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 December 26, 2003
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 1-15475
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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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 February 4, 2004, the registrant had the following number of shares outstanding:
Class A common stock: 161,403,358
Class B common stock: 301,473,292
INFONET SERVICES CORPORATION
FORM 10-Q FOR THE QUARTER ENDED DECEMBER 26, 2003
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INFONET SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except per Share Amounts)
| March 31, 2003 |
December 31, 2003 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ | 146,730 | $ | 139,189 | ||||
| Short-term investments |
282,249 | 271,494 | ||||||
| Accounts receivable, net |
139,981 | 140,151 | ||||||
| Deferred income taxes |
1,266 | 1,528 | ||||||
| Prepaid expenses |
24,243 | 21,370 | ||||||
| Other current assets |
22,576 | 24,835 | ||||||
| Total current assets |
617,045 | 598,567 | ||||||
| Property, Equipment And Communication Lines, Net |
423,524 | 409,226 | ||||||
| Intangible And Other Assets, Net |
54,158 | 58,360 | ||||||
| Total Assets |
$ | 1,094,727 | $ | 1,066,153 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: |
||||||||
| Current portion of capital lease obligations |
$ | 2,151 | $ | 1,465 | ||||
| Accounts payable |
41,103 | 38,130 | ||||||
| Network communications |
26,812 | 39,927 | ||||||
| Accrued salaries and related benefits |
24,914 | 20,574 | ||||||
| Income taxes payable |
9,894 | 9,437 | ||||||
| Advance billings |
25,837 | 32,837 | ||||||
| Deferred installation revenues |
11,493 | 12,880 | ||||||
| Other accrued expenses |
27,425 | 31,684 | ||||||
| Total current liabilities |
169,629 | 186,934 | ||||||
| Deferred Revenue |
17,358 | 19,602 | ||||||
| Deferred Compensation |
19,369 | 21,277 | ||||||
| Capital Lease Obligations, Less Current Portion |
4,081 | 3,037 | ||||||
| Minority Interest |
1,612 | 1,474 | ||||||
| Commitments and Contingencies |
||||||||
| Stockholders’ Equity: |
||||||||
| Class A common stock, $0.01 par value per share: |
||||||||
| 400,000 shares authorized; 364,160 shares issued; 161,403 shares outstanding; and 202,757 shares held in treasury |
66,078 | 66,078 | ||||||
| Class B common stock $0.01 par value per share: |
||||||||
| 600,000 shares authorized; 311,577 and 312,356 shares issued as of March 31, 2003 and December 31, 2003; 304,192 and 301,163 shares outstanding as of March 31, 2003 and December 31, 2003; 7,385 and 11,193 shares held in treasury as of March 31, 2003 and December 31, 2003 |
1,190,002 | 1,198,956 | ||||||
| Treasury stock, at cost, 210,142 and 213,950 shares as of March 31, 2003 and December 31, 2003 |
(136,017 | ) | (142,655 | ) | ||||
| Notes receivable from issuance of common stock |
(8,736 | ) | (7,274 | ) | ||||
| Accumulated deficit |
(225,753 | ) | (283,255 | ) | ||||
| Accumulated other comprehensive (loss) income |
(2,896 | ) | 1,979 | |||||
| Total stockholders’ equity |
882,678 | 833,829 | ||||||
| Total Liabilities and Stockholders’ Equity |
$ | 1,094,727 | $ | 1,066,153 | ||||
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 December 31, |
Nine Months Ended December 31, |
|||||||||||||||
| 2002 |
2003 |
2002 |
2003 |
|||||||||||||
| Services Revenues, Net |
$ | 141,588 | $ | 151,085 | $ | 431,710 | $ | 451,430 | ||||||||
| Management Contract Incentive Fee |
56,706 | — | 56,706 | — | ||||||||||||
| Total revenues |
198,294 | 151,085 | 488,416 | 451,430 | ||||||||||||
| Operating Costs and Expenses: |
