 50,000 shares vested immediately upon issuance;

Equity Eliminations

•

The cancellation of all outstanding Old Common Stock and other equity interests and the elimination of all components of stockholders’ deficiency, including paid-in-capital, accumulated deficit, deferred compensation and accumulated other comprehensive income; and

Allocation of Reorganization Value

•

The adjustments to the carrying values of the Company’s property, plant and equipment, based on the Company’s estimates of their relative fair values, which the Company determined in consultation with an external valuation specialist that the Company hired are as follows:


Adjustment to record at fair value	$	36,901
Allocation of the excess of fair value assigned to the net assets acquired over cost		(109,772	)

Net adjustment	$	(72,871	)

In accordance with SFAS No. 141, the excess of fair value assigned to net assets acquired over cost was applied to reduce the carrying value of property, plant and equipment.

•

The adjustment to the Predecessor Company’s deferred revenue in accordance with Emerging Issues Task Force (“EITF”) 01-3, Accounting in a Business Combination for Deferred Revenue of an Acquiree, which requires the acquiring entity to recognize a liability (based on its fair value at the date of acquisition) related to a deferred revenue of an acquired entity only if that deferred revenue represents a legal obligation assumed by the acquiring entity (a legal performance obligation). The Successor Company determined that the deferred revenue represented a legal performance obligation under EITF 01-3; however, the fair value (based on incremental costs incurred to honor the legal performance obligation) was determined during the period ended June 30, 2003, to not be material to the Successor Company’s condensed consolidated balance sheet.

3. LIQUIDITY

As discussed in Note 2, the Holding Company successfully emerged from bankruptcy on March 25, 2003 with an approved reorganization plan. Prior to June 11, 2002 (the Petition Date), the Company had incurred substantial net losses and had both working capital and stockholders’ deficiencies. Emerging from bankruptcy gives the Company a chance to become successful in its future operations. The primary benefit of the bankruptcy was to relieve the Company of the obligations of the Senior Notes and Broadband Network Vendor Financing Agreements along with the related interest expense. As a result, the Company has generated positive operating income and cash flows from operations of $3.3 million and $19.4 million, respectively, for the nine months ended September 30, 2004. As of September 30, 2004, the Company has cash and cash equivalents and trading investments of $57.1 million, which includes approximately $5.1 million in Venezuela (see Note 4). Based on its current business plan, the Company believes that its cash balances as of September 30, 2004 and the expected cash flows to be generated by the Company’s operations will be sufficient to pay its obligations when due for the foreseeable future, including approximately $45.0 million of its long- term debt due in 2005 (and acceleration of the approximately $7.6 million owed to the creditor mentioned in Note 2). However, management can give no assurances that the Company will be successful in executing its business plan nor that the Company will be able to achieve profitability in the long-term.

F-11

4. 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.

Interim Financial Information — The unaudited condensed consolidated financial statements as of September 30, 2004 and for the three and nine months then ended have been prepared on the same basis as the Company’s audited consolidated financial statements as of and for the nine months ended December 31, 2003. 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 periods. The operating results for the three and nine months ended September 30, 2004 are not necessarily indicative of the operating results to be expected for the remainder of calendar year 2004 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 currency controls, price controls, interest rates, changes in governmental economic policies, 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 — The Argentine peso has been volatile since January 2002, when it traded at 1.65 pesos to the U.S. dollar. At December 31, 2003 and September 30, 2004, the Argentine peso traded at 2.95 pesos and 3.00 pesos, respectively, 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.

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 are adversely affected by devaluations of the Brazilian real against the U.S. dollar. At December 31, 2003 and September 30, 2004, the real traded at R$2.89 and R$2.87 to the U.S. dollar, respectively. Devaluations of the real against the U.S. dollar have had a negative effect on the Company’s real denominated revenues. Economic difficulties in Brazil, including further currency devaluations, could have a material adverse effect on IMPSAT Brazil’s and the Company’s overall financial condition and results of operations.

In 2002, the Venezuelan government removed controls over the trading range of the bolivar, allowing the exchange rate to be determined by market conditions. As a result, during 2002, the bolivar decreased in value in relation to the U.S. dollar by approximately 85%. During February 2003, the Venezuelan government imposed exchange rate controls, fixing the bolivar’s value to the U.S. dollar at 1,600 bolivars to the U.S. dollar. These exchange controls make it difficult for the Company’s customers in Venezuela to obtain the U.S. dollars needed to make payments due to the Company in U.S. dollars on a timely basis. These exchange controls also limit the Company’s ability to convert local currency into U.S. dollars and transfer funds out of Venezuela. During February 2004, the Venezuelan government further devalued the bolivar and fixed the bolivar’s value to the U.S. dollar at 1,920. As of September 30, 2004, approximately $5.1 million of the Company’s cash and cash equivalents were held in Venezuela bolivars by IMPSAT Venezuela (translated into U.S. dollars at the fixed exchange rate imposed by the Venezuelan government). Pursuant to the discussions by the AICPA International Practices Task Force during their March 2003 meeting, the Company has used the official government exchange rate of 1,920 bolivars to the U.S. dollar to remeasure the financial statements of IMPSAT Venezuela.

F-12

Cash and Cash Equivalents — Cash and cash equivalents include time deposits or money market funds 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, 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 of the Company’s broadband network capacity and infrastructure. Pursuant to these agreements, the Company may receive fixed advance payments for the IRUs, which would be recognized as revenue ratably over the life of the IRU. Amounts received in advance would be recorded as deferred revenue.

No single customer accounted for greater than 10% of total net revenues for the three and nine months ended September 30, 2003 or the three and nine months ended September 30, 2004.

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.

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
Network infrastructure (including rights of way)		10-20 years
IRU investments		15 years
Furniture, fixtures and other equipment		2-10 years

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.

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.

Long-Lived Assets — Long-lived assets 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 asset carrying amounts are adjusted to fair value.

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 asset and liability method of computing deferred income taxes. Under the asset and liability method, deferred taxes are adjusted for tax rate changes as they occur.

F-13

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 are included in accumulated other comprehensive 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 is 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.

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 previous stock option plans and the 2003 Plan, the pro-forma amounts of the Company’s net (loss) income and net (loss) income per common share would have been as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
	Successor Company			Successor Company			Predecessor Company			Successor Company			Successor Company
	2003			2004			Three Months Ended March 31, 2003			Six Months Ended September 30, 2003			2004
Net (loss)income:
As reported	$	(3,042	)	$	675		$	731,066		$	19,205		$	(15,808	)

Add: Stock-based compensation expense, as reported		—			—			—			—			—
Deduct: Stock-based employee compensation expense determined under fair-value-based method		(171	)		(185	)		(175	)		(856	)		(527	)

Pro forma		(3,213	)		490		$	730,891			18,349			(16,335	)

Net (loss) income per common share:
Basic:
As reported		(0.31	)		0.07			8.00			1.94			(1.58	)
Pro forma		(0.32	)		0.05			7.99			1.86			(1.64	)
Diluted:
As reported		(0.31	)		0.07			8.00			1.36			(1.58	)
Pro forma		(0.32	)		0.05			7.99			1.15			(1.64	)

For purposes of the pro forma disclosures, the fair value of the options granted in 2003 (see Note 13) was estimated using the minimum value method prescribed by SFAS No. 123, as the Company’s new common stock had not traded between the date of emergence and the date of the granting of the options. The assumptions used by the Company were as follows: no dividend yield; no volatility; risk-free interest rate of 3%; and an expected term of seven years. For purposes of the pro-forma disclosures, the fair value of the options granted in 2004 (see Note 13) was estimated using the Black-Scholes option pricing model. The assumptions used by the Company were as follows: no dividend yield; volatility of 39%; risk-free interest rate of 3.75%; and an expected term of 8 years. No stock-based compensation cost from stock options is reflected in the accompanying condensed consolidated statements of operations because all the options granted had an exercise price greater than the market value of the underlying common stock on the date of grant.

Fair Value of Financial Instruments — As of September 30, 2004, the Company’s financial instruments include receivables, payables and long-term debt. The fair values of these financial instruments, which approximate their carrying value, have been estimated by management using available market information and interest rates as of September 30, 2004.

F-14

Net (Loss) Income 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 using the treasury stock method. The calculation of diluted income (loss) per share was the same as the calculation of basic income per share for the three months ended September 30, 2004 and March 31, 2003 and the nine months ended September 30, 2004 since the inclusion of potential common stock in the computation would be antidilutive. The computation of net income (loss) per share is as follows:


	Three Months Ended September 30,					Nine Months Ended September 30,
	Successor Company			Successor Company		Predecessor Company		Successor Company		Successor Company
	2003			2004		Three Months Ended March 31, 2003		Six Months Ended September 30, 2003		2004
Net (loss) income	$	(3,042	)	$	675	$	731,066	$	19,205	$	(15,808	)
Add back: interest on Series A and B Notes as if converted									2,546

Adjusted Net (loss) Income	$	(3,042	)	$	675	$	731,066	$	21,751	$	(15,808	)

Weighted average number of common shares outstanding used in basic per share calculation		9,931			10,011		91,429		9,891		9,987

Basic net (loss) income per common share	$	(0.31	)	$	0.07	$	8.00	$	1.94	$	(1.58	)

Weighted average number of common shares outstanding used in basic earnings per share calculation		9,931			10,011		91,429		9,891		9,987
Effect of dilutive securities:
Series A and B Notes (convertible)									5,928
Shares of restricted stock									150

Weighted average number of common shares outstanding used in diluted earnings per share calculation		9,931			10,011		91,429		15,969		9,987

Diluted net income per common share	$	(0.31	)	$	0.07	$	8.00	$	1.36	$	(1.58	)

Antidilutive securities not included in diluted earnings per common share computation:
Stock Options		1,676			2,028				1,676		2,028

Exercise Price	$	15.00		$	6.17 to $15.00			$	15.00	$	6.17 to $15.00

Warrants		3,257			3,257				3,257		3,257

Exercise Price	$	15.00		$	15.00			$	15.00	$	15.00

Series A and B Notes		5,928			6,105						6,105

Conversion Price	$	14.17 to $21.73		$	13.76 to $21.10					$	13.76 to $21.10

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


	FOREIGN CURRENCY TRANSLATION			UNREALIZED GAIN ON INVESTMENTS AVAILABLE FOR SALE			TOTAL
Balance at December 31, 2003 (Successor Company)	$	(3,039	)	$	1,732		$	(1,307	)
Changes during the period		(922	)		(1,732	)		(2,654	)

Balance at September 30, 2004 (Successor Company)	$	(3,961	)	$	—		$	(3,961	)

New Accounting Pronouncement — In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, an Interpretation of APB No. 51. FIN 46 requires certain variable interest entities to be condensed consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. During October 2003, the FASB deferred the effective date of FIN 46 until the end of the first interim or annual period ending after December 15, 2003. In addition the FASB issued a revised interpretation of FIN 46 (“FIN 46-R”) in December 2003. The adoption of FIN 46-R during 2004 did not have a material effect on the Company’s financial condition or results of operations.

F-15

5. INVESTMENTS

The Company’s investments consist of the following at December 31, 2003 and September 30, 2004:


	Successor Company
	December 31, 2003		September 30, 2004
Trading investments, at fair value	$	2,474	$	—

Investments in common stock	$	1,873	$	—

Trading investments as of December 31, 2003 consisted of approximately $2.5 million, in short –term bonds issued by the Venezuelan government. During the nine months ended September 30, 2004, the Company converted its investments into cash.

The Company’s investments in common stock at December 31, 2003 included an ownership interest of less than 5% in the outstanding common stock of Claxson Interactive Group Inc. (“Claxson”), an integrated media company with operations in Latin America. The Company sold its investment in Claxon during the nine months ended September 30, 2004 for approximately $-2.0 million and recorded a gain on sale of approximately $-1.9 million. This gain is recorded in other income (loss), net in the accompanying condensed consolidated statements of operations.

6. TRADE ACCOUNTS RECEIVABLE

Trade accounts receivable, by operating subsidiaries, at December 31, 2003 and September 30, 2004, are summarized as follows:


	Successor Company
	December 31, 2003			September 30, 2004
IMPSAT Argentina	$	25,465		$	18,053
IMPSAT Brazil		5,804			5,157
IMPSAT Colombia		3,680			4,650
IMPSAT Venezuela		6,692			7,442
All other countries		10,214			10,154

Total		51,855			45,456
Less: allowance for doubtful accounts		(20,642	)		(13,625	)

Trade accounts receivable, net	$	31,213		$	31,831

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 is susceptible to changes in the Latin American economies and political climates. Prior to extending credit, the customer financial history is analyzed.

