##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(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)



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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



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##### 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



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##### 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



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##### Table of Contents

INFONET SERVICES CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In Thousands, Except per Share Amounts)

(Unaudited)



|                                                                      |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|--------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ----------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                      |  | Three Months EndedDecember 31, |         |   | Nine Months EndedDecember 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.



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##### Table of Contents

INFONET SERVICES CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)



|                                                                                |  |                               |          |   |      |   |         |  
|------------------------------------------------------------------------------- |  | ----------------------------- | -------- | - | ---- | - | ------- | -
|                                                                                |  | Nine Months EndedDecember 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      |  
|Write-off of note receivable                                                    |  |                               | 612      |   |      |   |        |  
|Deferred income taxes                                                           |  |                               | (263     | ) |      |   | 670     |  
|Minority interest                                                               |  |                               | 164      |   |      |   | 539     |  
|Changes in operating assets and liabilities:                                    |  |                               |          |   |      |   |         |  
|Accounts receivable, net                                                        |  |                               | 4,332    |   |      |   | 29,736  |  
|Prepaid expenses                                                                |  |                               | 3,520    |   |      |   | 8,645   |  
|Other current assets                                                            |  |                               | 1,063    |   |      |   | (37     | )
|Accounts payable                                                                |  |                               | (2,443   | ) |      |   | (16,405 | )
|Network communications                                                          |  |                               | 8,478    |   |      |   | 1,052   |  
|Accrued salaries and related benefits                                           |  |                               | (5,468   | ) |      |   | (6,203  | )
|Income taxes payable                                                            |  |                               | (920     | ) |      |   | (290    | )
|Advance billings                                                                |  |                               | 7,002    |   |      |   | 1,656   |  
|Other accrued expenses                                                          |  |                               | 5,719    |   |      |   | (1,832  | )
|Deferred compensation                                                           |  |                               | 11       |   |      |   | 3,193   |  
|Purchases of trading securities                                                 |  |                               | (9,601   | ) |      |   | (7,420  | )
|Proceeds from sale of trading securities                                        |  |                               | 8,380    |   |      |   | 7,210   |  
|Other operating activities                                                      |  |                               | (1,808   | ) |      |   | (1,093  | )
|                                                                                |  |                               |          |   |      |   |         |  
|Net cash provided by operating activities                                       |  |                               | 32,789   |   |      |   | 48,471  |  
|                                                                                |  |                               |          |   |      |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                           |  |                               |          |   |      |   |         |  
|Purchases of property, equipment and communication lines                        |  |                               | (41,927  | ) |      |   | (36,853 | )
|Proceeds from sale of property, equipment and communication lines               |  |                               | 2,881    |   |      |   |        |  
|Purchases of securities available-for-sale                                      |  |                               | (227,048 | ) |      |   | (81,609 | )
|Proceeds from sale of securities available-for-sale                             |  |                               | 189,766  |   |      |   | 46,919  |  
|Maturities of securities available-for-sale                                     |  |                               | 43,198   |   |      |   | 48,297  |  
|Investments in unconsolidated affiliates                                        |  |                               | (4,031   | ) |      |   | (2,690  | )
|Repayment of employee loans and interest receivable                             |  |                               |         |   |      |   | 962     |  
|Additional consideration in business acquisition                                |  |                               |         |   |      |   | (3,000  | )
|                                                                                |  |                               |          |   |      |   |         |  
|Net cash used in investing activities                                           |  |                               | (37,161  | ) |      |   | (27,974 | )
|                                                                                |  |                               |          |   |      |   |         |  



(Table continued on
following page)



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##### Table of Contents

INFONET SERVICES CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS(Continued)

(In Thousands)

(Unaudited)



|                                                             |  |                               |         |   |      |   |         |  
|------------------------------------------------------------ |  | ----------------------------- | ------- | - | ---- | - | ------- | -
|                                                             |  | Nine Months EndedDecember 31, |        
|                                                             |  | 2003                          |         |   | 2004 |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                        |  |                               |         |   |      |   |         |  
|Repayments of capital lease obligations                      |  | $                             | (1,730  | ) |      | $ | (1,081  | )
|Purchase of treasury stock                                   |  |                               | (6,238  | ) |      |   |        |  
|Net proceeds from issuance of common stock                   |  |                               | 752     |   |      |   | 2,186   |  
|Repayments of notes receivable from issuance of common stock |  |                               | 231     |   |      |   | 7,542   |  
|Distribution to minority interest                            |  |                               | (302    | ) |      |   | (117    | )
|                                                             |  |                               |         |   |      |   |         |  
|Net cash (used in) provided by financing activities          |  |                               | (7,287  | ) |      |   | 8,530   |  
|                                                             |  |                               |         |   |      |   |         |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |  |                               | 4,118   |   |      |   | 2,522   |  
|                                                             |  |                               |         |   |      |   |         |  
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS         |  |                               | (7,541  | ) |      |   | 31,549  |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD               |  |                               | 146,730 |   |      |   | 137,071 |  
|                                                             |  |                               |         |   |      |   |         |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                     |  | $                             | 139,189 |   |      | $ | 168,620 |  
|                                                             |  |                               |         |   |      |   |         |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:           |  |                               |         |   |      |   |         |  
|Cash paid during the period for:                             |  |                               |         |   |      |   |         |  
|Income taxes                                                 |  | $                             | 1,969   |   |      | $ | 1,836   |  
|Interest                                                     |  | $                             | 466     |   |      | $ | 335     |  
|SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:     |  |                               |         |   |      |   |         |  
|Acquisitions of communication lines accrued but not yet paid |  | $                             | 5,213   |   |      | $ |        |  
|Acquisitions of equipment accrued but not yet paid           |  | $                             | 371     |   |      | $ | 629     |  
|Issuance of restricted stock                                 |  | $                             |        |   |      | $ | 6,380   |  





See accompanying notes to consolidated financial statements.



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INFONET SERVICES CORPORATION AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



1.    BASIS OF PRESENTATION



The accompanying unaudited consolidated financial statements of Infonet
Services Corporation and subsidiaries (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America applicable to interim financial information and with the instructions to
Form 10-Q and Regulation S-X promulgated under the Securities Exchange Act of 1934. Correspondingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America
applicable to complete financial statements. In the opinion of management, all normal, recurring adjustments considered necessary for a fair presentation have been included. Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results may differ from these estimates. These financial statements should be read in conjunction with the financial statements and notes thereto
included in the Companys Annual Report on Form 10-K for the fiscal year ended April 2, 2004 filed with the Securities and Exchange Commission on June 16, 2004. Certain items have been reclassified to conform to the current period presentation.
The results of operations for the three and nine months ended December 31, 2004 are not necessarily indicative of the results that may be expected for the fiscal year ending April 1, 2005.



The Companys fiscal year is the 52- or 53-week period ending on the
Friday nearest to March 31. For simplicity of presentation, the Company has described the 53-week period ended April 2, 2004 as the year ended March 31, 2004, and the 13- and 39-week periods ended December 26, 2003 and December 31, 2004 as the three
and nine months ended December 31, 2003 and 2004, respectively.



2.    NEW ACCOUNTING PRONOUNCEMENTS



In December 2003, the Financial Accounting Standards Board (FASB) issued a revision of Statement of Financial Accounting Standards (SFAS) No. 132, Employers Disclosures about
Pensions and Other Postretirement Benefits (Revised SFAS No. 132). Revised SFAS No. 132 revises employers required disclosures about pension plans and other postretirement benefits. This statement does not change the
measurement or recognition provisions of those plans required by existing pronouncements. Instead, Revised SFAS No. 132 requires disclosures in addition to those in the original SFAS No. 132 about the assets, obligations, cash flows, and net
periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The interim disclosure requirements of Revised SFAS No. 132 became effective for the Company during the three months ended June 30, 2004.
Additional disclosures of estimated future benefit payments will be required for the Companys consolidated financial statements for the year ending April 1, 2005.



In July 2004, the Emerging Issues Task Force (EITF) published its consensus on Issue No. 03-01, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. EITF Issue No. 03-01 addresses the meaning of other-than-temporary impairment and its application to debt and equity securities within the scope of
SFAS No. 115, certain debt and equity securities within the scope of SFAS No. 124, and equity securities that are not subject to the scope of SFAS No. 115 and not accounted for under the equity method of accounting. The revised guidance for
evaluating whether an investment is other-than-temporarily impaired has been deferred until the final issuance of FASB Staff Position EITF 03-01-a. The Company is currently assessing the impact of the adoption of EITF Issue No. 03-01 on its
consolidated financial position and results of operations.



In
December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based Payment (Revised SFAS No. 123), which will require compensation costs related to share-based payment transactions to be recognized in the financial
statements. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability



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INFONET SERVICES CORPORATION AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides service in exchange for the
award. Revised SFAS No. 123 replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Revised SFAS No. 123 will become
effective for the Company during the three months ending September 30, 2005. The Company is currently assessing the impact of the adoption of Revised SFAS No. 123 on its consolidated financial position and results of operations.



3.    STOCK BASED COMPENSATION



The Company issues stock options and other stock-based awards to employees
and directors. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. In accordance with SFAS No. 123,
Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure, the following pro forma net income and earnings per share information is presented
as if the Company accounted for stock-based compensation awarded under the stock incentive plans using the fair value method. Under the fair value method, the estimated fair value of stock incentive awards is charged against income on a
straight-line basis over the vesting period.



|                                                                                                                |  |                                          |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------- | - | ------------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                                                |  | Three Months Ended December 31,          |         |   | Nine Months Ended December 31, |  
|                                                                                                                |  | 2003                                     |         |   | 2004                           |   |         | 2003 |  |   | 2004    |  
|                                                                                                                |  | (In thousands, except per share amounts) |        
|Net loss, as reported                                                                                           |  | $                                        | (20,517 | ) |                                | $ | (19,029 | )    |  | $ | (57,502 | ) |  | $ | (44,556 | )
|Add: Stock-based employee compensation expense included in reported net loss                                    |  |                                          | 2,805   |   |                                |   | 763     |      |  |   | 8,093   |   |  |   | 1,418   |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards |  |                                          | (9,198  | ) |                                |   | (6,037  | )    |  |   | (30,846 | ) |  |   | (21,415 | )
|                                                                                                                |  |                                          |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Pro forma net loss                                                                                              |  | $                                        | (26,910 | ) |                                | $ | (24,303 | )    |  | $ | (80,255 | ) |  | $ | (64,553 | )
|                                                                                                                |  |                                          |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Loss per share:                                                                                                 |  |                                          |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Basic and diluted, as reported                                                                                  |  | $                                        | (0.04   | ) |                                | $ | (0.04   | )    |  | $ | (0.12   | ) |  | $ | (0.10   | )
|                                                                                                                |  |                                          |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Basic and diluted, pro forma                                                                                    |  | $                                        | (0.06   | ) |                                | $ | (0.05   | )    |  | $ | (0.17   | ) |  | $ | (0.14   | )
|                                                                                                                |  |                                          |         |   |                                |   |         |      |  |   |         |   |  |   |         |  



4.    PROPERTY,
EQUIPMENT AND COMMUNICATION LINES



Property, equipment and
communication lines, net consists of the following (in thousands):



|                                                 |  |                |         |                   |   |        
|------------------------------------------------ |  | -------------- | ------- | ----------------- | - | -------
|                                                 |  | March 31, 2004 |         | December 31, 2004
|Communications, computer and related equipment   |  | $              | 335,276 |                   | $ | 338,625
|Communication lines                              |  |                | 308,924 |                   |   | 313,480
|Land, buildings and leasehold improvements       |  |                | 76,249  |                   |   | 76,608 
|Furniture and other equipment                    |  |                | 21,242  |                   |   | 22,016 
|                                                 |  |                |         |                   |   |        
|                                                 |  |                | 741,691 |                   |   | 750,729
|Less accumulated depreciation and amortization   |  |                | 333,033 |                   |   | 373,958
|                                                 |  |                |         |                   |   |        
|Property, equipment and communication lines, net |  | $              | 408,658 |                   | $ | 376,771
|                                                 |  |                |         |                   |   |        



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INFONET SERVICES CORPORATION AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Communication lines consist of purchased bandwidth. Under the purchased bandwidth arrangements, the
Companys rights to use the communication lines range from 3 to 25 years.



