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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

    For the fiscal year ended March 31, 2001 or

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

                       Commission File Number: 333-88799

                                ---------------

                          INFONET SERVICES CORPORATION
             (Exact Name of Registrant as Specified in Its Charter)

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                     Delaware                                          95-4148675
<S>                                                <C>
           (State or Other Jurisdiction                             (I.R.S. Employer
        of Incorporation or Organization)                         Identification No.)
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           2160 East Grand Avenue, El Segundo, California 90245-1022
                    (Address of Principal Executive Offices)

                                 (310) 335-2600
              (Registrant's telephone number, including area code)

                                ---------------

          Securities registered pursuant to Section 12(b) of the Act:

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               Title of Each Class                     Name of Each Exchange on Which Registered
               -------------------                     -----------------------------------------
<S>                                                <C>
      Class B common stock, $0.01 par value                     New York Stock Exchange
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          Securities Registered Pursuant to Section 12(g) of the Act:

                                      None

                                ---------------

   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 as 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]

   The aggregate market value of Class B common stock held by non-affiliates of
the Registrant as of June 18, 2001 was approximately $464.4 million based on
the closing price on the New York Stock Exchange on June 18, 2001 of $7.25.

   The number of shares of the Registrant's $.01 par value Class B common stock
that was outstanding as of June 18, 2001 was 309,394,476. The number of
outstanding shares of the Registrant's Class A common stock, par value, $.01,
was 161,403,358 as of June 18, 2001, all of which are held by affiliates.

                      DOCUMENTS INCORPORATED BY REFERENCE:

   The information required by Part III (Items 10, 11, 12, and 13) is
incorporated by reference to portions of the Registrants definitive proxy
statement for the 2001 Annual Meeting of Stockholders which will be filed with
the Securities and Exchange Commission within 120 days after the fiscal year
ended March 31, 2001.

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                          INFONET SERVICES CORPORATION

                               TABLE OF CONTENTS

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                                                                           Page
Item No.                                                                   No.
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PART I...................................................................    1
Item 1. Business.........................................................    1
Item 2. Properties.......................................................   24
Item 3. Legal Proceedings................................................   25
Item 4. Submission of Matters to a Vote of Security Holders..............   25

PART II..................................................................   26
Item 5. Market for Registrant's Common Equity and Related Stockholder
 Matters.................................................................   26
Item 6. Selected Consolidated Financial Data.............................   28
Item 7. Management's Discussion and Analysis of Financial Condition and
 Results of Operations...................................................   30
Item 7A. Quantitative and Qualitative Disclosures about Market Risk......   44
Item 8. Financial Statements and Supplementary Data......................   44
Item 9. Changes in and Disagreements with Accountants on Accounting and
 Financial Disclosure....................................................   44

PART III.................................................................   45
Item 10. Directors and Executive Officers of the Company.................   45
Item 11. Executive Compensation..........................................   45
Item 12. Security Ownership of Certain Beneficial Owners and Management..   45
Item 13. Certain Relationships and Related Transactions..................   45

PART IV..................................................................   46
Item 14. Exhibits, Financial Statements, Schedules and Reports on
 Form 8-K................................................................   46
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                                     PART I

Item 1. Business

   All statements contained in this annual report that are not statements of
historical fact constitute "Forward-Looking Statements" within the meaning of
Section 21E of the Securities Exchange Act. These statements involve known and
unknown risks, uncertainties, and other factors that may cause our or our
industry's actual results to differ materially from those implied by the
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," or "continue"
or the negative of these terms or other comparable words. Although we believe
that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of such statements. Important
factors that may cause actual results to differ from expectations include those
discussed under the subheading "--Risk Factors" and elsewhere in this annual
report.

   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 52-week periods ended April 2, 1999, March 31, 2000 and March 30, 2001 as
the years ended March 31, 1999, 2000 and 2001, respectively.

   We are a leading provider of cross-border managed data communications
services for more than 2,600 corporations worldwide, including 35% of the top
500 corporations in Business Week's 1999 Global 1000. Our network, which we
refer to as The World Network, can be accessed from over 180 countries, making
it one of the world's largest data communications networks in terms of
geographic coverage. We own and operate our network, which allows us to provide
managed data services to our clients on a global basis, an advantage over
service providers that do not own an extensive global network. We sell our
services directly through our country representatives and indirectly through
major international telecommunications carriers and value-added resellers. Our
country representatives give us a significant local presence in more than 60
countries and strong working relationships with leading local
telecommunications providers in these countries. Our diverse client base is
comprised of multinational corporations that require cross-border data
communications services such as Allergan, Microsoft, Nestle, Nokia and
Volkswagen.

   We offer a broad range of integrated service solutions to our clients, such
as:

  . Network Services--includes intranet, ATM, remote access, multimedia,
    Internet and IP-VPN services;

  . Consulting, Integration and Provisioning Services--includes consulting,
    design, and implementation of each client's particular networking needs
    and our Global Connect services whereby we install and manage leased
    lines and customer premise equipment at the client's site to enable the
    client to access The World Network and use our Network Services;

  . Applications Services--includes e-mail, messaging, collaboration, Web
    hosting and other value-added services; and

  . Other Communications Services --includes X.25 transport services, service
    access fees and other communications services.

   We take a consultative, applications-oriented approach to identifying client
needs and developing customized solutions. In addition, we offer a consolidated
billing, management and support system which provides a complete solution for
all of the external and internal data communications services that our
multinational clients require. Our approach is to integrate our full range of
services with the data communications and network operations of our clients. We
believe that our ability to provide a comprehensive solution to our clients
gives us a key competitive advantage because our solutions are costly to
develop and difficult to replicate.

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   We own and operate The World Network, an extensive and versatile ATM-enabled
network that provides the delivery platform for our integrated, enterprise-wide
communications solutions. The World Network has over 23 Gigabits or Gbps of
data transmission circuits, most of which are over fiberoptic routes. This
global private network enables our clients to deploy and manage applications
effectively by combining reliability, security, high performance and a broad
range of functions using a variety of network protocols.

   Our global country representative sales and support structure, which in some
countries is based on non-exclusive partnerships with local telecommunications
and other service providers, gives us a strong presence in each of our markets.
We believe this structure also provides us with a competitive advantage over
other data service providers who do not have comparable levels of expertise
regarding local operating, regulatory and market conditions.

   Our current stockholders include six of the world's largest
telecommunications companies which, through ownership of our Class A and Class
B common stock, collectively possess approximately 95% of our total voting
power. They are:

  . KDDI--KDDI Corporation (Japan);

  . KPN--KPN Telecom B.V. (The Netherlands);

  . Swisscom--Swisscom AG (Switzerland);

  . Telefonica--Telefonica International Holding B.V. (Spain);

  . Telia--Telia AB (Sweden); and

  . Telstra--Telstra Corporation Limited (Australia).

Market Opportunity

   With developments in network technology, advances in communications service
offerings and the globalization of business, multinational corporations are
increasingly demanding integrated solutions for their mission-critical global
communications needs. In addition, the rapid expansion and adoption of the
public Internet are creating additional opportunities for corporations to
interact with a large number of geographically dispersed offices, employees,
customers, suppliers and partners. However, the public Internet was not
designed with the reliability, consistency, response time and security required
for mission-critical applications. As a result, multinational corporations rely
on service providers to enhance the quality, reliability and security of their
data communications and to provide global access equivalent to the public
Internet. These corporations require integrated solutions that span multiple
countries, have guaranteed network availability, can deliver continuous
increases in speed and capacity and provide local service and support. The
demand for these managed data services has dramatically increased the size and
growth rate of the communications marketplace.

   The market for data communications is one of the fastest growing segments of
the global telecommunications market. According to IDC, a leading market
research firm, the global data communications services market, which includes
ATM, intranet services, commercial Internet services and Web hosting, will be
approximately $27 billion in 2001 with a compound annual growth rate of 32%
from 1998 to 2003. Within this market we focus on cross-border managed data
communications services for multinational corporations, which IDC projects to
grow from $4.1 billion in 2000 to $18 billion in 2003, an estimated compound
annual growth rate of over 60%.

 Industry Drivers

   We believe that there is an attractive opportunity for marketing managed
data communications services to multinational corporations because of the
following factors:

  . globalization of business and increased need for connecting international
    locations;

  . rapid expansion of Internet protocol (IP)-based applications;

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  . rising importance of data communications as a service critical to a
    corporation's success; and

  . increased outsourcing of corporate data communications.

   Globalization of business and increased need for connecting international
locations. Over the past several decades, corporations have significantly
increased the international scope of their businesses. These corporations have
opened and made direct investments in branch offices, factories, and other
local representative facilities around the globe. It is critical for these
corporations to share information accurately and expediently among their
geographically dispersed locations, as well as with their travelling and
telecommuting employees. New technologies and advanced remote access
alternatives are enabling these companies to connect their geographically
dispersed offices and employees to corporate and public networks at greater
speeds, as well as from more varied locations.

   Rapid expansion of Internet-based applications. Internet-based applications
are rapidly expanding as an important medium for global communications and e-
commerce with the potential to connect a large number of geographically
dispersed offices, employees, customers, suppliers and partners. Internet-based
applications have emerged as a strategic component of business, and investment
in Internet services has increased dramatically. The public Internet's lack of
reliability and security for mission-critical data communications, however, has
forced many corporations to seek assistance from service providers and data
network companies to enhance the quality of their Internet communications or to
design and implement high performance private networks.

   Rising importance of data communications as a service critical to a
corporation's success. An increasing number of businesses are investing in data
networks to achieve higher levels of productivity and lower operating expenses.
Increasingly, corporate intranets, public Internet Web sites, extranets and
other managed data networks are creating competitive advantages for companies
that use them to foster internal communications and e-commerce, recruit new
employees, communicate with customers, penetrate new market segments and
collect market information. Corporations are demanding that their networks
deliver data quickly, consistently and globally and that they can upgrade these
networks as the complexity of their applications grows and technologies change.
Corporations also require networks that operate 24-hours a day, seven days a
week, and offer application support and a broad range of functions, such as
security, remote access and reliability.

   Increased outsourcing of corporate data communications. Corporations are
focusing their resources on their core competencies. Investing in resources and
personnel required to maintain in-house private corporate networks is costly
and difficult, especially given the shortage of technical talent and risk of
technological change. The ongoing expansion of multinational businesses and new
developments in technology, have made it difficult for in-house solutions to
keep pace with corporate needs. Therefore, corporations have sought third
parties to provide managed data communications services. Given the costs and
difficulties involved in implementing international network solutions, we
believe that multinational corporations will increasingly outsource their
cross-border data communications needs.

