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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 10-Q
 
(Mark One)
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2002
 
OR
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________ to __________
 
Commission file number 333-88799
 

 
INFONET SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
 
Delaware
 
95-4148675
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
2160 East Grand Avenue, El Segundo, California
(Address of principal executive offices)
 
90245-1022
(Zip Code)
 
(310) 335-2600
(Registrant’s telephone number, including area code)
 

 
(Former name, former address and former fiscal year, if changed since last report)
 
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 ¨
 
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 under Sections 12, 13 or 15(d) of the Securities Exchange of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes ¨    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 August 9, 2002, the registrant had the following number of shares outstanding:
 
Class A common stock: 161,403,358
Class B common stock: 308,276,453
 


PART I
 
ITEM 1.    FINANCIAL STATEMENTS
 
INFONET SERVICES CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except per Share Amounts)
 
    
March 31, 2002

    
June 30,
2002

 
           
(Unaudited)
 
ASSETS
                 
Current Assets:
                 
Cash and cash equivalents
  
$
147,180
 
  
$
150,020
 
Short-term investments
  
 
370,591
 
  
 
363,180
 
Accounts receivable, net
  
 
130,748
 
  
 
118,772
 
Deferred income taxes
  
 
24,773
 
  
 
40,750
 
Prepaid expenses
  
 
20,721
 
  
 
20,418
 
Other current assets
  
 
33,650
 
  
 
26,182
 
    


  


Total current assets
  
 
727,663
 
  
 
719,322
 
    


  


Property, Equipment And Communication Lines, Net
  
 
494,401
 
  
 
444,496
 
Deferred Income Taxes
  
 
142,699
 
  
 
140,650
 
Intangible And Other Assets, Net
  
 
45,376
 
  
 
55,847
 
    


  


Total Assets
  
$
1,410,139
 
  
$
1,360,315
 
    


  


LIABILITIES AND STOCKHOLDERS’ EQUITY
                 
Current Liabilities:
                 
Current portion of long-term obligations
  
$
10,315
 
  
$
11,213
 
Current portion of capital lease obligations
  
 
2,727
 
  
 
2,747
 
Accounts payable
  
 
51,185
 
  
 
46,340
 
Network communications
  
 
24,927
 
  
 
15,480
 
Accrued salaries and related benefits
  
 
18,947
 
  
 
15,652
 
Income taxes payable
  
 
4,669
 
  
 
4,665
 
Advance billings
  
 
26,996
 
  
 
25,522
 
Deferred installation revenues
  
 
10,714
 
  
 
10,752
 
Other accrued expenses
  
 
19,440
 
  
 
24,076
 
    


  


Total current liabilities
  
 
169,920
 
  
 
156,447
 
    


  


Deferred Revenue And Compensation
  
 
35,849
 
  
 
34,576
 
Capital Lease Obligations
  
 
6,227
 
  
 
5,525
 
Long Term Obligations
  
 
98,902
 
  
 
95,282
 
Minority Interest
  
 
1,450
 
  
 
1,517
 
Commitments and Contingencies
                 
Stockholders’ Equity:
                 
Class A common stock, $0.01 par value per share:
                 
400,000 shares authorized; 364,160 shares issued as of March 31, 2002 and June 30, 2002 and 161,403 shares outstanding as of March 31, 2002 and June 30, 2002; 202,757 shares held in treasury
  
 
66,078
 
  
 
66,078
 
Class B common stock $0.01 par value per share:
                 
600,000 shares authorized, 310,287 and 310,883 shares issued as of March 31, 2002 and June 30, 2002; 309,116 and 308,594 shares outstanding as of March 31, 2002 and June 30, 2002; 1,171 and 2,289 shares held in treasury as of March 31, 2002 and June 30, 2002
  
 
1,174,577
 
  
 
1,179,375
 
Treasury stock, at cost, 203,928 and 205,046 shares as of March 31, 2002 and June 30, 2002
  
 
(123,753
)
  
 
(126,112
)
Notes receivable from issuance of common stock
  
 
(8,577
)
  
 
(8,591
)
Accumulated deficit
  
 
(5,827
)
  
 
(42,247
)
Accumulated other comprehensive loss
  
 
(4,707
)
  
 
(1,535
)
    


  


Total stockholders’ equity
  
 
1,097,791
 
  
 
1,066,968
 
    


  


Total Liabilities and Stockholders’ Equity
  
$
1,410,139
 
  
$
1,360,315
 
    


  


 
See accompanying notes to consolidated financial statements.

