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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 July 2, 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 1-15475

 

 

LOGO

 

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

(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 August 6, 2004, the registrant had the following number of shares outstanding:

 

Class A common stock: 161,403,358

 

Class B common stock: 304,080,922

Table of Contents

INFONET SERVICES CORPORATION

 

TABLE OF CONTENTS

 

          Page No.

Item No.

          

PART I

    
Item 1.    Financial Statements (Unaudited)    1
Item 2.   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

    14
Item 3.    Quantitative and Qualitative Disclosures About Market Risk    22
Item 4.    Controls and Procedures    23

PART II

    
Item 1.    Legal Proceedings    24
Item 2.    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities    24
Item 3.    Defaults Upon Senior Securities    24
Item 4.    Submission of Matters to a Vote of Security Holders    24
Item 5.    Other Information    24
Item 6.    Exhibits and Reports on Form 8-K    24

 

i

Table of Contents

PART I

 

FINANCIAL INFORMATION

 

Item 1.    Financial Statements

 

INFONET SERVICES CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except per Share Amounts)

 

     March 31,
2004
    

June 30,

2004

  
           (Unaudited)  

ASSETS

                 

CURRENT ASSETS:

                 

Cash and cash equivalents

    $ 137,071     $ 172,362  

Short-term investments

      256,527       206,885  

Accounts receivable, net

      143,417       128,659  

Deferred income taxes

      740       152  

Prepaid expenses

      35,282       33,201  

Other current assets

      17,576       17,958  
    
 

Total current assets

      590,613       559,217  

PROPERTY, EQUIPMENT AND COMMUNICATION LINES, Net

      408,658       402,137  

INTANGIBLE AND OTHER ASSETS, Net

      59,036       60,543  
    
 

TOTAL ASSETS

    $ 1,058,307     $ 1,021,897  
    
 

LIABILITIES AND STOCKHOLDERS’ EQUITY

                 

CURRENT LIABILITIES:

                 

Current portion of capital lease obligations

    $ 1,448     $ 1,450  

Accounts payable

      56,959       41,073  

Network communications

      23,795       27,113  

Accrued salaries and related benefits

      24,992       16,425  

Income taxes payable

      6,722       5,509  

Advance billings

      31,507       32,408  

Deferred installation revenues

      13,882       14,316  

Other accrued expenses

      27,183       27,910  
    
 

Total current liabilities

      186,488       166,204  
    
 

DEFERRED REVENUE

      21,351       21,541  
    
 

DEFERRED COMPENSATION

      19,775       20,643  
    
 

CAPITAL LEASE OBLIGATIONS, Less Current Portion

      2,660       2,287  
    
 

MINORITY INTEREST

      1,491       1,636  
    
 

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, 2004 and June 30, 2004; 161,403 shares outstanding as of March 31, 2004 and June 30, 2004; 202,757 shares held in treasury as of March 31, 2004 and June 30, 2004

      66,078       66,078  

Class B common stock $0.01 par value per share:
600,000 shares authorized; 312,876 and 315,260 shares issued as of March 31, 2004 and June 30, 2004; 301,683 and 304,067 shares outstanding as of March 31, 2004 and June 30, 2004; 11,193 shares held in treasury as of March 31, 2004 and June 30, 2004

      1,199,486       1,203,348  

Treasury stock, at cost, 213,950 shares as of March 31, 2004 and June 30, 2004

      (142,727 )     (142,727 )

Deferred compensation on restricted stock

      —         (2,816 )

Notes receivable from issuance of common stock

      (7,334 )     (7,424 )

Accumulated deficit

      (292,317 )     (308,084 )

Accumulated other comprehensive income

      3,356       1,211  
    
 

Total stockholders’ equity

      826,542       809,586  
    
 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

    $ 1,058,307     $ 1,021,897  
    
 

 

See accompanying notes to consolidated financial statements.