Business Strategy

   Our goal is to be the leading provider of global data communications
services to multinational corporations. We currently expect to pursue the
following strategic aims:

 Focus on multinational clients that require data communications solutions

   We expect to continue to focus on multinational corporations with cross-
border managed data communications needs. We believe that the rapid pace of
technological change, and the resultant complexity and cost of network
communications services, are causing large multinational corporations to
outsource their data communications services to allow them to focus their
resources on their core competencies. Our flexible network architecture, local
presence in more than 60 countries and consultative sales approach allow us to
tailor our data communications solutions to meet our clients' needs. Given the
global reach of our network, our local

                                       3
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support services and our reputation for reliable and innovative services, we
believe we can further penetrate the market for global data services. Between
1996 and 2000, we increased our penetration of the top 500 corporations in
Business Week's annual Global 1000 from 21% to 35%. As part of our strategy, we
have launched a global branding program to increase awareness of our services
and the Infonet brand.

 Upgrade and expand our global network

   We intend to continue to upgrade and further expand The World Network to
maintain our competitive advantage. We believe that these investments in The
World Network will enable us to exploit economies of scale associated with high
volume transmission capacity and better meet our clients' requirements for
higher speed connections. Also, as part of this strategy, we continue to deploy
ATM backbone switches to connect our core network nodes around the world. We
believe this ATM-enabled network will provide greater capacity and improved
functionality. We expect to use our ATM-enabled network as a platform to offer
a broader range of value-added services that combine voice, video and data.

 Strengthen our sales and customer support structure

   Our country representatives play a vital role in the sales and marketing,
local client support and implementation of our services on a global basis. Our
country representative strategy has allowed us to expand geographically without
the related financial and managerial costs associated with building large
numbers of wholly-owned multinational sales and support operations. We are
constantly evaluating new opportunities to expand our sales channels through
the addition of new country representatives and alternate sales channel
partners. Our strategy is to capitalize on the strength of our country
representatives and alternate sales channel partners to build market share
among multinational corporations. We may also pursue this strategy by targeting
other companies for acquisition that can supplement our core business or our
client base.

 Provide the highest level of quality and reliability for our services

   We are committed to maintaining the highest level of quality and reliability
in delivering data communications services over our network. Using our network
management tools and systems, we are able to proactively monitor our global
network operations and respond quickly to client problems, 24-hours a day,
seven days a week. We consistently meet or exceed our quality standards,
reflecting our guarantee of network availability. In addition, we support our
clients through our extensive local operations. To ensure this quality, we
continue to make investments in client service and support, and continually
evaluate our performance in order to retain our valued clients. We also
continually hire and train experienced and technically sophisticated network
support and services personnel. We are committed to adhering to these quality
standards, in part by maintaining our ISO 9001 certification.

Our Service Solutions

   Our core business focuses on providing mission critical value-added global
data communications services to meet our clients' global data communications
needs. We use our extensive portfolio of products and services to provide total
global solutions to our customers. By taking a consultative, application-
oriented approach to identifying customer needs and developing customized
solutions, we offer our clients either individual services that they can use as
part of their own networks or more integrated solutions that combine several of
our services. Examples of how our services and solutions meet our clients'
needs include:

  . For AOL, a leading interactive media company, we provide call center
    capabilities throughout Europe to distribute customer queries to the most
    qualified AOL support personnel;

  . For Hasbro, a leading toy manufacturer, we provide the global
    communications to support their sales, administration and supply chain
    systems in 26 countries; and

  . For Volkswagen, a leading auto manufacturer, we provide global intranet
    services in 30 countries to ensure around the clock engine design.

                                       4
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   Our services are organized into four categories: Network Services;
Consulting Integration and Provisioning Services; Application Services; and
Other Communications Services.

Network Services

   We offer multinational corporations and our sales channel partners private
managed data services. Our clients use these services to manage information
among their worldwide locations. For example, manufacturing companies use our
services to integrate production and inventory schedules, technology companies
use our services to transmit design files and financial institutions use our
services to connect their trading desks. Typically, clients employ these
services to transmit information that is critical to their daily operations.
Within Network Services, we offer Intranet, Broadband, Internet, Managed Access
and Wireless Services.

 Intranet Services

   Global Frame Relay Services. Infonet was the first company to offer
"application defined" worldwide frame relay services in more than 65 countries
with customized performance levels. Through this service, we enable our
customers to assign quality of service levels to frame relay traffic for each
application. We offer our customers three levels of Frame Relay service to meet
specific application performance characteristics. A premium level Frame Relay
service is available for our customers' mission-critical, interactive
applications requiring the highest level of performance and network
availability. We offer the second level Frame Relay service for multi-protocol
applications with less stringent response time requirements, such as remote
printing, intranet browsing, collaborative software and large file transfers.
Our third level Frame Relay service is most suitable for clients using
applications with lower performance requirements that are less sensitive to
longer response times, such as Internet browsing, e-mail and small file
transfers.

   Private IP Services. Our Private Internet Services support Internet protocol
and provide functionality similar to the public Internet but with the
performance characteristics of The World Network. This capability allows us to
offer customers service level agreements for high performance mission critical
IP applications. Infonet was one of the first providers to offer this service
and has over ten years of experience in provisioning private internets. Our
Private Internet Services are designed for corporations seeking to establish
extranets or engage in e-commerce.

 Broadband Services

   ATM Services. Our global ATM services address the increasing demand for high
speed integrated voice, video and data services, and for bandwidth-intensive
applications, such as video conferencing. Using ATM, we can transmit both voice
and data with guaranteed quality of service at speeds ultimately up to 622
megabits per second, or Mbps. These characteristics make ATM an excellent
choice for broadband communications. By using ATM to integrate data, video and
voice services, our customers realize the highest performance from their
applications and achieve significant cost savings.

   MultiMedia Services. Our Multimedia Services provide customers with high
quality, cost effective voice communication services that can be used
independently or in combination with our managed data services. Using a
technology developed with Nortel Networks, customers can use The World Network
for inter-office voice communications or for international calling. We offer
our customers a customized dial-plan capability and bill them with a single
global invoice that includes location and call details.

 Internet Services

   IV-VPN Services. Our IV-VPN services enable customers to utilize us as their
global Internet Service Provider (ISP) with consolidated support and billing
across multiple countries. This capability is a distinct benefit for customers
that would otherwise use multiple ISPs in different countries. Customers can
connect to our Internet backbone from more than 45 countries using access
services that include managed, dedicated and dial-up

                                       5
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Internet access. We also offer advanced encryption and authentication services
through agreements with Cisco Systems and Verisign, respectively.

   Managed Firewall Services. We offer a global firewall solution to enforce
corporate Internet security policies across regions. Using this service,
customers can deploy firewalls strategically, eliminating the need to establish
multiple firewalls in a particular region. We use software from Checkpoint
Software to provide our firewall solutions.

   Transit Services. Our Internet Transit Services provide Internet Service
Providers with access to a highly reliable and congestion-free global IP
backbone network. This service leverages our Tier 1 IP backbone and global
private and public peering arrangements.

 Managed Access Services

   Remote Access Services. We offer our clients a variety of remote access
services on a wireline and wireless basis. Our remote access services provide
our clients' employees, who are travelling or who are located remotely, with
access to the same network applications that would be available if they were at
their primary office. Using our services, applications such as enterprise
resource planning, file sharing, Internet access and e-mail are accessible with
higher levels of security and performance than would normally be provided by
accessing these networks via the public Internet. We contract with one of the
industry's leading suppliers of enhanced security products to offer our
customers security products that provide greater security than traditional
password systems. As a result, our remote access service provides connectivity
for "virtual offices" anywhere in the world, quickly, securely and cost-
effectively. We provide dial-up connectivity through The World Network to
ensure secure access for our clients' employees, business partners and
customers. We also provide worldwide virtual private network connectivity for
remote offices and local area networks, or LANs, that support small office/home
office, business partner/client support networks and basic Internet access
requirements. We can offer network access on telecommuters' home computers,
through toll free dial-up service or via mobile phones connecting to The World
Network.

   Satellite/VSAT Services. Multinationals rely on VSAT satellite technology
for network connectivity in remote areas. To meet this need, our VSAT Connect
Service provides satellite-based clear channel network connections. We
currently offer this service in conjunction with Hughes Global Services. Our
VSAT service has a worldwide footprint and is fully supported 24-hours a day,
seven days a week.

 Wireless Services

   Our Wireless Services strategy is designed to provide employees of
multinational corporations global wireless access to their business critical
applications through a global, wireless IP-VPN. The first value-added service
is an IP network (GRX) to permit international data roaming for General Packet
Radio Service, or GPRS, end users. This GRX network, using The World Network
infrastructure, will be offered to mobile operators. We expect to offer
additional value-added components for both voice and data as 2.5 and 3G
wireless devices are deployed. These services are expected to include corporate
productivity applications, content aggregation, device detection and data
repurposing by device. Combined wireless voice and data services will be
supported by infrastructure that we expect to deploy during 2001.

Consulting, Integration and Provisioning Services

   We offer consulting services that analyze the relationship between the
customers' applications and their network. Through our Application Defined
Networking service, we provide a customized solution to balance applications,
network solutions and end-user requirements.

   We also offer provisioning and implementation services to our customers to
implement the "last-mile" part of the solution. Our country representatives
provide on-the-ground support and the local implementation

                                       6
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necessary to deliver these services on a global basis. As part of our
integrated solution, the country representatives provision leased lines to
connect our customer sites to The World Network. In addition, our country
representatives procure, install and maintain the appropriate customer premise
equipment. We believe that few other global data communications service
providers can offer similar localized services on a global scale.

Application Services

   Our Application Services include messaging and collaboration services, Web
hosting services and call center services.

   We host e-mail services for our clients using Microsoft Exchange and Lotus
Notes software. Our e-mail hosting activities include management of the client
servers, software support and services, and e-mail translations to telex and
fax.

   We offer Web hosting services to clients who wish to outsource their
Websites and other Internet applications. We run clients' servers for them at
an operations center with high bandwidth Internet connectivity, redundant power
and disaster recovery provisioning. We can connect hosting centers to the
clients' private network, and also offer firewall and security services in
conjunction with hosting services.

   We support call center services for customers operating their own service
centers who need the ability to dynamically monitor and control call routing
based on demand. We manage the entire inbound call, including the provisioning
and management of the local numbers in each country.

Other Communications Services

   Our highly reliable and cost-effective X.25 service is typically used for
lower performance applications requiring secure connectivity. X.25 is a widely
deployed and proven technology frequently used in developing countries where
high speed transmission capacity is not available.

Global Network Management/Local Support

   The World Network is the physical platform across which we deliver all of
our services. Our Global Network Management/Local Support infrastructure is the
combination of support, billing, management and personnel, that allows us to
offer our solutions seamlessly throughout the world. This seamless global
infrastructure capability has allowed us to distinguish ourselves as the leader
in quality and service, as evidenced by our success in capturing the World
Communications Association (WCA) Best Customer Care Award for 2000.

   We deliver our services through an infrastructure comprised of technology,
connectivity, tools, processes and personnel. We provide seamless global
performance through our network of nodes, switches, circuits and terminating
devices, combined with the management systems and processes for change,
configuration, security, billing and accounting. Changes, upgrades and
enhancements to our network are possible given our common information,
management and tracking infrastructure.