2


INFONET SERVICES CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In Thousands, Except per Share Amounts)
(Unaudited)
 
    
Three Months Ended June 30,

 
    
2001

    
2002

 
Revenues, Net
  
$
171,854
 
  
$
147,307
 
    


  


Expenses:
                 
Country representative compensation
  
 
61,439
 
  
 
38,215
 
Bandwidth and related costs
  
 
29,460
 
  
 
69,139
 
Network operations
  
 
25,623
 
  
 
26,533
 
Selling, general and administrative
  
 
55,215
 
  
 
68,046
 
    


  


Total expenses
  
 
171,737
 
  
 
201,933
 
    


  


Operating Income (Loss)
  
 
117
 
  
 
(54,626
)
    


  


Other Income (Expense):
                 
Interest income
  
 
8,404
 
  
 
4,322
 
Interest expense
  
 
(2,990
)
  
 
(2,269
)
Other, net
  
 
(288
)
  
 
3,016
 
    


  


Total other income, net
  
 
5,126
 
  
 
5,069
 
    


  


Income (Loss) Before Provision (Credit) For Income Taxes And Minority Interest
  
 
5,243
 
  
 
(49,557
)
Provision (Credit) For Income Taxes
  
 
2,390
 
  
 
(13,204
)
    


  


Income (Loss) Before Minority Interest
  
 
2,853
 
  
 
(36,353
)
Minority Interest
  
 
323
 
  
 
67
 
    


  


Net Income (Loss)
  
 
2,530
 
  
 
(36,420
)
    


  


Other Comprehensive Income (Loss):
                 
Foreign currency translation adjustments
  
 
(811
)
  
 
3,675
 
Unrealized gains (losses) on securities, net of tax
  
 
(640
)
  
 
290
 
Cumulative effect of accounting change, net of tax
  
 
(544
)
  
 
—  
 
Unrealized gain (loss) on derivative instrument, net of tax
  
 
156
 
  
 
(793
)
    


  


Total other comprehensive income (loss), net
  
 
(1,839
)
  
 
3,172
 
    


  


Comprehensive Income (Loss)
  
$
691
 
  
$
(33,248
)
    


  


Basic And Diluted Earnings (Loss) Per Common Share
  
$
0.01
 
  
$
(0.08
)
    


  


Basic Weighted Average Number Of Common Shares Outstanding
  
 
470,762
 
  
 
469,922
 
Diluted Weighted Average Number Of Common Shares Outstanding
  
 
472,207
 
  
 
469,922
 
 
See accompanying notes to consolidated financial statements.

3


INFONET SERVICES CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 
    
Three Months Ended June 30,

 
    
2001

    
2002

 
CASH FLOWS FROM OPERATING ACTIVITIES:
                 
Net income (loss)
  
$
2,530
 
  
$
(36,420
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
                 
Depreciation and amortization
  
 
17,527
 
  
 
19,724
 
Amortization of debt acquisition costs
  
 
182
 
  
 
189
 
Write-off of communication lines
  
 
—  
 
  
 
40,757
 
Stock-based compensation charge
  
 
4,200
 
  
 
3,777
 
(Gain)/loss on disposal of property, equipment and communication lines
  
 
(3
)
  
 
5
 
(Discount) Premium amortization on marketable securities
  
 
(563
)
  
 
1,310
 
Realized gain on marketable securities
  
 
(363
)
  
 
(1,063
)
Deferred income taxes
  
 
786
 
  
 
(13,614
)
Minority interest
  
 
323
 
  
 
67
 
Changes in operating assets and liabilities:
                 
Accounts receivable, net
  
 
12,567
 
  
 
14,596
 
Prepaid expenses
  
 
(2,319
)
  
 
377
 
Other current assets
  
 
(660
)
  
 
7,341
 
Accounts payable
  
 
8,833
 
  
 
(9,965
)
Network communications
  
 
2,832
 
  
 
(7,580
)
Accrued salaries and related benefits
  
 
(3,347
)
  
 
(3,868
)
Income taxes payable
  
 
(2,219
)
  
 
(385
)
Advance billings
  
 
193
 
  
 
(1,472
)
Other accrued expenses
  
 
304
 
  
 
3,351
 
Deferred revenue and compensation
  
 
1,154
 
  
 
(218
)
Purchases of trading securities
  
 
(4,561
)
  
 
(1,786
)
Proceeds from sales of trading securities
  
 
4,386
 
  
 
1,301
 
Other operating activities
  
 
(46
)
  
 
172
 
    


  


Net cash provided by operating activities
  
 
41,736
 
  
 
16,596
 
    


  


CASH FLOWS FROM INVESTING ACTIVITIES:
                 
Purchases of property, equipment and communication lines
  
 
(75,389
)
  
 
(12,515
)
Proceeds from sale of property, equipment and communication lines
  
 
102
 
  
 
—  
 
Purchases of securities available-for-sale
  
 
(61,543
)
  
 
(93,940
)