##### 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 October 1, 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 November 5, 2004, the registrant had the following number of shares outstanding:



Class A common stock: 161,403,358



Class B common stock: 306,793,546



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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                            |  | 27      
|Item 4.  |  | Controls and Procedures                                                               |  | 28      
|         | 
|PART II  |  |                                                                                      
|         |  |                                                                                      
|Item 1.  |  | Legal Proceedings                                                                     |  | 29      
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 30      
|Item 3.  |  | Defaults Upon Senior Securities                                                       |  | 30      
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 30      
|Item 5.  |  | Other Information                                                                     |  | 30      
|Item 6.  |  | Exhibits                                                                              |  | 30      



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 |           |   | September 30,2004 |  
|                                                                                                                                                                                                                                                                                                                        |  |               |           |   | (Unaudited)       |  
|ASSETS                                                                                                                                                                                                                                                                                                                  |  |               |           |   |                   |   |           |  
|CURRENT ASSETS:                                                                                                                                                                                                                                                                                                         |  |               |           |   |                   |   |           |  
|Cash and cash equivalents                                                                                                                                                                                                                                                                                               |  | $             | 137,071   |   |                   | $ | 151,256   |  
|Short-term investments                                                                                                                                                                                                                                                                                                  |  |               | 256,527   |   |                   |   | 241,613   |  
|Accounts receivable, net                                                                                                                                                                                                                                                                                                |  |               | 143,417   |   |                   |   | 123,390   |  
|Deferred income taxes                                                                                                                                                                                                                                                                                                   |  |               | 740       |   |                   |   | 161       |  
|Prepaid expenses                                                                                                                                                                                                                                                                                                        |  |               | 35,282    |   |                   |   | 30,466    |  
|Other current assets                                                                                                                                                                                                                                                                                                    |  |               | 17,576    |   |                   |   | 17,849    |  
|                                                                                                                                                                                                                                                                                                                        |  |               |           |   |                   |   |           |  
|Total current assets                                                                                                                                                                                                                                                                                                    |  |               | 590,613   |   |                   |   | 564,735   |  
|PROPERTY, EQUIPMENT AND COMMUNICATION LINES, Net                                                                                                                                                                                                                                                                        |  |               | 408,658   |   |                   |   | 392,405   |  
|INTANGIBLE AND OTHER ASSETS, Net                                                                                                                                                                                                                                                                                        |  |               | 59,036    |   |                   |   | 59,349    |  
|                                                                                                                                                                                                                                                                                                                        |  |               |           |   |                   |   |           |  
|TOTAL ASSETS                                                                                                                                                                                                                                                                                                            |  | $             | 1,058,307 |   |                   | $ | 1,016,489 |  
|                                                                                                                                                                                                                                                                                                                        |  |               |           |   |                   |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                                                                                                    |  |               |           |   |                   |   |           |  
|CURRENT LIABILITIES:                                                                                                                                                                                                                                                                                                    |  |               |           |   |                   |   |           |  
|Current portion of capital lease obligations                                                                                                                                                                                                                                                                            |  | $             | 1,448     |   |                   | $ | 1,483     |  
|Accounts payable                                                                                                                                                                                                                                                                                                        |  |               | 56,959    |   |                   |   | 39,441    |  
|Network communications                                                                                                                                                                                                                                                                                                  |  |               | 23,795    |   |                   |   | 28,702    |  
|Accrued salaries and related benefits                                                                                                                                                                                                                                                                                   |  |               | 24,992    |   |                   |   | 18,471    |  
|Income taxes payable                                                                                                                                                                                                                                                                                                    |  |               | 6,722     |   |                   |   | 5,740     |  
|Advance billings                                                                                                                                                                                                                                                                                                        |  |               | 31,507    |   |                   |   | 32,506    |  
|Deferred installation revenues                                                                                                                                                                                                                                                                                          |  |               | 13,882    |   |                   |   | 14,452    |  
|Other accrued expenses                                                                                                                                                                                                                                                                                                  |  |               | 27,183    |   |                   |   | 28,199    |  
|                                                                                                                                                                                                                                                                                                                        |  |               |           |   |                   |   |           |  
|Total current liabilities                                                                                                                                                                                                                                                                                               |  |               | 186,488   |   |                   |   | 168,994   |  
|                                                                                                                                                                                                                                                                                                                        |  |               |           |   |                   |   |           |  
|DEFERRED REVENUE                                                                                                                                                                                                                                                                                                        |  |               | 21,351    |   |                   |   | 20,945    |  
|                                                                                                                                                                                                                                                                                                                        |  |               |           |   |                   |   |           |  
|DEFERRED COMPENSATION                                                                                                                                                                                                                                                                                                   |  |               | 19,775    |   |                   |   | 21,703    |  
|                                                                                                                                                                                                                                                                                                                        |  |               |           |   |                   |   |           |  
|CAPITAL LEASE OBLIGATIONS, Less Current Portion                                                                                                                                                                                                                                                                         |  |               | 2,660     |   |                   |   | 1,903     |  
|                                                                                                                                                                                                                                                                                                                        |  |               |           |   |                   |   |           |  
|MINORITY INTEREST                                                                                                                                                                                                                                                                                                       |  |               | 1,491     |   |                   |   | 1,787     |  
|                                                                                                                                                                                                                                                                                                                        |  |               |           |   |                   |   |           |  
|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 September 30,
2004; 161,403 shares outstanding as of March 31, 2004 and September 30, 2004; 202,757 shares held in treasury as of March 31, 2004 and September 30, 2004                       |  |               | 66,078    |   |                   |   | 66,078    |  
|Class B common stock $0.01 par value per share:600,000 shares authorized; 312,876 and 317,261 shares issued as of March 31, 2004 and
September 30, 2004; 301,683 and 306,068 shares outstanding as of March 31, 2004 and September 30, 2004; 11,193 shares held in treasury as of March 31, 2004 and September 30, 2004 |  |               | 1,199,486 |   |                   |   | 1,206,362 |  
|Treasury stock, at cost, 213,950 shares as of March 31, 2004 and September 30, 2004                                                                                                                                                                                                                                     |  |               | (142,727  | ) |                   |   | (142,727  | )
|Deferred compensation on restricted stock                                                                                                                                                                                                                                                                               |  |               |          |   |                   |   | (5,006    | )
|Notes receivable from issuance of common stock                                                                                                                                                                                                                                                                          |  |               | (7,334    | ) |                   |   | (7,515    | )
|Accumulated deficit                                                                                                                                                                                                                                                                                                     |  |               | (292,317  | ) |                   |   | (317,844  | )
|Accumulated other comprehensive income                                                                                                                                                                                                                                                                                  |  |               | 3,356     |   |                   |   | 1,809     |  
|                                                                                                                                                                                                                                                                                                                        |  |               |           |   |                   |   |           |  
|Total stockholders equity                                                                                                                                                                                                                                                                                              |  |               | 826,542   |   |                   |   | 801,157   |  
|                                                                                                                                                                                                                                                                                                                        |  |               |           |   |                   |   |           |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                                                                                              |  | $             | 1,058,307 |   |                   | $ | 1,016,489 |  
|                                                                                                                                                                                                                                                                                                                        |  |               |           |   |                   |   |           |  



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 EndedSeptember 30, |         |   | Six Months EndedSeptember 30, |  
|                                                             |  | 2003                            |         |   | 2004                          |   |         | 2003 |  |   | 2004    |  
|REVENUES, Net                                                |  | $                               | 151,282 |   |                               | $ | 158,983 |      |  | $ | 300,345 |   |  | $ | 316,567 |  
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|OPERATING COSTS AND EXPENSES:                                |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Communication services costs                                 |  |                                 | 25,628  |   |                               |   | 19,095  |      |  |   | 47,141  |   |  |   | 39,708  |  
|Integration and provisioning costs                           |  |                                 | 52,071  |   |                               |   | 59,156  |      |  |   | 106,262 |   |  |   | 118,488 |  
|Bandwidth and related costs                                  |  |                                 | 26,042  |   |                               |   | 20,560  |      |  |   | 52,740  |   |  |   | 42,745  |  
|Network operations                                           |  |                                 | 30,415  |   |                               |   | 31,358  |      |  |   | 61,081  |   |  |   | 62,832  |  
|Selling, general and administrative                          |  |                                 | 34,596  |   |                               |   | 39,157  |      |  |   | 70,161  |   |  |   | 78,779  |  
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Total operating costs and expenses                           |  |                                 | 168,752 |   |                               |   | 169,326 |      |  |   | 337,385 |   |  |   | 342,552 |  
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|OPERATING LOSS                                               |  |                                 | (17,470 | ) |                               |   | (10,343 | )    |  |   | (37,040 | ) |  |   | (25,985 | )
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|OTHER INCOME (EXPENSE):                                      |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Interest income                                              |  |                                 | 2,173   |   |                               |   | 2,089   |      |  |   | 4,305   |   |  |   | 3,873   |  
|Interest expense                                             |  |                                 | (202    | ) |                               |   | (177    | )    |  |   | (328    | ) |  |   | (261    | )
|Equity in losses of unconsolidated affiliates                |  |                                 | (808    | ) |                               |   | (705    | )    |  |   | (1,547  | ) |  |   | (1,501  | )
|Other, net                                                   |  |                                 | (141    | ) |                               |   | 230     |      |  |   | (1,074  | ) |  |   | 64      |  
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Total other income, net                                      |  |                                 | 1,022   |   |                               |   | 1,437   |      |  |   | 1,356   |   |  |   | 2,175   |  
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|LOSS BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTEREST |  |                                 | (16,448 | ) |                               |   | (8,906  | )    |  |   | (35,684 | ) |  |   | (23,810 | )
|PROVISION FOR INCOME TAXES                                   |  |                                 | 655     |   |                               |   | 707     |      |  |   | 1,299   |   |  |   | 1,326   |  
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|LOSS BEFORE MINORITY INTEREST                                |  |                                 | (17,103 | ) |                               |   | (9,613  | )    |  |   | (36,983 | ) |  |   | (25,136 | )
|MINORITY INTEREST                                            |  |                                 | 84      |   |                               |   | 147     |      |  |   | 2       |   |  |   | 391     |  
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|NET LOSS                                                     |  |                                 | (17,187 | ) |                               |   | (9,760  | )    |  |   | (36,985 | ) |  |   | (25,527 | )
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|OTHER COMPREHENSIVE INCOME (LOSS):                           |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Foreign currency translation adjustments                     |  |                                 | 242     |   |                               |   | 378     |      |  |   | 2,857   |   |  |   | (179    | )
|Unrealized (losses) gains on securities, net of tax          |  |                                 | (905    | ) |                               |   | 220     |      |  |   | (964    | ) |  |   | (1,368  | )
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Total other comprehensive (loss) income, net                 |  |                                 | (663    | ) |                               |   | 598     |      |  |   | 1,893   |   |  |   | (1,547  | )
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|COMPREHENSIVE LOSS                                           |  | $                               | (17,850 | ) |                               | $ | (9,162  | )    |  | $ | (35,092 | ) |  | $ | (27,074 | )
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|BASIC AND DILUTED LOSS PER COMMON SHARE                      |  | $                               | (0.04   | ) |                               | $ | (0.02   | )    |  | $ | (0.08   | ) |  | $ | (0.06   | )
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING   |  |                                 | 464,096 |   |                               |   | 463,786 |      |  |   | 464,356 |   |  |   | 463,459 |  
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING |  |                                 | 464,096 |   |                               |   | 463,786 |      |  |   | 464,356 |   |  |   | 463,459 |  
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  