The activity for the allowance for doubtful accounts for the three months ended March 31, 2003, for the nine months ended December 31, 2003 and for the nine months ended September 30, 2004 is as follows:


	Predecessor Company March 31, 2003			Successor Company December 31, 2003			Successor Company September 30, 2004
Beginning balance	$	23,384		$	21,358		$	20,642
Provision for (reversal of allowance for) doubtful accounts		515			2,365			(3,073	)
Write-offs		(1,553	)		(3,238	)		(3,840	)
Effect of exchange rate change		(988	)		157			(104	)

Ending balance	$	21,358		$	20,642		$	13,625

F-16

7. 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, 2003 and September 30, 2004:


	Successor Company
	December 31, 2003		September 30, 2004
IMPSAT Argentina	$	577	$	353
IMPSAT Brazil		2,633		1,897
IMPSAT Colombia		3,522		2,909
IMPSAT Venezuela		2,794		2,074
All other countries		2,104		4,756

Total	$	11,630	$	11,989

8. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 31, 2003 and September 30, 2004 consist of:


	Successor Company
	December 31, 2003			September 30, 2004
Land	$	10,109		$	10,109
Building and improvements		33,921			36,193
Operating communications equipment		160,804			181,899
Network infrastructure (including rights of way)		103,828			105,349
IRU investments		19,381			19,448
Furniture, fixtures and other equipment		13,765			14,977

Total		341,808			367,975
Less: accumulated depreciation		(29,389	)		(61,688	)

Total		312,419			306,287
Equipment in transit		2,484			2,516
Construction in process		914			236

Property, plant and equipment, net	$	315,817		$	309,039

The activity in accumulated depreciation for the three months ended March 31, 2003, for the nine months ended December 31, 2003 and for the nine months ended September 30, 2004 is as follows:


	Predecessor Company March 31, 2003			Successor Company December 31, 2003			Successor Company September 30, 2004
Beginning balance	$	465,142		$	—		$	29,389
Depreciation expense		19,216			29,535			32,246
Exchange rate effects		1,889			226			546
Disposals and retirements		(4,845	)		(372	)		(493	)
Application of fresh-start reporting		(481,402	)

Ending balance	$	—		$	29,389		$	61,688

IRU Agreements —The Company has entered into several agreements granting IRUs of up to 25 years on the Company’s Broadband Network, including network maintenance services and telehousing space. The Company has received advance payments related to these agreements. As described in Note 2, these advance payments were initially recorded as deferred and adjusted in the application of fresh-start accounting in accordance with EITF 01-3.

F-17

9. DEBT

Short- term Debt- During the third quarter of 2004, IMPSAT Brasil entered into a new $2.8 million short term credit facility denominated in local currency with a local bank. The facility bears interest at 1.75% and, as of September 30, 2004, the outstanding balance amounted to $0.2 million. The outstanding amount was repaid on October 2004 and the credit facility remains open with no outstanding amount.

Long-Term Debt- The Company’s long-term debt at December 31, 2003 and September 30, 2004 is detailed as follows:


	Successor Company
	December 31, 2003			September 30, 2004
Series A 6% Senior Guaranteed Notes due 2011	$	62,773		$	65,402
Series B 6% Senior Guaranteed Notes due 2011		23,792			24,870
Senior Secured Notes 10%, maturing 2009		138,447			144,720
Senior Notes issued by IMPSAT Colombia due 2008 and 2010 (interest rate 14.11%), collateralized by the assignment of customers contracts		16,197			17,340
Term notes, maturing through 2007; collateralized by buildings and equipment, the assignment of customer contracts and investment; denominated in:
U.S. dollars (interest rates 3.27% to 11.68%)		1,278			2,463
Local currency (interest rate 12.81%)		6,839			5,949
Eximbank notes (interest rate 3.19% to 3.93%), maturing semiannually through 2007		3,770			2,778
Vendor financing (interest rates 3.47% to 11%)		8,149			7,872

Total long-term debt		261,245			271,394
Less: current portion including defaulted indebtedness		(11,851	)		(44,959	)

Long-term debt, net	$	249,394		$	226,435

The Company’s Series A, Series B and Senior Secured Notes shown above were originally issued in conjunction with effecting the Plan described in Note 2. The Series A, Series B and Senior Secured Notes and some of the term notes contain certain covenants requiring the Company to maintain certain financial ratios, limiting the incurrence of additional indebtedness and capital expenditures, and restricting the ability to pay dividends. As discussed in Note 2, the Company is in default on approximately $7.6 million of vendor financing obligations with one vendor. The Series A and Series B Notes were initially convertible into the Company’s stock at a conversion price of $14.39 and $22.06, respectively. The conversion price is reduced with the passage of time. As of September 30, 2004, the Series A and Series B Notes were convertible into approximately 4,892,000 and 1,213,000 shares of common stock, respectively.

During the three months ended September 30, 2004, some holders of Holding Company’s the Series A Notes converted approximately $0.2 million of notes at face value into 16,100 shares of common stock. The Company recorded $0.1 million gain on extinguishment of debt as a result of this conversion based upon the fair value of the common stock at the date of conversion and the notes carrying value.

F-18

10. INCOME TAXES

The composition of the provision for income taxes, all of which is for foreign taxes, for the three months ended March 31, 2003 (Predecessor Company), the three and six months ended September 30, 2003 (Successor Company) and the three and nine months ended September 30, 2004 is as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
	Successor Company			Successor Company			Predecessor Company			Successor Company			Successor Company
	2003			2004			Three Months Ended March 31, 2003			Six Months Ended September 30, 2003			2004
Current	$	(396	)	$	(898	)	$	(324	)	$	(1,037	)	$	(1,623	)
Deferred		(209	)		(210	)		(82	)		(312	)		(1,366	)

Total	$	(605	)	$	(1,108	)	$	(406	)	$	(1,349	)	$	(2,989	)

The foreign statutory tax rates range from 15% to 35% depending on the particular country. Deferred taxes result from temporary differences in revenue recognition, depreciation methods and net operating loss carryforwards.

Net Operating Losses Carryforward (NOLs)—For U.S. income tax purposes, the income recognized upon the cancellation of debt upon emergence from bankruptcy was excluded from the Company’s taxable income. The Company was required to reduce its tax attributes to compensate for the exclusion of debt cancellation income. The attribute reduction occurred as of January 1, 2004. In general, the amount of the reduction is one dollar for each dollar excluded from gross income (the reduction to credits is 33¹/3 cents for each dollar excluded). Attribute reduction is generally applied in the following order:

•

Net operating losses and net operating loss carryovers

•

General business credits

•

Minimum tax credits

•

Capital losses and capital loss carryovers

•

Basis of property (depreciable and non-depreciable)

•

Passive activity loss carryovers

•

Foreign tax credit carryovers

In addition, the Company’s ability to utilize its remaining NOLs will be limited as a result of the change in ownership resulting from the bankruptcy restructuring.

The Company recorded a valuation allowance of approximately $131 million to offset its deferred income tax asset as of September 30, 2004 because management cannot conclude that utilization of the tax benefits resulting from operating losses and the other temporary differences are “more likely than not” to be realized, as required by SFAS 109.

11. LIABILITIES SUBJECT TO COMPROMISE AND REORGANIZATION ITEMS

Liabilities subject to compromise – This term refers to the liabilities incurred prior to the commencement of the Chapter 11 case. These liabilities consisted primarily of amounts outstanding under the Company’s Old Senior Notes and also included accounts payable, accrued interest and other accrued expenses. These amounts represented the Company’s estimate of known or potential claims to be resolved in connection with the Chapter 11 case. These liabilities were restructured in accordance with the Plan, see Note 2.

Liabilities subject to compromise as of March 25, 2003 were as follows:


Senior Notes:
12.125% Senior Guaranteed Notes due 2003	$	125,000
13.75% Senior Notes due 2005		300,000
12.375% Senior Notes due 2008		225,000
Accrued Interest		77,317
Accounts payable		205

Total	$	727,522

F-19

Contractual interest expense not accrued on pre-petition debt totaled $52.2 million and $72.1 million for the period that began as of June 11, 2002, the date of the Company’s petition for relief under chapter 11 of the Bankruptcy Code, and ended December 31, 2002, and March 25, 2003, the date of the Company’s emergence from bankruptcy, respectively.

Reorganization items — Reorganization items during the three-month period ended March 31, 2003 are comprised of the following:


Professional fees	$	(1,636	)
Gain on extinguishments of debt		728,203
Stock-based compensation		(440	)

Total	$	726,127

F-20

12. OPERATING SEGMENT INFORMATION

The Company’s operating segment information, by subsidiary, is as follows:


Three months ended September 30, 2003 (Successor Company)	Argentina			Brazil			Colombia			Venezuela		All other countries			Eliminations			Total
Net Revenues
Satellite and Broadband	$	8,779		$	6,205		$	11,854		$	7,592	$	13,234		$	(6,910	)	$	40,754
Internet		1,834			889			1,178			720		3,295			(1,717	)		6,199
Value added services		1,601			962			355			397		1,284			(568	)		4,031
Telephony		3,084			8			36					3,314			(1,598	)		4,844
Sales of equipment		461						58			23		69						611

Total net revenues	$	15,759		$	8,064		$	13,481		$	8,732	$	21,196		$	(10,793	)	$	56,439

Operating income (loss)	$	3,730		$	(1,674	)	$	2,061		$	2,588	$	(472	)				$	6,233

Total assets	$	119,444		$	110,334		$	79,377		$	52,670	$	84,614					$	446,439


Three months ended September 30, 2004 (Successor Company)	Argentina			Brazil			Colombia			Venezuela		All other countries			Eliminations			Total
Net Revenues
Satellite and Broadband	$	7,881		$	5,927		$	12,126		$	7,174	$	12,375		$	(4,906	)	$	40,577
Internet		1,935			925			1,472			607		3,138			(1,535	)		6,542
Value added services		2,472			1,209			594			446		1,071			(1,522	)		4,270
Telephony		3,405			220			43					3,289			(1,478	)		5,479
Sales of equipment		522						7			12		181						722

Total net revenues	$	16,215		$	8,281		$	14,242		$	8,239	$	20,054		$	(9,441	)	$	57,590

Operating (loss) income	$	(60	)	$	(1,771	)	$	864		$	2,289	$	(1,595	)				$	(273	)

Total assets	$	111,507		$	103,807		$	75,424		$	54,825	$	84,404					$	429,967


Three months ended March 31, 2003 (Predecessor Company)	Argentina			Brazil			Colombia			Venezuela		All other countries			Eliminations			Total
Net Revenues
Satellite and Broadband	$	9,196		$	5,504		$	12,068		$	7,510	$	14,432		$	(7,328	)	$	41,382
Internet		1,585			838			1,147			910		2,810			(1,557	)		5,733
Value added services		1,157			956			225			518		2,541			(616	)		4,781
Telephony		2,701						117			—		2,439			(1,151	)		4,106
Sales of equipment		41			—						29		4			—			74

Total net revenues	$	14,680		$	7,298		$	13,557		$	8,967	$	22,226		$	(10,652	)	$	56,076

Operating (loss) income	$	(3,004	)	$	(2,761	)	$	(2,729	)	$	2,459	$	197					$	(5,838	)

Total assets	$	124,570		$	100,023		$	79,925		$	45,524	$	97,687					$	447,729


Six months ended September 30, 2003 (Successor Company)	Argentina			Brazil			Colombia			Venezuela		All other countries			Eliminations			Total
Net Revenues
Satellite and Broadband	$	18,183		$	12,367		$	23,918		$	15,072	$	26,502		$	(13,508	)	$	82,534
Internet		3,401			1,648			2,314			1,485		7,174			(4,062	)		11,960
Value added services		2,933			1,863			695			765		2,349			(722	)		7,883
Telephony		6,070			12			77					6,439			(3,158	)		9,440
Sales of equipment		800						59			52		85						996

Total net revenues	$	31,387		$	15,890		$	27,063		$	17,374	$	42,549		$	(21,450	)	$	112,813

Operating income (loss)	$	4,852		$	(3,933	)	$	4,131		$	5,220	$	3,133					$	13,403

Total assets	$	119,444		$	110,334		$	79,377		$	52,670	$	84,614					$	446,439


Nine months ended September 30, 2004 (Successor Company)	Argentina			Brazil			Colombia			Venezuela		All other countries			Eliminations			Total
Net Revenues
Satellite and Broadband	$	24,274		$	16,990		$	35,964		$	21,531	$	37,514		$	(16,117	)	$	120,156
Internet		5,254			2,701			4,475			1,804		9,426			(4,418	)		19,242
Value added services		7,862			3,318			1,617			1,199		2,857			(4,547	)		12,306
Telephony		10,073			323			151					9,285			(4,305	)		15,527
Sales of equipment		639			51			43			42		189						964

Total net revenues	$	48,102		$	23,383		$	42,250		$	24,576	$	59,271		$	(29,387	)	$	168,195

Operating income (loss)	$	2,510		$	(4,716	)	$	3,796		$	6,996	$	(5,242	)				$	3,344

Total assets	$	111,507		$	103,807		$	75,424		$	54,825	$	84,404					$	429,967

F-21

13. STOCKHOLDERS’ EQUITY

2003 Stock Incentive Plan – On the Effective Date, in accordance with the Plan, the Holding Company adopted the 2003 Stock Incentive Plan (the “2003 Plan”), which provides for the grant to the Company’s officers, key employees, consultants, advisors, directors or affiliates of (i) “incentive stock options” within the meaning of Section 422 of the U.S. Internal Revenue Code of 1986, as amended, (ii) stock options that are non-qualified for U.S. federal income tax purposes, (iii) restricted stock grants and (iv) stock appreciation rights (collectively the “Awards”). The total number of shares of common stock for which Awards may be granted pursuant to the 2003 Plan is 3,087,044, subject to certain adjustments reflecting changes in the Company’s capitalization (provided that no more than 200,000 shares of common stock may be issued pursuant to Awards that are not stock options or stock appreciation rights). The 2003 Plan is administered by the Company’s compensation committee. The compensation committee determines, among other things, which of the Company’s officers, employees, consultants, advisors, affiliates and directors will receive Awards under the Plan, the time when Awards will be granted, and the type of Awards to be granted. Awards granted under the 2003 Plan are on such terms, including the number of shares subject to each Award, the time or times when the Awards will become exercisable, and the price and duration of the Award, as determined by the compensation committee. The expiration date of the 2003 Plan is March 25, 2013 and no Awards may be granted after said date. The termination of the Plan shall not affect any Award outstanding on the date of termination.