||||||||||||||||
| Communication services costs |
23,291 | 22,736 | 77,113 | 69,877 | ||||||||||||
| Integration and provisioning costs |
44,919 | 53,313 | 124,126 | 159,575 | ||||||||||||
| Bandwidth and related costs |
28,015 | 25,743 | 120,915 | 78,483 | ||||||||||||
| Network operations |
33,524 | 32,336 | 87,272 | 93,417 | ||||||||||||
| Selling, general and administrative |
36,268 | 40,901 | 113,919 | 111,062 | ||||||||||||
| Total operating costs and expenses |
166,017 | 175,029 | 523,345 | 512,414 | ||||||||||||
| Operating Income (Loss) |
32,277 | (23,944 | ) | (34,929 | ) | (60,984 | ) | |||||||||
| Other Income (Expense): |
||||||||||||||||
| Interest income |
3,254 | 2,147 | 11,177 | 6,452 | ||||||||||||
| Interest expense |
(1,773 | ) | (124 | ) | (6,216 | ) | (452 | ) | ||||||||
| Equity in earnings of unconsolidated affiliates |
(659 | ) | (925 | ) | (1,641 | ) | (2,472 | ) | ||||||||
| Other, net |
(1,886 | ) | 2,178 | 1,267 | 1,104 | |||||||||||
| Total other (expense) income, net |
(1,064 | ) | 3,276 | 4,587 | 4,632 | |||||||||||
| Income (Loss) Before Provision (Credit) For Income Taxes and Minority Interest |
31,213 | (20,668 | ) | (30,342 | ) | (56,352 | ) | |||||||||
| Provision (Credit) For Income Taxes |
12,945 | (314 | ) | (6,244 | ) | 985 | ||||||||||
| Income (Loss) Before Minority Interest |
18,268 | (20,354 | ) | (24,098 | ) | (57,337 | ) | |||||||||
| Minority Interest |
39 | 163 | 310 | 165 | ||||||||||||
| Net Income (Loss) |
18,229 | (20,517 | ) | (24,408 | ) | (57,502 | ) | |||||||||
| Other Comprehensive Income (Loss): |
||||||||||||||||
| Foreign currency translation adjustments |
1,726 | 3,927 | 5,686 | 6,784 | ||||||||||||
| Unrealized gains on securities, net of income tax in 2002 |
267 | (945 | ) | 1,095 | (1,909 | ) | ||||||||||
| Unrealized gain (loss) on derivative instruments, net of income tax in 2002 |
690 | — | (1,031 | ) | — | |||||||||||
| Total other comprehensive income, net |
2,683 | 2,982 | 5,750 | 4,875 | ||||||||||||
| Comprehensive Income (Loss) |
$ | 20,912 | $ | (17,535 | ) | $ | (18,658 | ) | $ | (52,627 | ) | |||||
| Basic and Diluted Earnings (Loss) Per Common Share |
$ | 0.04 | $ | (0.04 | ) | $ | (0.05 | ) | $ | (0.12 | ) | |||||
| Basic Weighted Average Number of Common Shares Outstanding |
468,240 | 463,002 | 469,634 | 463,926 | ||||||||||||
| Diluted Weighted Average Number of Common Shares Outstanding |
468,436 | 463,002 | 469,634 | 463,926 | ||||||||||||
See accompanying notes to consolidated financial statements.
3
INFONET SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
| Nine Months Ended December 31, |
||||||||
| 2002 |
2003 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net loss |
$ | (24,408 | ) | $ | (57,502 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
57,503 | 58,563 | ||||||
| Amortization of debt acquisition costs |
2,103 | — | ||||||
| Equity in earnings of unconsolidated affiliates |
1,641 | 2,472 | ||||||
| Write-off of communication lines |
40,757 | — | ||||||
| Stock-based compensation charge |
9,980 | 8,093 | ||||||
| Loss (gain) on disposal of property, equipment and communication lines |
335 | (545 | ) | |||||
| Premium amortization on marketable securities |
3,883 | 3,644 | ||||||
| Realized gain on marketable securities |
(1,648 | ) | (714 | ) | ||||
| Write-off of note receivable |
— | 612 | ||||||
| Deferred income taxes |
(13,236 | ) | (263 | ) | ||||
| Minority interest |
250 | 164 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable, net |
24,732 | 4,332 | ||||||
| Prepaid expenses |
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