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)



|                                                                                |  |                               |   |  |          |  
|------------------------------------------------------------------------------- |  | ----------------------------- | - |  | -------- | -
|                                                                                |  | Six Months EndedSeptember 30, |  
|                                                                                |  | 2003                          |   |  | 2004     |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                           |  |                               |   |  |          |  
|Net loss                                                                        |  | $(36,985                      | ) |  | $(25,527 | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                               |   |  |          |  
|Depreciation and amortization                                                   |  | 38,492                        |   |  | 43,329   |  
|Equity in losses of unconsolidated affiliates                                   |  | 1,547                         |   |  | 1,501    |  
|Stock-based compensation charge                                                 |  | 5,288                         |   |  | 655      |  
|Loss on disposal of property, equipment and communication lines                 |  | 817                           |   |  | 397      |  
|Premium amortization on marketable securities                                   |  | 2,453                         |   |  | 1,814    |  
|Net realized (gains) losses on marketable securities                            |  | (158                          | ) |  | 48       |  
|Deferred income taxes                                                           |  | (370                          | ) |  | 579      |  
|Minority interest                                                               |  | 2                             |   |  | 391      |  
|Changes in operating assets and liabilities:                                    |  |                               |   |  |          |  
|Accounts receivable, net                                                        |  | 8,604                         |   |  | 20,140   |  
|Prepaid expenses                                                                |  | (1,473                        | ) |  | 4,829    |  
|Other current assets                                                            |  | 670                           |   |  | 296      |  
|Accounts payable                                                                |  | (6,676                        | ) |  | (13,822  | )
|Network communications                                                          |  | 5,499                         |   |  | 1,440    |  
|Accrued salaries and related benefits                                           |  | (7,223                        | ) |  | (6,588   | )
|Income taxes payable                                                            |  | (98                           | ) |  | (869     | )
|Advance billings                                                                |  | 5,707                         |   |  | 999      |  
|Other accrued expenses                                                          |  | 3,514                         |   |  | 549      |  
|Deferred compensation                                                           |  | (1,144                        | ) |  | 1,792    |  
|Purchases of trading securities                                                 |  | (6,779                        | ) |  | (4,431   | )
|Proceeds from sale of trading securities                                        |  | 5,929                         |   |  | 4,533    |  
|Other operating activities                                                      |  | (455                          | ) |  | (892     | )
|                                                                                |  |                               |   |  |          |  
|Net cash provided by operating activities                                       |  | 17,161                        |   |  | 31,163   |  
|                                                                                |  |                               |   |  |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                           |  |                               |   |  |          |  
|Purchases of property, equipment and communication lines                        |  | (32,724                       | ) |  | (26,018  | )
|Proceeds from sale of property, equipment and communication lines               |  | 268                           |   |  |         |  
|Purchases of securities available-for-sale                                      |  | (135,593                      | ) |  | (62,253  | )
|Proceeds from sales of securities available-for-sale                            |  | 106,790                       |   |  | 30,118   |  
|Maturities of securities available-for-sale                                     |  | 21,198                        |   |  | 43,819   |  
|Investments in unconsolidated affiliates                                        |  | (4,031                        | ) |  |         |  
|Additional consideration in business acquisition                                |  |                              |   |  | (3,000   | )
|                                                                                |  |                               |   |  |          |  
|Net cash used in investing activities                                           |  | (44,092                       | ) |  | (17,334  | )
|                                                                                |  |                               |   |  |          |  



(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)



|                                                             |  |                               |         |   |      |   |         |  
|------------------------------------------------------------ |  | ----------------------------- | ------- | - | ---- | - | ------- | -
|                                                             |  | Six Months EndedSeptember 30, |        
|                                                             |  | 2003                          |         |   | 2004 |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                        |  |                               |         |   |      |   |         |  
|Repayments of capital lease obligations                      |  | $                             | (1,312  | ) |      | $ | (722    | )
|Purchase of treasury stock                                   |  |                               | (4,375  | ) |      |   |        |  
|Net proceeds from issuance of common stock                   |  |                               | 847     |   |      |   | 1,215   |  
|Distribution to minority interest                            |  |                               | (302    | ) |      |   | (96     | )
|                                                             |  |                               |         |   |      |   |         |  
|Net cash (used in) provided by financing activities          |  |                               | (5,142  | ) |      |   | 397     |  
|                                                             |  |                               |         |   |      |   |         |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |  |                               | 1,820   |   |      |   | (41     | )
|                                                             |  |                               |         |   |      |   |         |  
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS         |  |                               | (30,253 | ) |      |   | 14,185  |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD               |  |                               | 146,730 |   |      |   | 137,071 |  
|                                                             |  |                               |         |   |      |   |         |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                     |  | $                             | 116,477 |   |      | $ | 151,256 |  
|                                                             |  |                               |         |   |      |   |         |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:           |  |                               |         |   |      |   |         |  
|Cash paid during the period for:                             |  |                               |         |   |      |   |         |  
|Income taxes                                                 |  | $                             | 1,204   |   |      | $ | 1,646   |  
|Interest                                                     |  | $                             | 343     |   |      | $ | 259     |  
|SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:     |  |                               |         |   |      |   |         |  
|Acquisitions of communication lines accrued but not yet paid |  | $                             | 2,689   |   |      | $ | 3,722   |  
|Acquisitions of equipment accrued but not yet paid           |  | $                             | 198     |   |      | $ | 1,902   |  
|Issuance of restricted stock                                 |  | $                             |        |   |      | $ | 5,661   |  





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 six months ended September 30, 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 26-week periods ended September 26, 2003 and October 1, 2004 as the three
and six months ended September 30, 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 and are not expected to have a material impact on the Companys consolidated
financial position and results of operations.



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.



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INFONET SERVICES CORPORATION AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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 EndedSeptember 30,          |         |   | Six Months EndedSeptember 30, |  
|                                                                                                                |  | 2003                                     |         |   | 2004                          |   |         | 2003 |  |   | 2004    |  
|                                                                                                                |  | (In thousands, except per share amounts) |        
|Net loss, as reported                                                                                           |  | $                                        | (17,187 | ) |                               | $ | (9,760  | )    |  | $ | (36,985 | ) |  | $ | (25,527 | )
|Add: Stock-based employee compensation expense included in reported net loss                                    |  |                                          | 2,509   |   |                               |   | 425     |      |  |   | 5,288   |   |  |   | 655     |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards |  |                                          | (10,802 | ) |                               |   | (7,956  | )    |  |   | (21,648 | ) |  |   | (15,378 | )
|                                                                                                                |  |                                          |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Pro forma net loss                                                                                              |  | $                                        | (25,480 | ) |                               | $ | (17,291 | )    |  | $ | (53,345 | ) |  | $ | (40,250 | )
|                                                                                                                |  |                                          |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Loss per share:                                                                                                 |  |                                          |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Basic and diluted, as reported                                                                                  |  | $                                        | (0.04   | ) |                               | $ | (0.02   | )    |  | $ | (0.08   | ) |  | $ | (0.06   | )
|                                                                                                                |  |                                          |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Basic and diluted, pro forma                                                                                    |  | $                                        | (0.05   | ) |                               | $ | (0.04   | )    |  | $ | (0.11   | ) |  | $ | (0.09   | )
|                                                                                                                |  |                                          |         |   |                               |   |         |      |  |   |         |   |  |   |         |  



4.    PROPERTY,
EQUIPMENT AND COMMUNICATION LINES



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



|                                                 |  |               |         |                   |   |        
|------------------------------------------------ |  | ------------- | ------- | ----------------- | - | -------
|                                                 |  | March 31,2004 |         | September 30,2004
|Communications, computer and related equipment   |  | $             | 335,276 |                   | $ | 353,792
|Communication lines                              |  |               | 308,924 |                   |   | 313,361
|Land, buildings and leasehold improvements       |  |               | 76,249  |                   |   | 76,154 
|Furniture and other equipment                    |  |               | 21,242  |                   |   | 22,000 
|                                                 |  |               |         |                   |   |        
|                                                 |  |               | 741,691 |                   |   | 765,307
|Less accumulated depreciation and amortization   |  |               | 333,033 |                   |   | 372,902
|                                                 |  |               |         |                   |   |        
|Property, equipment and communication lines, net |  | $             | 408,658 |                   | $ | 392,405
|                                                 |  |               |         |                   |   |        



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.