The exercise price of incentive and non-qualified stock options is determined by the compensation committee. In the case of incentive stock options and other options intended to qualify as “performance-based compensation under Section 162(m) of the U.S. Internal Revenue Code (“Section 162(m)”), the exercise price may not be less than the fair market value of the common stock on the date of grant. The term of any option may not exceed ten years from the date of grant (or five years in the case of an incentive stock option granted to an employee owning 10% or more of the company’s voting stock).

Payment of the exercise price of a stock option or stock appreciation right must be made by cash or, in the sole discretion of the compensation committee, by promissory note, tender of shares of the Holding Company’s common stock then owned by the optionee or, subject to certain conditions, the surrender to the Holding Company of an exercisable option to purchase shares of the Holding Company’s common stock under the 2003 Plan. Stock options and stock appreciation rights granted pursuant to the 2003 Plan are generally not transferable, other than by will or the laws of descent and distribution in the event of death.

The Holding Company’s compensation committee has the right at any time and from time to time to amend or modify the 2003 Plan, without the consent of the Holding Company’s stockholders (unless otherwise required by law or regulations, including to prevent awards from failing to qualify as performance-based compensation under Section 162(m)) or grantees of Awards. However, no such action may adversely affect Awards previously granted without the grantee’s consent.

Restricted Stock – On the Effective Date, in accordance with the Plan, the Holding Company granted certain officers 200,000 shares of the Holding Company’s New Common Stock. These shares vest in one-quarter increments on the date of grant and on each of the successive first three anniversaries of the date of grant (but, in each case, only if the executive is still employed with the company on such respective date).

In connection with the restricted stock grant above, the Holding Company recorded approximately $1.3 million in stockholders’ equity as deferred compensation (see Note 2). The deferred compensation will be amortized to expense over the vesting period.

Stock Options – On May 19, 2003, the Holding Company granted stock options for 1,646,332 shares of the Holding Company’s New Common Stock, at an exercise price of $15.00 per share to certain key employees. These options vest in one-quarter increments on the date of grant and on each of the successive first three anniversaries of the date of grant. In addition, on such date, the Holding Company also granted stock options for 30,000 shares to certain directors of the Holding Company at an exercise price of $15.00 per share. These stock options vested immediately. Any unexercised stock options will expire on May 19, 2011.

F-22

On July 15, 2004, the Holding Company granted stock options for 262,156 shares of the Holding Company’s New Common Stock at an exercise price of $12.00 per share to certain senior management employees, 174,771 of which were fully vested on the date of grant and the remaining 87,385 of which will vest subject to the achievement of certain performance goals.

Additionally, on September 30, 2004, the Holding Company granted stock options for 90,000 shares of the Holding Company’s New Common Stock at an exercise price of $6.17 per share to certain directors of the Holding Company, which options were fully vested on the date of grant. Also, on the same date the Holding Company granted stock options for 60,000 shares of the Company’s New Common Stock at an exercise price of $6.17 per share to an affiliate of also the Company, which options were fully vested on the date of grant. The Company recorded an expense of approximately $141,000 as a result of this issuance, which is included within selling, general and administrative expenses in the accompanying statement of operations for the three and nine months ended September 30, 2004.

Warrants – On the Effective Date, in accordance with the Plan, the Holding Company issued 3,257,178 eight-year warrants to acquire the Holding Company’s stock at $15.00 per share (see Note 2). As of September 30, 2004, all the warrants remain outstanding.

14. COMMITMENTS AND CONTINGENCIES

Commitments — The Company leases satellite capacity with average annual rental commitments of approximately $16.1 million through the year 2008 under non cancelable agreements. In addition, the Company has committed to long-term contracts for the purchase of satellite and terrestrial links from third parties for approximately $15.0 million and $13.7 million through 2015 and 2008, respectively. The Company has commitments to purchase communications and data center equipment amounting to approximately $7.7 million at September 30, 2004.

The Company is a guarantor of the Senior Secured Notes issued by its subsidiaries under the Plan and other financing agreements entered by certain of its subsidiaries. At September 30, 2004, the aggregate balances outstanding were approximately $145.0 million (see Note 9).

The Company maintains commercial insurance policies which serve to guarantee certain of the Company’s performance obligations for services under some public and private contract bids which total approximately $16.7 million as of September 30, 2004.

Employment Agreements – Upon emergence, the Company entered into employment agreements with certain of its senior executives with provide for a three year term (subject to recurrent automatic one year renewals). Under such agreements, the base salary of these executives amounts to approximately $0.8 million per year.

IPO Allocations Class Action — On November 1, 2001, a lawsuit (the “IPO Class Action”) was filed in the United States District Court for the Southern District of New York against the Holding Company, certain individuals who were then officers and directors of the Company, and the underwriters to the Holding Company’s initial public offering (IPO). This lawsuit alleges on behalf of a proposed class of all shareholders that the Holding Company and its underwriters violated various provisions of the securities laws in connection with the IPO in February 2000. Pursuant to the Plan, the plaintiffs in the IPO Class Action received in connection with their claims the assignment of any insurance proceeds that the Holding Company receives in connection with the litigation, but otherwise the claims of the plaintiffs against the Holding Company or any of its other assets, have been discharged as part of the Chapter 11 proceedings.

Pursuant to a Court order in August, 2001, the IPO Class Action was consolidated for all pre-trial purposes in In re Initial Public Offering Securities Litigation, 21 MC 92, an intra-district proceeding involving approximately 900 lawsuits relating to the initial public offerings of approximately 310 companies. In July 2002, the Holding Company and the other defendants filed a motion to dismiss, which was denied as to the Holding Company and one individual officer in February 2003. In April 2003, the Holding Company was advised that global settlement discussions between the plaintiffs and the Holding Company’s insurer (on behalf of the Holding Company and the individual defendants) to resolve plaintiffs’ claims against all 310 companies had reached an advanced stage. Among other things, the proposed settlement would result in a broad release of claims against the Holding Company, its officers and directors, and other issuers, and their officers and directors without a direct financial contribution by the Holding Company. Settlement papers seeking preliminary approval of the settlement and certification of the investor class were submitted to the court in June 2004. The settlement is subject to court approval.

F-23

Employee Severance Litigation—On December 26, 2003, a lawsuit was filed in an Argentine court against IMPSAT Argentina by the former chairman of the Company’s board of directors, Mr. Enrique Mr. Pescarmona. This lawsuit alleged that IMPSAT Argentina failed to pay Mr. Pescarmona severance compensation in the amount of $2.9 million which the plaintiff believes is required by Argentine labor law in connection with his termination from the Company upon the effectiveness of the Plan. The Company believes that it has meritorious defenses to the allegations in the complaints and intends to defend the litigation vigorously.

US Municipal Taxes - Pursuant to a certain state provision in the US, charges for telecommunications services that originate or terminate in and are charged to a service address in such state are subject to a discretionary municipal tax. Charges for long distance service ending or originating out of such state are exempt. The Company believes that substantially all the transactions of IMPSAT USA are excluded from the scope of the tax. To date, the state has not notified IMPSAT USA of any tax due under any municipality’s discretionary municipal tax or any state tax on telecommunications services. Accordingly, the Company is unable to determine if they are liable for any municipal taxes under such state provisions.

Other Litigation — The Company is involved in or subject to various litigation and legal proceedings incidental to the normal conduct of its business, including with respect to regulatory and foreign tax assessment matters. 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.

F-24

15. GUARANTOR FINANCIAL INFORMATION

The financial information of IMPSAT Argentina, a guarantor subsidiary of the Holding Company’s Series A 6% Senior Guaranteed Notes due 2011 and Series B 6% Senior Guaranteed Notes due 2011, as of December 31, 2003 and as of and for three and six months ended September 30, 2003 and the three and nine months ended September 30, 2004 is shown in a separate column in the accompanying consolidating financial information, as follows:

CONDENSED CONSOLIDATING BALANCE SHEET (SUCCESSOR COMPANY)

AS OF DECEMBER 31, 2003

(In thousands of U.S. Dollars)


	Holding Company		IMPSAT Argentina		Non-Guarantor Subsidiaries		Intercompany Eliminations			Consolidated
			(Guarantor)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	43,883	$	1,432	$	16,183	$			$	61,498
Trading investments						2,474					2,474
Trade accounts receivable, net				14,087		17,126					31,213
Other receivables		96,610		17,654		48,414		(151,048	)		11,630
Prepaid expenses		193		432		1,935		(311	)		2,249

Total current assets		140,686		33,605		86,132		(151,359	)		109,064

PROPERTY, PLANT AND EQUIPMENT, Net				74,848		240,969					315,817

NON-CURRENT ASSETS:
Investments in common stock		47,225						(45,352	)		1,873
Other non-current assets				5,578		8,297					13,875

Total non-current assets		47,225		5,578		8,297		(45,352	)		15,748

TOTAL	$	187,911	$	114,031	$	335,398	$	(196,711	)	$	440,629

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable — trade	$	4,048	$	22,344	$	63,343	$	(52,640	)	$	37,095
Current portion of long-term debt				7,712		4,139					11,851
Accrued and other liabilities		53		11,151		33,185		(11,249	)		33,140

Total current liabilities		4,101		41,207		100,667		(63,889	)		82,086
LONG-TERM DEBT, Net		86,565		52,896		109,933					249,394
OTHER LONG-TERM LIABILITIES				7,480		92,438		(88,014	)		11,904

Total liabilities		90,666		101,583		303,038		(151,903	)		343,384
STOCKHOLDERS’ EQUITY		97,245		12,448		32,360		(44,808	)		97,245

TOTAL	$	187,911	$	114,031	$	335,398	$	(196,711	)	$	440,629

F-25

CONDENSED CONSOLIDATING BALANCE SHEET (SUCCESSOR COMPANY)

AS OF SEPTEMBER 30, 2004

(In thousands of U.S. Dollars)


	Holding Company		IMPSAT Argentina		Non-Guarantor Subsidiaries		Intercompany Eliminations			Condensed Consolidated
			(Guarantor)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	40,277	$	2,311	$	14,490	$			$	57,078
Trading investments
Trade accounts receivable, net				10,930		20,901					31,831
Other receivables		91,237		17,219		52,442		(148,909	)		11,989
Prepaid expenses		345		817		3,923		(1,466	)		3,619

Total current assets		131,859		31,277		91,756		(150,375	)		104,517

PROPERTY, PLANT AND EQUIPMENT, Net				73,396		235,643					309,039

NON-CURRENT ASSETS:
Investments		43,612						(43,612	)
Other non-current assets		8		6,834		9,569					16,411

Total non-current assets		43,620		6,834		9,569		(43,612	)		16,411

TOTAL	$	175,479	$	111,507	$	336,968	$	(193,987	)	$	429,967

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable — trade	$	5,695	$	19,223	$	59,342	$	(50,848	)	$	33,412
Short term debt						174					174
Current portion of long-term debt				19,901		25,058					44,959
Accrued and other liabilities		49		10,719		39,994		(20,578	)		30,184

Total current liabilities		5,744		49,843		124,568		(71,426	)		108,729
LONG-TERM DEBT, Net		90,272		42,952		93,211					226,435
OTHER LONG-TERM LIABILITIES				4,455		90,376		(79,491	)		15,340

Total liabilities		96,016		97,250		308,155		(150,917	)		350,504
STOCKHOLDERS’ EQUITY		79,463		14,257		28,813		(43,070	)		79,463

TOTAL	$	175,479	$	111,507	$	336,968	$	(193,987	)	$	429,967

F-26

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (SUCCESSOR COMPANY)

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003

(In thousands of U.S. Dollars)


	Holding Company			IMPSAT Argentina (Guarantor)			Non-Guarantor Subsidiaries			Intercompany Eliminations			Condensed Consolidated
NET REVENUES:
Broadband and satellite				$	8,779		$	38,885		$	(6,910	)	$	40,754
Internet					1,834			6,082			(1,717	)		6,199
Value added services					1,601			2,998			(568	)		4,031
Telephony					3,084			3,358			(1,598	)		4,844
Sales of equipment					461			150						611

Total net revenues					15,759			51,473			(10,793	)		56,439

COSTS AND EXPENSES:
Direct costs:
Contracted services					1,462			2,791			(35	)		4,218
Other direct costs					2,504			3,398						5,902
Leased capacity					5,488			21,946			(10,677	)		16,757
Cost of equipment sold					147			98						245