5.    INTANGIBLE AND OTHER ASSETS



Intangible and other assets consist of the following (in thousands):



|                                                |  |               |        |                  |   |       
|----------------------------------------------- |  | ------------- | ------ | ---------------- | - | ------
|                                                |  | March 31,2004 |        | December 31,2004
|Minimum pension liability                       |  | $             | 1,324  |                  | $ | 1,324 
|Other postretirement benefits minimum liability |  |               | 1,341  |                  |   | 1,266 
|IDIP assets                                     |  |               | 10,030 |                  |   | 10,931
|Deferred installation costs                     |  |               | 20,278 |                  |   | 20,373
|Investments in unconsolidated affiliates        |  |               | 18,111 |                  |   | 18,287
|Goodwill                                        |  |               | 1,468  |                  |   | 1,468 
|Intangible assets, net                          |  |               | 2,371  |                  |   | 3,026 
|Employee loans and interest receivable          |  |               | 948    |                  |   |      
|Other                                           |  |               | 3,165  |                  |   | 3,685 
|                                                |  |               |        |                  |   |       
|Intangible and other assets, net                |  | $             | 59,036 |                  | $ | 60,360
|                                                |  |               |        |                  |   |       



Intangible assets
consist of the following (dollars in thousands):



|                     |  |                      |                     |                |                         |                   |   |                       |   |                     |   |                         |  |   |                       |  |   |        |   |  |   |      
|-------------------- |  | -------------------- | ------------------- | -------------- | ----------------------- | ----------------- | - | --------------------- | - | ------------------- | - | ----------------------- |  | - | --------------------- |  | - | ------ | - |  | - | -----
|                     |  | WeightedAverageLives |                     | March 31, 2004 |                         | December 31, 2004
|                     |  |                      | GrossCarryingAmount |                | AccumulatedAmortization |                   |   | IntangibleAssets, Net |   | GrossCarryingAmount |   | AccumulatedAmortization |  |   | IntangibleAssets, Net
|Purchased technology |  | 5                    |                     | $              | 6,600                   |                   | $ | (4,840                | ) |                     | $ | 1,760                   |  | $ | 6,600                 |  | $ | (5,830 | ) |  | $ | 770  
|Consulting contract  |  | 2                    |                     |                | 453                     |                   |   | (38                   | ) |                     |   | 415                     |  |   | 2,498                 |  |   | (987   | ) |  |   | 1,511
|Other                |  | 5                    |                     |                | 1,892                   |                   |   | (1,696                | ) |                     |   | 196                     |  |   | 2,847                 |  |   | (2,102 | ) |  |   | 745  
|                     |  |                      |                     |                |                         |                   |   |                       |   |                     |   |                         |  |   |                       |  |   |        |   |  |   |      
|                     |  |                      |                     | $              | 8,945                   |                   | $ | (6,574                | ) |                     | $ | 2,371                   |  | $ | 11,945                |  | $ | (8,919 | ) |  | $ | 3,026
|                     |  |                      |                     |                |                         |                   |   |                       |   |                     |   |                         |  |   |                       |  |   |        |   |  |   |      



Amortization expense
for the nine months ended December 31, 2003 and 2004 was approximately $1,072,000 and $2,345,000 respectively. At December 31, 2004, estimated future amortization expense is approximately $758,000 for the remaining three months of fiscal year 2005
and approximately $1,776,000, $174,000, $173,000 and $145,000 for fiscal years 2006, 2007, 2008 and 2009, respectively.



6.    EARNINGS (LOSS) PER SHARE



Basic earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares outstanding during the periods
presented. Diluted earnings (loss) per common share is computed based on the weighted average number of shares outstanding plus the dilutive effect, if any, of potential common stock.



At December 31, 2003 and 2004, the types of potential common stock were stock options and purchase rights and restricted
stock. The inclusion of potential common stock had an antidilutive effect on the reported loss per share for the three and nine months ended December 31, 2003 and 2004. Consequently, reported basic and diluted earnings per share are the same amount
for the three and nine months ended December 31, 2003 and 2004, respectively. Potential common shares of 29.6 million and 33.6 million were not included in the computation of diluted earnings per share for the three and nine months ended December
31, 2003 and 2004, respectively, because to do so would have been antidilutive for the periods presented.



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INFONET SERVICES CORPORATION AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



7.    INCOME TAXES



The Company has established a valuation allowance against its entire net U.S. deferred income tax assets. The valuation
allowance was recorded in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes due to the lack of evidence, within the meaning of SFAS No. 109, of the existence of sufficient future taxable income needed to realize
the deferred income tax assets. Until appropriate levels of profitability are reached, the Company will not recognize income tax benefits related to its domestic results of operations. In the three and nine months ended December 31, 2003 and 2004,
the Company did not record income tax benefits resulting from its U.S. losses. The tax provision that was recorded is comprised of foreign subsidiary income taxes, foreign withholding taxes and state income taxes in jurisdictions that do not permit
consolidated tax filings.



At December 31, 2004, the gross
amount of the Companys net deferred income tax assets was $220.4 million. The valuation reserve recorded against those net deferred income tax assets was $220.2 million. The $0.2 million residual is comprised of foreign net deferred income tax
assets.



8.    SEGMENT INFORMATION



The Company conducts business in two operating segments: country
representatives or Direct Sales Channels (Direct) and Alternate Sales Channels (Alternate). Both of these segments generate revenues by providing the Companys clients with a complete global networking solution.



The Company has organized its operating segments around
differences in distribution channels used to deliver its services to clients. These segments are managed and evaluated separately because each segment possesses different economic characteristics requiring different marketing strategies.



The accounting policies adopted for each segment are the same as those
described in the summary of significant accounting policies in the Companys Annual Report on Form 10-K. The Companys management evaluates performance based on operating contribution, where segment revenues are reduced by those costs that
are allocable to the segments. Costs relating to operating the Companys core network and non-allocable general, administrative, marketing and overhead costs, including income tax expense, are not charged to the segments. Accordingly, neither
assets related to the core network nor their associated depreciation expense are allocated to the segments.



The Company accounts for intersegment transactions on the same terms and conditions as if the transactions were with third parties. Intersegment revenues
are not material to any segment.



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INFONET SERVICES CORPORATION AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Summarized financial information concerning the Companys reportable segments is as follows (in
thousands):



|                                                     |  |                                |         |   |                               |   |         |      |  |   |          |   |  |   |          |  
|---------------------------------------------------- |  | ------------------------------ | ------- | - | ----------------------------- | - | ------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                                     |  | Three Months EndedDecember 31, |         |   | Nine Months EndedDecember 31, |  
|                                                     |  | 2003                           |         |   | 2004                          |   |         | 2003 |  |   | 2004     |  
|Revenues:                                            |  |                                |         |   |                               |   |         |      |  |   |          |   |  |   |          |  
|Direct                                               |  | $                              | 134,430 |   |                               | $ | 139,698 |      |  | $ | 399,932  |   |  | $ | 423,738  |  
|Alternate                                            |  |                                | 16,655  |   |                               |   | 16,414  |      |  |   | 51,498   |   |  |   | 48,941   |  
|                                                     |  |                                |         |   |                               |   |         |      |  |   |          |   |  |   |          |  
|Total                                                |  | $                              | 151,085 |   |                               | $ | 156,112 |      |  | $ | 451,430  |   |  | $ | 472,679  |  
|                                                     |  |                                |         |   |                               |   |         |      |  |   |          |   |  |   |          |  
|Operating contributions:                             |  |                                |         |   |                               |   |         |      |  |   |          |   |  |   |          |  
|Direct                                               |  | $                              | 46,623  |   |                               | $ | 48,082  |      |  | $ | 138,843  |   |  | $ | 146,228  |  
|Alternate                                            |  |                                | 7,985   |   |                               |   | 8,761   |      |  |   | 23,853   |   |  |   | 24,862   |  
|                                                     |  |                                |         |   |                               |   |         |      |  |   |          |   |  |   |          |  
|Operating contribution from reportable segments      |  |                                | 54,608  |   |                               |   | 56,843  |      |  |   | 162,696  |   |  |   | 171,090  |  
|Core network, overhead and other non-allocable costs |  |                                | (75,276 | ) |                               |   | (74,697 | )    |  |   | (219,048 | ) |  |   | (212,754 | )
|                                                     |  |                                |         |   |                               |   |         |      |  |   |          |   |  |   |          |  
|Total                                                |  | $                              | (20,668 | ) |                               | $ | (17,854 | )    |  | $ | (56,352  | ) |  | $ | (41,664  | )
|                                                     |  |                                |         |   |                               |   |         |      |  |   |          |   |  |   |          |  



|                                                       |  |              |           |      |   |          
|------------------------------------------------------ |  | ------------ | --------- | ---- | - | ---------
|                                                       |  | December 31,
|                                                       |  | 2003         |           | 2004
|Total Assets:                                          |  |              |           |      |   |          
|Direct                                                 |  | $            | 143,828   |      | $ | 129,935  
|Alternate                                              |  |              | 15,456    |      |   | 12,747   
|                                                       |  |              |           |      |   |          
|Total assets of reportable segments                    |  |              | 159,284   |      |   | 142,682  
|Core network, corporate and other non-allocable assets |  |              | 906,869   |      |   | 864,407  
|                                                       |  |              |           |      |   |          
|Total                                                  |  | $            | 1,066,153 |      | $ | 1,007,089
|                                                       |  |              |           |      |   |          



9.    RELATED
PARTY TRANSACTIONS



Related parties consist of the
Companys Class A stockholders, non-consolidated country representative organizations in which the Company holds greater than a 20% but less than a 50% ownership interest, country representative organizations owned directly or indirectly by the
Companys Class A stockholders, and their respective affiliates.



Related party transactions for the periods presented comprise the following (in thousands):



Revenues



|                                               |  |                                |        |                               |   |        |  |      |        |  |   |       
|---------------------------------------------- |  | ------------------------------ | ------ | ----------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                               |  | Three Months EndedDecember 31, |        | Nine Months EndedDecember 31,
|                                               |  | 2003                           |        | 2004                          |   | 2003   |  | 2004
|Infonet Telecom AS (Norway)                    |  | $                              | 1,492  |                               | $ |       |  | $    | 5,077  |  | $ |      
|Infonet Thailand Ltd. (Thailand)               |  |                                | 43     |                               |   | 150    |  |      | 199    |  |   | 500   
|KDDI Corporation (Japan)                       |  |                                | 7,931  |                               |   | 8,396  |  |      | 25,901 |  |   | 27,515
|KPN Telecom B.V. (The Netherlands)             |  |                                | 16,305 |                               |   | 14,656 |  |      | 50,497 |  |   | 46,339
|Swisscom AG (Switzerland)                      |  |                                | 9,472  |                               |   | 8,985  |  |      | 29,303 |  |   | 27,719
|Telefonica International Holdings B.V. (Spain) |  |                                | 1,894  |                               |   | 2,079  |  |      | 6,228  |  |   | 6,060 
|TeliaSonera AB (Sweden)                        |  |                                | 13,803 |                               |   | 7,450  |  |      | 39,462 |  |   | 26,197
|Telstra Corporation Limited (Australia)        |  |                                | 6,128  |                               |   | 7,731  |  |      | 18,392 |  |   | 21,327