   We develop client solutions through a collaborative effort among our country
representatives responsible for serving each client location. To ensure the
quality of the solution we provide, an experienced global project management
team oversees the deployment of each client solution, using a highly-developed
set of systems, processes and infrastructure, which have been developed, tested
and improved over the last 30 years. After installation, our integrated global
billing system enables us to provide our clients a single invoice for all
services. We believe the time and capital required to duplicate our global
capabilities provides us with a significant competitive advantage.

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Outstanding Track Record of Innovation for Over 30 Years

   Throughout our history, we have been able to consistently grow revenues by
introducing a range of innovative services and implementing new technologies.
We have a strong history of product innovation, winning Data Communications Hot
Product of the Year in 5 of the last 8 years. Recent product initiatives
include expanding into the wireless data market by providing wireless operators
the global network connectivity they need to offer worldwide mobile Internet
services. Recognition of our leadership position culminated in winning 3 recent
awards: the World Communication Awards 2000 for "Best Customer Care" and "Best
Carrier," and the "Ovation" award for outstanding mobile communication
services. We intend to continue developing these value-added services through
internal expansion and partnerships to allow us to derive additional revenue
from our existing client base and to attract new clients.

Client Base

   We power the networks of more than 2,600 multinational clients which are
diversified across both industry groups and geographic regions. We provide our
services to many of the world's largest multinationals including Allergan,
Microsoft, Nestle, Nokia and Volkswagen. Our 35% share of the top 500
corporations in Business Week's 1999 Global 1000, an annual list of the world's
largest corporations, is evidence of the central role we play in the global
data communications industry. No single client comprised more than 2.5% of our
revenues in the year ended March 31, 2001.

   A substantial portion of our revenues are under contract for one to three
years. The act of switching service providers not only has the potential to
compromise the security and performance of the client's network, but also
presents a significant inconvenience, particularly to larger clients who use
many of our services. Therefore, we believe that our larger clients typically
will renew their contracts with us and continue to use our services.

Sales and Marketing

   Infonet employs a multi-tiered distribution strategy in order to maximize
growth, use of our network and economies of scale. Our sales strategy utilizes
both Direct Channels and Alternate Channels.

 Direct Channels

   Country Representatives. We call our direct channels our country
representatives. They give us the global reach and strong local presence in the
countries in which we operate. We are present in more than 60 countries via our
55 country representatives.

   Our consolidated country representatives, those country representatives in
which we own a controlling interest, consist of ten separate country
representatives that provide service in 13 countries. Our consolidated country
representatives accounted for approximately $193.6 million of our revenues in
the year ended March 31, 2001, representing about 29% of total revenues. In
addition to our consolidated country representatives, we have 45 non-
consolidated country representatives which, together with our consolidated
country representatives, in the aggregate account for approximately 61% of our
revenues in the year ended March 31, 2001.

   We are the principal service provider to our clients and control the
delivery of all services to them on an end-to-end basis. We centrally control
and configure our network and rely on our country representatives to deliver
our services and maintain The World Network locally. We support each of our
country representatives by providing regionalized, as well as centralized,
sales and marketing support. In addition, we conduct sales training centrally
and within each sales region, and we use computerized training to reinforce
classroom training.

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   Each of our country representatives is involved in sales and marketing,
operations, network management and client support. They each maintain a sales
force that directly calls on clients, coordinates the contract signing process,
manages accounts on a daily basis and serves as the first point of contact for
clients, generally providing service in the local language. We rely on our
country representatives to apply their knowledge of the local operating,
regulatory and market conditions to market our service offerings effectively to
the local client base. In order to minimize our regulatory hurdles, our country
representatives enter into the legal contracts with our clients. Sometimes, to
adequately address the needs of a potential client, country representatives
from different countries will collaborate with each other and make joint sales
presentations. Once a new client has signed a contract, we configure the
network for the service and coordinate with other country representatives to
implement the solution for the client. Our country representatives take a lead
role in implementing the last-mile part of the solution by provisioning leased
lines and installing equipment at the client site. In addition, the country
representatives provide local support for our services by operating local
network nodes and, in some cases, housing and operating components of the
infrastructure for specific services on our behalf.

   We have service agreements with all of our country representatives that
govern our relationships. The agreements are generally non-exclusive and are
essentially the same for all country representatives, with most providing for
an initial three year term with an automatic annual rollover. These agreements
provide the country representatives with:

  . the right to market and sell our services;

  . the right to use our trademarks and service marks;

  . access to operational and marketing documentation; and

  . training materials and sessions.

   The agreements typically give us:

  . the right to recommend prices;

  . the right to jointly set revenue targets with the country
    representatives;

  . the ability to terminate the agreement if the country representative
    fails to meet the revenue targets or if targets cannot be agreed upon for
    two consecutive years;

  . the ability to determine staffing of the local office jointly with the
    country representatives; and

  . in many cases, the right to appoint one of the three members of an
    advisory review board, which governs the relationship between us and the
    country representative.

   The agreements outline the fees that the country representatives are
required to pay us for access to our network. In addition, the agreements
outline our compensation and pricing arrangements with the country
representatives.

 Alternate Channels

   Our alternate channels are classified in three different categories.

   Partners. Our Partners are major telecommunication companies that are active
in selling global network services provided by Infonet to multinational
companies in their markets. Partners are allowed to sell the totality of
Infonet's product line.

   Licensed Distributors. Licensed distributors are telecommunication companies
that have the same rights and responsibilities as country representatives from
a sales perspective, but sell other services as part of their business
activity.

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<PAGE>

   Resellers. Resellers are major telecommunication companies and other value
added resellers that sell very specific Infonet network services under private
label as part of a larger service offering to multinational companies in their
markets.

   In almost all cases, regardless of the alternate distribution channel
utilized, customers are fully aware that Infonet is the service provider
because the installation and other in-country support is provided by our
country representative organization. Our revenues for a channel are categorized
as alternate channel revenues in those instances where the services sold are
provisioned by third parties or where services provisioned by Infonet are not
sold as Infonet Services.

 Promotion and Advertising

   We recognize that strong brand development and increased name awareness is
important in obtaining market share. In addition to print advertising, our
promotional, merchandising and market communications programs during the year
included the hosting of joint, worldwide seminars where we could marquee
Infonet's name with other powerful market brands.

   In the year ended March 31, 2001, we began a new global promotional campaign
to increase awareness of the Infonet brand name and our service offerings. We
have substantially increased our spending in this program over the past few
years and expect to continue increasing our spending for this campaign in the
future. As part of this new global promotional campaign, we expanded our public
relations effort by adding key regional public relations centers. Most notably,
public relations centers in Singapore, Hong Kong, France, Germany and the UK
were activated to promote Infonet's brand both regionally and in-country. Our
awareness studies have indicated that these efforts have produced increased
levels of public awareness and positive exposure of the Infonet brand.

   In addition, on the advertising front, we continued to expand our presence
in print advertising in the world's leading newspapers such as the Financial
Times, The International Herald Tribune and the Wall Street Journal Europe and
in leading business magazines such as Business Week Europe and Newsweek Europe.
As part of this marketing campaign, we also continued to expand our presence in
high traffic locations by adding Infonet promotional posters in many of the
world's major international airports, including airports located in Hong Kong,
Frankfurt and London. We also sought to increase awareness of Infonet's brand
by consistently placing ads in industry trade magazines and newspapers as well
as selected in-flight magazines found on selected international air carriers
such as United Airlines and Singapore Airlines.

   Our e-marketing efforts saw expanded use of and support of www.infonet.com,
our primary Website available on the Internet. We also continued to publish
"Infonet client success stories" in our magazine called Global Connection,
which we put out periodically.

The World Network

 Overview

   We own and operate The World Network, one of the world's largest seamless
advanced global data networks in terms of geographic coverage, which is
accessible from over 180 countries. Our network supports several major
protocols that allow us to offer a broad range of services. Our network
architecture allows us to respond quickly to our clients' changing needs for
increased bandwidth, reliability and security while continuing to manage data
traffic patterns efficiently. Because we manage our network on an end-to-end
basis, we are better able to control and customize the services delivered to
our clients. The World Network has over 16,000 ports connected by over 850,000
route-kilometers of data transmission circuits, comprising over 23 Gbps of
capacity, most of which are over fiberoptic routes.

   The World Network is based upon a three-tier hierarchical structure, which
we believe provides a competitive advantage because it allows for efficient
traffic management, higher performance and reduced cost.

                                       10
<PAGE>

This three-tiered hierarchical structure is comprised of high bandwidth Global
Switching Nodes, mid bandwidth Regional Switching/Access Nodes and Local Access
Nodes.

   Backbone Node Locations. We use our Backbone Switching Nodes to cost
effectively aggregate and distribute interregional network traffic flows. They
are the major backbone switching locations within The World Network. Each of
these node locations is equipped with Marconi ATM switches, interconnected by
fiber optic transmission trunks ranging from 45Mbps to 2.5Gbps, and is capable
of accepting multiple channel inputs of data. There are 34 Backbone Switching
Node locations presently in service.

   Regional Switching/Access Node Locations. We use our Regional
Switching/Access Nodes to aggregate regional traffic and provide access to The
World Network for clients with bandwidth-intensive applications. These nodes
provide both switching and access services within The World Network. Each of
these node locations is equipped with Marconi, Cisco, and/or Nortel devices.
The Nortel Passport switches provide Frame Relay capability as well as high
capacity access to the Backbone Switching Nodes through our backbone. The Cisco
hub and access routers provide high capacity local access for our clients and
aggregation services for regional IP traffic. The Cisco hub routers can also
use the Nortel Passport switches for connection to the Backbone Switching Nodes
to exchange data interregionally. Our Marconi equipment enables us to provide
ATM services. There are 82 node locations in 50 countries. The customer access
speeds range from 2Mbps to 45Mbps.

   Local Access Node Locations. We use our Local Access Node Locations to
provide local access for customer services. These nodes enable our clients to
connect to and use IP, X.25 and Frame Relay applications through dedicated and
dial-up access. Each of the node locations is equipped with Cisco, Nortel
and/or Lucent devices. The Cisco routers provide dedicated IP access, the
Nortel devices provide dedicated access using X.25 and the Lucent devices
provide dial-up access. There are 140 Local Access Node locations in 52
countries. The customer can access the World Network at speeds up to 2 Mbps. We
are also able to extend our network reach to countries where the communications
infrastructure is not available by using satellite services, which are
integrated as part of The World Network.

 Local Access

   In order to further expand our reach for our customers within certain
countries and metropolitan areas, we are implementing several key initiatives:

   In-Country Networks. The In-Country Network initiative is designed to
significantly expand our reach throughout a country, decreasing our costs. The
In-Country Networks we are implementing are transport technology agnostic,
enabling us to provide a complete suite of access services at a more
competitive price for our network services. We successfully deployed an In-
Country Network within the United States in the year ended March 31, 2001 and
are currently implementing in-country networks in several major European
countries. We are also evaluating additional countries in which to commence
deployment later this year. By using an end to end managed "VPOP" (virtual
points of presence) solution, we expect to realize significant cost reductions
while maintaining quality levels of service.