Total direct costs					9,601			28,233			(10,712	)		27,122
Salaries and wages					3,467			8,516						11,983
Selling, general and administrative	$	800			2,041			3,489			(81	)		6,249
Gain on extinguishment of debt					(5,460	)								(5,460	)
Depreciation and amortization					2,380			7,932						10,312

Total costs and expenses		800			12,029			48,170			(10,793	)		50,206

Operating (loss) income		(800	)		3,730			3,303						6,233

OTHER INCOME (EXPENSE):
Interest income		712			58			261			(703	)		328
Interest expense		(815	)		(1,563	)		(2,818	)		703			(4,493	)
Net gain (loss) on foreign exchange		14			784			(4,409	)					(3,611	)
Equity in income of affiliates		(3,291	)								3,291
Other income (loss), net		1,138			(98	)		(1,903	)		(31	)		(894	)

Total other (expense) income		(2,242	)		(819	)		(8,869	)		3,260			(8,670	)

(LOSS) INCOME BEFORE INCOME TAXES		(3,042	)		2,911			(5,566	)		3,260			(2,437	)
PROVISION FOR FOREIGN INCOME TAXES								(605	)					(605	)

NET (LOSS) INCOME	$	(3,042	)	$	2,911		$	(6,171	)	$	3,260		$	(3,042	)

F-27

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (SUCCESSOR COMPANY)

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004

(In thousands of U.S. Dollars)


	Holding Company			IMPSAT Argentina			Non-Guarantor Subsidiaries			Intercompany Eliminations			Condensed Consolidated
				(Guarantor)
NET REVENUES:
Broadband and satellite				$	7,881		$	37,602		$	(4,906	)	$	40,577
Internet					1,935			6,142			(1,535	)		6,542
Value added services					2,472			3,320			(1,522	)		4,270
Telephony					3,405			3,552			(1,478	)		5,479
Sales of equipment					522			200						722

Total net revenues					16,215			50,816			(9,441	)		57,590

COSTS AND EXPENSES:
Direct costs:
Contracted services					2,165			5,570			(2,371	)		5,364
Other direct costs					1,501			3,842						5,343
Leased capacity					5,211			17,496			(5,747	)		16,960
Cost of equipment sold					357			248			(34	)		571

Total direct costs					9,234			27,156			(8,152	)		28,238
Salaries and wages					2,942			9,019						11,961
Selling, general and administrative	$	2,316			1,899			3,328			(1,289	)		6,254
Gain on early extinguishment of debt		(115	)											(115	)
Depreciation and amortization					2,200			9,325						11,525

Total costs and expenses		2,201			16,275			48,828			(9,441	)		57,863

Operating (loss) income		(2,201	)		(60	)		1,988						(273	)

OTHER INCOME (EXPENSE):
Interest income		1,599			19			(2,870	)		1,514			262
Interest expense		(1,336	)		(1,581	)		(998	)		(1,514	)		(5,429	)
Net gain (loss) on foreign exchange					(515	)		7,674						7,159
Equity in income of affiliates		2,940									(2,940	)
Other income (loss), net					129			(65	)					64

Total other (expense) income		3,203			(1,948	)		3,741			(2,940	)		2,056

(LOSS) INCOME BEFORE INCOME TAXES		1,002			(2,008	)		5,729			(2,940	)		1,783
PROVISION FOR FOREIGN INCOME TAXES		(327	)		(206	)		(575	)					(1,108	)

NET (LOSS) INCOME	$	675		$	(2,214	)	$	5,154		$	(2,940	)	$	675

F-28

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (SUCCESSOR COMPANY)

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2003

(In thousands of U.S. Dollars)


	Holding Company			IMPSAT Argentina			Non-Guarantor Subsidiaries			Intercompany Eliminations			Consolidated
				(Guarantor)
NET REVENUES:
Broadband and satellite				$	18,183		$	77,859		$	(13,508	)	$	82,534
Internet					3,401			12,621			(4,062	)		11,960
Value added services					2,933			5,672			(722	)		7,883
Telephony					6,070			6,528			(3,158	)		9,440
Sales of equipment					800			196						996

Total net revenues					31,387			102,876			(21,450	)		112,813

COSTS AND EXPENSES:
Direct costs:
Contracted services					2,881			5,908			(45	)		8,744
Other direct costs					6,967			6,803						13,770
Leased capacity					11,178			43,983			(20,846	)		34,315
Cost of equipment sold					210			143						353

Total direct costs					21,236			56,837			(20,891	)		57,182
Salaries and wages					6,541			17,284						23,825
Selling, general and administrative	$	1,786			4,232			7,916			(559	)		13,375
Gain on extinguishment of debt		(4,538	)		(9,715	)								(14,253	)
Depreciation and amortization					4,240			15,041						19,281

Total costs and expenses		(2,752	)		26,534			97,078			(21,450	)		99,410

Operating income		2,752			4,853			5,798						13,403

OTHER INCOME (EXPENSES):
Interest income		5,612			170			452			(5,544	)		690
Interest expense		(2,488	)		(3,102	)		(10,119	)		5,544			(10,165	)
Net gain on foreign exchange		18			1,445			16,371						17,834
Equity in income of affiliates		14,599									(14,599	)
Other (loss), net		(986	)		(98	)		(84	)		(40	)		(1,208	)

Total other (expenses) income		16,755			(1,585	)		6,620			(14,639	)		7,151

INCOME BEFORE INCOME TAXES		19,507			3,268			12,418			(14,639	)		20,554
PROVISION FOR FOREIGN INCOME TAXES		(302	)					(1,047	)					(1,349	)

NET INCOME	$	19,205		$	3,268		$	11,371		$	(14,639	)	$	19,205

F-29

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (SUCCESSOR COMPANY)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004

(In thousands of U.S. Dollars)


	Holding Company			IMPSAT Argentina			Non-Guarantor Subsidiaries			Intercompany Eliminations			Condensed Consolidated
				(Guarantor)
NET REVENUES:
Broadband and satellite				$	24,274		$	111,999		$	(16,117	)	$	120,156
Internet					5,254			18,406			(4,418	)		19,242
Value added services					7,862			8,991			(4,547	)		12,306
Telephony					10,073			9,759			(4,305	)		15,527
Sales of equipment					639			325						964

Total net revenues				$	48,102		$	149,480		$	(29,387	)	$	168,195

COSTS AND EXPENSES:
Direct costs:
Contracted services					6,214			16,720			(8,178	)		14,756
Other direct costs					3,988			10,874						14,862
Leased capacity					14,362			51,592			(17,259	)		48,695
Cost of equipment sold					426			363			(42	)		747

Total direct costs					24,990			79,549			(25,479	)		79,060
Salaries and wages	$	440			8,867			26,634						35,941
Selling, general and administrative		6,441			5,322			9,864			(3,908	)		17,719
Gain on early extinguishment of debt		(115	)											(115	)
Depreciation and amortization					6,413			25,833						32,246

Total costs and expenses		6,766			45,592			141,880			(29,387	)		164,851

Operating (loss) income		(6,766	)		2,510			7,600						3,344

OTHER INCOME (EXPENSE):
Interest income		4,751			85			(8,430	)		4,464			870
Interest expense		(4,038	)		(4,150	)		(2,983	)		(4,464	)		(15,635	)
Net gain (loss) on foreign exchange					(1,137	)		(1,614	)					(2,751	)
Equity in income of affiliates		(11,274	)								11,274
Other income (loss), net		1,845			257			(749	)					1,353

Total other (expense) income		(8,716	)		(4,945	)		(13,776	)		11,274			(16,163	)

(LOSS) INCOME BEFORE INCOME TAXES		(15,482	)		(2,435	)		(6,176	)		11,274			(12,819	)
PROVISION FOR FOREIGN INCOME TAXES		(326	)		(206	)		(2,457	)					(2,989	)

NET (LOSS) INCOME	$	(15,808	)	$	(2,641	)	$	(8,633	)	$	11,274		$	(15,808	)

F-30

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (SUCCESSOR COMPANY)

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2003

(In thousands of U.S. Dollars)


	Holding Company			IMPSAT Argentina (Guarantor)			Non-Guarantor Subsidiaries			Intercompany Eliminations			Condensed consolidated
Cash flows (used in) provided by operating activities	$	(3,770	)	$	(1,139	)	$	10,882		$	8,045		$	14,018
Cash flows provided by (used in) investing activities		37,721			(2,444	)		(10,089	)		(8,045	)		17,143
Cash flows (used in) financing activities					(2,108	)		(2,339	)					(4,447	)
Effect of exchange rate change on cash and cash equivalents		(8,020	)					8,386						366

Net increase in cash and cash equivalents		25,931			(5,691	)		6,840						27,080
Cash and cash equivalents at beginning of the period		5,059			8,067			22,439						35,565

Cash and cash equivalents at end of the period	$	30,990		$	2,376		$	29,279		$	—		$	62,645

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (SUCCESSOR COMPANY)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004

(In thousands of U.S. Dollars)


	Holding Company			IMPSAT Argentina (Guarantor)			Non-Guarantor Subsidiaries			Intercompany Eliminations			Condensed consolidated
Cash flows provided by (used in) operating activities	$	(8,077	)	$	5,074		$	17,765		$	4,661		$	19,423
Cash flows provided by (used in) investing activities		5,393			(5,047	)		(17,545	)		(4,661	)		(21,860	)
Cash flows provided by (used in) financing activities					852			(2,128	)					(1,276	)
Effect of exchange rate change on cash and cash equivalents		(922	)					215						(707	)

Net increase in cash and cash equivalents		(3,606	)		879			(1,693	)					(4,420	)
Cash and cash equivalents at beginning of the period		43,883			1,432			16,183						61,498

Cash and cash equivalents at end of the period	$	40,277		$	2,311		$	14,490		$	—		$	57,078

* * * * * *

F-31

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Reorganization

As discussed in our 2003 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2004, (the “2003 Form 10-K”), we filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York on June 11, 2002 (the “Bankruptcy Case”). We subsequently filed a plan of reorganization (the “Plan”) in the Bankruptcy Case, which Plan was confirmed in the Bankruptcy Case and became effective on March 25, 2003 (the “Effective Date”), at which time we emerged from bankruptcy. Pursuant to the Plan, we substantially reduced our outstanding debt and annual interest expense and increased our liquidity. At December 31, 2002, prior to the effectiveness of the Plan, our long-term debt, including current maturities and estimated liabilities subject to the Chapter 11 proceeding, aggregated approximately $1.09 billion. Also at December 31, 2002, our total indebtedness (including unpaid accrued interest through the petition date related to the Plan) aggregated $1.04 billion and our cash, cash equivalents and trading investments totaled $55.6 million. As of March 31, 2003, upon the effectiveness of the Plan, our total indebtedness was reduced to approximately $267.5 million, and our cash, cash equivalents and trading investments totaled approximately $61.9 million.

Upon our emergence from bankruptcy on March 25, 2003, we adopted “fresh start” reporting as required by SOP 90-7. Under SOP 90-7 fresh start reporting, a new reporting entity is considered to be created and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values at the date fresh start reporting is applied. Among other things, this required us to allocate the reorganization value of our reorganized company to its specific tangible and identifiable assets and liabilities. The effect of the reorganization and the implementation of SOP 90-7 fresh start reporting on our condensed consolidated financial statements is discussed in detail in Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Report. As a result of the implementation of SOP 90-7 fresh start reporting, the consolidated financial statements of our company from and after its emergence from bankruptcy are not comparable to the consolidated financial statements in prior periods.

Revenues

Our contracts with our customers have in the past typically ranged in duration from six months to five years and contracts with our private telecommunications network customers have generally been three-year contracts. Under the Argentine “pesification” decree described below under “Currency Risks,” if a contract denominated in pesos is entered into after the decree’s enactment, payments under that contract are not entitled to be adjusted by any price or related index. Accordingly, in order to mitigate our inflation risk, our peso-denominated contracts in Argentina are typically for shorter terms ranging from three to six months. The customer generally pays an installation charge at the beginning of the contract and a monthly fee based on the quantity and type of equipment installed. Except in Brazil and Argentina, the fees stipulated in the majority of our contracts with customers are denominated in U.S. dollar equivalents. Services (other than installation fees) are billed on a monthly, predetermined basis, which coincide with the rendering of the services. We report our revenues net of deductions for sales taxes.

We have experienced, and anticipate that we will continue to experience, downward pressure on our prices as we expand our customer base, confront growing competition for private telecommunications network services, and endure the effects of periodic economic downturns in our countries of operation. When we have renewed and/or expanded our contracts with existing customers, the prices we charge have generally declined.

Although we believe that our geographic diversification provides some protection against economic downturns in any particular country, our results of operations and business prospects depend upon the overall financial and economic

conditions in Latin America. Most of the countries in which we operate are undergoing, or have experienced in recent years, political and economic volatility. These conditions may have material adverse effects on our business, results of operation and financial condition.