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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



5.    INTANGIBLE AND OTHER ASSETS



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



|                                                |  |               |        |                   |   |       
|----------------------------------------------- |  | ------------- | ------ | ----------------- | - | ------
|                                                |  | March 31,2004 |        | September 30,2004
|Minimum pension liability                       |  | $             | 1,324  |                   | $ | 1,324 
|Other postretirement benefits minimum liability |  |               | 1,341  |                   |   | 1,266 
|IDIP assets                                     |  |               | 10,030 |                   |   | 10,064
|Deferred installation costs                     |  |               | 20,278 |                   |   | 20,094
|Investments in unconsolidated affiliates        |  |               | 18,111 |                   |   | 16,610
|Goodwill                                        |  |               | 1,468  |                   |   | 1,468 
|Intangible assets, net                          |  |               | 2,371  |                   |   | 3,854 
|Employee loans and interest receivable          |  |               | 948    |                   |   | 959   
|Other                                           |  |               | 3,165  |                   |   | 3,710 
|                                                |  |               |        |                   |   |       
|Intangible and other assets, net                |  | $             | 59,036 |                   | $ | 59,349
|                                                |  |               |        |                   |   |       



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



|                     |  |                      |                     |                |                         |                    |   |                       |   |                     |   |                         |  |   |                       |  |   |        |   |  |   |      
|-------------------- |  | -------------------- | ------------------- | -------------- | ----------------------- | ------------------ | - | --------------------- | - | ------------------- | - | ----------------------- |  | - | --------------------- |  | - | ------ | - |  | - | -----
|                     |  | WeightedAverageLives |                     | March 31, 2004 |                         | September 30, 2004
|                     |  |                      | GrossCarryingAmount |                | AccumulatedAmortization |                    |   | IntangibleAssets, Net |   | GrossCarryingAmount |   | AccumulatedAmortization |  |   | IntangibleAssets, Net
|Purchased technology |  | 5                    |                     | $              | 6,600                   |                    | $ | (4,840                | ) |                     | $ | 1,760                   |  | $ | 6,600                 |  | $ | (5,500 | ) |  | $ | 1,100
|Consulting contract  |  | 2                    |                     |                | 453                     |                    |   | (38                   | ) |                     |   | 415                     |  |   | 2,498                 |  |   | (638   | ) |  |   | 1,860
|Other                |  | 5                    |                     |                | 1,892                   |                    |   | (1,696                | ) |                     |   | 196                     |  |   | 2,847                 |  |   | (1,953 | ) |  |   | 894  
|                     |  |                      |                     |                |                         |                    |   |                       |   |                     |   |                         |  |   |                       |  |   |        |   |  |   |      
|                     |  |                      |                     | $              | 8,945                   |                    | $ | (6,574                | ) |                     | $ | 2,371                   |  | $ | 11,945                |  | $ | (8,091 | ) |  | $ | 3,854
|                     |  |                      |                     |                |                         |                    |   |                       |   |                     |   |                         |  |   |                       |  |   |        |   |  |   |      



Amortization expense
for the six months ended September 30, 2003 and 2004 was approximately $661,000 and $1,517,000 respectively. At September 30, 2004, estimated future amortization expense is approximately $1,586,000 for the remaining six 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 September 30, 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 six months ended September 30, 2003 and 2004. Consequently, reported basic and diluted earnings per share are the same amount
for the three and six months ended September 30, 2003 and 2004, respectively. Potential common shares of 30.4 million and 33.8 million were not included in the computation of diluted earnings per share for the three and six months ended September
30, 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 six months ended September 30, 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 September 30, 2004, the gross
amount of the Companys net deferred income tax assets was $213.4 million. The valuation reserve recorded against those net deferred income tax assets was $213.2 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 EndedSeptember 30, |   |  | Six Months EndedSeptember 30, |  
|                                                     |  | 2003                            |   |  | 2004                          |   |  | 2003      |   |  | 2004      |  
|Revenues:                                            |  |                                 |   |  |                               |   |  |           |   |  |           |  
|Direct                                               |  | $133,203                        |   |  | $142,928                      |   |  | $265,502  |   |  | $284,040  |  
|Alternate                                            |  | 18,079                          |   |  | 16,055                        |   |  | 34,843    |   |  | 32,527    |  
|                                                     |  |                                 |   |  |                               |   |  |           |   |  |           |  
|Total                                                |  | $151,282                        |   |  | $158,983                      |   |  | $300,345  |   |  | $316,567  |  
|                                                     |  |                                 |   |  |                               |   |  |           |   |  |           |  
|Operating contributions:                             |  |                                 |   |  |                               |   |  |           |   |  |           |  
|Direct                                               |  | $  46,752                       |   |  | $  49,914                     |   |  | $  92,220 |   |  | $  98,146 |  
|Alternate                                            |  | 8,060                           |   |  | 8,540                         |   |  | 15,868    |   |  | 16,101    |  
|                                                     |  |                                 |   |  |                               |   |  |           |   |  |           |  
|Operating contribution from reportable segments      |  | 54,812                          |   |  | 58,454                        |   |  | 108,088   |   |  | 114,247   |  
|Core network, overhead and other non-allocable costs |  | (71,260                         | ) |  | (67,360                       | ) |  | (143,772  | ) |  | (138,057  | )
|                                                     |  |                                 |   |  |                               |   |  |           |   |  |           |  
|Total                                                |  | $ (16,448                       | ) |  | $   (8,906                    | ) |  | $ (35,684 | ) |  | $ (23,810 | )
|                                                     |  |                                 |   |  |                               |   |  |           |   |  |           |  



|                                                       |  |               |           |      |   |          
|------------------------------------------------------ |  | ------------- | --------- | ---- | - | ---------
|                                                       |  | September 30,
|                                                       |  | 2003          |           | 2004
|Total Assets:                                          |  |               |           |      |   |          
|Direct                                                 |  | $             | 138,108   |      | $ | 135,403  
|Alternate                                              |  |               | 14,021    |      |   | 11,983   
|                                                       |  |               |           |      |   |          
|Total assets of reportable segments                    |  |               | 152,129   |      |   | 147,386  
|Core network, corporate and other non-allocable assets |  |               | 909,623   |      |   | 869,103  
|                                                       |  |               |           |      |   |          
|Total                                                  |  | $             | 1,061,752 |      | $ | 1,016,489
|                                                       |  |               |           |      |   |          



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.



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INFONET SERVICES CORPORATION AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



Revenues



|                                               |  |                                 |        |                               |   |        |  |      |        |  |   |       
|---------------------------------------------- |  | ------------------------------- | ------ | ----------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                               |  | Three Months EndedSeptember 30, |        | Six Months EndedSeptember 30,
|                                               |  | 2003                            |        | 2004                          |   | 2003   |  | 2004
|Infonet Telecom AS (Norway)                    |  | $                               | 1,859  |                               | $ |       |  | $    | 3,585  |  | $ |      
|Infonet Thailand Ltd. (Thailand)               |  |                                 | 114    |                               |   | 164    |  |      | 156    |  |   | 350   
|KDDI Corporation (Japan)                       |  |                                 | 9,407  |                               |   | 9,150  |  |      | 17,970 |  |   | 19,119
|KPN Telecom B.V. (The Netherlands)             |  |                                 | 17,448 |                               |   | 15,889 |  |      | 34,192 |  |   | 31,683
|Swisscom AG (Switzerland)                      |  |                                 | 9,878  |                               |   | 9,257  |  |      | 19,831 |  |   | 18,734
|Telefonica International Holdings B.V. (Spain) |  |                                 | 2,053  |                               |   | 2,022  |  |      | 4,334  |  |   | 3,981 
|TeliaSonera AB (Sweden)                        |  |                                 | 12,668 |                               |   | 8,949  |  |      | 25,659 |  |   | 18,747
|Telstra Corporation Limited (Australia)        |  |                                 | 6,385  |                               |   | 6,714  |  |      | 12,264 |  |   | 13,596



Operating Costs and
Expenses



|                                               |  |                                 |       |                               |   |       |  |      |       |  |   |      
|---------------------------------------------- |  | ------------------------------- | ----- | ----------------------------- | - | ----- |  | ---- | ----- |  | - | -----
|                                               |  | Three Months EndedSeptember 30, |       | Six Months EndedSeptember 30,
|Communication Services Costs:                  |  | 2003                            |       | 2004                          |   | 2003  |  | 2004
|Infonet Telecom AS (Norway)                    |  | $                               | 459   |                               | $ |      |  | $    | 749   |  | $ |     
|Infonet Thailand Ltd. (Thailand)               |  |                                 | 68    |                               |   | 96    |  |      | 104   |  |   | 252  
|KDDI Corporation (Japan)                       |  |                                 | 2,631 |                               |   | 2,111 |  |      | 5,665 |  |   | 4,570
|KPN Telecom B.V. (The Netherlands)             |  |                                 | 5,007 |                               |   | 4,330 |  |      | 9,066 |  |   | 9,252
|Swisscom AG (Switzerland)                      |  |                                 | 2,134 |                               |   | 1,813 |  |      | 3,882 |  |   | 3,561
|Telefonica International Holdings B.V. (Spain) |  |                                 | 650   |                               |   | 549   |  |      | 1,327 |  |   | 1,122
|TeliaSonera AB (Sweden)                        |  |                                 | 3,691 |                               |   | 2,845 |  |      | 6,747 |  |   | 4,878
|Telstra Corporation Limited (Australia)        |  |                                 | 1,612 |                               |   | 1,450 |  |      | 3,069 |  |   | 2,779



|                                               |  |                                 |       |                               |   |       |  |      |       |  |   |      
|---------------------------------------------- |  | ------------------------------- | ----- | ----------------------------- | - | ----- |  | ---- | ----- |  | - | -----
|                                               |  | Three Months EndedSeptember 30, |       | Six Months EndedSeptember 30,
|Integration and Provisioning Costs:            |  | 2003                            |       | 2004                          |   | 2003  |  | 2004
|Infonet Telecom AS (Norway)                    |  | $                               | 535   |                               | $ |      |  | $    | 1,076 |  | $ |     
|Infonet Thailand Ltd. (Thailand)               |  |                                 | 291   |                               |   | 242   |  |      | 1,157 |  |   | 440  
|KDDI Corporation (Japan)                       |  |                                 | 2,602 |                               |   | 2,679 |  |      | 4,107 |  |   | 5,166
|KPN Telecom B.V. (The Netherlands)             |  |                                 | 4,002 |                               |   | 4,003 |  |      | 7,464 |  |   | 7,463
|Swisscom AG (Switzerland)                      |  |                                 | 3,624 |                               |   | 3,767 |  |      | 7,059 |  |   | 7,338
|Telefonica International Holdings B.V. (Spain) |  |                                 | 1,342 |                               |   | 1,575 |  |      | 2,668 |  |   | 2,959
|TeliaSonera AB (Sweden)                        |  |                                 | 2,608 |                               |   | 2,295 |  |      | 5,128 |  |   | 4,864
|Telstra Corporation Limited (Australia)        |  |                                 | 1,754 |                               |   | 1,683 |  |      | 3,299 |  |   | 3,359