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INFONET SERVICES CORPORATION AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Operating Costs and Expenses



|                                               |  |                                 |       |                               |   |       |  |      |        |  |   |       
|---------------------------------------------- |  | ------------------------------- | ----- | ----------------------------- | - | ----- |  | ---- | ------ |  | - | ------
|                                               |  | Three Months EndedDecember 31,  |       | Nine Months EndedDecember 31,
|Communication Services Costs:                  |  | 2003                            |       | 2004                          |   | 2003  |  | 2004
|Infonet Telecom AS (Norway)                    |  | $                               | 370   |                               | $ |      |  | $    | 1,119  |  | $ |      
|Infonet Thailand Ltd. (Thailand)               |  |                                 | 97    |                               |   | 87    |  |      | 201    |  |   | 339   
|KDDI Corporation (Japan)                       |  |                                 | 2,014 |                               |   | 1,646 |  |      | 7,679  |  |   | 6,216 
|KPN Telecom B.V. (The Netherlands)             |  |                                 | 5,462 |                               |   | 4,120 |  |      | 14,528 |  |   | 13,372
|Swisscom AG (Switzerland)                      |  |                                 | 1,986 |                               |   | 1,726 |  |      | 5,868  |  |   | 5,287 
|Telefonica International Holdings B.V. (Spain) |  |                                 | 640   |                               |   | 577   |  |      | 1,967  |  |   | 1,699 
|TeliaSonera AB (Sweden)                        |  |                                 | 3,413 |                               |   | 1,364 |  |      | 10,160 |  |   | 6,242 
|Telstra Corporation Limited (Australia)        |  |                                 | 1,525 |                               |   | 1,631 |  |      | 4,594  |  |   | 4,410 
|                                               |  |                                
|                                               |  | Three Months Ended December 31, |       | Nine Months EndedDecember 31,
|Integration and Provisioning Costs:            |  | 2003                            |       | 2004                          |   | 2003  |  | 2004
|Infonet Telecom AS (Norway)                    |  | $                               | 443   |                               | $ |      |  | $    | 1,519  |  | $ |      
|Infonet Thailand Ltd. (Thailand)               |  |                                 | 210   |                               |   | 233   |  |      | 1,367  |  |   | 673   
|KDDI Corporation (Japan)                       |  |                                 | 2,333 |                               |   | 2,452 |  |      | 6,440  |  |   | 7,618 
|KPN Telecom B.V. (The Netherlands)             |  |                                 | 1,698 |                               |   | 3,520 |  |      | 9,162  |  |   | 10,983
|Swisscom AG (Switzerland)                      |  |                                 | 3,092 |                               |   | 3,461 |  |      | 10,151 |  |   | 10,799
|Telefonica International Holdings B.V. (Spain) |  |                                 | 1,724 |                               |   | 1,698 |  |      | 4,392  |  |   | 4,657 
|TeliaSonera AB (Sweden)                        |  |                                 | 3,108 |                               |   | 2,346 |  |      | 8,236  |  |   | 7,210 
|Telstra Corporation Limited (Australia)        |  |                                 | 4,357 |                               |   | 1,674 |  |      | 7,656  |  |   | 5,033 
|                                               |  |                                
|                                               |  | Three Months Ended December 31, |       | Nine Months EndedDecember 31,
|Bandwidth and Related Costs:                   |  | 2003                            |       | 2004                          |   | 2003  |  | 2004
|Infonet Telecom AS (Norway)                    |  | $                               | 19    |                               | $ |      |  | $    | 54     |  | $ |      
|Infonet Thailand Ltd. (Thailand)               |  |                                 | 175   |                               |   | 222   |  |      | 496    |  |   | 647   
|KDDI Corporation (Japan)                       |  |                                 | 441   |                               |   | 562   |  |      | 1,184  |  |   | 1,657 
|KPN Telecom B.V. (The Netherlands)             |  |                                 | 840   |                               |   | 745   |  |      | 1,864  |  |   | 2,651 
|Swisscom AG (Switzerland)                      |  |                                 | 508   |                               |   | 280   |  |      | 1,466  |  |   | 1,000 
|Telefonica International Holdings B.V. (Spain) |  |                                 | 209   |                               |   | 378   |  |      | 647    |  |   | 789   
|TeliaSonera AB (Sweden)                        |  |                                 | 477   |                               |   | 225   |  |      | 2,131  |  |   | 818   
|Telstra Corporation Limited (Australia)        |  |                                 | 213   |                               |   | 204   |  |      | 247    |  |   | 605   
|                                               |  |                                
|                                               |  | Three Months EndedDecember 31,  |       | Nine Months EndedDecember 31,
|Network Operations:                            |  | 2003                            |       | 2004                          |   | 2003  |  | 2004
|Infonet Telecom AS (Norway)                    |  | $                               |      |                               | $ |      |  | $    |       |  | $ |      
|Infonet Thailand Ltd. (Thailand)               |  |                                 |      |                               |   |      |  |      |       |  |   |      
|KDDI Corporation (Japan)                       |  |                                 | 53    |                               |   | 72    |  |      | 189    |  |   | 236   
|KPN Telecom B.V. (The Netherlands)             |  |                                 |      |                               |   |      |  |      |       |  |   |      
|Swisscom AG (Switzerland)                      |  |                                 |      |                               |   |      |  |      |       |  |   |      
|Telefonica International Holdings B.V. (Spain) |  |                                 |      |                               |   |      |  |      |       |  |   |      
|TeliaSonera AB (Sweden)                        |  |                                 |      |                               |   |      |  |      |       |  |   |      
|Telstra Corporation Limited (Australia)        |  |                                 |      |                               |   |      |  |      |       |  |   |      



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INFONET SERVICES CORPORATION AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Approximately $46.1 million of purchased bandwidth from related parties will be expensed in future
periods in accordance with the Companys accounting policies. Accumulated amortization related to such purchased bandwidth as of December 31, 2004 was approximately $30.6 million.



Related party balances comprise the following (in thousands):



|                         |  |               |        |                  |   |       
|------------------------ |  | ------------- | ------ | ---------------- | - | ------
|                         |  | March 31,2004 |        | December 31,2004
|Accounts receivable, net |  | $             | 36,318 |                  | $ | 27,003
|Accounts payable         |  |               | 3,108  |                  |   | 1,383 
|Network communications   |  |               | 4,396  |                  |   | 3,777 



10.    STOCKHOLDERS EQUITY



Repurchase of Common StockThe Companys Board of Directors approved a plan for the use of up to $100 million to repurchase shares of Infonet Class B common stock over a two-year period, which ended in November 2003.
These repurchases were made in the open market or privately negotiated transactions and in compliance with the Commissions Rule 10b-18, subject to market conditions, legal requirements and other factors. During the nine months ended December
31, 2003, the Company repurchased 3,544,068 shares under this plan at an aggregate cost of approximately $6.2 million. The Company did not repurchase any of its common stock during the nine months ended December 31, 2004.



Restricted Stock AwardsDuring the nine months ended
December 31, 2004, certain key employees were granted a total of 3,740,500 shares of the Companys Class B common stock as restricted stock awards under the Companys 2003 Incentive Award Plan. Holders of these restricted shares are
entitled to all the rights of a stockholder with respect to such shares, including the right to vote the shares and to receive any dividends or distributions paid or made with respect to the shares, subject to certain forfeiture and transfer
restrictions. Shares of the restricted stock are subject to forfeiture upon the holders termination of employment. The forfeiture and transfer restrictions on the restricted stock lapse on the second anniversary of the grant date, or earlier
in certain circumstances, including but not limited to a change in control of the Company. The Company recorded deferred compensation of approximately $6.4 million during the nine months ended December 31, 2004 in connection with the restricted
stock awards, which will be charged to expense over the vesting period. The Company did not make any restricted stock awards during the nine months ended December 31, 2003.



11.    COMMITMENTS AND CONTINGENCIES



CommitmentsThe Company is obligated to purchase certain customer premise equipment owned by
non-consolidated country representatives should the customer cancel its contract prior to certain time limits agreed to between the Company and the country representative (generally 24 to 36 months) and the country representative is unable to
redeploy the equipment within three months. The aggregate buy back value of the customer premise equipment at December 31, 2004 is approximately $19.7 million. Actual buybacks of customer premise equipment have historically averaged less than
$10,000 per year.



LitigationDuring the
normal course of business, the Company may be subject to litigation involving various business matters. Management believes that an adverse outcome of any such known matters would not have a material adverse impact on the Companys consolidated
financial statements.



During December 2001 and through
February 7, 2002, nine purported class action lawsuits were filed against the Company and various other parties alleging various violations of United States securities laws. These



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INFONET SERVICES CORPORATION AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



lawsuits were subsequently consolidated into one lawsuit. The Company has settled this lawsuit, all claims have been dismissed, and the defendants have
obtained releases of liability in exchange for a cash payment of $18.0 million by the defendants. The Company recorded a loss of $5.0 million during the year ended March 31, 2004, which reflects the Companys contribution to the settlement, net
of insurance. The Company paid $5.0 million into escrow for the settlement of this matter during April 2004. On July 26, 2004, following notice of the settlement to the members of the settlement class, the Court approved the settlement and entered
final judgment and an order of dismissal with prejudice of the litigation.



During November 2004, three purported class action lawsuits were filed in California Superior Court, County of Los Angeles against the Company, the members of its board of directors, and its chief executive officer.
These lawsuits were subsequently consolidated into one lawsuit. The complaints allege, on behalf of a proposed class of holders of the Companys Class B common stock, that the defendants breached their fiduciary duties to the Companys
shareholders by approving the merger agreement with British Telecommunications plc (see Note 14). The plaintiffs seek relief including an injunction preventing the consummation of the proposed transaction, rescission of the proposed transaction to
the extent already implemented, and reasonable costs and attorneys fees.



At this time, the Company does not believe that this lawsuit could reasonably be expected to have a material adverse effect on its consolidated financial position, or its ability to complete the proposed transaction
with British Telecommunications plc. It is possible, however, that future consolidated results of operations for any particular quarterly or annual period, or the Companys ability to complete the proposed transaction with British
Telecommunications plc, could be materially and adversely affected by changes in managements assumptions or the effectiveness of the Companys strategies related to these proceedings.



Income TaxesThe Company is subject to income and other
taxes in various jurisdictions, both domestically and internationally. As a result, the Company has identified various potential foreign tax exposures, the ultimate resolution of which may be material to the Companys consolidated financial
statements. The magnitude of potential loss that may result from the ultimate outcome of these contingencies, if any, in excess of recorded reserves is not presently estimable.



12.    EMPLOYEE BENEFIT PLANS



The Company has qualified and nonqualified retirement plans covering substantially all domestic employees. In addition, the
Company maintains postretirement health care and life insurance benefit plans for certain qualified employees. The components of net periodic benefit cost for the Companys pension plans and other postretirement benefit plans for the periods
presented are as follows (in thousands):



|                                         |  |                                 |      |   |                                |   |      |      |  |   |        |   |  |   |        |  
|---------------------------------------- |  | ------------------------------- | ---- | - | ------------------------------ | - | ---- | ---- |  | - | ------ | - |  | - | ------ | -
|                                         |  | Three Months Ended December 31, |      |   | Nine Months Ended December 31, |  
|                                         |  | 2003                            |      |   | 2004                           |   |      | 2003 |  |   | 2004   |  
|Pension PlansNet periodic benefit cost: |  |                                 |      |   |                                |   |      |      |  |   |        |   |  |   |        |  
|Service cost                             |  | $                               | 358  |   |                                | $ | 524  |      |  | $ | 1,075  |   |  | $ | 1,573  |  
|Interest cost                            |  |                                 | 462  |   |                                |   | 531  |      |  |   | 1,387  |   |  |   | 1,595  |  
|Expected return on plan assets           |  |                                 | (355 | ) |                                |   | (449 | )    |  |   | (1,063 | ) |  |   | (1,348 | )
|Amortization of prior service cost       |  |                                 | 158  |   |                                |   | 158  |      |  |   | 472    |   |  |   | 472    |  
|Recognized actuarial loss                |  |                                 | 129  |   |                                |   | 152  |      |  |   | 386    |   |  |   | 456    |  
|                                         |  |                                 |      |   |                                |   |      |      |  |   |        |   |  |   |        |  
|Net periodic benefit cost                |  | $                               | 752  |   |                                | $ | 916  |      |  | $ | 2,257  |   |  | $ | 2,748  |  
|                                         |  |                                 |      |   |                                |   |      |      |  |   |        |   |  |   |        |  



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INFONET SERVICES CORPORATION AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                                      |  |                                 |    |                                |      |   |      |  |   |      |   |  |   |    
|----------------------------------------------------- |  | ------------------------------- | -- | ------------------------------ | ---- | - | ---- |  | - | ---- | - |  | - | ---
|                                                      |  | Three Months Ended December 31, |    | Nine Months Ended December 31,
|                                                      |  | 2003                            |    |                                | 2004 |   | 2003 |  |   | 2004
|Other Postretirement PlansNet periodic benefit cost: |  |                                 |    |                                |      |   |      |  |   |      |   |  |   |    
|Service cost                                          |  | $                               |   |                                |      | $ |     |  | $ |     |   |  | $ |   
|Interest cost                                         |  |                                 | 26 |                                |      |   | 30   |  |   | 78   |   |  |   | 90 
|Expected return on plan assets                        |  |                                 |   |                                |      |   |     |  |   |     |   |  |   |   
|Amortization of prior service cost                    |  |                                 | 22 |                                |      |   | 22   |  |   | 65   |   |  |   | 65 
|Recognized actuarial (gain) loss                      |  |                                 | (1 | )                              |      |   | 13   |  |   | (2   | ) |  |   | 40 
|                                                      |  |                                 |    |                                |      |   |      |  |   |      |   |  |   |    
|Net periodic benefit cost                             |  | $                               | 47 |                                |      | $ | 65   |  | $ | 141  |   |  | $ | 195
|                                                      |  |                                 |    |                                |      |   |      |  |   |      |   |  |   |    



The Company does not
expect to make material contributions to either its pension plans or its other postretirement benefit plans for the year ending March 31, 2005.



The Medicare Prescription Drug Improvement and Modernization Act of 2003 (the Act) was enacted on December 8, 2003. This Act introduced a
prescription drug benefit under Medicare Part D as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit equivalent to Medicare Part D. The Company has not yet determined whether benefits provided by its
other postretirement benefits plans are actuarially equivalent to Medicare Part D under the Act. Therefore the net periodic other postretirement benefit cost stated herein does not include the impact of this Act.