Costs and Expenses

Our costs and expenses principally include:

•

direct costs

•

salaries and wages

•

selling, general and administrative expenses

•

depreciation and amortization

Our direct costs include payments for leased satellite transponder, fiber optic and other terrestrial capacity. Our pan-Latin American broadband fiber optic network (the “Broadband Network”), which we began to commercialize in the fourth quarter of 2000, has enabled us to decrease our payments for leased satellite capacity as we have shifted transmission from leased satellite facilities to our Broadband Network after the satellite contracts expire. Other principal items composing direct costs are contracted services costs and allowance for doubtful accounts. Contracted services costs include costs of maintenance and installation (and de-installation) services provided by outside contractors. Installation and de-installation costs are the costs we incur when we install or remove earth stations, micro-stations and other equipment from customer premises. Direct costs also include licenses and other fees and sales commissions paid to third-party sales representatives and to our salaried sales force.

Our selling, general and administrative expenses consist principally of:

•

publicity and promotion costs

•

fees and other remuneration

•

travel and entertainment

•

rent

•

plant services, insurance and corporate telecommunication and energy expenses

Currency Risks

Except in Argentina and Brazil, the majority of our contracts with customers 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 the third quarter of 2004. Nevertheless, 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, even in countries other than Argentina and Brazil.

Under applicable law, our contracts with customers in Brazil cannot and, under certain circumstances, our contracts with customers in Argentina may not, be linked to the exchange rate between the local currency and the U.S. dollar. Accordingly, operations in Argentina and Brazil increase our exposure to exchange rate risks. Any devaluation of the Argentine peso or the Brazilian real against the U.S. dollar will generally affect our consolidated financial statements by

generating foreign exchange gains or losses on dollar-denominated monetary liabilities and assets and will generally result in a decrease, in U.S. dollar terms, in our revenues, costs and expenses. Because the majority of our debt service payments and a significant portion of our costs (including capital equipment purchases and payments for certain leased telecommunications capacity) remain denominated and payable in U.S. dollars, our financial condition and results of operations are dependent upon our subsidiaries’ (including IMPSAT Argentina and IMPSAT Brazil) ability to generate sufficient local currency (in U.S. dollar terms) to pay their costs and expenses and to satisfy our debt service requirements.

In U.S. dollar terms, our revenues in Argentina and Brazil, which are denominated in local currencies and represent a significant proportion of our consolidated net revenues, generally increase when the currencies in those countries appreciate against the U.S. dollar, and decrease when those currencies depreciate. The following table shows U.S. dollar exchange rates for the currencies of these countries at the dates indicated:


Currency	December 31, 2002	March 31, 2003	June 30, 2003	September 30 2003	December 31, 2003	March 31, 2004	June 30, 2004	September 30 2004
	(exchange rate per U.S.$1.00)
Argentina peso	3.40	3.00	2.82	2.90	2.95	2.88	2.95	3.00
Brazil real	3.53	3.35	2.87	2.92	2.89	2.94	3.11	2.87

In addition, as a result of foreign currency exchange and transfer controls established by the Venezuelan government in February 2003, our contracts with customers in Venezuela are currently being paid in local currency at the fixed exchange rate established by the Venezuelan government between the local currency and the U.S. dollar. As the exchange control regulations do not permit us to exchange our cash and cash equivalents in local currency into U.S. dollars without specific governmental authorizations, the Venezuelan exchange control regulations have adversely affected our exchange rate risks for all dollar-denominated liabilities owing by our Venezuelan operating subsidiary and our ability to receive dividends or other distributions from that subsidiary. We cannot predict the duration or other adverse effects that the current Venezuelan exchange controls may have on our operating results and financial condition.

Argentina

In early January 2002, the Argentine government abandoned the decade-old fixed peso-dollar exchange rate and permitted the peso to float freely against the U.S. dollar. The peso free market opened on January 11, 2002 and traded at 1.65 pesos to the U.S. dollar and has traded as low as 3.87 pesos to the U.S. dollar on June 26, 2002. At September 30, 2003, the exchange rate was 2.90 pesos to the U.S. Dollar, and at September 30, 2004, the exchange rate was 3.00 pesos to the U.S. dollar. As a result of the “pesification” decree, IMPSAT Argentina’s customer contracts and operating cash inflows are now predominantly denominated in pesos.

Brazil

At September 30, 2003, the real traded at a rate of R$2.92 = $1.00, and it appreciated to R$2.87 = $1.00 at September 30, 2004. The daily average exchange rate for the real during the third quarter of 2004 was R$2.94= $1.00, as compared to R$2.95 = $1.00 during the third quarter of 2003.

Venezuela

Widespread discontent with the policies of the current Venezuelan government produced a country-wide strike in the beginning of December 2002 that lasted two months and seriously disrupted economic activity in Venezuela and severely curtailed the production and export of oil, the major source of Venezuela’s foreign exchange. In response, on February 5, 2003, the Venezuelan government imposed foreign exchange and price controls, making it difficult for our customers in that country to obtain the U.S. dollars needed to make payments due to us in U.S. dollars on a timely basis. These foreign exchange controls also severely limit our ability to convert local currency into U.S. dollars and transfer funds out of Venezuela. At December 31, 2002, the bolivar traded at a rate of Bs.1,392.00 = $1.00. On February 6, 2003, the

Venezuelan government set a single fixed exchange rate for the bolivar against the U.S. dollar of approximately Bs.1,600.00 = $1.00 as part of the new currency controls. The Venezuelan government further devalued the bolivar to Bs.1,920.00 = $1.00 on February 9, 2004. As such, on September 30, 2003, the bolivar traded at a rate of Bs.1,600.00 = $1.00, and on September 30, 2004, the bolivar traded at a rate of Bs.1,920.00 = $1.00.

Termination of Mexican Operations

During the first quarter of 2003, we determined to close our operations in Mexico, which we initially established in 1994. We entered into agreements with various parties to sell our real estate and other real and personal property, including our permits and licenses and our contracts with customers. These transactions closed during 2003. Our results for the nine months ended September 30, 2003 accordingly include revenues and expenses related to the operations and sale of our Mexican operations.

Off-Balance Sheet Arrangements

An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity, or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the company, or that engages in leasing, hedging or research and development arrangements with the company. We have no arrangements of the types described in any of these four categories that we believe may have a material current or future effect on our financial condition, liquidity or results of operations.

Critical Accounting Policies

In the ordinary course of business, the company has made a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of its financial statements in conformity with U.S. GAAP. We use our best judgment based on our knowledge of existing facts and circumstances and actions that we may undertake in the future, as well as the advice of external experts in determining the estimates that affect our condensed consolidated financial statements. Actual results could differ significantly from those estimates under different assumptions and conditions. Our most critical accounting policies are:

Revenue Recognition

We record revenues from data, value-added, telephony, and Internet services monthly as the services are provided. Equipment sales are recorded upon delivery to and acceptance by the customer.

We have entered into agreements with carriers granting indefeasible rights of use (“IRUs”) and access to portions of our Broadband Network capacity and infrastructure. Pursuant to some of these agreements entered into prior to the filing of our Bankruptcy Case, we received fixed advance payments for the IRUs, which amounts received in advance were recorded as deferred revenue. See Note 2 “Financial Restructuring, Petition For Relief Under Chapter 11 And Emergence – Allocation of Reorganization Value” for a discussion of the treatment of deferred revenues not yet earned as of the Effective Date. In the event that we enter into any such IRU agreements in the future, we expect that we will defer any fixed advanced payments for IRUs and will recognize the deferred revenues from such IRUs ratably over the life of the IRUs.

Non-Monetary Transactions

We may exchange capacity on our Broadband Network for capacity from other carriers through the exchange of IRUs. We account for these transactions as an exchange of similar IRUs at historical carryover basis with no revenue, gain or loss recognized.

Property, Plant and Equipment

Our business is capital intensive. We record at cost our telecommunications network assets and other improvements that, in management’s opinion, extend the useful lives of the underlying assets, and depreciate such assets and improvements over their estimated useful lives. Our telecommunications network is highly complex and, due to innovation and enhancements, certain components of the network may lose their utility faster than anticipated. We periodically reassess the economic lives of these components and make adjustments to their expected lives after considering historical experience and capacity requirements, consulting with the vendors, and assessing new product and market demands and other factors. When these factors indicate that network components may not be useful for as long as anticipated, we depreciate their remaining book values over their residual useful lives. The timing and deployment of new technologies could affect the estimated remaining useful lives of our telecommunications network assets, which could have a significant impact on our results of operations in the future.

Impairment of Long-Lived Assets

We periodically review the carrying amounts of our property, plant, and equipment to determine whether current events or circumstances warrant adjustments to the carrying amounts. As part of this review, we analyze the projected undiscounted cash flows associated with our property, plant, and equipment. Considerable management judgment is required in establishing the assumptions necessary to complete this analysis. Although we believe these estimates to be reasonable, they could vary significantly from actual results and our estimates could change based on market conditions. Variances in results or estimates could cause changes to the carrying value of our assets including, but not limited to, recording additional impairment charges for some of these assets in future periods.

Basis for Translation

We maintain our consolidated accounts in U.S. dollars. The accounts of our subsidiaries are maintained in the currencies of the respective countries. The accounts of our subsidiaries are translated from local currency amounts to U.S. dollars. The method of translation is determined by the functional currency of our subsidiaries. A subsidiary’s functional currency is defined as the currency of the primary environment in which a subsidiary operates and is determined based on management’s judgment. When a subsidiary’s accounts are not maintained in the functional currency, the financial statements must be remeasured into the functional currency. This involves remeasuring monetary assets and liabilities using current exchange rates and non-monetary assets and liabilities using historical exchange rates. The adjustments generated by re-measurement are included in our condensed consolidated statements of operations.

When the local currency of a subsidiary is determined to be the functional currency, the statements are translated into U.S. dollars using the current exchange rate method. The adjustments generated by translation using the current exchange rate method are accumulated in an equity account entitled “Accumulated other comprehensive income (loss)” within our condensed consolidated balance sheets.

Tax and Legal Contingencies

We are involved in foreign tax and legal proceedings, claims and litigation arising in the ordinary course of business. We periodically assess our liabilities and contingencies in connection with these matters based upon the latest information available. For those matters where it is probable that we have incurred a loss and the loss or range of loss can be reasonably estimated, we have recorded reserves in our condensed consolidated financial statements. In other instances, because of the uncertainties related to both the probable outcome and amount or range of loss, we are unable to make a reasonable estimate of any liability. As additional information becomes available, we adjust our assessment and estimates of such liabilities accordingly.

In addition, we may be audited by foreign and state (as it relates to our U.S. operations) tax authorities. We provide reserves for potential exposures when we consider it probable that a taxing authority may take a sustainable position on a matter contrary to our position. We evaluate these reserves, including interest thereon, on a quarterly basis to ensure that they have been appropriately adjusted for events that may impact our ultimate payment for such exposures.

Financial Reporting by Entities in Reorganization under the Bankruptcy Code

Our condensed consolidated financial statements have been prepared in accordance with SOP 90-7. Pursuant to SOP 90-7, an objective of financial statements issued by an entity in Chapter 11 is to reflect its financial evolution during the proceeding. For that purpose, the condensed consolidated financial statements for periods including and subsequent to the filing of our Chapter 11 petition should distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of our business. Expenses and other items not directly related to ongoing operations were reflected separately during the first quarter of 2003 in the consolidated statement of operations as reorganization items.

Upon consummation of the Plan, we applied “fresh start” reporting in accordance with GAAP and the requirements of SOP 90-7. Upon the Effective Date, a new capital structure was established and assets and liabilities, other than deferred taxes, were stated at their relative fair values. We recorded a valuation allowance to offset its deferred income tax asset because management cannot conclude that utilization of the tax benefits resulting from operating losses and other temporary differences are “more likely than not” to be realized.

Changes in Policies

These policies, which are those that are most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments, often are a result of the need to make estimates about the effect of matters that are inherently uncertain. We have not made any changes in any of these critical accounting policies during the third quarter of 2004, nor have we made any material changes in any of the critical accounting estimates underlying these accounting policies during 2004.

Period Comparisons

As discussed above, under SOP 90-7 fresh starting reporting, our condensed consolidated financial statements after the Effective Date are those of a new reporting entity (the Successor Company) and certain costs are not comparable to those of our company during pre-Effective Date periods (the Predecessor Company). For purposes of this discussion, where the nine months ended September 30, 2004 are compared to the nine months ended September 30, 2003, the latter combines the six-month period ended September 30, 2003 (for the Successor Company) with the three-month period ended March 31, 2003 (for the Predecessor Company). Differences between periods due to fresh start accounting adjustments are explained when necessary. The lack of comparability in the accompanying unaudited condensed consolidated financial statements is most apparent in our capital costs (interest expense and depreciation and amortization), as well as long-term indebtedness and reorganization items.