   The Optical Strategy. Optical technology deployed in the network is expected
to be the next evolutionary step for Infonet. While it is not our current
intent to create a separate optical backbone, we expect to deploy optical
network capabilities as an enhancement to our current infrastructure. We intend
to limit this deployment to places where we have heavy capacity requirements
and where the deployment will result in overall cost reductions. We intend to
implement this solution primarily in metropolitan areas with the first
deployment scheduled for this summer and several more on track for the balance
of the fiscal year.

   Client Access. Clients can access The World Network either directly using a
dedicated line or through dial-up services by connecting through Local Access
Nodes, Regional Switching/Access Nodes, or via our interconnection with the
national data network of our local telecommunications partners. A country

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<PAGE>

representative arranges dedicated access through a leased line or via the
national data network of the local telecommunications partner. Dial-up services
offer local and remote access to The World Network through the local public
telecommunications network. We plan to offer additional access methods and
adapt them to our backbone for increased efficiency. Among those services
planned or under review for clients that require higher speed access are ATM,
digital subscriber line or DSL, and broadband wireless remote access. In remote
locations clients can access The World Network via satellite services. Clients
can choose to have us manage their entire provisioning and support at and
between each client location.

 Backbone Capacity

   Our backbone connects all nodes on The World Network. Traditionally, we have
obtained backbone capacity from major telecommunications carriers through
short-term leases. As bandwidth prices began to drop and capacity became
available for purchase or long-term lease, we started replacing some of our
short term leases on major international and regional routes with those more
economical longer-term solutions. We expect to continue to purchase that
longer-term capacity where it is economical to do so. We have invested
significant capital resources to expand and upgrade our network in order to
maintain our competitive advantage. In collaboration with Hughes Electronics,
we are also using satellite technology as a fill-in strategy to provide
satellite links to The World Network where terrestrial connections or
alternative paths for specific high availability applications are not
available.

 Network Protocols

   Our network strategy is to support a wide range of managed data
communications services over a common infrastructure. As such, our global
network infrastructure supports a variety of protocols including X.25,
Frame Relay, IP and ATM. Our existing Frame Relay network offers seamless
managed data communications services on a worldwide basis. We are implementing
the new industry-standard IP versions and extensions to differentiate our
network from other competitive networks.

   Our ATM-enabled network is able to support broadband services that require
asynchronous networking capabilities (for example, video services), as well as
provide transport for aggregated data between our Regional Switching/Access
Nodes and our Global Switching Nodes. Our ATM-enabled network is the transport
platform for our managed data communications services. Our ATM network allows
for the efficient and high-speed transport of voice, video and data traffic
over a single network. This capability not only enables us to further leverage
our network assets, but also allows us to capitalize on the demand for
anticipated new service offerings that combine voice, video and data.
Furthermore, as client demand for additional bandwidth, faster transmission
speeds and enhanced service quality increases for applications such as desktop
videoconferencing, we believe our investment in ATM technology will position us
as a leading provider of these services.

 Network Management

   We manage our network and monitor its operation 24-hours a day, seven days a
week through two network control centers located in Los Angeles and Brussels
and three global customer assistance centers located in Los Angeles, Redditch
and Tokyo. The customer support operations consist of multilingual,
technologically experienced staff in over 60 countries.

   Our network management infrastructure is an integral component of the
seamless delivery and management of our suite of services. We proactively
monitor the "real-time" status of over 10,000 network components that provide
performance feedback on a daily basis. Consistent information is available to
all global support entities using trouble tracking services, network alerts and
alarms, change configuration and security management processes. We continue to
enhance these capabilities by adding automation tools and providing on-going
training.


                                       12
<PAGE>

 Network Security

   We have built and maintain an advanced security and control structure.
Because we manage our global network from end-to-end, we maintain central
control of network access, operations and maintenance. We protect our network
through various means including firewalls, intrusion detection platforms,
network address translation, filtering, and network architecture structures, as
well as various dedicated network and remote access authentication processes.

 Backup Network Control Centers and Nodes

   We also have backup network control centers in Sacramento, California and
Chantilly, Virginia, which we created to assume network control center
operations in the event of a disaster or similar emergency. In addition, in
order to lower the potential exposure from major failures or disasters
affecting a node, we have implemented secondary nodes capable of assuming the
traffic of our primary nodes. The fiber connections in the area and, where
feasible, client access lines are split between the two nodes. Thus, transit
traffic through a city can continue to flow in the event of a major failure or
disaster affecting one of the two nodes. We have implemented secondary nodes in
the London-Docklands, Los Angeles, New York, New Jersey, San Francisco and
Sacramento metropolitan areas.

 Circuit Diversity

   Nodes are usually connected with other nodes with at least two redundant
connections, so that no single connection failure will result in the isolation
of the node. The failure of a connection results in the automatic rerouting of
traffic to one or more alternate network paths. In the event of a node outage,
transit traffic is automatically rerouted to paths around the failed node. In
addition, we have, over our operating history, sought to ensure that our
circuits are, as much as possible, diversely routed so that a major failure by
a carrier in a given route does not result in a total network outage to our
clients.

 Disaster Recovery

   Under our Disaster Recovery Plan, we distribute our critical operations over
two to three global regions, which constantly share information with one
another. Each of our network control centers and customer assistance centers
are essentially self-contained units located in diverse geographic regions, and
thus provide natural disaster backup for each other as described below:

  . Network Control Centers in Los Angeles and Brussels;

  . Global Customer Assistance Centers in Los Angeles, Redditch and Tokyo;

  . Second Level Customer Assistance in Los Angeles, Brussels and Tokyo; and

  . Third Level Customer Assistance in Los Angeles and Brussels.

   Within the backbone, we have attempted to minimize the risk of node outages
by placing our nodes in highly secure facilities and by requiring dual cable
entrances, diversely routed circuits and uninterruptable power supplies.
However, clients who need quick recovery from disasters or failures affecting a
node can supplement their service with our Failure Recovery Service, which
provides access to an alternate Infonet node via a leased line, dial-up access
backup or satellite services. We provide this service on an automatic or manual
backup basis.

 Quality Standards

   We perform ongoing quality system audits and conduct client satisfaction
surveys. As a result, we receive constant performance feedback to ensure that
our quality systems meet client needs and our guaranteed network availability.
We have achieved ISO 9001 registration for several of our services.

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Access to Multinational Corporate Clients of KPN, Swisscom and Telia

   In our ongoing efforts to sell our services to multinational corporations,
on September 30, 1999, we entered into agreements with AUCS Communications
Services N.V., Unisource, the owner of AUCS, and the three companies that own
Unisource, KPN, Swisscom and Telia.

   Our agreements with KPN, Swisscom and Telia have given us access to
multinational corporate clients previously served by AUCS and may give us
access to additional multinational clients to which KPN, Swisscom and Telia may
provide services in the future. These agreements have increased the number of
multinational corporate clients to which we offer our services.

   We have assumed the obligation to provide AUCS' multinational clients with
the services previously provided to them by AUCS under the terms of an
agreement that assigns existing distribution agreements to us. We also intend
to provide these multinational clients with our services as a supplement or
replacement for services previously provided by AUCS. We expect that this will
result in normal and transparent movement of the services onto The World
Network. We will continue to use the AUCS platform to deliver all or some of
the services provided to the multinational clients, which for convenience we
refer to as the AUCS services.

   We obtain the AUCS services provided to the multinational clients under the
terms of a services agreement with AUCS, which is based on our standard
services agreement. The pricing of the AUCS services provides us with an
agreed-upon gross margin of approximately 20% on the provision of these
services. The services agreement is terminable upon 180 days' notice by any
party.

   Under the terms of a three-year management agreement between ourselves and
AUCS, we have been charged with, among other things, acting as a responsible
manager of AUCS and seeking to reduce AUCS' expenses over time.

   We also entered into a call option for the underlying tangible assets of
AUCS. Through September 2002, the option allows us to purchase any and all of
the AUCS tangible assets at fair market value not to exceed $130 million. The
call right allows us to purchase the assets of AUCS so that we can continue to
offer the AUCS services to our clients if the services agreement is terminated.
The call option may be subject to regulatory approval and is conditioned upon
AUCS' ability to continue to fulfill its contractual obligations to third
parties.

Industry Participants and Competition

   The growth and potential size of the data communications industry has
attracted many new entrants as well as existing businesses from several
industries. Current and prospective industry participants include multinational
alliances, long distance and local telecommunications providers, systems
integrators, cable television and satellite communications companies, software
and hardware vendors, wireless telecommunications providers and national, local
and regional ISPs. In addition, we expect that the predicted growth of the data
communications market will attract other established companies and
multinational alliances. Further, there are established and start-up companies
building global networks and beginning to offer data communications as part of
a comprehensive communications services portfolio. Our competitors include
AT&T, British Telecommunications PLC, or BT, Concert, a joint venture between
AT&T and BT, France Telecom, which has announced its agreement to purchase
Equant, and WorldCom, Inc. and new entrants such as Global Crossing Ltd. and
Qwest Communications International Inc. We compete in highly fragmented
markets. Most participants specialize in specific segments of the market, such
as access and/or backbone provision; managed access, e.g., intranets and
extranets; application services, e.g., Web hosting; security services; and
communication services, e.g., IP-based voice, fax and video services and
commercial e-mail. Many of these existing and potential competitors have
greater financial resources than we do.

   France Telecom has recently strengthened its position in cross border
managed data network services through its purchase of Global One and its
agreement to purchase Equant. France Telecom has stated that it intends to
combine the operations of Global One and Equant.

                                       14
<PAGE>

   We believe that competition in the data communication market is mainly a
function of the ability to offer a broad variety of innovative services
available on a reliable network supported by an effective service organization.
We believe that the key factors to our competitive position in this market are:

  . our global reach;

  . our full range of value-added services;

  . the reliability of our extensive global network; and

  . our extensive country representative structure and the support it
    provides to our clients.

Regulation in the United States

 Overview

   We operate as an unregulated provider of information services, as that term
is defined in the Communications Act of 1934, as amended, and as an enhanced
service provider, as that term is defined in the Federal Communications
Commission ("FCC") rules. The FCC currently does not regulate the data
communications systems we operate in the United States because our special
services features enhance the basic data transmission facilities offered to
clients by connecting them to data switches or processors. These networks
generally are referred to as value-added networks and are targeted to the data
transfer requirements of the specific clients. The FCC also does not regulate
value-added services such as voicemail, facsimile, database access, storage and
retrieval services, store-and-forward messaging services, network management
services, and Internet access, which are not encompassed in the FCC's
definition of "basic telecommunications services" and which we refer to as
enhanced services. Collectively, these services are classified for regulatory
purposes as "information services." In most foreign jurisdictions we operate as
a value-added network provider. Our operations currently are not regulated by
the FCC, the states or the governments in the other countries where we operate.
Although we do not operate as a common carrier, we hold authorizations to
provide international services in some countries on a common carrier basis. We
have obtained common carrier authorizations only in those countries in which
such authorizations are useful in securing more favorable terms in our capacity
or facilities leases or interconnection arrangements. These authorizations
require us to comply with specified regulatory filing and reporting
requirements. To the extent that we begin to offer regulated telecommunications
services as a common carrier, we will become subject to additional rules and
policies.