13.    ACQUISITION



Since September 2000, the Company has owned a 19% interest in Infonet
Primalliance (Primalliance), which was accounted for by the cost method of accounting. During February 2004, the Company acquired the remaining 81% interest in Primalliance for $2,404,000 in cash consideration (net of cash received).
During the three months ended June 30, 2004, the remaining purchase price contingencies provided for under the terms of the purchase agreement were resolved, resulting in the payment by the Company of an additional $3,000,000 of cash consideration.
This additional consideration has been recorded as an increase to the purchase price and allocated to identifiable intangible assets as follows (in thousands):



|                                     |  |   |      
|------------------------------------ |  | - | -----
|Consulting contract                  |  | $ | 2,045
|Other identifiable intangible assets |  |   | 955  
|                                     |  |   |      
|Additional consideration paid        |  | $ | 3,000
|                                     |  |   |      



14.    PROPOSED
BUSINESS COMBINATION



On November 8, 2004, the Company
entered into an Agreement and Plan of Merger (the Merger Agreement) with British Telecommunications plc (the operating subsidiary of BT Group plc) and Blue Acquisition Corp., a wholly owned subsidiary of British Telecommunications plc.
The Merger Agreement provides for the merger of Blue Acquisition Corp. into the Company, such that upon satisfaction of the conditions set forth in the Merger Agreement, the Company will become a wholly owned subsidiary of BT Group plc. Under the
Merger Agreement, each issued and outstanding share of the Companys Class A common stock and Class B common stock, other than as provided in the Merger Agreement, will be converted into the right to receive $2.06 in cash, without interest.
Completion of the merger is subject to the satisfaction of closing conditions including (i) approval by the holders of two-thirds of the voting power of the Companys outstanding shares of Class A common stock and Class B common stock, voting
together as a single class, (ii) approval by the holders of 95% of the Companys Class A common stock and (iii) the receipt of required regulatory and other approvals, as well as other customary closing conditions.



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INFONET SERVICES CORPORATION AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Company has received certain of the regulatory approvals required for the completion of the
merger.On December 21, 2004, the Company received the approval of the United States Federal Trade Commission, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, regarding the merger. On January 25, 2005, the European Commission
issued a press release announcing that the European Commission has approved the merger under the EU Merger Regulation. Completion of the merger remains subject to the receipt of other regulatory approvals, including the approval of the United States
Federal Communications Commission for the transfer of certain of the Companys licenses and authorizations. The Company has scheduled a special meeting of its stockholders to be held on February 23, 2005, for the Companys stockholders to
vote on the approval and adoption of the Merger Agreement.



15.    EMPLOYMENT AGREEMENT



The Company has agreed with José Collazo, the Companys Chief Executive Officer, that upon the payment by the Company to Mr. Collazo of an amount equal to $4.5 million on or before November 30, 2004, Mr. Collazos current
employment agreement would be modified. During the three months ended December 31, 2004, the Company paid a bonus of $4.5 million to Mr. Collazo, which has been included in selling, general and administrative expense in the consolidated statements
of operations and comprehensive loss and accordingly modified Mr. Collazos employment agreement. As a result of this modification, the total value of separation payments and benefits payable under Mr. Collazos current employment contract
in the event of Mr. Collazos termination without cause or for good reason will not exceed $8.0 million, reduced by the amount of the $4.5 million payment.



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



The following discussion and analysis of our financial position and operating results for the third quarter of the fiscal
year ending March 31, 2005 updates, and should be read in conjunction with, Managements Discussion and Analysis of Financial Condition and Results of Operations presented in our Annual Report on Form 10-K for the fiscal year ended March 31,
2004. You should also read this discussion together with our unaudited consolidated financial statements and the related notes to those statements appearing elsewhere in this report. Certain items have been reclassified to conform to the current
period presentation.



All statements contained within the
Managements Discussion and Analysis of Financial Condition and Results of Operations that are not statements of historical fact constitute Forward-Looking Statements within the meaning of Section 21E of the Securities Exchange Act.
These forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause our actual results to be materially different from historical results or from any future results expressed or implied by these
forward-looking statements. Statements that include the terms will, believe, belief, expects, plans, anticipates, intends or the like should be considered uncertain
and forward-looking. Forward-looking statements also include projections of financial performance, statements regarding managements plans and objectives and statements concerning any assumptions relating to the foregoing. Certain important
factors regarding our business, operations and competitive environment, which may cause actual results to vary materially from these forward-looking statements, are discussed under the caption Risk Factors in our Form 10-K for the fiscal
year ended March 31, 2004.



Overview



We provide cross-border managed voice and data communications services to
multinational entities worldwide. We offer our services to our clients directly through country representatives and indirectly through alternate sales channels consisting of major international telecommunications carriers and value-added resellers.
We deploy a broad array of fully managed data communications services over our reliable, secure, and high quality global network, which we refer to as The World Network. The World Network is an extensive and versatile network that can be accessed by
our clients from over 180 countries and territories.



Critical Accounting
Policies and Estimates



The discussion and analysis of our
financial condition and results of operations are based on our consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States of America. Our preparation of these
consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, 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. We base our estimates on historical experience and on other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies
reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements.



Income Taxes



During the year ended March 31, 2001, we filed a request for determination from the Internal Revenue Service, or IRS, regarding the propriety of
establishing an intangible asset, for tax purposes only, arising in connection with a September 1999 transaction with three stockholders in which we obtained access to certain customers served by AUCS Communication Services N.V. and cash of $40.0
million in exchange for the issuance to the three stockholders of 47.84 million shares of our Class B common stock. In November 2001, we received a favorable determination from the IRS that an intangible asset relating to the access to these
customers



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was created by the transaction. The intangible asset, which may be amortized in our tax returns over a period of fifteen years, was determined to have a
value of $445.0 million. Accordingly, in the fiscal year ended March 31, 2002, we recorded a deferred income tax asset of approximately $171.0 million, representing the deferred income tax benefit assuming an estimated 38.5% tax rate. United States
Securities and Exchange Commission Staff Accounting Bulletin 48, Transfer of Nonmonetary Assets by Promoters or Shareholders, requires that transfers of nonmonetary assets to a company by stockholders in exchange for stock prior to or at
the time of a companys initial public offering be recorded at the transferors historical cost basis. Accordingly, for financial statement purposes, the access to these customers was valued at the stockholders basis of $0.
Correspondingly, the $171.0 million credit resulting from the recognition of the deferred income tax asset was reflected as an increase in stockholders equity, net of directly related costs.



At December 31, 2004, the unadjusted net book value of our deferred income
tax assets totaled approximately $220.4 million, which was principally comprised of the remaining carrying value of the intangible asset discussed above of approximately $111.6 million and the benefit associated with domestic income tax losses of
approximately $79.9 million. The provisions of Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, require a valuation allowance when, based upon currently available information and other
factors, it is more likely than not that all or a portion of the deferred income tax asset will not be realized. SFAS No. 109 provides that an important factor in determining whether a deferred income tax asset will be realized is whether there has
been sufficient income in recent years and whether sufficient income is expected in future years in order to utilize the deferred income tax asset. Forming a conclusion that a valuation allowance is not needed is difficult when there is negative
evidence, such as cumulative losses in recent years. The existence of cumulative losses in recent years is an item of negative evidence that is particularly difficult to overcome. Based on our estimates of fiscal year 2005 operating performance, we
have determined that it is likely that we will incur a cumulative loss for the three-year period that includes fiscal years 2003, 2004 and 2005. We believe this determination represents negative evidence such that SFAS No. 109 requires that we
record a valuation allowance related to our intangible deferred income tax asset. Accordingly, we have recorded a valuation allowance of approximately $220.2 million against our entire net deferred income tax assets as of December 31, 2004. Our
valuation allowance increased $18.2 million during the nine months ended December 31, 2004. We intend to maintain a valuation allowance until sufficient evidence exists to support its reversal. Also, until an appropriate level of profitability is
reached, we do not expect to recognize any domestic income tax benefits in future results of operations.



We believe that our determination to record a valuation allowance to reduce our deferred income tax assets is a critical accounting estimate because it is
based on an estimate of future taxable income in the United States, which is susceptible to change and dependent upon events that are remote in time and may or may not occur, and because the impact that recording a valuation allowance has on the
assets reported in our consolidated balance sheets and on our results of operations is material.



We operate, and are subject to income taxes, in many foreign jurisdictions and in many taxable jurisdictions around the world. As a result, our reported
income tax provisions are based, in part, on our judgments as to the amount of income that may be subject to tax in certain foreign jurisdictions.



Purchased Bandwidth



We monitor and evaluate the viability of the network service providers from which we have purchased bandwidth. The term purchased bandwidth
refers to transmission capacity contractually acquired under long- term prepaid leases, capitalized leases and indefeasible rights of use. From time to time our network service providers may experience adverse economic circumstances. In the past, at
least one of our network service providers has entered into voluntary bankruptcy proceedings. If a service provider enters into bankruptcy proceedings or experiences other adverse events such that it may be unable to provide bandwidth to us, we
consider whether such bankruptcy proceedings or other adverse events will affect our purchased bandwidth and whether to recognize an impairment of the purchased bandwidth. If we determine that we will experience a



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permanent disruption in services as a result of such proceedings or other adverse events, we may record an impairment charge or write-off the bandwidth
purchased from the service provider.



Included in our property,
equipment and communication lines is purchased bandwidth with a net book value of $192.1 million as of December 31, 2004. There is no purchased bandwidth that is considered to be at risk as of December 31, 2004.



We believe that our determination not to recognize any impairment of
purchased bandwidth is a critical accounting policy because it is susceptible to change and dependent upon events that are remote in time and that may or may not occur, and because the impact that recognizing an impairment would have on the assets
reported in our consolidated balance sheets and on our results of operations could be material.



Long-Lived Assets



We monitor and evaluate the recoverability of our long-lived assets. If the carrying amount of a long-lived asset exceeds the expected future cash flows
(undiscounted and without interest charges) from the use of the asset, we recognize an impairment loss in the amount of the difference between the carrying amount and the fair value of the asset. Our most significant long-lived asset subject to
impairment is our owned network, which had a net book value of $304.3 million as of December 31, 2004. We currently estimate that undiscounted future cash flows will be sufficient to recover the value of our long-lived assets. However, our estimates
of future cash flows are subject to change. Should our estimates of future undiscounted cash flows indicate that the carrying value of our long-lived assets may not be recoverable, we would be required to determine the fair value of those assets and
record a loss for the difference, if any, between the carrying value and the fair value of those assets. We believe that the undiscounted future cash flows are sufficient to recover the carrying value of our long-lived assets.



We believe that our determination not to recognize an impairment loss on our
long-lived assets is a critical accounting estimate because it is susceptible to change and dependent upon events that are remote in time and may or may not occur, and because the impact that recognizing an impairment loss would have on the assets
reported in our consolidated balance sheets and on our results of operations could be material. If our estimated future undiscounted cash flows were to decrease by a hypothetical ten-percent, the long-lived assets would continue to be recoverable,
and we would not be required to recognize an impairment of our long-lived assets.



Valuation Allowance for Revenue Credits and Accounts Receivable



We make estimates of future credits expected to be issued to clients related to services provided during the periods presented through the analysis of
historical trends and known events. Managements estimates and assumptions must be made and used in connection with establishing the revenue reserves associated with discounts earned on special client agreements and billing reserves for pricing
changes and client disputes. Material differences may result in the amount and timing of our revenue adjustments if managements estimates differ from actual results. Similarly, our management must make estimates regarding the collectibility of
our accounts receivable. We specifically analyze accounts receivable, including historical bad debts, client concentrations, client credit-worthiness and current economic trends, when evaluating the adequacy of the allowance for doubtful accounts.



The valuation allowance for revenue credits and accounts
receivable was $22.4 million as of December 31, 2004 and $19.3 million as of March 31, 2004. If management over or under estimated the reserves by a hypothetical ten-percent, the valuation allowance for revenue credits and accounts receivable as of
December 31, 2004 would decrease or increase by $2.2 million.



Our determination relating to the valuation allowance is subject to change because it is based on managements current estimates of required reserves and potential adjustments.



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We believe that our valuation allowance for revenue credits and accounts receivable is a critical
accounting estimate because it is susceptible to change and dependent upon events that are remote in time and may or may not occur, and because the impact that recognizing an impairment loss would have on the assets reported in our consolidated
balance sheets and on our results of operations could be material.