Results of Operations

The following table summarizes our results of operations:


	Three Months Ended September 30,										Nine Months Ended September 30,
	2003					2004					Combined Predecessor and Successor Companies 2003					Successor Company 2004
	(in thousands and as a percentage of consolidated revenues)
Net revenues:
Net revenues from services:
Broadband and satellite	$	40,754		72.2	%	$	40,577		70.5	%	$	123,916		73.4	%	$	120,156		71.4	%
Internet		6,199		11.0			6,542		11.3			17,693		10.5			19,242		11.4
Value added services		4,031		7.1			4,270		7.4			12,664		7.5			12,306		7.3
Telephony		4,844		8.6			5,479		9.5			13,546		8.0			15,527		9.3

Total net revenues from services		55,828		98.9			56,868		98.7			167,819		99.4			167,231		99.4
Sales of equipment		611		1.1			722		1.3			1,070		0.6			964		0.6

Total net revenues		56,439		100.0			57,590		100.0			168,889		100.0			168,195		100.0
Direct costs:
Contracted services		4,218		7.5			5,364		9.3			12,869		7.6			14,756		8.8
Other direct costs		5,902		10.5			5,343		9.3			18,466		10.9			14,862		8.8
Leased capacity		16,757		29.7			16,960		29.4			51,722		30.6			48,695		29.0
Cost of equipment sold		245		0.4			571		0.9			401		0.2			747		0.4

Total direct costs		27,122		48.1			28,238		49.0			83,458		49.4			79,060		47.0
Salaries and wages		11,983		21.2			11,961		20.8			34,552		20.5			35,941		21.4
Selling, general and administrative expenses		6,249		11.1			6,254		10.8			18,928		11.2			17,719		10.5
Gain on extinguishment of debt		(5,460	)	(9.7	)		(115	)	(0.2	)		(14,253	)	(8.4	)		(115	)	(0.1	)
Depreciation and amortization		10,312		18.3			11,525		20.0			38,639		22.9			32,246		19.2
Interest expense, net		(4,165	)	(7.4	)		(5,167	)	(9.0	)		(11,184	)	(6.6	)		(14,765	)	(8.8	)
Net (loss) gain on foreign exchange		(3,611	)	(6.4	)		7,159		12.4			27,803		16.5			(2,751	)	(1.6	)
Reorganization items		—		—			—		—			726,127		429.9			—		—
Other (loss) income, net		(894	)	(1.6	)		64		0.1			1,715		1.0			1,353		0.8
Provision for foreign income taxes		(605	)	(1.1	)		(1,108	)	(1.9	)		(1,755	)	(1.0	)		(2,989	)	(1.8	)

Net (loss) income	$	(3,042	)	(5.4	)%	$	675		1.2	%	$	750,271		444.2	%	$	(15,808	)	(9.4	)%

Three and Nine months Ended September 30, 2004 Compared to Three and Nine months Ended September 30, 2003

Revenues. Our total net revenues for the three and nine months ended September 30, 2004 equaled $57.6 million and $168.2 million. This compares to total net revenues of $56.4 million and $168.9 million for the corresponding periods in 2003. Net revenues are composed of net revenues from services and sales of equipment.

Our net revenues from services for the three and nine months ended September 30, 2004 totaled $56.9 million and $167.2 million, an increase of $1.0 million (or 1.9%) and a decrease of $0.6 million (or 0.4%) compared to the corresponding periods in 2003. Our net revenues from services during the third quarter of 2004 included net revenues from:

•

satellite and broadband data transmission services

•

Internet, which is composed of our Internet backbone access and managed modem services

•

data center, including hosting, housing and collocation, services and other value added services, and

•

telephony, including local, national and international long-distance services

The following table shows our revenues from services by business lines for the periods indicated:


	Three Months Ended September 30,						Nine months Ended September 30,
	2003		2004		% change⁽¹⁾		2003		2004		% change⁽¹⁾
	(dollar amounts in thousands)
Broadband and satellite	$	40,754	$	40,577	(0.4	)%	$	123,916	$	120,156	(3.0	)%
Internet		6,199		6,542	5.5			17,693		19,242	8.8
Value added services⁽²⁾		4,031		4,270	5.9			12,664		12,306	(2.8	)
Telephony		4,844		5,479	13.1			13,546		15,527	14.6

Total net revenues from services	$	55,828	$	56,868	1.9		$	167,819	$	167,231	(0.4	)

(1)	Percentage increase (decrease) in relevant period 2004 compared to corresponding period in 2003.

(2)	Includes data center services and systems integration and other information technology services.

The slight increase in our net revenues from services in the three months ended September 30, 2004, as compared to the corresponding period in 2003, was due to increases in revenues from Internet, value added and telephony services, partially offset by decreases in our revenues from broadband and satellite data transmission services.

•

Our revenues from broadband and satellite services decreased because of a reduction in the amount of services contracted by several of our larger customers, partially offset by increases in revenues from new and existing customers.

•

We experienced higher Internet revenues principally because of new customers and expansion of services to existing customers, offset partially by pricing pressure resulting from competition.

•

Our revenues from value added services increased compared to the same period in 2003, principally because of revenues from new customers.

•

Our telephony services revenues increased during the third quarter and first nine months of 2004 as compared to the same periods in 2003 due to (i) our increased delivery during the periods in 2004 of switched voice services to corporate customers in Argentina and international call terminations to end-user customers in Peru, partially offset by a decline in traffic volume and services in the United States; and (ii) the commencement of telephony services in Brazil to our corporate customers, which we started in December 2003.

We had 3,150 customers as of September 30, 2004, compared to 2,808 customers at December 31, 2003 and 2,793 customers at September 30, 2003. During the third quarter of 2004, we gained a net total of 157 customers, including a net increase of 53 customers in Argentina and 18 customers in Brazil. As we expand, the average size of customer, including the average revenues per customer, has decreased. During the third quarter of 2004, we do not believe that we lost any major customers to our competitors. The following table shows the evolution of our customer base as of the dates indicated:


	Number of Customers as of:
	September 30, 2003	December 31, 2003	September 30, 2004	% Change⁽¹⁾		% Change⁽²⁾
IMPSAT Argentina	967	997	1,141	18.0		14.4
IMPSAT Colombia	722	723	765	6.0		5.8
IMPSAT Brazil	391	390	418	6.9		7.2
IMPSAT Venezuela	205	172	180	(12.2	)	4.7
IMPSAT Ecuador	224	229	262	17.0		14.4
IMPSAT Chile	104	108	118	13.5		9.3
IMPSAT Peru	100	106	165	65.0		55.7
IMPSAT USA	71	74	85	19.7		14.9
Other	9	9	16	77.8		77.8

Total	2,793	2,808	3,150	12.8		12.2

(1)	Increase (decrease) as of end of third quarter of 2004 compared to end of third quarter of 2003.

(2)	Increase (decrease) as of end of third quarter of 2004 compared to end of 2003.

In addition to net revenues from services, our total net revenues for the third quarter and first nine months of 2004 included revenues from sales of equipment, which totaled $0.7 million and $1.0 million, respectively. This compares to $0.6 million and $1.1 million for the same periods in 2003. Equipment sales are ancillary to our core business and are generally engaged in by our company only on an opportunistic basis.

The following table shows by operating subsidiary our revenues from services and total revenues (in each case, including intercompany transactions) for the periods indicated:


	Three Months Ended September 30,						Nine months Ended September 30,
	2003		2004		% change⁽¹⁾		2003		2004		% change⁽¹⁾
	(dollar amounts in thousands)
IMPSAT Argentina Services	$	15,298	$	15,693	2.6	%	$	45,226	$	47,463	4.9	%
Sale of equipment		461		522	13.2			841		639	(24.0	)

Total	$	15,759	$	16,215	2.9		$	46,067	$	48,102	4.4

IMPSAT Colombia Services	$	13,423	$	14,235	6.0		$	40,561	$	42,207	4.1
Sale of equipment		58		7	(87.9	)		59		43	(27.1	)

Total	$	13,481	$	14,242	5.6		$	40,620	$	42,250	4.0

IMPSAT Brazil Services	$	8,064	$	8,281	2.7		$	23,188	$	23,332	0.6
Sale of equipment		—		—	—			—		51	100.0

Total	$	8,064	$	8,281	2.7		$	23,188	$	23,383	0.8

IMPSAT Venezuela Services	$	8,709	$	8,227	(5.5	)	$	26,260	$	24,534	(6.6	)
Sale of equipment		23		12	(47.8	)		81		42	(48.1	)

Total	$	8,732	$	8,239	(5.6	)	$	26,341	$	24,576	(6.7	)

IMPSAT Ecuador Services	$	4,209	$	4,407	4.7		$	11,935	$	12,959	8.6
Sale of equipment		—		182	100.0			—		191	100.0

Total	$	4,209	$	4,589	9.0		$	11,935	$	13,150	10.2

IMPSAT Chile Services	$	2,081	$	1,682	(19.2	)	$	6,647	$	5,494	(17.3	)

Total	$	2,081	$	1,682	(19.2	)	$	6,647	$	5,494	(17.3	)

IMPSAT Peru Services	$	3,655	$	3,824	4.6		$	10,371	$	10,678	3.0
Total	$	3,655	$	3,824	4.6		$	10,371	$	10,678	3.0


	Three Months Ended September 30,						Nine months Ended September 30,
	2003		2004		% change⁽¹⁾		2003		2004		% change⁽¹⁾
	(dollar amounts in thousands)
IMPSAT USA
Services	$	7,351	$	6,954	(5.4	)	$	23,175	$	20,860	(10.0	)
Sale of equipment		69		—	(100.0	)		90		—	(100.0	)

Total	$	7,420	$	6,954	(6.3	)	$	23,265	$	20,860	(10.3	)

International Satellite Capacity Holding, Ltd.⁽²⁾
Services	$	3,542	$	2,724	(23.1	)	$	10,836	$	8,344	(23.0	)

Total	$	3,542	$	2,724	(23.1	)	$	10,836	$	8,344	(23.0	)

Other Services	$	241	$	280	16.2		$	1,721	$	747	(56.6	)
Total	$	241	$	280	16.2		$	1,721	$	747	(56.6	)

(1)	Percentage increase (decrease) in relevant period in 2004 compared to corresponding period in 2003.

(2)	This subsidiary’s principal function is to lease private telecommunications capacity from telecommunications carriers and then sublease this capacity at market rates to our operating subsidiaries.

Argentina is our largest market in terms of number of customers and in revenues. After three years of adverse economic conditions that commenced in 1999, in January 2002 the Argentine Government defaulted on its external debt payments and devalued its currency, exacerbating declining commercial confidence and activity and further inflating exorbitant costs of financing for Argentine companies. The economic downturn in Argentina adversely affected many of our customers in that country and caused a number of them to terminate their contracts with us, fail to renew their contracts, reduce the amount of services contracted, or delay their payment of amounts owed to us for services provided. Although Argentina’s economy has shown signs of recovery during 2004, it continues to experience adverse economic conditions and a lack of access to international capital markets. We are unable to predict whether the conditions affecting the Argentine economy will subside or if future economic developments in Argentina will improve in any significant respect, and it is possible that the Argentine economic and political environment could deteriorate. The political and economic conditions in Argentina, our largest country of operation, will continue to materially affect our financial condition and results of operations.

Notwithstanding the economic instability that continues to be present in Argentina, our net revenues at IMPSAT Argentina increased during 2004. Our total net revenues from services at IMPSAT Argentina for the three and nine months ended September 30, 2004 totaled $15.7 million and $47.5 million, an increase of $0.4 million (or 2.6%) and $2.2 million (or 4.9%) compared to the corresponding periods in 2003. Although we anticipate continued small growth in our revenues in Argentina through the remainder of 2004, any devaluation of the Argentine peso could adversely affect our results in that country.

IMPSAT Brazil’s revenues from services for the three and nine months ended September 30, 2004 totaled $8.3 million and $23.3 million, an increase of $0.2 million (or 2.7%) and $0.1 million (or 0.6%) compared to the corresponding periods in 2003. IMPSAT Brazil’s revenues for the third quarter of 2004 increased by $0.6 million, or 7.5%, from the second quarter of 2004. We anticipate continued growth in revenues at IMPSAT Brazil during the fourth quarter of 2004. Future or repeated devaluations of the real, however, could have an adverse effect on IMPSAT Brazil’s and our company’s overall financial condition and results of operations.

In Colombia, we recorded revenues from services of $14.2 million and $42.2 million during the three and nine months ended September 30, 2004, compared to $13.4 million and $40.6 million for the same periods in 2003.

Revenues at IMPSAT Venezuela equaled $8.2 million and $24.6 million for the third quarter and first nine months of 2004, compared to $8.7 million and $26.3 million for the same periods in 2003. Venezuela has experienced and continues to experience political and economic uncertainty following the attempted military coup staged against that country’s President Hugo Chavez during the first weeks of April 2002 and the labor strikes that commenced in December 2002 and

ended two months later. In response to this political and economic turmoil affecting Venezuela, the Venezuelan government imposed foreign exchange and price controls during February 2003, making it difficult for our customers in that country to obtain the U.S. dollars needed to make payments due to us in U.S. dollars on a timely basis. These foreign exchange controls also limit our ability to convert local currency into U.S. dollars and transfer funds out of Venezuela and to obtain U.S. dollars required to purchase needed telecommunications equipment and repair parts. The continuation or worsening of this crisis in Venezuela could have a material adverse effect on IMPSAT Venezuela’s results of operations and financial condition.

Direct Costs. Our direct costs for the three and nine months ended September 30, 2004 totaled $28.2 million and $79.1 million, an increase of $1.1 million (or 4.1%) and a decrease of $4.4 million (or 5.3%) compared to the same periods in 2003. Of our total direct costs for the three and nine months ended September 30, 2004, $9.2 million and $24.9 million related to the operations of IMPSAT Argentina, compared to $9.6 million and $30.7 million for the corresponding periods in 2003. Direct costs for IMPSAT Brazil totaled $4.3 million and $11.5 million for the three and nine months ended September 30, 2004, compared to $4.0 million and $12.3 million for the same periods in 2003. Direct costs of our subsidiaries are described prior to the elimination of intercompany transactions.