   Various existing U.S. federal and state regulations are currently the
subject of judicial proceedings, legislative hearings and administrative
proposals which could change, in varying degrees, the manner in which the
telecommunications industry operates. In addition, some foreign governments are
actively considering regulation of some of the services we offer. We cannot
predict the outcome of these proceedings, or the impact they may have on the
telecommunications or information services industries generally, or on us
particularly. In addition, we cannot assure you that future legislative,
regulatory or judicial changes in the United States or in other countries in
which we operate will not have a material adverse impact on our business.

 FCC Policy on Enhanced Services

   In 1980, the FCC created a distinction between "basic" services, which it
regulates as common carrier services, and enhanced services, which remain
unregulated. The FCC exempted enhanced service providers from federal
regulations governing common carriers, including the obligation to pay access
charges and contribute to universal service. The Telecommunications Act of 1996
established a similar distinction between "telecommunications services" and
"information services." Changing technology and changing market conditions,
however, have made it increasingly difficult to discern the boundary between
unregulated and regulated services.

   In general, information services are value-added services that provide
access to regulated transmission facilities only as part of a services package
which also uses network or computer software to change or

                                       15
<PAGE>

enhance the information transmitted. We believe the services we provide come
within this definition. Because the regulatory boundaries in this area are
unclear and subject to dispute, however, the FCC could seek to characterize
some or all of our services as "telecommunications services." If that happens,
our services would become subject to FCC regulation, although the impact of
that reclassification is difficult to predict. In general, the FCC does not
regulate the rates, services, and market entry and exit of non-dominant
carriers, but does require them to contribute to universal service and comply
with other regulatory requirements.

 U.S. Licenses

   Although we do not currently provide regulated telecommunications services,
we are authorized under Section 214 of the Communications Act of 1934, as
amended, to provide global switched, data, voice, value-added and private line
services on a common carrier basis. We received authorization to provide these
services as a facilities-based common carrier in January 1999 and to provide
these services as a reseller in July 1999. We obtained these licenses because
we believe they allow us to procure the facilities and capacity we need between
the U.S. and foreign points under more favorable terms and at lower cost than
we could otherwise obtain. Although we do not currently provide regulated
telecommunications services, our FCC licenses subject us to certain reporting
and filing requirements.

 FCC Regulatory Requirements

   As noted above, our operation of networks does not currently subject us to
regulation in the U.S. either at the federal or state level. As an authorized
international common carrier, however, we are subject to FCC oversight. In the
United States, authorized international carriers are subject to various annual
reporting requirements as a condition of their licenses. Each year, we must
submit data to the FCC concerning the status of our international circuits.
International common carriers must also file an annual employment report to
comply with the Commission's Equal Employment Opportunity policies and submit a
report of international traffic data. If we begin providing interstate,
international telecommunications services on a common carrier basis, we will be
required to file additional reports concerning our interstate and international
traffic revenues.

   On March 20, 2001, the FCC issued an order requiring "mandatory detariffing"
of most international interexchange services provided by non-dominant carriers,
i.e. all U.S. carriers other than AT&T. Pursuant to this order, international
common carriers are no longer required to file a tariff with the FCC. In lieu
of filing a tariff, the order requires all international carriers maintain
public files that include current rates, terms and conditions for our service
offerings, including supporting documentation, and post this information on its
company web site. These records must be maintained for a period of two years
and six months following the date that such rates, terms, and conditions cease
to be in force.

   If we begin providing interstate international telecommunications services
on a common carrier basis, and we fail to maintain proper records, or if there
is any finding by the FCC that we are not operating under permissible terms and
conditions, this may result in an enforcement action against us or an
investigation, either of which could impose upon us substantial penalties,
including the loss of our authorization to provide telecommunications services.
In addition, if we begin providing interstate telecommunications in the
United States, we also may be required to contribute a percentage of these
revenues to governmental funds including Universal Service, Telecommunications
Relay Service, Number Portability, and the administration of the North American
Numbering Plan.

 FCC Policies Applicable to Regulated International Traffic

   If we begin to operate as a common carrier, we will be required to comply
with additional FCC policies governing international common carriers. For
example, the FCC requires carriers such as us to report "significant
affiliations," as defined by the FCC, with global carriers that have market
power in the countries in which we operate. In addition, the FCC administers a
variety of international service regulations, including the

                                       16
<PAGE>

international settlements policy. The international settlements policy governs
the settlements between U.S. carriers and their foreign correspondents of the
cost of terminating traffic over each other's networks, as well as the
accounting rates for settlement. The FCC has considerably relaxed this policy
in its implementation of the 1997 World Trade Organization Agreement on Basic
Telecommunications ("WTO Agreement"), which went into effect in January 1998.
Representing 90% of worldwide telecommunications traffic, the 72 signatory
countries to the WTO Agreement agreed to open their telecommunications markets
to competition and foreign ownership. We believe that this agreement, and its
implementation by the signatory countries, will provide us with significant
opportunities to compete in markets in which we did not previously have access,
and to provide end-to-end facilities-based services to and from these
countries.

   The regulatory requirements that may affect our operations continue to
evolve as a result of the WTO Agreement, federal legislation, court decisions
and new and revised policies of the FCC. In particular, the FCC continues to
refine its international service regulations in order to promote competition,
to reflect and encourage deregulation in foreign countries and to reduce
international accounting rates toward cost. Among other things, these changes
may increase competition and alter our ability to compete with other similar
service providers or to introduce new services. Any change in applicable
regulatory requirements may have an impact on our operations in a way that we
cannot predict.

Regulation in Non-U.S. Markets

   Although most countries impose little or no regulation on our network
operations, the laws and regulations governing our services are under review in
many countries outside the U.S. and are subject to change. Consistent with our
strategy of obtaining licenses or authorizations to provide regulated services
when we are able to obtain more favorable facilities or capacity lease terms or
interconnection arrangements, we have obtained facilities-based authorization
to provide telecommunications services in the United Kingdom. We anticipate
filing requests for authorization in several other countries as well. In some
countries we are able to obtain the more favorable arrangements we seek simply
by notifying the relevant government authority that we intend to operate on a
common carrier basis. In other countries, we are engaging in discussions with
foreign regulators to determine whether we must apply for authorization in
order to acquire or lease facilities or interconnect with other carriers.

Employees

   As of March 31, 2001, including our consolidated country representatives, we
had a total of approximately 943 employees, 226 of which are located
internationally. There are approximately 577 additional dedicated Infonet
personnel who are employed by our non-consolidated country representatives, all
of whom are based internationally. We have not experienced any work stoppages
and consider our relations with employees to be good. None of our employees is
represented by a labor union.

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                                  RISK FACTORS

   Investing in our common stock involves a high degree of risk. If any of the
following risks actually occurs, our business, results of operations and
financial condition could be materially adversely affected, the trading price
of our Class B common stock could decline, and you could lose all or part of
your investment.

We may not be able to achieve our strategic objectives unless we successfully,
timely and cost-effectively expand our network and manage our growth.

   We must continue to develop and expand our network infrastructure as the
number of clients and the amount of information they wish to transport as well
as the number of services we offer increases. The expansion and development of
our network infrastructure will require substantial financial, operational and
management resources. We may not be able to expand our network adequately to
meet the demand for increased usage. If we do not expand our network rapidly
enough, additional stress may be placed on our network hardware, traffic
management and other systems and operating facilities. Our network may be
unable to service a substantial number of additional clients while maintaining
high performance and competitive data transmission speeds.

   A variety of factors, uncertainties and contingencies that are beyond our
control, such as the availability of transmission capacity, price of
transmission capacity, continued deployment of our ATM-enabled network,
availability of wireless transmission capacity and technologies, local
regulations and availability of country representatives or other third-party
sales and support channels will affect the continued expansion of our network.
Currently, there is substantial volatility in the market price for transmission
capacity. We are investing significant capital in acquiring transmission
capacity at current fixed prices. These prices are anticipated to decline in
the future. We cannot assure you that actual expansion costs or the time
required to complete our network will not substantially exceed current
estimates. A failure to continue to expand our network may have a material
adverse effect on our ability to service our clients and to grow our business.

   Our growth has placed, and our anticipated future growth in our operations
will continue to place, a significant strain on our management, financial
controls, operating and accounting systems, personnel and other resources. We
currently rely on a relatively small core management team. As we grow, we must
not only manage demands on this team but also increase its management
resources, among other things, to continue to expand, train and manage our
employee base and maintain close coordination among our technical, accounting,
finance, marketing and sales staff. In addition, our network infrastructure,
technical support and other resources may not be sufficient to facilitate our
growth. If we do not successfully manage our growth, we may be unable to
adequately support our clients' communications needs in the future.

Our ability to retain our clients and provide them with new and innovative
service offerings may suffer if we are not able to keep up with the rapid
technological developments in our industry.

   The global communications industry is subject to rapid and significant
technological changes, such as continuing developments of alternative
technologies for providing high-speed data communications. We cannot predict
the effect of technological changes on our business. We may rely in part on
third parties, including some of our competitors and potential competitors, for
the development of and access to communications and networking technologies. We
expect that new services and technologies applicable to our market will emerge.
New products and technologies may be superior and/or render obsolete the
products and technologies that we currently use to deliver our services. Our
future success will depend, in part, on our ability to anticipate and adapt to
technological changes and evolving industry standards. We may be unable to
obtain access to new technologies on acceptable terms or at all, and we may be
unable to obtain access to new technologies and offer services in a competitive
manner. Any new products and technologies may not be compatible with our
technologies and business plan. We believe that the global communications
industry should set standards to allow for the compatibility of various
products and technologies. The industry, however, may not set standards on a
timely basis or at all.

                                       18
<PAGE>

If members of our senior management team leave Infonet, then our ability to
operate our business may be negatively affected.

   Our future success depends to a significant extent on the continued services
of our senior management, particularly Jose A. Collazo, President, CEO and
Chairman of the Board of Directors, Akbar H. Firdosy, our Chief Financial
Officer, Paul A. Galleberg, our General Counsel and other members of our
executive management team. The loss of the services of Mr. Collazo, Mr. Firdosy
or Mr. Galleberg, or any other present or future key employee, could have a
material adverse effect on the management of our business. We have employment
agreements with Mr. Collazo, Mr. Firdosy and Mr. Galleberg. We do not maintain
"key person" life insurance for any of our personnel.