Loss Contingencies



We follow the provisions
of SFAS No. 5, Accounting for Contingencies. SFAS No. 5 requires that an estimated loss from a loss contingency be accrued by a charge to income if it is both probable that an asset has been impaired or that a liability has been incurred
and that the amount of the loss can be reasonably estimated. In addition, financial statement disclosure is required when there is a reasonable possibility that the ultimate loss will exceed the recorded provision. Because contingent liabilities are
often resolved over long time periods, there are considerable uncertainties related to the incurrence, amount and range of loss, and the ultimate outcome of loss contingencies. Estimating probable losses requires analysis of multiple variables that
often depend on judgments about potential actions by third parties. In making its determinations of likely outcomes of loss contingencies, management periodically evaluates the potential for changes in loss estimates and consults regularly with its
advisors. Our determination relating to provisions for loss contingencies is subject to change because it is based on managements current estimates of future probable losses.



We are subject to income and other taxes in various jurisdictions, both domestically and internationally. As a result, we
have identified various potential foreign tax exposures, the ultimate resolution of which may be material to our consolidated financial statements. The magnitude of potential loss that may result from the ultimate outcome of these contingencies, if
any, in excess of recorded reserves is not presently estimable.



We believe that our determination to record provisions for loss contingencies is a critical accounting estimate because it is based on an estimate of future probable losses, which is susceptible to change and dependent upon events that are
remote in time and may or may not occur, and because the impact that recording a provision for loss contingencies has on the assets reported in our consolidated balance sheets and on our results of operations may be material.



Our management has discussed our critical accounting estimates and judgments
with the Audit Committee of our Board of Directors and the Audit Committee has reviewed our related disclosures.



Price Erosion



As the telecommunications market continues to experience transitional changes, we face several factors that may negatively impact our pricing:



| |  |  | as national operators extend their services into regional markets or regional operators attempt to extend their services globally they may lead with price, which leads to a
reduction of pricing power by global multinational network service providers;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the strengthening of incumbent operators may lead to high local access costs, requiring that we discount other components of our service offering in order to offer competitive
pricing;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | as carriers and operators emerge from bankruptcy, they may continue with disruptive pricing practices in order to retain or gain market share; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the emergence of information technology consultants has created more aggressive clients, which serves to deflate pricing in the sector.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



As a result of increasing competition in the markets we serve, we offer our
clients different and more cost effective solutions when they renew their contracts. Consequently, we may provide comparable services to our clients at the same or reduced prices under the renewed contracts. We refer to this as price erosion. Using
data obtained during the nine months ended December 31, 2004, we estimate our price erosion of multi-year contracts up for renewal to be, on average, approximately 8% on an annualized basis.



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In order to counter the effects of price erosion, we launched a targeted program aimed at retention and
growth of existing clients. This program establishes the metrics to calibrate performance and provides the sales organization with tools designed to retain and grow existing clients in the face of severe pricing pressures at the time of contract
renewal.



Revenue Recognition



We record revenues for Network Services; Consulting, Integration and
Provisioning Services; Applications Services; and Other Communications Services when the services are provided. Such services are provided under client contracts, which generally have a term of 1 to 3 years. Consistent with EITF Issue No. 99-19,
Reporting Revenue Gross as a Principal Versus Net as an Agent, we recognize revenues from contracts entered into by non-consolidated country representatives at end-user prices. The amount of end-user revenues to which a non-consolidated
country representative is entitled for sales and support services is reflected as country representative compensation, which is included in Communication services costs and Integration and provisioning costs in our results of operations.
Installation fee revenues are amortized over the average client life. Amounts for services billed in advance of the service period and cash received in advance of revenues earned are recorded as advance billings and recognized as revenues when
earned. An allowance for client credits is accrued concurrently with the recognition of revenues.



Results of Operations



Three Months Ended December 31, 2004 Compared to Three Months Ended December 31, 2003



The following tables summarize our revenues by service, by distribution channel and by region and are provided in support of the accompanying
Managements Discussion and Analysis for the three months ended December 31, 2004 and 2003. Dollar amounts presented below are in thousands.



Revenues by Service



|                                                  |  |                                 |         |  |              |   |  |              |         |  |     |   |  |   |        |   |  |    |   
|------------------------------------------------- |  | ------------------------------- | ------- |  | ------------ | - |  | ------------ | ------- |  | --- | - |  | - | ------ | - |  | -- | --
|                                                  |  | Three Months Ended December 31, |         |  | $ Inc /(Dec) |   |  | % Inc /(Dec) |        
|                                                  |  | 2003                            |         |  | 2004         |   |  |             
|Network Services                                  |  | $                               | 80,951  |  | 54           | % |  | $            | 77,023  |  | 50  | % |  | $ | (3,928 | ) |  | (5 | )%
|Consulting, Integration and Provisioning Services |  |                                 | 54,598  |  | 36           |   |  |              | 64,231  |  | 41  |   |  |   | 9,633  |   |  | 18 | % 
|Applications Services                             |  |                                 | 12,185  |  | 8            |   |  |              | 11,230  |  | 7   |   |  |   | (955   | ) |  | (8 | )%
|Other Communications Services                     |  |                                 | 3,351   |  | 2            |   |  |              | 3,628   |  | 2   |   |  |   | 277    |   |  | 8  | % 
|                                                  |  |                                 |         |  |              |   |  |              |         |  |     |   |  |   |        |   |  |    |   
|Total revenues                                    |  | $                               | 151,085 |  | 100          | % |  | $            | 156,112 |  | 100 | % |  | $ | 5,027  |   |  | 3  | % 
|                                                  |  |                                 |         |  |              |   |  |              |         |  |     |   |  |   |        |   |  |    |   



Revenues by
Distribution Channel



|                                           |  |                                |         |   |            |   |         |              |  |   |       |   |  |    |   
|------------------------------------------ |  | ------------------------------ | ------- | - | ---------- | - | ------- | ------------ |  | - | ----- | - |  | -- | --
|                                           |  | Three Months EndedDecember 31, |         |   | Inc /(Dec) |   |         | % Inc /(Dec) | 
|                                           |  | 2003                           |         |   | 2004       |   |         |             
|Country representatives (direct channels): |  |                                |         |   |            |   |         |              |  |   |       |   |  |    |   
|Number of representatives                  |  |                                | 58      |   |            |   | 59      |              |  |   | 1     |   |  | 2  | % 
|Number of clients                          |  |                                | 1,661   |   |            |   | 1,837   |              |  |   | 176   |   |  | 11 | % 
|Country representatives revenues          |  | $                              | 134,430 |   |            | $ | 139,698 |              |  | $ | 5,268 |   |  | 4  | % 
|Percent of total revenues                  |  |                                | 89      | % |            |   | 89      | %            |  |   |       |   |  |    |   
|Alternate sales channels:                  |  |                                |         |   |            |   |         |              |  |   |       |   |  |    |   
|Number of sales channel partners           |  |                                | 32      |   |            |   | 33      |              |  |   | 1     |   |  | 3  | % 
|Number of sales channel partners clients  |  |                                | 335     |   |            |   | 330     |              |  |   | (5    | ) |  | (1 | )%
|Alternate sales channels revenues         |  | $                              | 16,655  |   |            | $ | 16,414  |              |  | $ | (241  | ) |  | (1 | )%
|Percent of total revenues                  |  |                                | 11      | % |            |   | 11      | %            |  |   |       |   |  |    |   



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Revenues by Region



|                                      |  |                                 |         |  |              |   |  |              |         |  |     |   |  |   |        |   |  |    |   
|------------------------------------- |  | ------------------------------- | ------- |  | ------------ | - |  | ------------ | ------- |  | --- | - |  | - | ------ | - |  | -- | --
|                                      |  | Three Months Ended December 31, |         |  | $ Inc /(Dec) |   |  | % Inc /(Dec) |        
|                                      |  | 2003                            |         |  | 2004         |   |  |             
|Americas                              |  | $                               | 43,819  |  | 29           | % |  | $            | 51,659  |  | 33  | % |  | $ | 7,840  |   |  | 18 | % 
|Europe, Middle East and Africa (EMEA) |  |                                 | 87,340  |  | 58           |   |  |              | 82,688  |  | 53  |   |  |   | (4,652 | ) |  | (5 | )%
|Asia Pacific                          |  |                                 | 19,926  |  | 13           |   |  |              | 21,765  |  | 14  |   |  |   | 1,839  |   |  | 9  | % 
|                                      |  |                                 |         |  |              |   |  |              |         |  |     |   |  |   |        |   |  |    |   
|Total revenues                        |  | $                               | 151,085 |  | 100          | % |  | $            | 156,112 |  | 100 | % |  | $ | 5,027  |   |  | 3  | % 
|                                      |  |                                 |         |  |              |   |  |              |         |  |     |   |  |   |        |   |  |    |   



Revenues



Revenues by ServiceRevenues increased
$5.0 million, or 3% in the three months ended December 31, 2004 compared to the corresponding quarter of the prior fiscal year primarily due to revenues from Consulting, Integration and Provisioning Services, which increased $9.6 million, or 18% in
the three months ended December 31, 2004 compared to the corresponding quarter of the prior fiscal year. The increase is primarily attributable to an increase in our global connect services that enable our clients to access The World Network and use
our Network Services. Revenues from Other Communications Services increased $0.3 million, or 8% primarily due to a shift from our legacy business to our other services. These aggregate increases of $9.9 million were offset by aggregate decreases in
revenues from Network Services and Applications Services of $4.9 million. Revenues from Network Services decreased $3.9 million, or 5% in the three months ended December 31, 2004 compared to the corresponding quarter of the prior fiscal year.
Intranet services, the largest component of Network Services revenues, decreased $4.1 million, or 6% primarily due to the price erosion we experience as existing clients transition to our more cost effective solutions. Applications Services revenues
decreased $1.0 million, or 8% in the three months ended December 31, 2004 compared to the corresponding quarter of the prior fiscal year primarily due to a decrease in revenues from our call center and messaging services.



Consulting, Integration and Provisioning Services, which carry lower profit
margins than our Network Services, have increased as a percentage of our total revenues in recent quarters, primarily due to the effects of price erosion on our Network Services revenues. We have enacted initiatives to reduce the costs of our
Consulting, Integration and Provisioning Services revenues, and thereby increase our margins. However, should Consulting, Integration and Provisioning Services revenues continue to increase as a percentage of our total revenues, and if we are
unsuccessful in improving our margins, our future operating results could be materially and adversely affected. Despite the impact that price erosion is expected to have on our Network Services revenues, we expect that Network Services revenues will
continue to constitute the largest component of our revenue base going forward. We anticipate that our short-term future growth, if any, will come primarily from Consulting, Integration and Provisioning Services. We anticipate that our long-term
future growth, if any, will come primarily from Network Services and Applications Services as we add new services designed to better serve our clients.



Revenues by Distribution ChannelRevenues from our country representatives increased $5.3 million, or 4% in the three months ended December
31, 2004 compared to the corresponding quarter of the prior fiscal year primarily due to an increase in country representatives and in the number of our country representatives clients. The number of our country representatives increased to 59
as of December 31, 2004 from 58 as of December 31, 2003. The number of our country representatives clients increased to 1,837 as of December 31, 2004 from 1,661 as of December 31, 2003.



Revenues from our alternate sales channels decreased $0.2 million, or 1% in
the three months ended December 31, 2004 compared to the corresponding quarter of the prior fiscal year primarily due to a decrease in the number of our alternate sales channel partners clients. The number of our alternate sales channel
partners increased to 33 as of December 31, 2004 from 32 as of December 31, 2003. The number of our alternate sales channel partners clients decreased to 330 as of December 31, 2004 from 335 clients as of December 31, 2003.



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Revenues by RegionRevenues billed in the Americas region increased $7.8 million, or 18% in
the three months ended December 31, 2004 compared to the corresponding quarter of the prior fiscal year due to our sales efforts in that region. Revenues billed in the EMEA region decreased $4.7 million, or 5% in the three months ended December 31,
2004 compared to the corresponding quarter of the prior fiscal year. Revenues billed in the Asia Pacific region increased $1.8 million, or 9% in the three months ended December 31, 2004 compared to the corresponding quarter of the prior fiscal year.
Revenues from the Americas and Asia Pacific regions continue to demonstrate growth, while revenues from the EMEA region have remained relatively flat during the current fiscal year.



Expenses



Communication services costs decreased $5.0 million, or 22% in the three months ended December 31, 2004 compared to the corresponding quarter of the prior
fiscal year. The decrease is primarily due to a shift in revenues from non-consolidated country representatives to consolidated country representatives. We do not pay country representative compensation to consolidated country representatives,
therefore the shift in revenues reduces our Communication services costs. Communication services costs as a percentage of total revenues were 15% and 11% in the three months ended December 31, 2003 and 2004, respectively.