(1) Contracted Services. Contracted services costs include costs of maintenance and installation (and de-installation) services provided by outside contractors. During the three and nine months ended September 30, 2004, our contracted services costs totaled $5.4 million and $14.8 million, an increase of $1.1 million (or 27.2%) and $1.9 million (or 14.7%) compared to the same periods in 2003. Of these amounts, maintenance costs for our telecommunications network infrastructure, including the Broadband Network, totaled $3.4 million and $9.8 million for the third quarter and first nine months of 2004, compared to $3.0 million and $9.5 million for the same periods in 2003. Installation costs totaled $2.0 million and $5.0 million for the third quarter and first nine months of 2004, compared to $1.3 million and $3.3 million during the corresponding periods in 2003. Our installation costs increased as a result of an increase in our number of customers and the expansion of our business in the third quarter of 2004.

(2) Other Direct Costs. Other direct costs principally include licenses and other fees; sales commissions paid to our salaried work force and to third-party sales representatives; and our provision for doubtful accounts. We recorded other direct costs of $5.3 million and $14.9 million during the third quarter and first nine months of 2004, a decrease of $0.6 million (or 9.5%) and $3.6 million (or 19.5%) compared to the same periods in 2003.

Sales commissions paid to our salaried work force and to third-party sales representatives for the three and nine months ended September 30, 2004 totaled $1.8 million and $5.0 million, compared to $1.6 million and $4.4 million for the corresponding periods in 2003. The majority of these commissions related to customers of IMPSAT Argentina.

We recorded a net reversal of a provision for doubtful accounts of $1.0 million and $3.1 million for the three and nine months ended September 30, 2004, compared to provisions for doubtful accounts of $0.8 million and $3.4 million for the same periods in 2003. At September 30, 2004, approximately 25.4% of our gross trade accounts receivable were past due more than six months compared to 31.6% at September 30, 2003. The average days in quarterly gross trade accounts receivable decreased from 79 days at September 30, 2003 to 61 days at September 30, 2004. The average days in quarterly net trade accounts receivable decreased from 48 days at September 30, 2003 to 42 days at September 30, 2004.

(3) Leased Capacity. Our leased capacity costs for the three and nine months ended September 30, 2004 totaled $17.0 million and $48.7 million, an increase of $0.2 million (or 1.2%) and decrease of $3.0 million (or 5.9%) from the corresponding periods in 2003. As compared to the second quarter of 2004, leased capacity costs for the third quarter of 2004 increased by $1.0 million, or 6.4%. The increase in total leased capacity costs for the third quarter of 2004 is primarily related to an increase in interconnection and telephony termination costs as a result of the increase in our telephony services in Argentina and Peru and the commencement of such services in Brazil.

Our leased satellite capacity costs for the three and nine months ended September 30, 2004 totaled $5.9 million and $17.7 million, a decrease of $0.6 million (or 9.9%) and $3.2 million (or 15.2%) from the corresponding periods in 2003. In Argentina, our leased satellite capacity costs totaled $1.8 million and $5.5 million for the three and nine months ended September 30, 2004, as compared to $1.6 million and $5.5 million for the same periods in 2003. Our leased satellite capacity costs for IMPSAT Brazil totaled $0.7 million and $2.1 million for the three and nine months ended September 30, 2004, as compared to $0.8 million and $2.6 million for the same periods in 2003. We had approximately 722 MHz of leased satellite capacity at September 30, 2004 and 734 MHz at September 30, 2003.

Our costs for dedicated leased capacity on third-party fiber optic networks totaled $6.1 million and $17.8 million for the third quarter and first nine months of 2004, an increase of $0.1 million (or 2.2%) and $0.4 million (or 2.4%) compared to the corresponding periods in 2003. These costs were incurred principally in Argentina, Colombia and the Brazil. 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 our domestic and international long distance telephony services in Argentina, Peru and Brazil, we incur costs for interconnection and telephony termination (“I&T”) and frequency rights. Our I&T and frequency rights costs totaled $3.7 million and $9.8 million during the third quarter and first nine months of 2004. These totals are composed of $3.1 million and $8.1 million of I&T costs. This compares to $3.5 million and $10.5 million of I&T and frequency rights costs during the third quarter and first nine months of 2003 (composed of $2.6 million and $7.8 million of I&T costs).

(4) Cost of Equipment Sold. In the three and nine months ended September 30, 2004, we incurred costs of equipment sold of $0.6 million and $0.7 million, compared to $0.2 million and $0.4 million for the same periods in 2003.

Salaries and Wages. Salaries and wages for the three and nine months ended September 30, 2004 totaled $12.0 million and $35.9 million, a decrease of $22,000 (or 0.2%) and an increase of $1.4 million (or 4.0%), from the same periods in 2003. Our aggregate number of employees increased slightly from 1,264 at September 30, 2003 to 1,279 at September 30, 2004.

IMPSAT Argentina incurred salaries and wages for the three and nine months ended September 30, 2004 of $2.9 million and $8.9 million, a decrease of $0.6 million (or 15.2%) and $0.2 million (or 2.5%) compared to the same periods in 2003. IMPSAT Argentina had 310 employees as of September 30, 2004 as compared to 300 employees as of September 30, 2003.

IMPSAT Brazil incurred salaries and wages for the three and nine months ended September 30, 2004 of $2.2 million and $6.3 million, a decrease of $0.2 million (or 6.6%) and $0.4 million (or 5.4%) compared to the same periods in 2003. IMPSAT Brazil decreased its number of employees to 193 persons at September 30, 2004, compared to 212 persons at September 30, 2003.

Selling, General and Administrative Expenses. Our SG&A expenses consist principally of:

•

publicity and promotion costs

•

professional fees and other remuneration

•

travel and entertainment

•

rent

•

plant services, insurance, telephone and energy expenses

We incurred SG&A expenses of $6.3 million and $17.7 million for the three and nine months ended September 30, 2004, a decrease of $0.1 million (or 2.2%) and $1.3 million (or 7.1%) compared to the same periods in 2003. The decline in our SG&A expenses for the first nine months of 2004 is due principally to a decrease in insurance premiums, lower travel expenses and lower third-party advisory fees.

SG&A expenses at IMPSAT Argentina for the three and nine months ended September 30, 2004 totaled $1.9 million and $5.3 million, which represented decreases of $0.1 million (or 6.9%) and $0.7 million (or 11.8%), from SG&A expenses incurred by IMPSAT Argentina for the three and nine months ended September 30, 2003. SG&A expenses at IMPSAT Brazil for the three and nine months ended September 30, 2004 totaled $1.0 million and $3.0 million, compared to $0.9 million and $3.1 million for the same periods in 2003.

Gain on Extinguishment of Debt. We recorded a gain on extinguishment of debt of $0.1 million and $0.1 million during the third quarter and first nine months of 2004, compared to $5.5 million and $14.3 million during the corresponding periods in 2003. Our gain on extinguishment of debt during the third quarter of 2004 related to the conversion by a holder of $0.2 million in principal amount of our Series A 6% Senior Guaranteed Notes due 2011 into 16,100 shares of our common stock. The gain from extinguishment of debt during the three- and nine-month periods in 2003 was attributable to our settlement in full of certain of our operating subsidiary vendor financing obligations that were not resolved in connection with our emergence from Chapter 11 in the first quarter of 2003.

Depreciation and Amortization. Our depreciation and amortization expenses for the three months and nine months ended September 30, 2004 totaled $11.5 million and $32.2 million. This represents an increase of $1.2 million (or 11.8%) and a decrease of $6.4 million (or 16.5%) compared to our depreciation and amortization for the corresponding periods in 2003. The decrease in depreciation and amortization for the nine months ended September 30, 2004 as compared to the same period in 2003 is primarily due to the reduction of the dollar value of our depreciable fixed asset base in connection with our Chapter 11 reorganization.

Interest Expense, Net. Our net interest expense for the three months ended September 30, 2004 totaled $5.2 million, consisting of interest expense of $5.4 million and interest income of $0.2 million, compared to net interest expense for the three months ended September 30, 2003 of $4.2 million, consisting of $4.5 million of interest expense and $0.3 million of interest income. Net interest expense for the nine months ended September 30, 2004 totaled $14.8 million, consisting of interest expense of $15.6 million and interest income of $0.9 million, compared to net interest expense of $11.2 million, consisting of $12.1 million in interest expense and $0.9 million in interest income for the same period in 2003. Our quarter over quarter interest expense increased principally because of “payment in kind” accretion on our Senior Series A and B Guaranteed Notes and certain indebtedness of our subsidiaries, which represented $3.4 million and $10.2 million, respectively, of our total interest expense for the three and nine months ended September 30, 2004. Our total indebtedness as of September 30, 2004 was $271.6 million, as compared to $257.5 million as of September 30, 2003. The increase in total outstanding indebtedness is comprised of the accretion of $13.6 million in “payment in kind” interest and net borrowings from short and long- term debt of $0.5 million.

Net (Loss) Gain on Foreign Exchange. We recorded a net gain on foreign exchange for the three months ended September 30, 2004 of $7.2 million and a net loss on foreign exchange for the nine months ended September 30, 2004 of $2.8 million. This compares to net loss on foreign exchange of $3.6 million and net gain on foreign exchange of $27.8 million for the same periods in 2003. The net gain on foreign exchange for the three months ended September 30, 2004 reflects principally the effect of the appreciation during the third quarter of 2004 of the Brazilian real on the book value of our monetary assets and liabilities in Brazil. IMPSAT Argentina recorded a net loss on foreign exchange for the three and nine months ended September 30, 2004 of $0.5 million and $1.1 million, compared to a net gain for the third quarter and the first nine months of 2003 of $0.8 million and $2.0 million.

Reorganization Items. We recorded reorganization items of $726.1 million in connection with our emergence from Chapter 11 on March 25, 2003. See Note 11 to the Condensed Consolidated Financial Statements. No such amounts were recorded for the three and nine months ended September 30, 2004.

Provision for Foreign Income Taxes. For the three and nine months ended September 30, 2004, we recorded a provision for foreign income taxes of $1.1 million and $3.0 million, compared to a provision of $0.6 million and $1.8 million for the same periods in 2003.

Net Income (Loss). For the three months ended September 30, 2004 we recorded net income of $0.7 million, and for the nine months ended September 30, 2004 we recorded a net loss of $15.8 million. This compares to a net loss of $3.0 million and net income of $750.3 million for the same periods in 2003. Our reduced net losses and net income for the periods in 2003 were principally due to the effects of the extraordinary gain on extinguishment of indebtedness pursuant to the Plan (as discussed above under “—Reorganization Items” and “—Gain on Extinguishment of Debt”) and our net income for the third quarter of 2004 related primarily to our net gain on foreign exchange for such period as a result of the effect of the appreciation of the Brazilian real on our monetary assets and liabilities in that country. For the third quarter and first nine months of 2004, we recorded an operating loss of $0.3 million and operating income of $3.3 million, respectively, compared to operating income of $6.2 million and $7.6 million for the same periods in 2003.

Liquidity and Capital Resources

At September 30, 2004, we had total cash and cash equivalents of $57.1 million. This compares to our cash, cash equivalents and trading investments of $64.6 million at September 30, 2003 and $64.0 million as of December 31, 2003.

As of September 30, 2004, approximately $5.1 million of our cash and cash equivalents were held in Venezuelan bolivars by IMPSAT Venezuela (based on the official exchange rate at that date of Bs.1,920 = $1.00). Foreign exchange controls instituted in Venezuela since February 2003 severely limit our ability to repatriate these amounts and any other earnings from our Venezuelan operations. We cannot predict the extent to which we may be affected by future changes in exchange rates and exchange controls in Venezuela. Future devaluations of the Venezuelan bolivar and/or the implementation of stiffer exchange control restrictions in that country could have a material adverse effect on our financial condition and results of operations in Venezuela. See “Quantitative and Qualitative Disclosures About Market Risk – Foreign Currency Risk.”

At September 30, 2004, our total indebtedness was $271.6 million (as compared to $261.2 million at December 31, 2003 and $257.5 million at September 30, 2003). Of this amount, $45.1 million represents the current portion of long-term debt and $226.4 million represents long-term debt. Our estimated cash interest payments for 2005 are $17.9 million. In addition to our requirements for debt service payments, our capital expenditures budget for the fourth quarter of 2004 and the full year of 2005 currently contemplates that we will need approximately $43.0 million (including amounts spent to date). We do not have any significant amounts of new financing committed by any of our vendors or banks at this time.

Although we have emerged from bankruptcy, we remain in default under indebtedness owed to one creditor who voted against the Plan. Under the Plan, the claims of that creditor were contingent obligations arising under guarantees by us of certain primary indebtedness of IMPSAT Argentina. This default, which relates to indebtedness totaling approximately $7.6 million in outstanding principal amount, gives the creditor the right to accelerate such indebtedness and seek immediate repayment of all outstanding amounts and accrued interest thereon. There is no assurance that we will be successful in reaching a definitive agreement with this creditor to reschedule or restructure such obligations. Under those circumstances, IMPSAT Argentina could be forced to seek protection or liquidate under the bankruptcy laws of Argentina.