 

1

Table of Contents

INFONET SERVICES CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In Thousands, Except per Share Amounts)

(Unaudited)

 

    

Three Months Ended

June 30,

  
     2003
     2004
  

REVENUES, Net

    $ 149,063     $ 157,584  
    
 

OPERATING COSTS AND EXPENSES:

                 

Communication services costs

      21,513       20,613  

Integration and provisioning costs

      54,191       59,332  

Bandwidth and related costs

      26,698       22,185  

Network operations

      30,666       31,474  

Selling, general and administrative

      35,565       39,622  
    
 

Total operating costs and expenses

      168,633       173,226  
    
 

OPERATING LOSS

      (19,570 )     (15,642 )
    
 

OTHER INCOME (EXPENSE):

                 

Interest income

      2,132       1,784  

Interest expense

      (126 )     (84 )

Equity in losses of unconsolidated affiliates

      (739 )     (796 )

Other, net

      (933 )     (166 )
    
 

Total other income, net

      334       738  
    
 

LOSS BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTEREST

      (19,236 )     (14,904 )

PROVISION FOR INCOME TAXES

      644       619  
    
 

LOSS BEFORE MINORITY INTEREST

      (19,880 )     (15,523 )

MINORITY INTEREST

      (82 )     244  
    
 

NET LOSS

      (19,798 )     (15,767 )
    
 

OTHER COMPREHENSIVE INCOME (LOSS):

                 

Foreign currency translation adjustments

      2,615       (557 )

Unrealized losses on securities, net of tax

      (59 )     (1,588 )
    
 

Total other comprehensive income (loss)

      2,556       (2,145 )
    
 

COMPREHENSIVE LOSS

    $ (17,242 )   $ (17,912 )
    
 

BASIC AND DILUTED LOSS PER COMMON SHARE

    $ (0.04 )   $ (0.03 )
    
 

BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

      464,775       463,133  
    
 

DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

      464,775       463,133  
    
 

 

See accompanying notes to consolidated financial statements.

 

2

Table of Contents

INFONET SERVICES CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

 

         Three Months Ended    
June 30,
  
     2003
     2004
  

CASH FLOWS FROM OPERATING ACTIVITIES:

                 

Net loss

    $ (19,798 )   $ (15,767 )

Adjustments to reconcile net loss to net cash provided by operating activities:

                 

Depreciation and amortization

      19,562       21,673  

Equity in losses of unconsolidated affiliates

      739       796  

Stock-based compensation charge

      2,779       230  

Loss on disposal of property, equipment and communication lines

      499       43  

Premium amortization on marketable securities

      1,262       1,127  

Realized (gain) loss on marketable securities

      (136 )     26  

Deferred income taxes

      (114 )     587  

Minority interest

      (82 )     244  

Changes in operating assets and liabilities:

                 

Accounts receivable, net

      3,855       14,380  

Prepaid expenses

      (2,374 )     2,012  

Other current assets

      236       47  

Accounts payable

      (909 )     (13,094 )

Network communications

      4,031       376  

Accrued salaries and related benefits

      (7,667 )     (8,538 )

Income taxes payable

      (356 )     (1,150 )

Advance billings

      3,518       900  

Other accrued expenses

      861       462  

Deferred compensation

      85       922  

Purchases of trading securities

      (3,195 )     (2,166 )

Proceeds from sale of trading securities

      2,360       2,157  

Other operating activities

      (327 )     58  
    
 

Net cash provided by operating activities

      4,829       5,325  
    
 

CASH FLOWS FROM INVESTING ACTIVITIES:

                 

Purchases of property, equipment and communication lines

      (16,790 )     (13,981 )

Purchases of securities available-for-sale

      (85,693 )     (8,446 )

Proceeds from sales of securities available-for-sale

      69,912       20,097  

Maturities of securities available-for-sale

      6,198       35,250  

Investments in unconsolidated affiliates

      (1,000 )     —    

Additional consideration in business acquisition

      —         (3,000 )

Other investing activities

      (14 )     —    
    
 

Net cash (used in) provided by investing activities

      (27,387 )     29,920  
    
 

 

(Table continued on following page)

 

3

Table of Contents

INFONET SERVICES CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

(In Thousands)

(Unaudited)

 

         Three Months Ended    
June 30,
  
     2003
     2004
  

CASH FLOWS FROM FINANCING ACTIVITIES:

                 

Repayments of capital lease obligations

    $ (707 )   $