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INFONET SERVICES CORPORATION AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                               |  |                                 |     |                               |   |       |  |      |       |  |   |      
|---------------------------------------------- |  | ------------------------------- | --- | ----------------------------- | - | ----- |  | ---- | ----- |  | - | -----
|                                               |  | Three Months EndedSeptember 30, |     | Six Months EndedSeptember 30,
|Bandwidth and Related Costs:                   |  | 2003                            |     | 2004                          |   | 2003  |  | 2004
|Infonet Telecom AS (Norway)                    |  | $                               | 35  |                               | $ |      |  | $    | 35    |  | $ |     
|Infonet Thailand Ltd. (Thailand)               |  |                                 | 181 |                               |   | 219   |  |      | 321   |  |   | 425  
|KDDI Corporation (Japan)                       |  |                                 | 407 |                               |   | 538   |  |      | 743   |  |   | 1,095
|KPN Telecom B.V. (The Netherlands)             |  |                                 | 440 |                               |   | 1,005 |  |      | 1,024 |  |   | 1,906
|Swisscom AG (Switzerland)                      |  |                                 | 550 |                               |   | 352   |  |      | 958   |  |   | 720  
|Telefonica International Holdings B.V. (Spain) |  |                                 | 304 |                               |   | 338   |  |      | 438   |  |   | 411  
|TeliaSonera AB (Sweden)                        |  |                                 | 852 |                               |   | 327   |  |      | 1,654 |  |   | 593  
|Telstra Corporation Limited (Australia)        |  |                                 | 34  |                               |   | 206   |  |      | 34    |  |   | 401  
|                                               |  |                                
|                                               |  | Three Months EndedSeptember 30, |     | Six Months EndedSeptember 30,
|Network Operations:                            |  | 2003                            |     | 2004                          |   | 2003  |  | 2004
|Infonet Telecom AS (Norway)                    |  | $                               |    |                               | $ |      |  | $    |      |  | $ |     
|Infonet Thailand Ltd. (Thailand)               |  |                                 |    |                               |   |      |  |      |      |  |   |     
|KDDI Corporation (Japan)                       |  |                                 | 69  |                               |   | 94    |  |      | 136   |  |   | 164  
|KPN Telecom B.V. (The Netherlands)             |  |                                 |    |                               |   |      |  |      |      |  |   |     
|Swisscom AG (Switzerland)                      |  |                                 |    |                               |   |      |  |      |      |  |   |     
|Telefonica International Holdings B.V. (Spain) |  |                                 |    |                               |   |      |  |      |      |  |   |     
|TeliaSonera AB (Sweden)                        |  |                                 |    |                               |   |      |  |      |      |  |   |     
|Telstra Corporation Limited (Australia)        |  |                                 |    |                               |   |      |  |      |      |  |   |     



Approximately $47.9
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 September 30, 2004 was approximately
$28.6 million.



Related party balances comprise the following
(in thousands):



|                         |  |               |        |                   |   |       
|------------------------ |  | ------------- | ------ | ----------------- | - | ------
|                         |  | March 31,2004 |        | September 30,2004
|Accounts receivable, net |  | $             | 36,318 |                   | $ | 29,358
|Accounts payable         |  |               | 3,108  |                   |   | 2,903 
|Network communications   |  |               | 4,396  |                   |   | 4,609 



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 six months ended September
30, 2003, the Company repurchased 2,718,368 shares under this plan at an aggregate cost of approximately $4.4 million. The Company did not repurchase any of its common stock during the six months ended September 30, 2004.



Restricted Stock AwardsDuring the six months ended
September 30, 2004, certain key employees were granted a total of 3,379,500 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



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INFONET SERVICES CORPORATION AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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. The Company recorded deferred
compensation of approximately $5.7 million during the six months ended September 30, 2004 in connection with the restricted stock awards, which will be charged to expense over the vesting period.



During November 2004, certain key employees were granted a total of 362,000
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.



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 September 30, 2004 is approximately $20.2 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 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.



On November 8, 2004, a purported class action lawsuit was filed in California
Superior Court, County of Los Angeles against the Company, the members of its board of directors, and its chief executive officer. The complaint alleges, 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. The complaint seeks 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.



The Company is unable at this time to predict the ultimate outcome of this litigation, determine whether a liability has been incurred or make a
reasonable estimate of the liability that could result from an unfavorable outcome. As of this date, 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



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INFONET SERVICES CORPORATION AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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 EndedSeptember 30, |      |   | Six Months EndedSeptember 30, |  
|                                                      |  | 2003                            |      |   | 2004                          |   |      | 2003 |  |   | 2004  |  
|Pension PlansNet periodic benefit cost:              |  |                                 |      |   |                               |   |      |      |  |   |       |   |  |   |       |  
|Service cost                                          |  | $                               | 358  |   |                               | $ | 525  |      |  | $ | 717   |   |  | $ | 1,049 |  
|Interest cost                                         |  |                                 | 463  |   |                               |   | 532  |      |  |   | 925   |   |  |   | 1,064 |  
|Expected return on plan assets                        |  |                                 | (354 | ) |                               |   | (450 | )    |  |   | (708  | ) |  |   | (899  | )
|Amortization of prior service cost                    |  |                                 | 157  |   |                               |   | 157  |      |  |   | 314   |   |  |   | 314   |  
|Recognized actuarial loss                             |  |                                 | 128  |   |                               |   | 152  |      |  |   | 257   |   |  |   | 304   |  
|                                                      |  |                                 |      |   |                               |   |      |      |  |   |       |   |  |   |       |  
|Net periodic benefit cost                             |  | $                               | 752  |   |                               | $ | 916  |      |  | $ | 1,505 |   |  | $ | 1,832 |  
|                                                      |  |                                 |      |   |                               |   |      |      |  |   |       |   |  |   |       |  
|                                                      |  |                                
|                                                      |  | Three Months EndedSeptember 30, |      |   | Six Months EndedSeptember 30, |  
|                                                      |  | 2003                            |      |   | 2004                          |   |      | 2003 |  |   | 2004  |  
|Other Postretirement PlansNet periodic benefit cost: |  |                                 |      |   |                               |   |      |      |  |   |       |   |  |   |       |  
|Service cost                                          |  | $                               |     |   |                               | $ |     |      |  | $ |      |   |  | $ |      |  
|Interest cost                                         |  |                                 | 26   |   |                               |   | 30   |      |  |   | 52    |   |  |   | 60    |  
|Expected return on plan assets                        |  |                                 |     |   |                               |   |     |      |  |   |      |   |  |   |      |  
|Amortization of prior service cost                    |  |                                 | 21   |   |                               |   | 21   |      |  |   | 43    |   |  |   | 43    |  
|Recognized actuarial loss (gain)                      |  |                                 |     |   |                               |   | 14   |      |  |   | (1    | ) |  |   | 27    |  
|                                                      |  |                                 |      |   |                               |   |      |      |  |   |       |   |  |   |       |  
|Net periodic benefit cost                             |  | $                               | 47   |   |                               | $ | 65   |      |  | $ | 94    |   |  | $ | 130   |  
|                                                      |  |                                 |      |   |                               |   |      |      |  |   |       |   |  |   |       |  



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.



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INFONET SERVICES CORPORATION AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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 August 19, 2004, the Company
entered into a letter agreement (the Letter Agreement) with BT Group plc (BT Group) regarding a possible business combination. In the Letter Agreement, the Company gave BT Group the exclusive right to negotiate a business
combination with the Company until October 29, 2004. The Company also agreed, subject to certain exceptions, to not disclose that negotiations with BT Group were occurring. The Company agreed to pay BT Group an opportunity fee equal to $7.0 million
in the event that (i) management breached the exclusivity or confidentiality obligations contained in the Letter Agreement or (ii) by October 29, 2004, BT Group made an offer to acquire the Company on certain qualifying terms described in the Letter
Agreement and either the Company subsequently refused to accept its offer or any of the Companys Class A stockholders refused to enter into an agreement to vote their shares in favor of its offer. When negotiations did not result in an offer
to acquire the Company by October 29, 2004, the Company agreed with BT Group that no opportunity fee was payable under the Letter Agreement.



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) 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. 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.



In connection with the proposed business combination, the Company 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 will be modified. 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 second 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.



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 September 30, 2004, the unadjusted net book value of our deferred income
tax assets totaled approximately $213.4 million, which was principally comprised of the remaining carrying value of the intangible asset discussed above of approximately $114.4 million and the benefit associated with domestic income tax losses of
approximately $71.2 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 $213.2 million against our entire net deferred income tax assets as of September 30, 2004. Our
valuation allowance increased $11.3 million during the six months ended September 30, 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 $199.5 million as of September 30, 2004. There is no purchased bandwidth that is considered to be at risk as of September 30, 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 $319.0 million as of September 30, 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.