Integration and provisioning costs increased $7.8 million, or 15% in the
three months ended December 31, 2004 compared to the corresponding quarter of the prior fiscal year. The increase is primarily related to an increase in our global connect revenues, which are included in the Consulting, Integration and Provisioning
Services category, and an increase in local access costs. Integration and provisioning costs as a percentage of total revenues were 35% and 39% in the three months ended December 31, 2003 and 2004, respectively.



Bandwidth and related costs decreased $5.3 million, or 20% in the three
months ended December 31, 2004 compared to the corresponding quarter of the prior fiscal year. Lease expense, the largest component of bandwidth and related costs, decreased $5.6 million, or 30% in the three months ended December 31, 2004 compared
to the corresponding quarter of the prior fiscal year. The decrease is primarily due to successful negotiations for lower rates on our long-term leases and lower replacement costs. Bandwidth and related costs as a percentage of total revenues were
17% and 13% in the three months ended December 31, 2003 and 2004, respectively.



Network operations expenses decreased $4.1 million, or 13% in the three months ended December 31, 2004 compared to the corresponding quarter of the prior fiscal year. The decrease is primarily due to a reduction in
project-related spending as part of our cost containment efforts and the implementation of more cost efficient solutions. Network operations expenses as a percentage of total revenues were 21% and 18% in the three months ended December 31, 2003 and
2004, respectively.



Selling, general and administrative
expenses increased $7.3 million, or 19% in the three months ended December 31, 2004 compared to the corresponding quarter of the prior fiscal year. During the three months ended December 31, 2004, we paid $4.5 million to our CEO in connection with a
modification of his employment agreement with us. Expenses for outside legal and consulting services increased $5.0 million in the three months ended December 31, 2004 compared to the corresponding quarter of the prior fiscal year primarily due to
activities related to the proposed business combination and consulting expenses related to our compliance with the Sarbanes-Oxley Act. Sales personnel-related expenses increased $1.6 million, or 9% in the three months ended December 31, 2004
compared to the corresponding quarter of the prior fiscal year due to compensation and headcount increases. Marketing, product development and advertising expenses increased $2.4 million, or 44% in the three months ended December 31, 2004 compared
to the corresponding quarter of the prior fiscal year primarily due to outside advertising and headcount increases. Partially offsetting these increases is a $1.9 million decrease in stock-related compensation charges, as we no longer incur charges
related to our SARs Plan or our 1998 Stock Option Plan. In addition, during the third quarter of the prior fiscal year, we recorded a $5.0 million expense towards the settlement of a class action lawsuit that was subsequently approved on July 26,
2004.



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Selling, general and administrative expenses as a percentage of total revenues were 26% and 30% in the three months ended December 31, 2003 and 2004,
respectively.



Operating Loss decreased $4.3 million, or 19% in
the three months ended December 31, 2004 compared to the corresponding quarter of the prior fiscal year due to the factors described above.



Total other income, net decreased $1.5 million, or 77% in the three months ended December 31, 2004 compared to the corresponding quarter of the prior
fiscal year. The decrease is primarily due to a $0.6 million expense recorded in the third quarter of the current fiscal year related to interest on sales tax exposures. In addition, the gain on sales of marketable securities decreased $0.5 million
in the three months ended December 31, 2004 compared to the corresponding quarter of the prior fiscal year.



Provision for Income Taxes increased $1.3 million in the three months ended December 31, 2004 compared to the corresponding quarter of the prior fiscal
year.



Net Loss decreased $1.5 million, or 7% in the three
months ended December 31, 2004 compared to the corresponding quarter of the prior fiscal year due to the factors described above.



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



The following tables summarize our revenues by service, by distribution channel and by region and are provided in support of
the accompanying Managements Discussion and Analysis for the nine months ended December 31, 2003 and 2004. Dollar amounts presented below are in thousands.



Revenues by Service



|                                                  |  |                                |         |  |              |   |  |              |         |  |     |   |  |   |        |   |  |     |   
|------------------------------------------------- |  | ------------------------------ | ------- |  | ------------ | - |  | ------------ | ------- |  | --- | - |  | - | ------ | - |  | --- | --
|                                                  |  | Nine Months Ended December 31, |         |  | $ Inc /(Dec) |   |  | % Inc /(Dec) |        
|                                                  |  | 2003                           |         |  | 2004         |   |  |             
|Network Services                                  |  | $                              | 245,150 |  | 54           | % |  | $            | 240,830 |  | 51  | % |  | $ | (4,320 | ) |  | (2  | )%
|Consulting, Integration and Provisioning Services |  |                                | 162,804 |  | 36           |   |  |              | 189,522 |  | 40  |   |  |   | 26,718 |   |  | 16  | % 
|Applications Services                             |  |                                | 32,008  |  | 7            |   |  |              | 32,641  |  | 7   |   |  |   | 633    |   |  | 2   | % 
|Other Communications Services                     |  |                                | 11,468  |  | 3            |   |  |              | 9,686   |  | 2   |   |  |   | (1,782 | ) |  | (16 | )%
|                                                  |  |                                |         |  |              |   |  |              |         |  |     |   |  |   |        |   |  |     |   
|Total revenues                                    |  | $                              | 451,430 |  | 100          | % |  | $            | 472,679 |  | 100 | % |  | $ | 21,249 |   |  | 5   | % 
|                                                  |  |                                |         |  |              |   |  |              |         |  |     |   |  |   |        |   |  |     |   



Revenues by
Distribution Channel



|                                           |  |                                |         |   |            |   |         |              |  |   |        |   |  |    |   
|------------------------------------------ |  | ------------------------------ | ------- | - | ---------- | - | ------- | ------------ |  | - | ------ | - |  | -- | --
|                                           |  | Nine Months Ended December 31, |         |   | Inc /(Dec) |   |         | % Inc /(Dec) | 
|                                           |  | 2003                           |         |   | 2004       |   |         |             
|Country representatives (direct channels): |  |                                |         |   |            |   |         |              |  |   |        |   |  |    |   
|Number of representatives                  |  |                                | 58      |   |            |   | 59      |              |  |   | 1      |   |  | 2  | % 
|Number of clients                          |  |                                | 1,661   |   |            |   | 1,837   |              |  |   | 176    |   |  | 11 | % 
|Country representatives revenues          |  | $                              | 399,932 |   |            | $ | 423,738 |              |  | $ | 23,806 |   |  | 6  | % 
|Percent of total revenues                  |  |                                | 89      | % |            |   | 90      | %            |  |   |        |   |  |    |   
|Alternate sales channels:                  |  |                                |         |   |            |   |         |              |  |   |        |   |  |    |   
|Number of sales channel partners           |  |                                | 32      |   |            |   | 33      |              |  |   | 1      |   |  | 3  | % 
|Number of sales channel partners clients  |  |                                | 335     |   |            |   | 330     |              |  |   | (5     | ) |  | (1 | )%
|Alternate sales channels revenues         |  | $                              | 51,498  |   |            | $ | 48,941  |              |  | $ | (2,557 | ) |  | (5 | )%
|Percent of total revenues                  |  |                                | 11      | % |            |   | 10      | %            |  |   |        |   |  |    |   



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Revenues by Region



|                                      |  |                                |         |  |              |   |  |               |         |  |     |   |  |   |        |   |  |    |   
|------------------------------------- |  | ------------------------------ | ------- |  | ------------ | - |  | ------------- | ------- |  | --- | - |  | - | ------ | - |  | -- | --
|                                      |  | Nine Months Ended December 31, |         |  | $ Inc /(Dec) |   |  | % Inc / (Dec) |        
|                                      |  | 2003                           |         |  | 2004         |   |  |              
|Americas                              |  | $                              | 126,553 |  | 28           | % |  | $             | 152,928 |  | 32  | % |  | $ | 26,375 |   |  | 21 | % 
|Europe, Middle East and Africa (EMEA) |  |                                | 261,711 |  | 58           |   |  |               | 252,955 |  | 54  |   |  |   | (8,756 | ) |  | (3 | )%
|Asia Pacific                          |  |                                | 63,166  |  | 14           |   |  |               | 66,796  |  | 14  |   |  |   | 3,630  |   |  | 6  | % 
|                                      |  |                                |         |  |              |   |  |               |         |  |     |   |  |   |        |   |  |    |   
|Total revenues                        |  | $                              | 451,430 |  | 100          | % |  | $             | 472,679 |  | 100 | % |  | $ | 21,249 |   |  | 5  | % 
|                                      |  |                                |         |  |              |   |  |               |         |  |     |   |  |   |        |   |  |    |   



Revenues



Revenues by ServiceRevenues increased
$21.2 million, or 5% in the nine months ended December 31, 2004 compared to the corresponding period of the prior fiscal year primarily due to an increase in revenues from Consulting, Integration and Provisioning Services of $26.7 million, or 16% in
the nine months ended December 31, 2004 compared to the corresponding period of the prior fiscal year. The increase is primarily attributable to an increase in our global connect services that enable our clients to access The World Network and use
our Network Services. Revenues from Applications Services increased $0.6 million, or 2% in the nine months ended December 31, 2004 compared to the corresponding period of the prior fiscal year. These aggregate increases of $27.4 million were offset
by aggregate decreases in revenues from Network Services and Other Communications Services of $6.1 million. Revenues from Network Services decreased $4.3 million, or 2% in the nine months ended December 31, 2004 compared to the corresponding period
of the prior fiscal year. Intranet services, the largest component of Network Services revenues, decreased $9.5 million, or 5% in the nine months ended December 31, 2004 compared to the corresponding period of the prior fiscal year. The decrease in
intranet services revenues is primarily attributable to the price erosion we experience as existing clients transition to our more cost effective solutions. The decrease in revenues from intranet services is partially offset by an increase in
revenues from our remote access and internet services of $4.9 million, or 9% in the nine months ended December 31, 2004 compared to the corresponding period of the prior fiscal year primarily due to sales from a relatively new channel. Revenues from
Other Communications Services decreased $1.8 million, or 16% in the nine months ended December 31, 2004 compared to the corresponding period of the prior fiscal year due to a continuing decline in our legacy platform revenues.



Consulting, Integration and Provisioning Services, which carry lower profit
margins than our Network Services, have increased as a percentage of our total revenues in recent quarters, primarily due to the effects of price erosion on our Network Services revenues. We have enacted initiatives to reduce the costs of our
Consulting, Integration and Provisioning Services revenues, and thereby increase our margins. However, should Consulting, Integration and Provisioning Services revenues continue to increase as a percentage of our total revenues, and if we are
unsuccessful in improving our margins, our future operating results could be materially and adversely affected. Despite the impact that price erosion is expected to have on our Network Services revenues, we expect that Network Services revenues will
continue to constitute the largest component of our revenue base going forward. We anticipate that our short-term future growth, if any, will come primarily from Consulting, Integration and Provisioning Services. We anticipate that our long-term
future growth, if any, will come primarily from Network Services and Applications Services as we add new services designed to better serve our clients.



Revenues by Distribution ChannelRevenues from our country representatives increased $23.8 million, or 6% in the nine months ended December
31, 2004 compared to the corresponding period of the prior fiscal year due to an increase in the number of our country representatives and their clients. The number of our country representatives increased to 59 as of December 31, 2004 from 58 as of
December 31, 2003. The number of our country representatives clients increased to 1,837 as of December 31, 2004 from 1,661 as of December 31, 2003.



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Revenues from our alternate sales channels decreased $2.6 million, or 5% in the nine months ended
December 31, 2004 compared to the corresponding period of the prior fiscal year due to a decrease in the number of our alternate sales channel partners clients. The number of our alternate sales channel partners increased to 33 as of December
31, 2004 from 32 as of December 31, 2003. The number of our alternate sales channel partners clients decreased to 330 as of December 31, 2004 from 335 clients as of December 31, 2003.



Revenues by RegionRevenues billed in the Americas region
increased $26.4 million, or 21% in the nine months ended December 31, 2004 compared to the corresponding period of the prior fiscal year due to our sales efforts in that region. Revenues billed in the EMEA region decreased $8.8 million, or 3% in the
nine months ended December 31, 2004 compared to the corresponding period of the prior fiscal year. Revenues billed in the Asia Pacific region increased $3.6 million, or 6% in the nine months ended December 31, 2004 compared to the corresponding
quarter of the prior fiscal year. Revenues from the Americas and Asia Pacific regions continue to demonstrate growth, while revenues from the EMEA region have remained relatively flat.



Expenses



Communication services costs decreased $12.5 million, or 18% in the nine months ended December 31, 2004 compared to the corresponding period of the prior
fiscal year. The decrease is primarily due to a shift in revenues from non-consolidated country representatives to consolidated country representatives. We do not pay country representative compensation to consolidated country representatives,
therefore the shift in revenues reduces our Communication services costs. Communication services costs as a percentage of total revenues were 15% and 12% in the nine months ended December 31, 2003 and 2004, respectively.