Competition for highly-skilled personnel is intense and the success of our
business depends on our ability to attract, retain and manage key personnel.

   Our future success depends on our continuing ability to attract, retain and
motivate highly-skilled employees. As we continue to grow, we will need to hire
additional personnel in all areas. Competition for personnel throughout the
data and voice communications industries is intense. We may be unable to
attract or retain key employees or other highly qualified employees in the
future. We have from time to time in the past experienced, and we expect to
continue to experience in the future, difficulty in hiring and retaining
highly-skilled employees with appropriate qualifications. If we do not succeed
in attracting sufficient new personnel or retaining and motivating our current
personnel, our ability to provide our services could diminish.

If we are unable to maintain our country representative and third-party sales
channel relationships, then our ability to sell and support our services may be
negatively impacted.

   We are and will continue to be significantly dependent on a number of third-
party relationships, including our non-consolidated country representatives and
partners, to market and support our services. Many of our arrangements with
third-party providers are not exclusive and may be terminated at the
convenience of either party. We cannot assure you that these third parties
regard our relationship with them as important to their own respective
businesses and operations, that they will not reassess their commitment to us
at any time in the future, that they will meet their sales targets or that they
will not develop their own competitive services.

   We may not be able to maintain our current relationships or form new
relationships with third parties that supply us with clients, software or
related products that are important to our success. Accordingly, we cannot
assure you that our existing or prospective relationships will result in
sustained business partnerships, successful service offerings or the generation
of significant revenues.

   We rely on our country representatives for some of the support and local
implementation necessary to deliver our services on a global basis. We also
rely on these country representatives for insights into local operating and
market conditions. The failure of these country representatives to perform
their tasks or operate their business effectively could, in turn, adversely
affect our business. In addition, we sometimes provide our country
representatives with equipment and installation services to facilitate our
market participation. We may have limited recourse, or potentially no recourse,
if they do not perform the services that we expect them to perform, and we may
not be able to recover our equipment. Our recourse may be limited because the
local laws and judicial system may not be effective in enforcing our rights.
Also, our country representatives are parties to the legal contracts with
clients. If these agreements are terminated, the clients have no legal
obligation to purchase our services.

   In addition, we frequently depend on our country representatives to obtain
the regulatory approvals and licenses that we need to offer our communications
services in other countries. In some cases, we cannot determine whether they
are complying with local regulatory laws or taking the steps necessary to
maintain proper licenses and permits. If any of our country representatives
lose their telecommunications licenses, whether by violating local laws or
otherwise, our business could suffer.


                                       19
<PAGE>

Delays in receiving transmission capacity or delays in equipment delivery or
loss of our equipment suppliers could impair the quality of our service and our
growth.

   We acquire, by lease or by purchase, transmission capacity from a wide range
of suppliers, both to connect client premises to our network and for other
network connections. We have from time to time experienced short-term delays in
receiving the requisite transmission capacity from suppliers. We cannot assure
you that we will be able to obtain these services in the future within the time
frames required by us and at a reasonable cost. Any failure to obtain
transmission capacity on a timely basis and at a reasonable cost in a
particular jurisdiction, or any interruption of local access services, could
have an adverse effect on our service levels and our growth.

   The switches and routers used in our network are provided primarily by
Nortel Networks Corp. and Cisco Systems Inc. These suppliers also sell products
to our competitors and may become competitors themselves. We may experience
delays in receiving components from our suppliers or difficulties in obtaining
their products at commercially reasonable terms. If we are required to seek
alternate sources of switches and routers, we are likely to experience delays
in obtaining the requisite equipment we need and may be required to pay higher
prices for that equipment, increasing the cost of expanding and maintaining our
network.

Some of our vendors are in difficult financial circumstances. At least one of
our vendors has initiated bankruptcy proceedings, and other vendors may do so
in the future. If our agreements with those vendors are validly rejected in
bankruptcy or are otherwise adversely affected, then our operating expenses may
increase and our net income may decrease.

   Due to financial and competitive pressures in specific industries, at least
one of our vendors has initiated bankruptcy proceedings and others may do so in
the future. Due to the novel status of certain of our vendor agreements in the
bankruptcy context, it is unclear how these agreements will be characterized
under the federal bankruptcy code or analogous laws of other jurisdictions. If
a bankruptcy court concludes that our vendor agreements may be rejected in
bankruptcy or the agreements are otherwise adversely affected, then our
operating expenses may increase and our net income may decrease.

If our network infrastructure is disrupted or security breaches occur, we may
lose clients or incur additional liabilities.

   We and other network services providers may in the future experience
interruptions in service as a result of fire, natural disasters, power loss, or
the accidental or intentional actions of service users, current and former
employees and others. Although we continue to implement industry-standard
disaster recovery, security and service continuity protection measures,
including the physical protection of our plant and equipment, similar measures
taken by us or by others have been insufficient or circumvented in the past. We
cannot assure you that these measures will be sufficient or that they will not
be circumvented in the future. Unauthorized use of our network could
potentially jeopardize the security of confidential information stored in the
computer systems of or transmitted by our clients. Furthermore, addressing
security problems may result in interruptions, delays or cessation of services
to our clients. These factors may result in liability to us or our clients.

The markets we serve are highly competitive and our competitors may have much
greater resources to commit to growth, new technology or marketing.

   Our current and potential competitors include other companies that provide
data communications services to multinational businesses, systems integrators,
national and regional Internet Service Providers, or ISPs, wireless, cable
television and satellite communications companies, software and hardware
vendors, and global, regional and local telecommunications companies. In
addition, we expect that the predicted growth of the data communications market
will attract other established companies and multinational alliances. Further,
there are established and start-up companies building global networks and
beginning to offer data communications as part of a comprehensive
communications services portfolio. Our competitors, which may operate in one or

                                       20
<PAGE>

more of these areas, include companies such as AT&T, British Telecommunications
PLC, or BT, Concert, France Telecom, which has announced its agreement to
purchase Equant, and WorldCom, Inc. and new entrants such as Qwest and Global
Crossing. Our country representatives and suppliers could also become
competitors either directly or through strategic relationships with our
competitors. We have in the past and expect in the future to encounter
competition as a result of the formation of global alliances among large
telecommunications providers, such as the recently announced merger between
France Telecom and Equant.

   Several of our competitors have substantially greater financial, technical
and marketing resources, larger customer bases, greater name recognition and
more established relationships in the telecommunications industry than we do.
We cannot be sure that we will have the resources or expertise to compete
successfully in the future. Our competitors may be able to:

  . develop and expand their network infrastructures and service offerings
    more quickly;

  . adapt better to new or emerging technologies and changing client needs;

  . take advantage of acquisitions and other opportunities more readily;

  . devote greater resources to the marketing and sale of their products; and

  . adopt more aggressive pricing policies.

   Some of our competitors may also be able to provide clients with additional
benefits at lower overall costs. We cannot be sure that we will be able to
match cost reductions of our competitors. In addition, we believe it is likely
that there will be consolidation in our market, which could increase
competition in ways that may adversely affect our business, results of
operations and financial condition.

Because we have international operations, we face additional risks related to
global political and economic conditions.

   We operate in and intend to expand further into international markets. We
cannot be sure that we will be able to obtain or build the necessary global
communications infrastructure in a cost-effective manner or compete effectively
in international markets. There are risks inherent in conducting business
internationally. These include:

  . unexpected changes in regulatory requirements;

  . export restrictions;

  . tariffs and other trade barriers;

  . challenges in staffing and managing foreign operations;

  . differing technology standards;

  . employment laws and practices in foreign countries;

  . weaker intellectual property protections;

  . political, social and economic instability;

  . costs of services tailored to specified markets;

  . imposition of currency exchange controls; and

  . potentially adverse tax consequences.

   Any of these factors could adversely affect our operations. In addition, a
substantial portion of our revenues is derived from European clients.
Therefore, although our historic revenue growth has not been materially
adversely affected by general economic conditions, a future slowdown or
recession in the European economy, in particular, could have a material adverse
effect on our revenues and profitability.

                                       21
<PAGE>

Adverse currency fluctuations and foreign exchange controls could decrease
revenues we receive from our international operations.

   We invoice all sales of services to our country representatives and sales
channel partners in U.S. dollars. However, many of our country representatives
and sales channel partners derive their revenues and incur maintenance and
other costs in currencies other than U.S. dollars. The obligations of these
country representatives and sales channel partners whose revenues are largely
in foreign currencies will be subject to unpredictable and indeterminate
fluctuations if those currencies change relative to U.S. dollars. Furthermore,
these country representatives and sales channel partners may be or may become
subject to exchange control regulations which might restrict or prohibit the
conversion of their revenue currencies into U.S. dollars. The occurrence of any
of these factors could have a material adverse effect on our current or future
international operations. Our exposure to exchange rate fluctuations may
increase as a result of the timing of settlement of euro-denominated accounts
receivables and payables relating to the multinational clients of KPN, Swisscom
and Telia under the AUCS services agreements.

Our efforts to maximize shareholder value through strategic alternatives may
not be realized in the near future or at all.

   We recently announced our intention to explore strategic alternatives in
order to maximize overall shareholder value as well as to assist certain of our
shareholders in monetizing their equity holdings in Infonet. We cannot assure
you that any meaningful opportunities to achieve those goals will become
available, nor can we determine, at this point, the form or substance of what
opportunities would be considered desirable to achieve the goals that we have
set forth. Any failure to achieve our stated goals may affect the trading price
of our common stock.

Our corporate structure may grant you only limited voting power and discourage
a takeover attempt because our Class A common stockholders will control the
outcome of stockholder votes.

   Our Class A common stockholders, in the aggregate, beneficially own all of
our Class A common stock and approximately 78% of our Class B common stock and
more than 95% of our voting power. These stockholders will be able to exercise
control over all matters requiring approval by our stockholders, including the
election of directors and approval of significant corporate transactions. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of our company, which could have a material adverse effect on
our stock price.

   We have entered into a stockholders agreement with all of our Class A
stockholders. This stockholders agreement provides that each Class A
stockholder holding at least 14.95 million shares of our Class A common stock
will have the right to designate one of our directors, and each Class A
stockholder will agree to vote all of its shares in favor of the directors
designated by the other Class A stockholders and for our president as a
director. Accordingly, seven of the nine directors on our board will be
appointed by our Class A stockholders.

   In addition, provisions contained in our revised certificate of
incorporation, our revised bylaws, Delaware law and our stockholders agreement
could make it more difficult for a third party to acquire us, even if doing so
might be beneficial to our stockholders. Our revised certificate of
incorporation requires the approval of both 95% of the voting power of the
Class A common stock and two-thirds of the voting power of the Class A and
Class B common stock voting together to take certain significant corporate
actions such as changes to our share capital, or a merger, consolidation or
liquidation. Based on the current ownership of our Class A common stock, we
will not be able to undertake these actions without the approval of each of our
Class A stockholders. These provisions could limit the price that certain
investors might be willing to pay in the future for shares of our Class B
common stock and may have the effect of delaying or preventing a change in
control.