Our determination relating to the value of the long-lived assets is subject to change because it is based on our estimates of future cash flows. 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 September 30, 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 September 30, 2004 would decrease or increase by $2.2 million.



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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.



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.



In the third quarter of fiscal year 2004, a $5.0 million litigation settlement expense was recorded as a contingency for the class action lawsuit described in Part II, Item 1. On July 26, 2004, the United States
District Court, Central District of California approved the settlement and entered final judgment and an order of dismissal with prejudice of the litigation.



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;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | 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 six months ended September 30, 2004, we estimate our price erosion of multi-year contracts up for renewal to be, on average, approximately 8% on an annualized basis.



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. Additionally, we are implementing several key initiatives aimed at further expanding our reach within certain countries and metropolitan areas and reducing local access costs.



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 September 30, 2004 Compared to Three Months Ended
September 30, 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 September 30, 2003 and 2004. Dollar amounts presented below are in
thousands.



Revenues by Service



|                                                  |  |                                  |         |  |              |   |  |              |         |  |     |   |  |   |        |   |  |     |   
|------------------------------------------------- |  | -------------------------------- | ------- |  | ------------ | - |  | ------------ | ------- |  | --- | - |  | - | ------ | - |  | --- | --
|                                                  |  | Three Months Ended September 30, |         |  | $ Inc /(Dec) |   |  | % Inc /(Dec) |        
|                                                  |  | 2003                             |         |  | 2004         |   |  |             
|Network Services                                  |  | $                                | 81,011  |  | 53           | % |  | $            | 82,009  |  | 51  | % |  | $ | 998    |   |  | 1   | % 
|Consulting, Integration and Provisioning Services |  |                                  | 55,437  |  | 37           |   |  |              | 63,052  |  | 40  |   |  |   | 7,615  |   |  | 14  | % 
|Applications Services                             |  |                                  | 10,751  |  | 7            |   |  |              | 10,845  |  | 7   |   |  |   | 94     |   |  | 1   | % 
|Other Communications Services                     |  |                                  | 4,083   |  | 3            |   |  |              | 3,077   |  | 2   |   |  |   | (1,006 | ) |  | (25 | )%
|                                                  |  |                                  |         |  |              |   |  |              |         |  |     |   |  |   |        |   |  |     |   
|Total revenues                                    |  | $                                | 151,282 |  | 100          | % |  | $            | 158,983 |  | 100 | % |  | $ | 7,701  |   |  | 5   | % 
|                                                  |  |                                  |         |  |              |   |  |              |         |  |     |   |  |   |        |   |  |     |   



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Revenues by Distribution Channel



|                                           |  |                                 |         |   |            |   |         |              |  |   |        |   |  |     |   
|------------------------------------------ |  | ------------------------------- | ------- | - | ---------- | - | ------- | ------------ |  | - | ------ | - |  | --- | --
|                                           |  | Three Months EndedSeptember 30, |         |   | Inc /(Dec) |   |         | % Inc /(Dec) | 
|                                           |  | 2003                            |         |   | 2004       |   |         |             
|Country representatives (direct channels): |  |                                 |         |   |            |   |         |              |  |   |        |   |  |     |   
|Number of representatives                  |  |                                 | 58      |   |            |   | 59      |              |  |   | 1      |   |  | 2   | % 
|Number of clients                          |  |                                 | 1,598   |   |            |   | 1,832   |              |  |   | 234    |   |  | 15  | % 
|Country representatives revenues          |  | $                               | 133,203 |   |            | $ | 142,928 |              |  | $ | 9,725  |   |  | 7   | % 
|Percent of total revenues                  |  |                                 | 88      | % |            |   | 90      | %            |  |   |        |   |  |     |   
|Alternate sales channels:                  |  |                                 |         |   |            |   |         |              |  |   |        |   |  |     |   
|Number of sales channel partners           |  |                                 | 30      |   |            |   | 33      |              |  |   | 3      |   |  | 10  | % 
|Number of sales channel partners clients  |  |                                 | 348     |   |            |   | 339     |              |  |   | (9     | ) |  | (3  | )%
|Alternate sales channels revenues         |  | $                               | 18,079  |   |            | $ | 16,055  |              |  | $ | (2,024 | ) |  | (11 | )%
|Percent of total revenues                  |  |                                 | 12      | % |            |   | 10      | %            |  |   |        |   |  |     |   



Revenues by Region



|                                      |  |                                  |         |  |              |   |  |              |         |  |     |   |  |   |        |   |  |    |   
|------------------------------------- |  | -------------------------------- | ------- |  | ------------ | - |  | ------------ | ------- |  | --- | - |  | - | ------ | - |  | -- | --
|                                      |  | Three Months Ended September 30, |         |  | $ Inc /(Dec) |   |  | % Inc /(Dec) |        
|                                      |  | 2003                             |         |  | 2004         |   |  |             
|Americas                              |  | $                                | 41,613  |  | 27           | % |  | $            | 51,864  |  | 33  | % |  | $ | 10,251 |   |  | 25 | % 
|Europe, Middle East and Africa (EMEA) |  |                                  | 87,544  |  | 58           |   |  |              | 84,899  |  | 53  |   |  |   | (2,645 | ) |  | (3 | )%
|Asia Pacific                          |  |                                  | 22,125  |  | 15           |   |  |              | 22,220  |  | 14  |   |  |   | 95     |   |  | 0  | % 
|                                      |  |                                  |         |  |              |   |  |              |         |  |     |   |  |   |        |   |  |    |   
|Total revenues                        |  | $                                | 151,282 |  | 100          | % |  | $            | 158,983 |  | 100 | % |  | $ | 7,701  |   |  | 5  | % 
|                                      |  |                                  |         |  |              |   |  |              |         |  |     |   |  |   |        |   |  |    |   



Revenues



Revenues by ServiceRevenues increased
$7.7 million, or 5% in the three months ended September 30, 2004 compared to the corresponding quarter of the prior fiscal year primarily due to revenues from Consulting, Integration and Provisioning Services, which increased $7.6 million, or 14% in
the three months ended September 30, 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 Network Services increased $1.0 million, or 1% in the three months ended September 30, 2004 compared to the corresponding quarter of the prior fiscal year. The increase is primarily attributable to an increase
in our remote access revenues of $1.8 million, or 15%. Intranet services revenues, the largest component of Network Services revenues, decreased $1.4 million, or 2% in the three months ended September 30, 2004 compared to the corresponding quarter
of the prior fiscal year. The decrease is primarily attributable to the price erosion we experience as existing clients transition to our more cost effective solutions, partially offset by a $2.5 million contract termination fee recorded in the
three months ended September 30, 2004. The termination of this contract is expected to result in a reduction of revenues of approximately $1.4 million during the remainder of the current fiscal year when compared to the revenues earned under this
contract during the six months ended September 30, 2004. Applications Services revenues increased $0.1 million, or 1% in the three months ended September 30, 2004 compared to the corresponding quarter of the prior fiscal year. These aggregate
increases of $8.7 million were offset by a decrease of $1.0 million, or 25% in revenues from Other Communications Services in the three months ended September 30, 2004 compared to the corresponding quarter 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



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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 and Applications 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 $9.7 million, or 7% in the three months ended September 30, 2004 compared to the corresponding quarter of the prior fiscal year primarily due to a $2.5 million
contract termination fee recorded during the current quarter and an increase in the number of our country representatives clients. The number of our country representatives increased to 59 as of September 30, 2004 from 58 as of September 30,
2003. The number of our country representatives clients increased to 1,832 as of September 30, 2004 from 1,598 as of September 30, 2003.



Revenues from our alternate sales channels decreased $2.0 million, or 11% in the three months ended September 30, 2004 compared to the corresponding
quarter of the prior fiscal year primarily due to a decrease in revenues from three resellers of approximately $2.2 million. The number of our alternate sales channel partners increased to 33 as of September 30, 2004 from 30 as of September 30,
2003. The number of our alternate sales channel partners clients decreased to 339 as of September 30, 2004 from 348 clients as of September 30, 2003.



Revenues by RegionRevenues billed in the Americas region increased $10.3 million, or 25% in the three months ended September 30, 2004
compared to the corresponding quarter of the prior fiscal year due to a $2.5 million contract termination fee recorded during the current quarter and our sales efforts in that region. Revenues billed in the EMEA region decreased $2.6 million, or 3%
in the three months ended September 30, 2004 compared to the corresponding quarter of the prior fiscal year. Revenues billed in the Asia Pacific region increased $0.1 million in the three months ended September 30, 2004 compared to the corresponding
quarter of the prior fiscal year. We expect revenues from the Americas and Asia Pacific regions will continue to grow, while revenues from the EMEA region will remain relatively flat.



Expenses



Communication services costs decreased $6.5 million, or 25% in the three months ended September 30, 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 17% and 12% in the three months ended September 30, 2003 and 2004, respectively.



Integration and provisioning costs increased $7.1 million, or 14% in the
three months ended September 30, 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 34% and 37% in the three months ended September 30, 2003 and 2004, respectively.



Bandwidth and related costs decreased $5.5 million, or 21% in the three
months ended September 30, 2004 compared to the corresponding quarter of the prior fiscal year. Lease expense, the largest component of bandwidth and related costs, decreased $6.0 million in the three months ended September 30, 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 September 30, 2003 and 2004, respectively.



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Network operations expenses increased $0.9 million, or 3% in the three months ended September 30, 2004
compared to the corresponding quarter of the prior fiscal year. The increase is primarily due to an increase in depreciation expenses as a result of our continuing build-out of The World Network. Network operations expenses as a percentage of total
revenues remained at 20% in the three months ended September 30, 2003 and 2004.