Integration and provisioning costs increased $20.0 million, or 13% in the
nine months ended December 31, 2004 compared to the corresponding period of the prior fiscal year. The increase is primarily related to an increase in our global connect revenues, which are included in the Consulting, Integration and Provisioning
Services category, and an increase in local access costs. Integration and provisioning costs as a percentage of total revenues were 35% and 38% in the nine months ended December 31, 2003 and 2004, respectively.



Bandwidth and related costs decreased $15.2 million, or 19% in the nine
months ended December 31, 2004 compared to the corresponding period of the prior fiscal year. Lease expense, the largest component of bandwidth and related costs, decreased $16.5 million, or 29% in the nine months ended December 31, 2004 compared to
the corresponding period of the prior year. The decrease is primarily due to successful negotiations for lower rates on our long-term leases and lower replacement costs. Bandwidth and related costs as a percentage of total revenues were 17% and 13%
in the nine months ended December 31, 2003 and 2004, respectively.



Network operations expenses decreased $2.3 million, or 2% in the nine months ended December 31, 2004 compared to the corresponding period of the prior fiscal year. The decrease is primarily due to a reduction in project-related spending as
part of our cost containment efforts and the implementation of more cost efficient solutions. Network operations expenses as a percentage of total revenues were 21% and 19% in the nine months ended December 31, 2003 and 2004.



Selling, general and administrative expenses increased $15.1 million, or 14%
in the nine months ended December 31, 2004 compared to the corresponding period of the prior fiscal year. During the three months ended December 31, 2004, we paid $4.5 million to our CEO in connection with a modification of his employment agreement
with us. Expenses for outside legal and consulting services increased $7.0 million in the nine months ended December 31, 2004 compared to the corresponding period of the prior fiscal year primarily due to activities related to the proposed business
combination and consulting expenses related to our compliance with the Sarbanes-Oxley Act. Sales personnel-related expenses increased $6.1 million, or 11% in the nine months ended December 31, 2004 compared to the corresponding period of the prior
fiscal year due to compensation and headcount increases. Marketing, product development and advertising expenses increased $9.1 million, or 71% in the nine months ended December 31, 2004, exclusive of $0.5 million of outside legal and consulting
services discussed above, compared to the corresponding period of the prior fiscal year primarily due to outside advertising and headcount increases. Partially offsetting these increases is a $6.2 million decrease in stock-related compensation
charges, as we no longer incur charges related to our SARs Plan or our 1998 Stock Option Plan. In



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addition, during the third quarter of the prior fiscal year, we recorded a $5.0 million expense towards the settlement of a class action lawsuit that was
subsequently approved on July 26, 2004. Selling, general and administrative expenses as a percentage of total revenues were 24% and 27% during the nine months ended December 31, 2003 and 2004, respectively.



Operating Loss decreased $16.2 million, or 27% in the nine months ended
December 31, 2004 compared to the corresponding period of the prior fiscal year due to the factors described above.



Total other income, net decreased $1.5 million, or 36% in the nine months ended December 31, 2004 compared to the corresponding period of the prior fiscal
year. The decrease is primarily due to a $0.6 million expense recorded in the third quarter of the current fiscal year related to interest on sales tax exposures. In addition, the gain on sales of marketable securities decreased $0.6 million in the
nine months ended December 31, 2004 compared to the corresponding period of the prior fiscal year.



Provision for Income Taxes increased $1.4 million in the nine months ended December 31, 2004 compared to the corresponding period of the prior fiscal
year.



Net Loss decreased $12.9 million, or 23% in the nine
months ended December 31, 2004 compared to the corresponding period of the prior fiscal year due to the factors described above.



Liquidity and Capital Resources



Net cash provided by operating activities in the nine months ended December 31, 2004 was $48.5 million compared to $32.8 million in the nine months ended
December 31, 2003. Depreciation and amortization increased $7.0 million in the nine months ended December 31, 2004 compared to the corresponding period of the prior fiscal year due to our continuing build-out of The World Network. Accounts
receivable, net provided a source of cash of $29.7 million in the nine months ended December 31, 2004 compared to $4.3 million in the nine months ended December 31, 2003. During the nine months ended December 31, 2004, we received significant
payments resulting in a reduction of past due accounts receivable. We used cash to reduce our accounts payable by $16.4 million in the nine months ended December 31, 2004 compared to $2.4 million in the nine months ended December 31, 2003. During
the nine months ended December 31, 2004, we made significant cash payments related to capital purchases accrued in the fourth quarter of the prior fiscal year. Net cash used in investing activities in the nine months ended December 31, 2004 was
$28.0 million compared to $37.2 million in the nine months ended December 31, 2003. The decrease is primarily due to a $5.1 million decrease in purchases of property, equipment and communication lines and a $7.7 million increase in net proceeds from
securities available-for-sale, offset by a $2.9 million decrease in proceeds from sale of property, equipment and communication lines in the nine months ended December 31, 2004 compared to the corresponding period of the prior fiscal year. Net cash
provided by financing activities in the nine months ended December 31, 2004 was $8.5 million compared to net cash used of $7.3 million in the nine months ended December 31, 2003. The fluctuation was primarily the result of $7.5 million of
collections of notes receivable from issuance of common stock during the nine months ended December 31, 2004 and $6.2 million of treasury stock purchases made during the nine months ended December 31, 2003. Our stock repurchase program ended in
November 2003. The cash flow activity in the nine months ended December 31, 2004 is not necessarily indicative of future periods cash flow activity.



As of December 31, 2004, we had cash and cash equivalents of $168.6 million, short-term investments of $238.4 million, working capital of $406.6 million
and total assets of $1,007.1 million. This compares to cash and cash equivalents of $137.1 million, short-term investments of $256.5 million, working capital of $404.1 million and total assets of $1,058.3 million as of March 31, 2004.



Based on current plans and business conditions, we believe that our existing
cash and cash equivalents, short-term investments, and cash generated from operations will be sufficient to satisfy anticipated cash requirements for the foreseeable future. We expect capital expenditures for fiscal year 2005 to approximate $44
million. In the nine months ended December 31, 2004, we have used cash and cash equivalents of $36.9 million for capital expenditures. Although we do not expect to at this time, it may be necessary for us to increase capital



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expenditures to replace purchased bandwidth acquired from service providers who may be unable to provide an acceptable level of service.



Commitments and Contingencies



There were no material changes to our commitments as reported on our Annual
Report on Form 10-K for the fiscal year ended March 31, 2004.



New
Accounting Pronouncements



Refer to Item 1, Note 2 to the
consolidated financial statements for new accounting pronouncements.



Proposed Business Combination



On November 8,
2004, we entered into an Agreement and Plan of Merger (the Merger Agreement) with British Telecommunications plc (the operating subsidiary of BT Group plc) and Blue Acquisition Corp., a wholly owned subsidiary of British
Telecommunications plc. The Merger Agreement provides for the merger of Blue Acquisition Corp. into us, such that upon satisfaction of the conditions set forth in the Merger Agreement, we will become a wholly owned subsidiary of BT Group plc. Under
the Merger Agreement, each issued and outstanding share of our Class A common stock and Class B common stock, other than as provided in the Merger Agreement, will be converted into the right to receive $2.06 in cash, without interest. Completion of
the merger is subject to the satisfaction of closing conditions including (i) approval by the holders of two-thirds of the voting power of our outstanding shares of Class A common stock and Class B common stock, voting together as a single class,
(ii) approval by the holders of 95% of our Class A common stock and (iii) the receipt of required regulatory and other approvals, as well as other customary closing conditions.



We have received certain of the regulatory approvals required for the completion of the merger.On December 21, 2004,
we received the approval of the United States Federal Trade Commission, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, regarding the merger. On January 25, 2005, the European Commission issued a press release announcing that the
European Commission has approved the merger under the EU Merger Regulation. Completion of the merger remains subject to the receipt of other regulatory approvals, including the approval of the United States Federal Communications Commission for the
transfer of certain of our licenses and authorizations. We have scheduled a special meeting of our stockholders to be held on February 23, 2005, for our stockholders to vote on the approval and adoption of the Merger Agreement.



Employment Agreement



We have agreed with José Collazo, our Chief Executive Officer, that upon the payment by us to Mr. Collazo of an
amount equal to $4.5 million on or before November 30, 2004, Mr. Collazos current employment agreement would be modified. During the three months ended December 31, 2004, we paid a bonus of $4.5 million to Mr. Collazo, which has been included
in selling, general and administrative expense in our consolidated statements of operations and comprehensive loss and accordingly modified Mr. Collazos employment agreement. As a result of this modification, the total value of separation
payments and benefits payable under Mr. Collazos current employment contract in the event of Mr. Collazos termination without cause or for good reason will not exceed $8.0 million, reduced by the amount of the $4.5 million payment.



Item 3.Quantitative and Qualitative Disclosures About Market Risk



We are exposed to market risks, which arise during the normal course of business from changes in foreign exchange rates and interest rates. A discussion
of our primary market risks associated with our foreign currency transactions, available-for-sale securities, and long-term debt exposure is presented below.



Foreign Exchange Risk



We conduct our operations in more than 70 countries and territories around the world in a number of different currencies. There is exposure to future
earnings when foreign exchange rates change and certain



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receivables, payables and intercompany transactions are denominated in foreign currencies. We monitor our exposure to foreign currencies through our regular
operating activities and have not historically used derivatives to hedge foreign exchange risk.



We invoice substantially all sales of our services to our country representatives and sales channel partners in U.S. dollars. However, many of our country
representatives derive their revenues and incur costs in currencies other than U.S. dollars. To the extent that the local currency used by the country representative fluctuates against the U.S. dollar, the obligations of the country representative
may increase or decrease significantly and lead to foreign exchange losses or gains. We assume the exchange rate risk for our consolidated country representatives; however, our non-consolidated country representatives assume the exchange rate risk
under our country representative structure.



As of December 31,
2004, we were primarily exposed to the following currencies: the euro, the British pound and the Australian dollar. Based upon a hypothetical ten-percent weakening or strengthening of the U.S. dollar across all currencies, the potential gains or
losses in future earnings due to foreign currency exposures would have been approximately $0.4 million as of that date.



Interest Rate Risk



We currently maintain an investment portfolio of investment grade marketable securities. According to our investment policy, we may invest in taxable
instruments including U.S. Treasury bills, obligations issued by government agencies, certificates of deposit, commercial paper, master notes, corporate notes and asset-backed securities. In addition, the policy establishes limits on credit quality,
maturity, issuer and type of instrument. All securities are classified as available for sale, and recorded in the balance sheet at fair value. Fluctuations in fair value attributable to changes in interest rates are reported as a separate component
of stockholders equity. We do not use derivative instruments to hedge our investment portfolio. Based on a hypothetical one-percentage-point increase or decrease in interest rates, interest income would have increased or decreased,
respectively, by approximately $2.6 million during the nine months ended December 31, 2004.



As of December 31, 2004, we had no material long-term debt exposure.



The carrying amount, principal maturity and estimated fair value of our investment portfolio as of December 31, 2004 are as follows (dollars in
thousands):



|                               |  |                    |         |   |          |      |        |            |      |   |        |      |  |   |        |   |  |            |        |   |  |   |        |   |  |   |        |   |  |   |        
|------------------------------ |  | ------------------ | ------- | - | -------- | ---- | ------ | ---------- | ---- | - | ------ | ---- |  | - | ------ | - |  | ---------- | ------ | - |  | - | ------ | - |  | - | ------ | - |  | - | -------
|                               |  | CarryingAmount2004 |         |   | Maturity |      |        | Fair Value
|                               |  |                    | 2005    |   |          | 2006 |        |            | 2007 |   |        | 2008 |  |   | 2009   |   |  | Thereafter |        |  
|Investments                    |  |                    |         |   |          |      |        |            |      |   |        |      |  |   |        |   |  |            |        |   |  |   |        |   |  |   |        |   |  |   |        
|Cash equivalents               |  | $                  | 121,386 |   |          | $    |       |            |      | $ |       |      |  | $ |       |   |  | $          |       |   |  | $ |       |   |  | $ |       |   |  | $ | 121,386
|Weighted average interest rate |  |                    | 2.29    | % |          |      |       |            |      |   |       |      |  |   |       |   |  |            |       |   |  |   |       |   |  |   |       |   |  |   |       
|Short-term investments         |  | $                  | 238,368 |   |          | $    | 22,081 |            |      | $ | 82,636 |      |  | $ | 67,806 |   |  | $          | 20,176 |   |  | $ | 10,428 |   |  | $ | 35,241 |   |  | $ | 238,368
|Weighted average interest rate |  |                    | 3.10    | % |          |      | 2.77   | %          |      |   | 3.04   | %    |  |   | 2.95   | % |  |            | 3.24   | % |  |   | 3.74   | % |  |   | 3.48   | % |  |   |       



Commercial Contracts with Related
Parties



Refer to Item 1, Note 9 to the consolidated
financial statements for commercial contracts with related parties.



