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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 December 31, 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 February 4, 2005, the registrant had the following number of shares outstanding:

 

Class A common stock: 161,403,358

 

Class B common stock: 307,385,849

 

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    15

Item 3.

    Quantitative and Qualitative Disclosures About Market Risk    26

Item 4.

    Controls and Procedures    27
PART II     

Item 1.

    Legal Proceedings    29

Item 2.

    Unregistered Sales of Equity Securities and Use of Proceeds    29

Item 3.

    Defaults Upon Senior Securities    29

Item 4.

    Submission of Matters to a Vote of Security Holders    29

Item 5.

    Other Information    29

Item 6.

    Exhibits    29

 

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

    

December 31,

2004

  
           (Unaudited)  

ASSETS

                 

CURRENT ASSETS:

                 

Cash and cash equivalents

    $ 137,071     $ 168,620  

Short-term investments

      256,527       238,368  

Accounts receivable, net

      143,417       116,989  

Deferred income taxes

      740       244  

Prepaid expenses

      35,282       27,021  

Other current assets

      17,576       18,716  
    
 

Total current assets

      590,613       569,958  

PROPERTY, EQUIPMENT AND COMMUNICATION LINES, Net

      408,658       376,771  

INTANGIBLE AND OTHER ASSETS, Net

      59,036       60,360  
    
 

TOTAL ASSETS

    $ 1,058,307     $ 1,007,089  
    
 

LIABILITIES AND STOCKHOLDERS’ EQUITY

                 

CURRENT LIABILITIES:

                 

Current portion of capital lease obligations

    $ 1,448     $ 1,516  

Accounts payable

      56,959       36,977  

Network communications

      23,795       24,889  

Accrued salaries and related benefits

      24,992       19,515  

Income taxes payable

      6,722       6,686  

Advance billings

      31,507       33,161  

Deferred installation revenues

      13,882       14,881  

Other accrued expenses

      27,183       25,755  
    
 

Total current liabilities

      186,488       163,380  
    
 

DEFERRED REVENUE

      21,351       21,114  
    
 

DEFERRED COMPENSATION

      19,775       23,659  
    
 

CAPITAL LEASE OBLIGATIONS, Less Current Portion

      2,660       1,511  
    
 

MINORITY INTEREST

      1,491       1,916  
    
 

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

      66,078       66,078  

Class B common stock $0.01 par value per share:
600,000 shares authorized; 312,876 and 318,487 shares issued as of March 31, 2004 and December 31, 2004; 301,683 and 307,294 shares outstanding as of March 31, 2004 and December 31, 2004; 11,193 shares held in treasury as of March 31, 2004 and December 31, 2004

      1,199,486       1,208,052  

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

      (142,727 )     (142,727 )

Deferred compensation on restricted stock

      —         (4,962 )

Notes receivable from issuance of common stock

      (7,334 )     —    

Accumulated deficit

      (292,317 )     (336,873 )

Accumulated other comprehensive income

      3,356       5,941  
    
 

Total stockholders’ equity

      826,542       795,509  
    
 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

    $ 1,058,307     $ 1,007,089  
    
 

 

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
December 31,
     Nine Months Ended
December 31,
  
     2003
     2004
     2003
     2004
  

REVENUES, Net

    $ 151,085     $ 156,112     $ 451,430     $ 472,679  
    
 
 
 

OPERATING COSTS AND EXPENSES:

                                 

Communication services costs

      22,736       17,705       69,877       57,413  

Integration and provisioning costs

      53,313       61,108       159,575       179,596  

Bandwidth and related costs

      25,743       20,493       78,483       63,238  

Network operations

      32,336       28,252       93,417       91,084  

Selling, general and administrative

      39,539       46,856       110,533       125,635  
    
 
 
 

Total operating costs and expenses

      173,667       174,414       511,885       516,966  
    
 
 
 

OPERATING LOSS

      (22,582 )     (18,302 )     (60,455 )     (44,287 )
    
 
 
 

OTHER INCOME (EXPENSE):

                                 

Interest income

      2,147       2,288       6,452       6,161  

Interest expense

      (124 )     (752 )     (452 )     (1,013 )

Equity in losses of unconsolidated affiliates

      (925 )     (898 )     (2,472 )     (2,399 )

Other, net

      816       (190 )     575       (126 )
    
 
 
 

Total other income, net

      1,914       448       4,103       2,623  
    
 
 
 

LOSS BEFORE (CREDIT) PROVISION FOR INCOME TAXES AND MINORITY INTEREST

      (20,668 )     (17,854 )     (56,352 )     (41,664 )

(CREDIT) PROVISION FOR INCOME TAXES

      (314 )     1,027       985       2,353  
    
 
 
 

LOSS BEFORE MINORITY INTEREST

      (20,354 )     (18,881 )     (57,337 )     (44,017 )

MINORITY INTEREST

      163       148       165       539  
    
 
 
 

NET LOSS

      (20,517 )     (19,029 )     (57,502 )     (44,556 )
    
 
 
 

OTHER COMPREHENSIVE INCOME (LOSS):

                                 

Foreign currency translation adjustments

      3,927       4,606       6,784       4,427  

Unrealized losses on securities, net of tax

      (945 )     (474 )     (1,909 )     (1,842 )
    
 
 
 

Total other comprehensive income, net

      2,982       4,132       4,875       2,585  
    
 
 
 

COMPREHENSIVE LOSS

    $ (17,535 )   $ (14,897 )   $ (52,627 )   $ (41,971 )
    
 
 
 

BASIC AND DILUTED LOSS PER COMMON SHARE

    $ (0.04 )   $ (0.04 )   $ (0.12 )   $ (0.10 )
    
 
 
 

BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

      463,002       464,431       463,926       463,783  
    
 
 
 

DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

      463,002       464,431       463,926       463,783  
    
 
 
 

 

See accompanying notes to consolidated financial statements.

 

2

Table of Contents

INFONET SERVICES CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

 

     Nine Months Ended
December 31,
  
     2003
     2004
  

CASH FLOWS FROM OPERATING ACTIVITIES:

                 

Net loss

    $ (57,502 )   $ (44,556 )

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

                 

Depreciation and amortization

      58,563       65,551  

Equity in losses of unconsolidated affiliates

      2,472       2,399  

Loss on non-marketable investment

      —         215  

Stock-based compensation charge

      8,093       1,418  

Net (gain) loss on disposal of property, equipment and communication lines

      (545 )     1,487  

Premium amortization on marketable securities

      3,644       2,469  

Net realized (gains) losses on marketable securities

      (714 )     67