Selling, general and administrative expenses increased $4.6 million, or 13% in the three months ended September 30, 2004 compared to the corresponding quarter of the prior fiscal year. Sales personnel-related expenses
increased $2.3 million, or 14% in the three months ended September 30, 2004 compared to the corresponding quarter of the prior fiscal year due to compensation and headcount increases. Marketing, product development and advertising expenses increased
$3.6 million, or 104% in the three months ended September 30, 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 $1.8 million
decrease in stock-related compensation charges, as we no longer incur charges related to our SARs Plan or our 1998 Stock Option Plan. Selling, general and administrative expenses as a percentage of total revenues were 23% and 25% in the three months
ended September 30, 2003 and 2004, respectively.



Operating
Loss decreased $7.1 million, or 41% in the three months ended September 30, 2004 compared to the corresponding quarter of the prior fiscal year due to the factors described above.



Total other income, net increased $0.4 million, or 41% in the three months ended September 30, 2004 compared to the
corresponding quarter of the prior fiscal year. The increase is primarily due to favorable foreign currency exchange impacts in the three months ended September 30, 2004 compared to the corresponding quarter of the prior fiscal year.



Provision for Income Taxes increased $0.1 million, or 8% in the three months
ended September 30, 2004 compared to the corresponding quarter of the prior fiscal year.



Net Loss decreased $7.4 million, or 43% in the three months ended September 30, 2004 compared to the corresponding quarter of the prior fiscal year due to the factors described above.

Six Months Ended September 30, 2004 Compared to Six Months Ended September 30, 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 six months ended September 30, 2003 and 2004. Dollar amounts presented below are in thousands.



Revenues by Service



|                                                  |  |                                |         |  |              |   |  |              |         |  |     |   |  |   |        |   |  |     |   
|------------------------------------------------- |  | ------------------------------ | ------- |  | ------------ | - |  | ------------ | ------- |  | --- | - |  | - | ------ | - |  | --- | --
|                                                  |  | Six Months Ended September 30, |         |  | $ Inc /(Dec) |   |  | % Inc /(Dec) |        
|                                                  |  | 2003                           |         |  | 2004         |   |  |             
|Network Services                                  |  | $                              | 164,199 |  | 55           | % |  | $            | 163,807 |  | 52  | % |  | $ | (392   | ) |  | (0  | )%
|Consulting, Integration and Provisioning Services |  |                                | 108,206 |  | 36           |   |  |              | 125,291 |  | 39  |   |  |   | 17,085 |   |  | 16  | % 
|Applications Services                             |  |                                | 19,823  |  | 6            |   |  |              | 21,411  |  | 7   |   |  |   | 1,588  |   |  | 8   | % 
|Other Communications Services                     |  |                                | 8,117   |  | 3            |   |  |              | 6,058   |  | 2   |   |  |   | (2,059 | ) |  | (25 | )%
|                                                  |  |                                |         |  |              |   |  |              |         |  |     |   |  |   |        |   |  |     |   
|Total revenues                                    |  | $                              | 300,345 |  | 100          | % |  | $            | 316,567 |  | 100 | % |  | $ | 16,222 |   |  | 5   | % 
|                                                  |  |                                |         |  |              |   |  |              |         |  |     |   |  |   |        |   |  |     |   



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Revenues by Distribution Channel



|                                           |  |                               |         |   |            |   |         |              |  |   |        |   |  |    |   
|------------------------------------------ |  | ----------------------------- | ------- | - | ---------- | - | ------- | ------------ |  | - | ------ | - |  | -- | --
|                                           |  | Six Months EndedSeptember 30, |         |   | Inc /(Dec) |   |         | % Inc /(Dec) | 
|                                           |  | 2003                          |         |   | 2004       |   |         |             
|Country representatives (direct channels): |  |                               |         |   |            |   |         |              |  |   |        |   |  |    |   
|Number of representatives                  |  |                               | 58      |   |            |   | 59      |              |  |   | 1      |   |  | 2  | % 
|Number of clients                          |  |                               | 1,598   |   |            |   | 1,832   |              |  |   | 234    |   |  | 15 | % 
|Country representatives revenues          |  | $                             | 265,502 |   |            | $ | 284,040 |              |  | $ | 18,538 |   |  | 7  | % 
|Percent of total revenues                  |  |                               | 88      | % |            |   | 90      | %            |  |   |        |   |  |    |   
|Alternate sales channels:                  |  |                               |         |   |            |   |         |              |  |   |        |   |  |    |   
|Number of sales channel partners           |  |                               | 30      |   |            |   | 33      |              |  |   | 3      |   |  | 10 | % 
|Number of sales channel partners clients  |  |                               | 348     |   |            |   | 339     |              |  |   | (9     | ) |  | (3 | )%
|Alternate sales channels revenues         |  | $                             | 34,843  |   |            | $ | 32,527  |              |  | $ | (2,316 | ) |  | (7 | )%
|Percent of total revenues                  |  |                               | 12      | % |            |   | 10      | %            |  |   |        |   |  |    |   



Revenues by Region



|                                      |  |                                |         |  |              |   |  |              |         |  |     |   |  |   |        |   |  |    |   
|------------------------------------- |  | ------------------------------ | ------- |  | ------------ | - |  | ------------ | ------- |  | --- | - |  | - | ------ | - |  | -- | --
|                                      |  | Six Months Ended September 30, |         |  | $ Inc /(Dec) |   |  | % Inc /(Dec) |        
|                                      |  | 2003                           |         |  | 2004         |   |  |             
|Americas                              |  | $                              | 82,734  |  | 28           | % |  | $            | 101,269 |  | 32  | % |  | $ | 18,535 |   |  | 22 | % 
|Europe, Middle East and Africa (EMEA) |  |                                | 174,371 |  | 58           |   |  |              | 170,267 |  | 54  |   |  |   | (4,104 | ) |  | (2 | )%
|Asia Pacific                          |  |                                | 43,240  |  | 14           |   |  |              | 45,031  |  | 14  |   |  |   | 1,791  |   |  | 4  | % 
|                                      |  |                                |         |  |              |   |  |              |         |  |     |   |  |   |        |   |  |    |   
|Total revenues                        |  | $                              | 300,345 |  | 100          | % |  | $            | 316,567 |  | 100 | % |  | $ | 16,222 |   |  | 5  | % 
|                                      |  |                                |         |  |              |   |  |              |         |  |     |   |  |   |        |   |  |    |   



Revenues



Revenues by ServiceRevenues increased
$16.2 million, or 5% in the six months ended September 30, 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 $17.1 million, or 16% in
the six months ended September 30, 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 $1.6 million, or 8% in the six months ended September 30, 2004 compared to the corresponding period of the prior fiscal year. The increase is primarily attributable to an increase
in revenues from our call center and security services. These aggregate increases of $18.7 million were offset by an aggregate decrease of $2.5 million in revenues from Network Services and Other Communications Services. Revenues from Network
Services decreased $0.4 million in the six months ended September 30, 2004 compared to the corresponding period of the prior fiscal year. Intranet services, the largest component of Network Services revenues, decreased $5.4 million, or 4% in the six
months ended September 30, 2004 compared to the corresponding period of the prior fiscal year while revenues from our remote access services increased $4.1 million, or 16% in the six months ended September 30, 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, partially offset by a $2.5 million contract
termination fee recorded in the three months ended September 30, 2004. The termination of this contract is expected to result in a reduction of revenues of approximately $1.4 million during the remainder of the current fiscal year when compared to
the revenues earned under this contract during the six months ended September 30, 2004. Revenues from Other Communications Services decreased $2.1 million, or 25% in the six months ended September 30, 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



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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 and Applications 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 $18.5 million, or 7% in the six months ended September 30, 2004 compared to the corresponding period of the prior fiscal year due to a $2.5 million contract termination fee
recorded during the current period and an increase in the number of our country representatives clients. The number of our country representatives increased to 59 as of September 30, 2004 from 58 as of September 30, 2003. The number of our
country representatives clients increased to 1,832 as of September 30, 2004 from 1,598 as of September 30, 2003.



Revenues from our alternate sales channels decreased $2.3 million, or 7% in the six months ended September 30, 2004 compared to the corresponding period
of the prior fiscal year due to a decrease in revenues from three resellers of approximately $5.6 million, which was partially offset by increased revenues from other existing clients. The number of our alternate sales channel partners increased to
33 as of September 30, 2004 from 30 as of September 30, 2003. The number of our alternate sales channel partners clients decreased to 339 as of September 30, 2004 from 348 clients as of September 30, 2003.



Revenues by RegionRevenues billed in the Americas region
increased $18.5 million, or 22% in the six months ended September 30, 2004 compared to the corresponding period of the prior fiscal year due to a $2.5 million contract termination fee recorded during the current period and our sales efforts in that
region. Revenues billed in the EMEA region decreased $4.1 million, or 2% in the six months ended September 30, 2004 compared to the corresponding period of the prior fiscal year. Revenues billed in the Asia Pacific region increased $1.8 million, or
4% in the six months ended September 30, 2004 compared to the corresponding quarter of the prior fiscal year. We expect revenues from the Americas and Asia Pacific regions will continue to grow, while revenues from the EMEA region will remain
relatively flat.



Expenses



Communication services costs decreased $7.4 million, or 16% in the six
months ended September 30, 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 16% and 13% in the six months
ended September 30, 2003 and 2004, respectively.



Integration
and provisioning costs increased $12.2 million, or 12% in the six months ended September 30, 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 37% in the six months ended September 30, 2003
and 2004, respectively.



Bandwidth and related costs decreased
$10.0 million, or 19% in the six months ended September 30, 2004 compared to the corresponding period of the prior fiscal year. Lease expense, the largest component of bandwidth and related costs, decreased $10.9 million, or 28% in the six months
ended September 30, 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 18% and 14% in the six months ended September 30, 2003 and 2004, respectively.



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Network operations expenses increased $1.8 million, or 3% in the six months ended September 30, 2004
compared to the corresponding period of the prior fiscal year. The increase is primarily due to an increase in depreciation expenses as a result of our continuing build-out of The World Network. Network operations expenses as a percentage of total
revenues remained at 20% in the six months ended September 30, 2003 and 2004.