                                       22
<PAGE>

Our quarterly operating results may vary, which may cause volatility or a
decline in the price of our Class B common stock.

   Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, not all of which are in our control. These
factors include:

  . the size and timing of significant equipment and transmission capacity
    purchases;

  . the timing of new service offerings;

  . changes in our pricing policies or those of our competitors;

  . the timing and completion of our network expansion;

  . market acceptance of data communications generally and of new and
    enhanced versions of our services in particular;

  . the length of our contract cycles; and

  . our success in expanding our sales force and expanding our distribution
    channels.

   In addition, a relatively large portion of our expenses are fixed in the
short-term, particularly with respect to global communications capacity,
depreciation, real estate and interest expenses and personnel, and therefore
our results of operations are particularly sensitive to fluctuations in
revenues. Due to the factors noted above and the other risks discussed in this
section, you should not rely on period-to-period comparisons of our results of
operations. Quarterly results are not necessarily meaningful and you should not
rely on them as an indication of future performance. It is possible that in
some future periods our operating results may be below the expectations of
public market analysts and investors. In this event, the price of our Class B
common stock may fall. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

Volatility of our stock price may expose us to securities litigation.

   The stock market has experienced significant price and volume fluctuations,
and the market prices of global communications companies have been extremely
volatile. The market price of our Class B common stock could be affected by:

  . quarterly variations in our operating results;

  . technological innovations of ours or of our competitors;

  . changes in government regulations;

  . conditions in the international data communications and
    telecommunications industries;

  . increased price competition;

  . changes in earnings estimates by analysts; and

  . changes in general economic conditions and volatility in the financial
    markets.

   In the past, following periods of volatility in the market price of a public
company's securities, securities class action litigation has often been
instituted against that company. This litigation could result in substantial
costs and a diversion of management's attention and resources.

We face uncertain and changing regulatory restrictions which could limit our
operating flexibility and increase our costs.

   The Federal Communications Commission, or the FCC, currently does not
regulate the data communications systems we operate in the United States
because our special services features enhance the basic data transmission
facilities offered to clients by connecting them to data switches or
processors. These

                                       23
<PAGE>

networks generally are referred to as value-added networks and are targeted to
the data transfer requirements of the specific client. The FCC also does not
regulate value-added services such as voicemail, facsimile, database access,
storage and retrieval services, store-and-forward messaging services, network
management services, and Internet access, which are not encompassed in the
FCC's definition of "basic telecommunications services" and which we refer to
as enhanced services. Collectively, these services are classified for
regulatory purposes as "information services" and are currently exempt from the
common carrier regulations that apply to entities providing "telecommunications
services." As a result, most of the services we provide are not currently
subject to direct regulation by the FCC or the states. Future changes in
legislation or regulation, however, could result in some aspects of our current
operations becoming subject to regulation by the FCC or a state of the United
States. If the FCC or a state seeks to regulate some segments of our activities
as "telecommunications services," we cannot predict the impact, if any, that
future regulation or regulatory changes may have on our operations.

   We currently hold common carrier authorizations to provide international
telecommunications services between the United States and other countries. We
apply for authorization as a common carrier in jurisdictions where we believe
this authorization will decrease our costs. We also hold an international
facilities license in the United Kingdom. Our licenses subject us to the
jurisdiction of the relevant regulatory body which, in turn, may require that
we make specified regulatory filings and pay attendant fees. Future regulatory,
judicial and legislative changes in countries in which we operate may impose
additional costs on us or restrict our activities. In addition, regulators or
third parties may raise material issues with regard to our compliance with
applicable regulations. Failure to comply with applicable laws or regulations
in the United States, or other countries in which we operate, could prevent us
from carrying on our operations cost effectively.

The law relating to the liability of online services companies and Internet
access providers for data and content carried on or disseminated through their
networks is currently unsettled and could expose us to unforeseen liabilities.

   It is possible that claims could be made against online services companies
and Internet access providers under United States and/or foreign law for
defamation, negligence, copyright or trademark infringement, or other theories
based on data or content disseminated through their networks, even if a user
independently originated this data or content. Several private lawsuits seeking
to impose liability upon online services companies and Internet access
providers have been filed in U.S. and foreign courts. While the United States
has passed laws protecting Internet access providers from liability for actions
by independent users in limited circumstances, this protection may not apply in
any particular case at issue. In addition, some countries, such as China,
regulate or restrict the transport of voice and data traffic in their
jurisdiction. The risk to us, as an Internet access provider, of potential
liability for data and content carried on or disseminated through our system
could require us to implement measures to reduce our exposure to this
liability. This may require us to expend substantial resources or to
discontinue some of our services. Our ability to monitor, censor or otherwise
restrict the types of data or content distributed through our network is
limited. Failure to comply with any applicable laws or regulations in
particular jurisdictions could result in fines, penalties or the suspension or
termination of our services in these jurisdictions. The negative attention
focused upon liability issues as a result of these lawsuits and legislative
proposals could adversely impact the growth of public Internet use. Our
professional liability insurance may not be adequate to compensate or may not
cover us at all in the event we incur liability for damages due to data and
content carried on or disseminated through our network. Any costs not covered
by insurance that are incurred as a result of this liability or alleged
liability, including any damages awarded and costs of litigation, could harm
our business and prospects.

Item 2. Properties

   Our headquarters are located in a facility consisting of approximately
150,000 square feet in El Segundo, California, which we purchased for $33.1
million on March 28, 2000 pursuant to a 15 year mortgage.

                                       24
<PAGE>

   In addition, we lease sales offices domestically and internationally in a
variety of locations. These leases generally have terms of three to five
years. None of these offices is critical to our success, and we believe that
suitable additional or alternative space is available on commercially
reasonable terms as needed.

   We also lease facilities for our network control centers, global customer
assistance centers and engineering offices around the world. We lease these
facilities at commercial rates under standard commercial leases. We believe
that suitable space for these operations is generally available on
commercially reasonable terms as needed.

Item 3. Legal Proceedings

   From time to time, we may be involved in litigation that arises in the
normal course of our business operations. As of the date of this annual
report, we are not a party to any litigation that we believe could reasonably
be expected to have a material adverse effect on our business, financial
condition or results of operations and we have not been involved in any
litigation of that kind in the past three years.

Item 4. Submission of Matters to a Vote of Security Holders

   No matters were submitted to a vote of security holders during the fourth
quarter ended March 31, 2001.

                                      25
<PAGE>

                                    PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

   Our common stock is traded on the New York Stock Exchange, or the NYSE,
under the symbol "IN" and on the Frankfurt Stock Exchange under the trading
symbol "IN." As of June 18, 2001, there were approximately 425 shareholders of
record of our Class B common stock, par value $.01 per share. The following
table sets forth, for the period indicated, the high and low closing sales
price for our common stock reported on the NYSE.

<TABLE>
<CAPTION>
   Fiscal Year Ended March 31, 2000                               High   Low
   --------------------------------                              ------ ------
   <S>                                                           <C>    <C>
   Third Quarter (from December 16, 1999 through December 31,
    1999)....................................................... $26.69 $22.13
   Fourth Quarter............................................... $32.94 $19.00

<CAPTION>
   Fiscal Year Ended March 30, 2001
   --------------------------------
   <S>                                                           <C>    <C>
   First Quarter................................................ $22.38 $10.50
   Second Quarter............................................... $17.81 $10.25
   Third Quarter................................................ $ 9.44 $ 4.31
   Fourth Quarter............................................... $ 7.75 $ 4.93
</TABLE>

Dividend Policy

   We do not expect to pay any dividends for the foreseeable future. We
currently intend to retain future earnings, if any, to finance the expansion of
our business. Any determination to pay cash dividends in the future will be at
the discretion of our board of directors and will depend upon our results of
operations, financial condition, contractual restrictions and other factors
deemed relevant at that time by our board of directors.

Sales of Unregistered Securities

   During the past three years, we have issued and sold unregistered securities
as follows (adjusted for subsequent stock splits):

   Pursuant to Rule 701 of the Act, in April 1999, we sold 9.44 million shares
of our common stock to our key employees pursuant to our 1998 Stock Purchase
Plan. In accordance with the provisions of the Stock Purchase Plan, some
employees purchased their shares for cash and other employees received their
shares in exchange for a secured, recourse promissory note held by us. Part of
the security for the promissory notes are the shares sold to each purchaser.
Each share was sold for $0.84, which price was set by the pricing formula at
the time of the sales.

   During the three months ended September 30, 1999, in exchange for the right
to market our services to their clients and $40.0 million in cash, we issued an
aggregate of 47.84 million shares of our common stock to KPN, Swisscom and
Telia in reliance on Rule 506 of Regulation D under the Act.

Use of Proceeds

   On December 15, 1999, the Company's Form S-1 registration statement (File
No. 333-88799) was declared effective by the Securities and Exchange
Commission. The registration statement, as amended, covered the offering of
51,282,300 shares of our Class B common stock. The offering commenced on
December 16, 1999 and the sale to the public of 51,282,300 shares of common
stock at $21.00 per share was completed on December 21, 1999 for an aggregate
price of approximately $1.076 billion. The registration statement covered an
additional 7,692,342 shares of common stock that the underwriters had the
option to purchase solely to cover over-allotments. These additional shares
were purchased on January 13, 2000. The managing underwriters were Merrill
Lynch & Co., Warburg Dillon Read LLC, ABN AMRO Rothschild, Goldman, Sachs &
Co., Lehman Brothers and Salomon Smith Barney. Expenses incurred  in connection
with the issuance and distribution of common stock in the offering included
underwriting discounts, commissions

                                       26
<PAGE>

and allowances of approximately $38.5 million and other expenses of
approximately $2.4 million. Total offering expenses of approximately $40.9
million resulted in net offering proceeds to the Company of approximately
$766.8 million. Specified 10% owners of Class B common stock of the Company
sold in the offering and received, net of expenses paid by those owners, an
aggregate of $256.4 million. We have used and continue to use aggregate net
proceeds to us of approximately $766.8 million from our initial public offering
as follows:

  . the repayment of long-term debt under our credit facility;

  . the purchase of assets that were under operating leases of approximately
    $13 million;

  . expansion of our network infrastructure, including acquisition of
    transmission capacity and continued deployment of our ATM-enabled
    backbone;

  . to fund operating expenses; and

  . for general corporate purposes.

   Our management, subject to supervision by our board of directors, has
significant flexibility in applying the net proceeds of the offering. Pending
any use as described above, we have invested the net proceeds in interest-
bearing investment grade securities.