As set forth in our condensed consolidated statement of cash flows, our operating activities provided $19.4 million in net cash flows for the first nine months of 2004, compared to $25.5 million provided by operating activities during the corresponding period in 2003. The decrease in cash flow provided by operating activities was primarily due to our net loss, offset by a decrease in amortization and depreciation and a net loss on foreign exchange.

For the first nine months of 2004, we used $21.9 million in net cash flows for investing activities, compared to $10.9 million of net cash flows provided by investing activities during the corresponding period in 2003. The increased net cash flows used in investing activities was principally due to purchases of property, plant and equipment needed for the maintenance and expansion of our business. During the first nine months of 2004, we used $1.3 million in net cash flows from financing activities. This compares to $6.3 million in net cash flows used in financing activities during the corresponding period in 2003.

At September 30, 2004, we had leased satellite capacity with annual rental commitments of approximately $16.1 million through the year 2008 under non-cancelable agreements. The company has entered into contracts for the purchase of satellite capacity for approximately $15.0 million through 2015. In addition, at September 30, 2004, we had commitments to purchase telecommunications equipment amounting to approximately $7.7 million. Furthermore, we have leased from third parties a series of terrestrial links for the provision of data, Internet and telephony services to our clients in the different countries in which we operate. We have committed to long term contracts for the purchase of terrestrial links from third parties in Argentina, Colombia, and the United States for approximately $3.2 million per year through 2008. The remainder of the leases are typically under one-year contracts, the early cancellation of which is subject to a fee.

The following table sets forth the due dates of our contractual obligations:


Type of Obligations	2004		2005		2006		2007		2008		Thereafter		Total
	(in thousands)
Short - term debt	$	174											$	174
Long-term debt	$	8,997	$	38,713	$	36,082	$	35,445	$	39,458	$	112,699	$	271,394
Capital lease obligations		—				89		89		89		45		312
Operating leases⁽¹⁾		24,431		24,809		20,013		14,024		10,831		6,481		100,589
Purchase obligations		7,663		—		—		—		—		—		7,663

Total contractual cash obligations	$	41,265	$	63,522	$	56,184	$	49,558	$	50,378	$	119,225	$	380,132

⁽¹⁾	This includes commitments for satellite capacity and terrestrial links.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The sections below highlight our exposure to interest rate and foreign exchange rate risks. 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 September 30, 2004 and assuming that the hypothetical interest rate and foreign exchange rate changes used in the analyses occurred during 2004. We do not hold or issue any market risk sensitive instruments for trading purposes.

Interest Rate Risk. Our cash and cash equivalents consist of highly liquid investments with a maturity of less than 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. At September 30, 2004, our floating rate indebtedness totaled approximately $12.2 million. 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. As of September 30, 2004, a hypothetical 100 basis point increase in the London Interbank Offered Rate (LIBOR) would adversely affect our annual interest cost related to our floating rate indebtedness by approximately $0.1 million annually.


	Expected Maturities at September 30,
	2004			2005			2006			2007			2008			Thereafter			Total			Fair Value
	(dollar amounts in thousands)
Senior Notes (fixed rate)	$	—		$	33,097		$	32,772		$	32,728		$	32,728		$	104,030		$	235,354		$	235,354
Avg. Interest rate		8.46	%		8.46	%		8.46	%		8.46	%		8.46	%		8.46	%		8.46	%		8.46	%

Term Notes (fixed rate)	$	449		$	1,679		$	1,629		$	1,590		$	6,730		$	8,670		$	20,747		$	20,747
Avg. Interest rate		12.21	%		12.21	%		12.21	%		12.21	%		12.21	%		12.21	%		12.21	%		12.21	%

Term Notes (variable rate)	$	265		$	2,693		$	926		$	926			—			—		$	4,810		$	4,810
Avg. Interest rate		3.93	%		3.93	%		3.93	%		3.93	%		—			—			3.93	%		3.93	%
Vendor Financing (variable rate)	$	8,283		$	1,244		$	755		$	201			—			—		$	10,483		$	10,483
Avg. Interest rate		10.83	%		—			—			—			—			—			10.83	%		10.83	%

Foreign Currency Risk. A substantial portion of our costs, including lease payments for certain satellite transponder and fiber optic 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, except in Brazil, generally have provided 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 some exchange rate risk.

During January 2002, Argentina abandoned the fixed dollar-to-peso exchange rate and devalued the Argentine peso and, on February 3, 2002, pursuant to the “pesification” decree, the Argentine government announced the mandatory conversion of all foreign currency denominated contractual obligations governed by Argentine law into Argentine pesos at a rate of one Argentine peso to one U.S. dollar. The floating exchange rate at November 10, 2004 was pesos 2.98 = $1.00. Devaluations of the peso have and will adversely affect IMPSAT Argentina’s results of operations and, in turn, our company’s consolidated results of operations and financial condition. There could occur during the remainder of 2004 increases to our consolidated results that would result from transaction gains or losses on our dollar-denominated monetary assets and liabilities. Potential balance sheet exposures include the reduction to our consolidated stockholders’ equity due to the effects of lower net income on retained earnings. Our management is continuing to assess the impact that the events in Argentina could have on our consolidated results of operations and financial condition.

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. In Brazil, we are permitted to amend the pricing of our services for our long-term telecommunication services contracts with our customers annually based on changes in the consumer price index in Brazil for the prior year. In Argentina, obligations that were mandatorily converted to pesos under the “pesification” decree are to be adjusted pursuant to an index rate based on variations in the Argentine consumer price index. These aspects of the laws in Brazil and Argentina do not eliminate completely the currency exchange risk facing our operations in those countries. Changes in the consumer price indices in Brazil and Argentina may lag or be lower than changes in the exchange rate between the Brazil and Argentine local currency and the U.S. dollar and therefore may not fully allow us to address the impact of a devaluation of those currencies against the U.S. dollar. Also, contracts entered into after the “pesification” decree’s enactment that are initially denominated in pesos are not entitled to be adjusted according to any other consumer or other price index. Accordingly, our operations in Brazil and Argentina have exposed us, and will increase our exposure, to exchange rate risks. At September 30, 2004 , the real traded at a rate of R2.87 = $1.00.

As discussed above, in response to political and economic turmoil currently affecting Venezuela, that country’s government imposed foreign exchange and price controls during February 2003, making it difficult for our customers in Venezuela to obtain the U.S. dollars needed to make payments due to us in U.S. dollars on a timely basis. These foreign exchange controls also limit our ability to convert local currency into U.S. dollars and transfer funds out of Venezuela. As of September 30, 2004, approximately $5.1 million of our cash and cash equivalents were held in Venezuelan bolivars by IMPSAT Venezuela. At December 31, 2002, the bolivar traded at a rate of Bs.1,392 = $1.00, at December 31, 2003, it traded at a rate of Bs.1,600.00 = $1.00, and at September 30, 2004, it traded at the rate of approximately Bs.1,920 = $1.00. On February 6, 2003, the Venezuelan government set a single fixed exchange rate for the bolivar against the U.S. dollar of approximately Bs.1,600 = $1.00 as part of the new currency controls. If the U.S. dollar value of our cash and cash equivalents denominated in bolivars were to decline as a result of the devaluation of the bolivar prior to the time when we were permitted to repatriate these funds, we would recognize a loss.

Net revenues from services from our Argentine operations for the three months ended September 30, 2004 and 2003 represented approximately 27.6% and 27.4% of our total net revenues from services for such periods. Net revenues from services from our Brazilian operations for the three months ended September 30, 2004 and 2003 represented approximately 14.6% and 14.4% of our total net revenues from services for such periods. Our net revenues from services in Venezuela accounted for 14.5% and 15.6% of our total revenues from services for the three months ended September 30, 2004 and 2003.

Item 4. Controls and Procedures

An evaluation was performed under the supervision and with the participation of the management of IMPSAT Fiber Networks, Inc. (“IMPSAT”), including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of IMPSAT’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of September 30, 2004. Based upon that evaluation, the CEO and CFO concluded that these disclosure controls and procedures were effective as of September 30, 2004. There were no changes in IMPSAT’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the fiscal quarter covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

Exhibit Index:


Exhibit No.		Description
3.1		Restated Certificate of Incorporation of the Company (filed on March 26, 2003 as Exhibit No. 2.1 to the Company’s Amendment No. 1 to Registration Statement on Form 8-A and incorporated herein by reference).

3.2		Restated Bylaws of the Company (filed on March 26, 2003 as Exhibit No. 2.2 to the Company’s Amendment No. 1 to Registration Statement on Form 8-A and incorporated herein by reference).

4.1		Indenture for the Company’s 6% Senior Guaranteed Convertible Notes due 2011 – Series A, dated as of March 25, 2003, among the Company, The Bank of New York, as trustee and IMPSAT Argentina, as guarantor (including form of Note) (filed on April 15, 2003 as Exhibit 4.1 to the Company’s 2002 Annual Report on Form 10-K and incorporated herein by reference).

4.2		Indenture for the Company’s 6% Senior Guaranteed Convertible Notes due 2011 – Series B, dated as of March 25, 2003, among the Company, The Bank of New York, as trustee and IMPSAT Argentina, as guarantor (including form of Note) (filed on April 15, 2003 as Exhibit 4.2 to the Company’s 2002 Annual Report on Form 10-K and incorporated herein by reference).

4.3		Disclosure Statement Under Chapter 11 of the Bankruptcy Code (filed on December 19, 2002 as Exhibit No. 99.2 to the Company’s Current Report on Form 8-K, and incorporated herein by reference).

4.4		Plan of Reorganization of the Company Under Chapter 11 of the Bankruptcy Code (filed on December 19, 2002 as Exhibit No. 99.3 to the Company’s Current Report on Form 8-K, and incorporated herein by reference).

4.5		Order Confirming the Company’s Plan of Reorganization Under Chapter 11 of the Bankruptcy Code dated December 16, 2002 (filed on December 19, 2002 as Exhibit 99.1 to the Company’s Current Report on Form 8-K, and incorporated herein by reference).

4.6		Registration Rights Agreement among the Company, IMPSAT Argentina and the security holders party thereto, dated as of March 25, 2003 (filed on April 15, 2003 as Exhibit 4.6 to the Company’s 2002 Annual Report on Form 10-K and incorporated herein by reference).

4.7		Specimen Common Stock Certificate (filed on March 26, 2003 as Exhibit No. 2.6 to the Company’s Amendment No. 1 to Registration Statement on Form 8-A and incorporated herein by reference).

4.8		Warrant Agreement between the Company and The Bank of New York, as warrant agent, dated as of March 25, 2003 (including form of Warrant) (filed on April 15, 2003 as Exhibit 4.8 to the Company’s 2002 Annual Report on Form 10-K and incorporated herein by reference).

9.1		2003 Stock Incentive Plan (filed on April 15, 2003 as Exhibit 9.1 to the Company’s 2002 Annual Report on Form 10-K and incorporated herein by reference).


Exhibit No.		Description
10.1		Amended and Restated Financing Agreement among IMPSAT Argentina, Nortel Networks Limited, and Deutsche Bank Trust Company Americas and the Lenders party thereto, dated as of March 25, 2003 (filed on April 15, 2003 as Exhibit 10.4 to the Company’s 2002 Annual Report on Form 10-K and incorporated herein by reference). In accordance with Instruction 2 to Item 601 of Regulation S-K, the following agreement was not filed as exhibits because they are substantially identical in all material respects to Exhibit 10.1: Amended and Restated Financing Agreement between IMPSAT Brazil and Nortel Networks Limited, dated as of March 25, 2003.

10.2		Employment Agreement between Ricardo A. Verdaguer and the Company dated as of March 25, 2003 (filed on August 14, 2003 as Exhibit 10.5 to the Company’s second quarter 2003 Quarterly Report on Form 10Q and incorporated herein by reference).

10.3		Employment Agreement between Hector R. Alonso and the Company dated as of March 25, 2003 (filed on August 14, 2003 as Exhibit 10.6 to the Company’s second quarter 2003 Quarterly Report on Form 10Q and incorporated herein by reference).

10.4		Letter Agreement between Marcelo Girotti and the Company dated March 25, 2003 (filed on August 14, 2003 as Exhibit 10.7 to the Company’s second quarter 2003 Quarterly Report on Form 10Q and incorporated herein by reference). In accordance with Instruction 2 to Item 601 of Regulation S-K, the following agreements were not filed as exhibits because they are substantially identical in all material respects to Exhibit 10.4: Letter Agreement between Mariano Torre Gomez and the Company dated March 25, 2003; Letter Agreement between Matias Heinrich and the Company dated March 25, 2003; Letter Agreement between Alexander Rivelis and the Company dated March 25, 2003.

21.1		List of subsidiaries of the registrants (incorporated by reference to the “Business — General” section of the Company’s 2003 Annual Report on Form 10-K and incorporated herein by reference).

31.1		Certification by the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2		Certification by the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1		Certification by the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.2		Certification by the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant 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, in the capacity and on the date indicated.


IMPSAT Fiber Networks, Inc.

By:		/s/ Héctor Alonso
		Héctor Alonso
		Chief Financial Officer

Date:		November 15, 2004