Item 4.Controls and Procedures



We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, and that such information is accumulated and communicated to our management, including our Chief
Executive Officer and our Chief



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Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and
procedures, management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching our
designed disclosure control objectives. Also, we have investments in certain unconsolidated entities. As we do not control or manage these entities, our disclosure controls and procedures with respect to such entities are necessarily substantially
more limited than those we maintain with respect to our consolidated subsidiaries.



We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation
of our disclosure controls and procedures as of December 31, 2004, the end of the quarterly period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective at the reasonable assurance level.



There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.



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##### Table of Contents

PART II



OTHER INFORMATION



Item 1.Legal Proceedings



Between November 8, 2004 and November 18, 2004, three purported class action lawsuits were filed in California Superior Court, County of Los Angeles,
which have been consolidated as In re Infonet Services Corporation Shareholder Litigation, Lead Case No. BC324238, against us, our Board members John Allerton, Per-Eric Fylking, Yuzo Mori, Hanspeter Quadri, Timothy P. Hartman, Peter G.
Hanelt, Bruce A. Beda, José Manuel Santero, Matthew J. ORourke, and Eric M. de Jong, and our Chairman, President and Chief Executive Officer, José A. Collazo. On behalf of a proposed class of holders of our Class B common stock,
plaintiffs allege that the defendants breached their fiduciary duties to our stockholders by approving the merger agreement with British Telecommunications plc. Plaintiffs seek relief including an injunction preventing the consummation of the
proposed transaction, rescission of the proposed transaction to the extent already implemented, and reasonable costs and attorneys fees.



At this time, we do not believe that this lawsuit could reasonably be expected to have a material adverse effect on our business or financial condition,
or our ability to complete the proposed transaction with British Telecommunications plc. It is possible, however, that future results of operations for any particular quarterly or annual period, or our ability to complete the proposed transaction
with British Telecommunications plc, could be materially and adversely affected by changes in our assumptions or the effectiveness of our strategies related to these proceedings.



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



See Exhibit Index.



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SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



INFONET SERVICES CORPORATION/s/    AKBAR H. FIRDOSYAkbar H. Firdosy Chief Financial Officer (Duly Authorized Officer)




Date: February 9, 2005



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EXHIBIT INDEX



|         |  |                                                                                                                                                                                                                                         
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number   |  | Description                                                                                                                                                                                                                             
|         | 
|2.1      |  | Agreement and Plan of Merger dated as of November 8, 2004 by and among British Telecommunications plc, Blue Acquisition Corp. and Infonet Services Corporation(1)                                                                       
|         | 
|3.1      |  | Restated Certificate of Incorporation(2)                                                                                                                                                                                                
|         | 
|3.2      |  | Amended and Restated Bylaws(2)                                                                                                                                                                                                          
|         | 
|3.3      |  | Amended and Restated Bylaws, effective as of February 21, 2004(16)                                                                                                                                                                      
|         | 
|9.1      |  | Form of Amended and Restated Stockholders Agreement(2)                                                                                                                                                                                  
|         | 
|10.1(a)  |  | Amended and Restated Infonet Services Corporation 1998 Stock Option Plan(3)                                                                                                                                                             
|         | 
|10.1(b)  |  | Form of Incentive Stock Option Award Agreement(3)                                                                                                                                                                                       
|         | 
|10.1(c)  |  | Form of Stock Option Award Agreement(3)                                                                                                                                                                                                 
|         | 
|10.2     |  | Form of Infonet Services Corporation 1998 Employee Stock Purchase Plan Loan, Security and Pledge Agreement(4)                                                                                                                           
|         | 
|10.2(a)  |  | Form of Infonet Services Corporation 1998 Employee Stock Purchase Plan Amendment to Loan, Security and Pledge Agreement(4)                                                                                                              
|         | 
|10.2(b)  |  | Form of Infonet Services Corporation 1998 Employee Stock Purchase Plan Second Amendment to Loan, Security and Pledge Agreement(5)                                                                                                       
|         | 
|10.3     |  | Infonet Services Corporation Amended and Restated 1999 Stock Option Plan (Amended and Restated as of August 15, 2002); Form of Infonet Services Corporation Stock Option Award Agreement
(Amended and Restated as of August 15, 2002)(6)
|         | 
|10.3(a)  |  | Form of Infonet Services Corporation Incentive Stock Option Award Agreement(4)                                                                                                                                                          
|         | 
|10.4     |  | Infonet Services Corporation Deferred Income Plan (Amended and Restated Effective January 1, 2000)(4)                                                                                                                                   
|         | 
|10.4(a)  |  | Amendment to Infonet Services Corporation Deferred Income Plan(16)                                                                                                                                                                      
|         | 
|10.6     |  | Infonet Services Corporation Supplemental Executive Retirement Plan (Amended and Restated Effective October 1, 2000)(7)                                                                                                                 
|         | 
|10.6(a)  |  | Amendment to Infonet Services Corporation Supplemental Executive Retirement Plan(16)                                                                                                                                                    
|         | 
|10.8     |  | Executive Employment Agreement of José A. Collazo, dated April 24, 2001(8)                                                                                                                                                              
|         | 
|10.8(a)  |  | First Amendment to Executive Employment Agreement of José A. Collazo, dated May 7, 2004(17)                                                                                                                                             
|         | 
|10.17    |  | Executive Employment Agreement of Akbar H. Firdosy, dated April 24, 2001(8)                                                                                                                                                             
|         | 
|10.18    |  | Infonet Services Corporation 2000 Omnibus Stock Plan(9)                                                                                                                                                                                 
|         | 
|10.18(a) |  | Amendment No. 1 to Infonet Services Corporation 2000 Omnibus Stock Plan(3)                                                                                                                                                              
|         | 
|10.18(b) |  | Amendment No. 2 to Infonet Services Corporation 2000 Omnibus Stock Plan(10)                                                                                                                                                             
|         | 
|10.18(c) |  | Infonet Services Corporation 2000 Omnibus Stock Plan Non-qualified Stock Option Award Agreement for Officers, Directors And Senior Employees(4)                                                                                         
|         | 
|10.18(d) |  | Infonet Services Corporation 2000 Omnibus Stock Plan Incentive Stock Option Award Agreement for Officers, Directors and Senior Employees(6)                                                                                             
|         | 
|10.19    |  | Infonet Services Corporation 2000 Employee Stock Purchase Plan (Amended and Restated Effective as of January 1, 2004)(14)                                                                                                               



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|         |  |                                                                                                                                                                       
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number   |  | Description                                                                                                                                                           
|10.20    |  | Executive Employment Agreement of Paul A. Galleberg, dated April 24, 2001(8)                                                                                          
|         | 
|10.23    |  | Secured Demand Promissory Note between Thomas E. Whidden Ttee & Linda L. Whidden Ttee, U/A dtd 11/7/97 by Whidden Trust, a trust, and Infonet Services Corporation(11)
|         | 
|10.26    |  | Infonet Services Corporation Senior Executive Supplemental Benefits Plan(12)                                                                                          
|         | 
|10.27    |  | AUCS Termination and Transition Agreement, dated as of September 30, 2002(6)                                                                                          
|         | 
|10.28    |  | Incentive Payment Agreement, dated as of March 14, 2003(13)                                                                                                           
|         | 
|10.28(a) |  | Incentive Payment Settlement Agreement, dated as of March 29, 2004(17)                                                                                                
|         | 
|10.29    |  | Infonet Services Corporation 2003 Incentive Award Plan(14)                                                                                                            
|         | 
|10.29(a) |  | Infonet Services Corporation 2003 Incentive Award Plan Incentive Stock Option Award Agreement for Officers and Senior Employees(15)                                   
|         | 
|10.29(b) |  | Infonet Services Corporation 2003 Incentive Award Plan Non-qualified Stock Option Award Agreement for Officers, Directors And Senior Employees(15)                    
|         | 
|10.29(c) |  | Amendment No. 1 to Infonet Services Corporation 2003 Incentive Award Plan, effective as of February 24, 2004(17)                                                      
|         | 
|10.29(d) |  | Form of Infonet Services Corporation 2003 Incentive Award Plan Restricted Stock Agreement(17)                                                                         
|         | 
|10.30    |  | Form of Indemnification Agreement of Directors*(15)                                                                                                                   
|         | 
|10.31    |  | Form of Indemnification Agreement for Senior Executives#(15)                                                                                                          
|         | 
|10.32    |  | Infonet Services Corporation CEO Incentive Bonus Plan(17)                                                                                                             
|         | 
|10.33    |  | Letter Agreement between BT Group plc and Infonet Services Corporation, dated as of August 19, 2004(18)                                                               
|         | 
|10.34    |  | Letter Agreement from José A. Collazo to Infonet Services Corporation, dated as of November 8, 2004(1)                                                                
|         | 
|31.1     |  | Certification of Chief Executive Officer required under Rule 13a-14(a) of Securities Exchange Act of 1934, as amended                                                 
|         | 
|31.2     |  | Certification of Chief Financial Officer required under Rule 13a-14(a) of Securities Exchange Act of 1934, as amended                                                 
|         | 
|32       |  | Certification of Chief Executive Officer and Chief Financial Officer required under 18 U.S.C §1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002       

---

|* |  | Agreements have been executed by Infonet Services Corporation and each of John Allerton, Bruce Beda, José Collazo, Eric de Jong, Per-Eric Fylking, Peter Hanelt, Timothy
Hartman, Yuzo Mori, Matthew ORourke, Hanspeter Quadri, and José Manuel Santero.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|# |  | Agreements have been executed by Infonet Services Corporation and each of Akbar Firdosy, Paul Galleberg, and Peter Sweers.
|- |  | --------------------------------------------------------------------------------------------------------------------------

|(1) |  | Incorporated by reference to the Registrants Current Report on Form 8-K filed with the Commission on November 9, 2004.
|--- |  | -----------------------------------------------------------------------------------------------------------------------

|(2) |  | Incorporated by reference to the Registrants Registration Statement on Form S-1 (No. 333-88799) as amended, that was declared effective on December 15, 1999.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the period ended December 29, 2000.
|--- |  | -------------------------------------------------------------------------------------------------------------------

|(4) |  | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the period ended September 28, 2001.
|--- |  | --------------------------------------------------------------------------------------------------------------------



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|(5) |  | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the period ended December 28, 2001.
|--- |  | -------------------------------------------------------------------------------------------------------------------

|(6) |  | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the period ended September 27, 2002.
|--- |  | --------------------------------------------------------------------------------------------------------------------

|(7) |  | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the period ended December 27, 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------

|(8) |  | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the period ended June 29, 2001.
|--- |  | ---------------------------------------------------------------------------------------------------------------

|(9) |  | Incorporated by reference to the Registrants definitive proxy statement for the 2000 Annual Stockholders Meeting filed with the Commission on July 28, 2000.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) |  | Incorporated by reference to the Registrants definitive proxy statement for the 2001 Annual Stockholders Meeting filed with the Commission on July 9, 2001.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) |  | Incorporated by reference to the Registrants Annual Report on Form 10-K for the period ended March 30, 2001.
|---- |  | -------------------------------------------------------------------------------------------------------------

|(12) |  | Incorporated by reference to the Registrants Annual Report on Form 10-K for the period ended March 29, 2002.
|---- |  | -------------------------------------------------------------------------------------------------------------

|(13) |  | Incorporated by reference to the Registrants Annual Report on Form 10-K for the period ended March 28, 2003.
|---- |  | -------------------------------------------------------------------------------------------------------------

|(14) |  | Incorporated by reference to the Registrants definitive proxy statement for the 2003 Annual Stockholders Meeting filed with the Commission on July 7, 2003.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|(15) |  | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the period ended September 26, 2003
|---- |  | -------------------------------------------------------------------------------------------------------------------

|(16) |  | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the period ended December 26, 2003.
|---- |  | -------------------------------------------------------------------------------------------------------------------

|(17) |  | Incorporated by reference to the Registrants Annual Report on Form 10-K for the period ended April 2, 2004.
|---- |  | ------------------------------------------------------------------------------------------------------------

|(18) |  | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the period ended October 1, 2004
|---- |  | ----------------------------------------------------------------------------------------------------------------



33