Selling, general and administrative expenses increased $8.6 million, or 12% in the six months ended September 30, 2004 compared to the corresponding period of the prior fiscal year. Sales personnel-related expenses
increased $4.5 million, or 13% in the six months ended September 30, 2004 compared to the corresponding period of the prior fiscal year due to compensation and headcount increases. Marketing, product development and advertising expenses increased
$7.2 million, or 89% in the six months ended September 30, 2004 compared to the corresponding period of the prior fiscal year primarily due to outside advertising and headcount increases. Partially offsetting these increases is a $4.3 million
decrease in stock-related compensation charges, as we no longer incur charges related to our SARs Plan or our 1998 Stock Option Plan. Selling, general and administrative expenses as a percentage of total revenues were 23% and 25% in the six months
ended September 30, 2003 and 2004, respectively.



Operating
Loss decreased $11.1 million, or 30% in the six months ended September 30, 2004 compared to the corresponding period of the prior fiscal year due to the factors described above.



Total other income, net increased $0.8 million, or 60% in the six months ended September 30, 2004 compared to the
corresponding period of the prior fiscal year. The increase is primarily due to more favorable foreign currency exchange impacts in the six months ended September 30, 2004 compared to the corresponding period of the prior fiscal year. The loss from
foreign currency exchange decreased $1.1 million and was partially offset by a decrease in interest income of $0.4 million, or 10% due to lower cash balances in the six months ended September 30, 2004 compared to the corresponding period of the
prior fiscal year.



Provision for Income Taxes remained at $1.3
million in the six months ended September 30, 2003 and 2004.



Net Loss decreased $11.5 million, or 31% in the six months ended September 30, 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 six months ended September
30, 2004 was $31.2 million compared to $17.2 million in the six months ended September 30, 2003. Depreciation and amortization increased $4.8 million in the six months ended September 30, 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 $20.1 million in the six months ended September 30, 2004 compared to $8.6 million in the six months ended September 30, 2003. During the
six months ended September 30, 2004, we received significant payments resulting in a reduction of past due accounts receivable. We used cash to reduce our accounts payable by $13.8 million in the six months ended September 30, 2004 compared to $6.7
million in the six months ended September 30, 2003. During the six months ended September 30, 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 six months ended September 30, 2004 was $17.3 million compared to net cash used of $44.1 million in the six months ended September 30, 2003. Net cash provided by financing activities in the six months ended September 30, 2004 was
$0.4 million compared to net cash used of $5.1 million in the six months ended September 30, 2003. The fluctuation was primarily the result of $4.4 million of treasury stock purchases made during the six months ended September 30, 2003. Our stock
repurchase program ended in November 2003. The cash flow activity in the six months ended September 30, 2004 is not necessarily indicative of future periods cash flow activity.



As of September 30, 2004, we had cash and cash equivalents of $151.3 million, short-term investments of $241.6 million,
working capital of $395.7 million and total assets of $1,016.5 million. This compares to cash and



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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 $50 million. In the six months ended September 30, 2004, we have used cash and cash equivalents of $26.0 million for capital expenditures. Although we do not expect to at this time, it may be necessary for us to
increase capital 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 August 19, 2004, we entered into a letter agreement (the Letter
Agreement) with BT Group plc (BT Group) regarding a possible business combination of our two companies. In the Letter Agreement, we gave BT Group the exclusive right to negotiate a business combination with us until October 29,
2004. We also agreed, subject to certain exceptions, to not disclose that negotiations with BT Group were occurring. We agreed to pay BT Group an opportunity fee equal to $7 million in the event that (i) we breached our exclusivity or
confidentiality obligations contained in the agreement or (ii) by October 29, 2004, BT Group made an offer to acquire us on certain qualifying terms described in the agreement and either we subsequently refused to accept its offer or any of our
Class A stockholders refused to enter into an agreement to vote their shares of our common stock in favor of its offer. When negotiations did not result in an offer to acquire us by October 29, 2004, we agreed with BT Group that no opportunity fee
was payable under the Letter Agreement.



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) 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. 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.



In connection with the proposed business combination, we 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 with us will be modified. 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.



26



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##### Table of Contents

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 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 September 30, 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 $1.7 million during the six months ended September 30, 2004.



As of September 30, 2004, we had no material long-term debt exposure.



The carrying amount, principal maturity and estimated fair
value of our investment portfolio as of September 30, 2004 are as follows (dollars in thousands):



|                               |  |                    |         |   |          |      |        |            |      |   |        |      |  |   |        |   |  |            |        |   |  |   |       |   |  |   |        |   |  |   |        
|------------------------------ |  | ------------------ | ------- | - | -------- | ---- | ------ | ---------- | ---- | - | ------ | ---- |  | - | ------ | - |  | ---------- | ------ | - |  | - | ----- | - |  | - | ------ | - |  | - | -------
|                               |  | CarryingAmount2004 |         |   | Maturity |      |        | Fair Value
|                               |  |                    | 2005    |   |          | 2006 |        |            | 2007 |   |        | 2008 |  |   | 2009   |   |  | Thereafter |        |  
|Investments                    |  |                    |         |   |          |      |        |            |      |   |        |      |  |   |        |   |  |            |        |   |  |   |       |   |  |   |        |   |  |   |        
|Cash equivalents               |  | $                  | 90,766  |   |          | $    |       |            |      | $ |       |      |  | $ |       |   |  | $          |       |   |  | $ |      |   |  | $ |       |   |  | $ | 90,766 
|Weighted average interest rate |  |                    | 1.74    | % |          |      |       |            |      |   |       |      |  |   |       |   |  |            |       |   |  |   |      |   |  |   |       |   |  |   |       
|Short-term investments         |  | $                  | 241,613 |   |          | $    | 29,554 |            |      | $ | 83,956 |      |  | $ | 70,131 |   |  | $          | 11,189 |   |  | $ | 7,236 |   |  | $ | 39,547 |   |  | $ | 241,613
|Weighted average interest rate |  |                    | 3.09    | % |          |      | 2.39   | %          |      |   | 3.10   | %    |  |   | 2.97   | % |  |            | 3.82   | % |  |   | 4.26  | % |  |   | 3.42   | % |  |   |       



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##### Table of Contents

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 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 October 1, 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



On
December 5, 2001, the first of nine complaints alleging securities fraud was filed against us and several of our current and former officers and directors in the United States District Court, Central District of California. These lawsuits were
consolidated into a single lawsuit under the caption, In re Infonet Services Corporation Securities Litigation, Master File No. 01-10456 NM (CWx). A Consolidated Class Action Complaint was filed on July 3, 2002 on behalf of public investors who
purchased our securities during the period from December 16, 1999 through August 7, 2001. The Consolidated Class Action Complaint named the following defendants: Infonet; our Chief Executive Officer and Chairman of the Board, José A. Collazo;
our Chief Financial Officer, Akbar H. Firdosy; certain current and former members of our Board of Directors: Douglas Campbell, Eric M. de Jong, Morgan Ekberg, Masao Kojima, Joseph Nancoz and Rafael Sagrario; the holders of our Class A common stock:
KDDI Corporation, KPN Telecom, Swisscom AG, Telefonica International Holding B.V., Telia AB and Telstra Corporation Ltd; and the underwriters of our initial public offering: Merrill Lynch & Co., Warburg Dillon Read LLC, ABN AMRO Inc., Goldman
Sachs & Co., Lehman Brothers Inc. and Salomon Smith Barney Inc.



The Consolidated Class Action Complaint alleged that defendants made misrepresentations and omissions regarding the AUCS channel in our Form S-1 registration statement and the accompanying prospectus for our initial public offering of Class
B common stock and in other statements and reports during the class period. The plaintiffs asserted counts against us and our officers and directors for violations of Sections 11, 12 and 15 of the Securities Act of 1933 and violations of Section
20(a) and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The plaintiffs requested a judgment determining that the lawsuit is a proper class action, awarding compensatory damages and/or rescission, awarding costs
of the lawsuit and awarding such other relief as the court may deem just and proper. All of the defendants filed motions to dismiss the Consolidated Class Action Complaint. On August 12, 2003, the Court ruled on the motions to dismiss, dismissing
the underwriters and Class A stockholders without leave to amend, and dismissing us and our officers and directors with leave to file an amended complaint. Plaintiffs filed an Amended Consolidated Class Action Complaint on October 3, 2003, to which
defendants responded with a motion to dismiss filed on December 5, 2003.



We have settled this lawsuit, all claims have been dismissed, and the defendants have obtained releases of liability, in exchange for a cash payment of $18 million by the defendants. We have paid $5 million of this
amount, which reflects our contribution to the settlement, net of insurance. 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.



On November 8,
2004, a purported class action lawsuit was filed in California Superior Court, County of Los Angeles titled Depras v. Infonet Services Corporation et al., 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, the complaint alleges that the defendants breached their fiduciary duties to our stockholders by approving the merger agreement with British Telecommunications plc. The complaint seeks 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.



We are unable at this time to predict the ultimate outcome of this
litigation, determine whether a liability has been incurred or make a reasonable estimate of the liability that could result from an unfavorable outcome. As of this date, 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



29



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##### Table of Contents

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



We held our Annual Meeting of Stockholders on September 14, 2004. At the Annual Meeting, our stockholders elected eleven directors to our Board of Directors. There were present in person or by proxy 1,910,031,274
votes, representing 99.58% of the total outstanding eligible votes, including 295,997,694 votes of our Class B common shares, representing 97.34% of the outstanding eligible Class B common votes. The proposals considered at the Annual Meeting were
voted on as follows:



1. The following directors were elected
for terms of office expiring in 2005 and received the number of votes set forth opposite their names, with no abstentions or broker non-votes:



|                                                                                                 |  |                       |  |                       |  |          
|------------------------------------------------------------------------------------------------ |  | --------------------- |  | --------------------- |  | ---------
|Directors elected by holders of Class A common shares and Class B common shares, voting together |  | Class A VotesIn Favor |  | Class B VotesIn Favor |  | Withheld 
|José A. Collazo                                                                                  |  | 1,614,033,580         |  | 294,028,622           |  | 1,969,072
|John Allerton                                                                                    |  | 1,614,033,580         |  | 294,109,312           |  | 1,888,382
|Bruce A. Beda                                                                                    |  | 1,614,033,580         |  | 295,043,438           |  | 954,256  
|Eric M. de Jong                                                                                  |  | 1,614,033,580         |  | 294,086,839           |  | 1,910,855
|Per-Eric Fylking                                                                                 |  | 1,614,033,580         |  | 294,102,296           |  | 1,895,398
|Peter G. Hanelt                                                                                  |  | 1,614,033,580         |  | 295,044,987           |  | 952,707  
|Yuzo Mori                                                                                        |  | 1,614,033,580         |  | 293,796,844           |  | 2,200,850
|Hanspeter Quadri                                                                                 |  | 1,614,033,580         |  | 294,084,236           |  | 1,913,458
|José Manuel Santero                                                                              |  | 1,614,033,580         |  | 294,099,836           |  | 1,897,858
|                                                                                                 |  |                       | 
|Directors elected by holders of Class B common shares, voting as a single class                  |  |                       |  | Class B VotesIn Favor |  | Withheld 
|Timothy P. Hartman                                                                               |  |                       |  | 295,048,870           |  | 948,824  
|Matthew J. ORourke                                                                              |  |                       |  | 295,044,980           |  | 952,714  



Item
5.Other Information



Not applicable.



Item 6.Exhibits



See Exhibit
Index.



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##### Table of Contents

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: November 10, 2004



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##### Table of Contents

EXHIBIT INDEX



|         |  |                                                                                                                                                                                                                                         
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number   |  | Description                                                                                                                                                                                                                             
|         | 
|3.1      |  | Restated Certificate of Incorporation(1)                                                                                                                                                                                                
|         | 
|3.2      |  | Amended and Restated Bylaws(1)                                                                                                                                                                                                          
|         | 
|3.3      |  | Amended and Restated Bylaws, effective as of February 21, 2004(15)                                                                                                                                                                      
|         | 
|9.1      |  | Form of Amended and Restated Stockholders Agreement(1)                                                                                                                                                                                  
|         | 
|10.1(a)  |  | Amended and Restated Infonet Services Corporation 1998 Stock Option Plan(2)                                                                                                                                                             
|         | 
|10.1(b)  |  | Form of Incentive Stock Option Award Agreement(2)                                                                                                                                                                                       
|         | 
|10.1(c)  |  | Form of Stock Option Award Agreement(2)                                                                                                                                                                                                 
|         | 
|10.2     |  | Form of Infonet Services Corporation 1998 Employee Stock Purchase Plan Loan, Security and Pledge Agreement(3)                                                                                                                           
|         | 
|10.2(a)  |  | Form of Infonet Services Corporation 1998 Employee Stock Purchase Plan Amendment to Loan, Security and Pledge Agreement(3)                                                                                                              
|         | 
|10.2(b)  |  | Form of Infonet Services Corporation 1998 Employee Stock Purchase Plan Second Amendment to Loan, Security and Pledge Agreement(4)                                                                                                       
|         | 
|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)(5)
|         | 
|10.3(a)  |  | Form of Infonet Services Corporation Incentive Stock Option Award Agreement(3)                                                                                                                                                          
|         | 
|10.4     |  | Infonet Services Corporation Deferred Income Plan (Amended and Restated Effective January 1, 2000)(3)                                                                                                                                   
|         | 
|10.4(a)  |  | Amendment to Infonet Services Corporation Deferred Income Plan(15)                                                                                                                                                                      
|         | 
|10.6     |  | Infonet Services Corporation Supplemental Executive Retirement Plan (Amended and Restated Effective October 1, 2000)(6)                                                                                                                 
|         | 
|10.6(a)  |  | Amendment to Infonet Services Corporation Supplemental Executive Retirement Plan(15)                                                                                                                                                    
|         | 
|10.8     |  | Executive Employment Agreement of José A. Collazo, dated April 24, 2001(7)                                                                                                                                                              
|         | 
|10.8(a)  |  | First Amendment to Executive Employment Agreement of José A. Collazo, dated May 7, 2004(16)                                                                                                                                             
|         | 
|10.17    |  | Executive Employment Agreement of Akbar H. Firdosy, dated April 24, 2001(7)                                                                                                                                                             
|         | 
|10.18    |  | Infonet Services Corporation 2000 Omnibus Stock Plan(8)                                                                                                                                                                                 
|         | 
|10.18(a) |  | Amendment No. 1 to Infonet Services Corporation 2000 Omnibus Stock Plan(2)                                                                                                                                                              
|         | 
|10.18(b) |  | Amendment No. 2 to Infonet Services Corporation 2000 Omnibus Stock Plan(9)                                                                                                                                                              
|         | 
|10.18(c) |  | Infonet Services Corporation 2000 Omnibus Stock Plan Non-qualified Stock Option Award Agreement for Officers, Directors And Senior Employees(3)                                                                                         
|         | 
|10.18(d) |  | Infonet Services Corporation 2000 Omnibus Stock Plan Incentive Stock Option Award Agreement for Officers, Directors and Senior Employees(5)                                                                                             
|         | 
|10.19    |  | Infonet Services Corporation 2000 Employee Stock Purchase Plan (Amended and Restated Effective as of January 1, 2004)(13)                                                                                                               
|         | 
|10.20    |  | Executive Employment Agreement of Paul A. Galleberg, dated April 24, 2001(7)                                                                                                                                                            



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|         |  |                                                                                                                                                                       
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number   |  | Description                                                                                                                                                           
|         | 
|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(10)
|         | 
|10.26    |  | Infonet Services Corporation Senior Executive Supplemental Benefits Plan(11)                                                                                          
|         | 
|10.27    |  | AUCS Termination and Transition Agreement, dated as of September 30, 2002(5)                                                                                          
|         | 
|10.28    |  | Incentive Payment Agreement, dated as of March 14, 2003(12)                                                                                                           
|         | 
|10.28(a) |  | Incentive Payment Settlement Agreement, dated as of March 29, 2004(16)                                                                                                
|         | 
|10.29    |  | Infonet Services Corporation 2003 Incentive Award Plan(13)                                                                                                            
|         | 
|10.29(a) |  | Infonet Services Corporation 2003 Incentive Award Plan Incentive Stock Option Award Agreement for Officers and Senior Employees(14)                                   
|         | 
|10.29(b) |  | Infonet Services Corporation 2003 Incentive Award Plan Non-qualified Stock Option Award Agreement for Officers, Directors And Senior Employees(14)                    
|         | 
|10.29(c) |  | Amendment No. 1 to Infonet Services Corporation 2003 Incentive Award Plan, effective as of February 24, 2004(16)                                                      
|         | 
|10.29(d) |  | Form of Infonet Services Corporation 2003 Incentive Award Plan Restricted Stock Agreement(16)                                                                         
|         | 
|10.30    |  | Form of Indemnification Agreement of Directors*(14)                                                                                                                   
|         | 
|10.31    |  | Form of Indemnification Agreement for Senior Executives#(14)                                                                                                          
|         | 
|10.32    |  | Infonet Services Corporation CEO Incentive Bonus Plan(16)                                                                                                             
|         | 
|10.33    |  | Letter Agreement between BT Group plc and Infonet Services Corporation, dated as of August 19, 2004                                                                   
|         | 
|10.34    |  | Agreement and Plan of Merger by and among British Telecommunications plc, Blue Acquisition Corp., and Infonet Services Corporation, dated as of November 8, 2004(17)  
|         | 
|10.35    |  | Letter Agreement from José A. Collazo to Infonet Services Corporation, dated as of November 8, 2004(17)                                                               
|         | 
|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 Registration Statement on Form S-1 (No. 333-88799) as amended, that was declared effective on December 15, 1999.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the period ended December 31, 2000.
|--- |  | -------------------------------------------------------------------------------------------------------------------

|(3) |  | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the period ended September 30, 2001.
|--- |  | --------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|(4) |  | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the period ended December 31, 2001.
|--- |  | -------------------------------------------------------------------------------------------------------------------

|(5) |  | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the period ended September 30, 2002.
|--- |  | --------------------------------------------------------------------------------------------------------------------

|(6) |  | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the period ended December 31, 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------

|(7) |  | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the period ended June 30, 2001
|--- |  | --------------------------------------------------------------------------------------------------------------

|(8) |  | Incorporated by reference to the Registrants definitive proxy statement for the 2000 Annual Stockholders Meeting filed with the Commission on July 27, 2000.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(10) |  | Incorporated by reference to the Registrants Annual Report on Form 10-K for the period ended March 31, 2001.
|---- |  | -------------------------------------------------------------------------------------------------------------

|(11) |  | Incorporated by reference to the Registrants Annual Report on Form 10-K for the period ended March 31, 2002.
|---- |  | -------------------------------------------------------------------------------------------------------------

|(12) |  | Incorporated by reference to the Registrants Annual Report on Form 10-K for the period ended March 31, 2003.
|---- |  | -------------------------------------------------------------------------------------------------------------

|(13) |  | Incorporated by reference to the Registrants definitive proxy statement for the 2003 Annual Stockholders Meeting filed with the Commission on July 7, 2003.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|(14) |  | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the period ended September 26, 2003
|---- |  | -------------------------------------------------------------------------------------------------------------------

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

|(16) |  | Incorporated by reference to the Registrants Annual Report on Form 10-K for the period ended April 2, 2004.
|---- |  | ------------------------------------------------------------------------------------------------------------

|(17) |  | Incorporated by reference to the Registrants Current Report on Form 8-K filed with the Commission on November 9, 2004.
|---- |  | -----------------------------------------------------------------------------------------------------------------------



34