                                       27
<PAGE>

Item 6. Selected Consolidated Financial Data

   The following table sets forth our selected consolidated financial data. You
should read this information together with our consolidated financial
statements and the related notes to those statements appearing elsewhere in
this annual report and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The selected consolidated financial data
as of March 31, 1997, 1998 and 1999 and for each of the years in the two year
period ended March 31, 1998 have been derived from our audited consolidated
financial statements which are not included in this annual report. The selected
consolidated financial data as of March 31, 2000 and 2001 and for each of the
years in the three year period ended March 31, 2001 have been derived from our
audited consolidated financial statements which appear elsewhere in this annual
report. The historical results are not necessarily indicative of the operating
results to be expected in the future.

<TABLE>
<CAPTION>
                                                      Year Ended March 31,(1)
                                            ------------------------------------------------
                                              1997      1998      1999      2000      2001
                                            --------  --------  --------  --------  --------
                                              (In thousands, except per share amounts)
<S>                                         <C>       <C>       <C>       <C>       <C>
Consolidated statement of operations data:
Revenues..................................  $264,684  $294,244  $302,997  $481,444  $661,945
Expenses:
  Country representative compensation.....    35,090    41,136    53,766   151,283   235,438
  Bandwidth and related costs.............    43,134    48,089    52,700    90,457   125,438
  Network operations......................    81,106    77,489    55,041    72,230    79,503
  Selling, general and administrative.....   115,741   130,287   139,663   196,314   197,879
                                            --------  --------  --------  --------  --------
  Total expenses..........................   275,071   297,001   301,170   510,284   638,258
                                            --------  --------  --------  --------  --------
Operating income (loss)...................   (10,387)   (2,757)    1,827   (28,840)   23,687
                                            --------  --------  --------  --------  --------
Other income (expense):
  Interest income.........................     1,014     1,515     1,881    14,560    43,293
  Interest expense........................      (874)     (868)     (689)   (7,162)  (11,892)
  Other, net..............................     2,591     2,969       382    (1,310)      914
                                            --------  --------  --------  --------  --------
  Total other income......................     2,731     3,616     1,574     6,088    32,315
                                            --------  --------  --------  --------  --------
Income (loss) before provision (credit)
 for income taxes, minority interest, and
 extraordinary item ......................    (7,656)      859     3,401   (22,752)   56,002
Provision (credit) for income taxes.......      (175)    4,446      (180)    3,996    28,043
                                            --------  --------  --------  --------  --------
Income (loss) before minority interest and
 extraordinary item.......................    (7,481)   (3,587)    3,581   (26,748)   27,959
Minority interest(2)......................       --       (143)      132       (43)      224
                                            --------  --------  --------  --------  --------
Income (loss) before extraordinary item...    (7,481)   (3,444)    3,449   (26,705)   27,735
Extraordinary item, net of income taxes of
 $363.....................................       --        --        --        --        502
                                            --------  --------  --------  --------  --------
Net income (loss)(3)......................  $ (7,481) $ (3,444) $  3,449  $(26,705) $ 27,233
                                            ========  ========  ========  ========  ========
Basic and diluted earnings (loss) per
 common share(3)(4).......................  $  (0.02) $  (0.01) $   0.01  $  (0.06) $   0.06
Basic weighted average number of common
 shares outstanding.......................   373,750   373,750   373,750   417,197   470,712
Diluted weighted average number of common
 shares outstanding ......................   373,750   373,750   373,750   417,197   472,599

Other consolidated financial data:
Net cash flows provided by (used in):
  Operating activities....................  $  1,383  $ 13,032  $ 11,911  $ 25,620  $ 71,741
  Investing activities....................    (4,704)   (5,511)  (20,679) (145,691) (669,903)
  Financing activities....................    13,048   (14,390)    5,828   839,613     9,514
EBITDA(5).................................     9,631    18,075    20,612    19,054    91,730
</TABLE>

                                       28
<PAGE>

<TABLE>
<CAPTION>
                                                 As of March 31,(1)
                                  ------------------------------------------------
                                    1997     1998     1999      2000       2001
                                  -------- -------- -------- ---------- ----------
                                               (Dollars in thousands)
<S>                               <C>      <C>      <C>      <C>        <C>
Consolidated balance sheet data:
Cash and cash equivalents.......  $ 18,906 $ 11,449 $  8,681 $  727,681 $  137,599
Total current assets............    92,296   90,757   90,277    940,746    810,229
Total assets....................   159,439  153,799  182,263  1,222,327  1,345,931
Current liabilities.............    60,286   62,814   73,271    203,565    262,466
Total debt......................    15,372    2,066   15,837    117,782    126,079
Total stockholders' equity......    78,711   74,131   76,717    876,051    927,753

Other operating data:
Number of ports.................     7,914    9,205   10,590     14,468     16,772
Number of country
 representatives................        51       52       56         55         55
Number of dedicated personnel:
  U.S...........................       764      580      592        640        717
  Non-U.S.(6)...................       556      585      659        700        803
</TABLE>
--------
(1) Our fiscal year is the 52 or 53-week period ending on the Friday nearest to
    March 31. For simplicity of presentation, we have described the 52-week
    period ended March 28, 1997, the 53-week period ended April 3, 1998 and the
    52-week periods ended April 2, 1999, March 31, 2000 and March 30, 2001 as
    the years ended March 31, 1997, 1998, 1999, 2000 and 2001.

(2) Reflects a 51% interest in Infonet Luxembourg, acquired during the year
    ended March 31, 1998.

(3) The year ended March 31, 2000 includes a non-cash, pre-tax compensation
    charge of $33.4 million resulting from our stock options, which were
    converted from book value to market value options as a result of the
    initial public offering, and our stock appreciation rights. The year ended
    March 31, 2001 includes a non-cash, pre-tax, net compensation charge of
    $11.1 million resulting from our stock options and stock appreciation
    rights. The charge is net of a $5.3 million one-time credit resulting from
    an amendment to one of the Company's stock-based compensation plans.

(4) As of March 31, 1997 and 1998, there were no options, warrants or other
    forms of potential common stock issued by us. Our outstanding common stock
    purchase rights represent the only form of potential common stock as of
    March 31,1999. All of these rights were excluded from the computation of
    diluted earnings per share in 1999 because their inclusion would have had
    an antidilutive effect on earnings per share. Our outstanding common stock
    options represent the only form of potential common stock as of March 31,
    2000. All of these options were excluded from the computation of diluted
    earnings per share in 2000 because their inclusion would have had an
    antidilutive effect on earnings per share. Our outstanding common stock
    purchase rights and stock options represent the only form of potential
    common stock as of March 31, 2001. The dilutive effect of outstanding
    purchase rights and stock options on earnings per share in 2001 was
    insignificant.

(5) EBITDA, which we calculate as income from operations before interest, other
    income (expense), provision for income taxes, depreciation, amortization
    and compensation charge for stock option plans, is a supplemental financial
    measure we use in the evaluation of our business and is used by many
    analysts in our industry. However, you should read EBITDA only in
    conjunction with our consolidated financial data summarized above and our
    consolidated financial statements and the related notes to those financial
    statements prepared in accordance with generally accepted accounting
    principles, which appear elsewhere in this annual report. You should not
    construe EBITDA as an alternative to income from operations, as determined
    in accordance with generally accepted accounting principles, as an
    indicator of our operating performance or as an alternative to cash flows
    from operating activities, as determined in accordance with generally
    accepted accounting principles, as a measure of our liquidity. Our
    definition of EBITDA may not be comparable to similarly titled measures of
    other companies.

(6) Includes employees of non-consolidated country representatives.

                                       29
<PAGE>

Quarterly Operating Performance

   The following tables set forth unaudited quarterly financial data for the
fiscal years ended March 31, 2000 and 2001.

<TABLE>
<CAPTION>
                                             Three Months Ended,
                                ----------------------------------------------
                                June 30,  September 30, December 31, March 31,
                                  2000        2000          2000       2001
                                --------  ------------- ------------ ---------
                                   (Dollars in thousands, except per share
                                                  amounts)

   <S>                          <C>       <C>           <C>          <C>
   Revenues.................... $154,165    $156,062      $161,804   $189,914
   Operating income............    5,236       6,521           744     11,186
   Income before extraordinary
    item.......................    8,203       4,692         5,958      8,882
   Net income..................    7,701       4,692         5,958      8,882
   Basic and diluted earnings
    per common share........... $   0.02    $   0.01      $   0.01   $   0.02

<CAPTION>
                                             Three Months Ended,
                                ----------------------------------------------
                                June 30,  September 30, December 31, March 31,
                                  1999        1999          1999       2000
                                --------  ------------- ------------ ---------
                                   (Dollars in thousands, except per share
                                                  amounts)

   <S>                          <C>       <C>           <C>          <C>
   Revenues.................... $ 85,706    $ 87,513      $153,699   $154,526
   Operating income (loss).....     (543)     (9,096)      (23,875)     4,674
   Net income (loss)...........   (1,374)     (8,400)      (22,463)     5,532
   Basic and diluted earnings
    (loss) per common share.... $   0.00    $  (0.02)     $  (0.05)  $   0.01
</TABLE>

   Our revenues and operating income vary from quarter to quarter due to a
number of factors including the timing of new client contracts, new service
offerings, changes in our pricing policies or those of our competitors and the
timing and completion of our network expansion. Our operating income (loss)
also varies from quarter to quarter due to timing of expenses related to
provisioning of our services. Quarterly results are not necessarily meaningful
and you should not rely on them as an indication of our future performance.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

   You should read this discussion together with our consolidated financial
statements and the related notes to those statements appearing elsewhere in
this annual 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. You are urged to consider statements that include
the terms "believe", "belief", "expects", "plans", "anticipates", "intends" or
the like to be 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 above under the caption "Risk
Factors."

   Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.

                                       30
<PAGE>

Revenues by Region and Country

   We provide our services throughout the world, with revenues billed and costs
incurred in more than 60 countries. The following tables set forth our revenues
by region and for major countries in terms of revenues for the years ended
March 31, 1999, 2000 and 2001. Due to the multinational nature of our client
base, the table does not reflect the country in which services are provided,
but rather is based on the jurisdiction in which we invoice for our services.

<TABLE>
<CAPTION>
                                              Year Ended March 31,
                                     ----------------------------------------
                                         1999          2000          2001
                                     ------------  ------------  ------------
                                             (Dollars in thousands)
<S>                                  <C>      <C>  <C>      <C>  <C>      <C>
Region:
Americas............................ $115,937  38% $138,587  29%  144,897  22%
Europe, Middle East and Africa
 (EMEA).............................  158,234  52   302,653  63   465,543  70
Asia Pacific........................   28,826  10    40,204   8    51,505   8
                                     -------- ---  -------- ---  -------- ---
Total revenues...................... $302,997 100% $481,444 100% $661,945 100%
                                     ========      ========      ========

<CAPTION>
                                              Year Ended March 31,
                                     ----------------------------------------
                                         1999          2000          2001
                                     ------------  ------------  ------------
                                             (Dollars in thousands)
<S>                                  <C>      <C>  <C>      <C>  <C>      <C>
Country:
France.............................. $ 13,183   4% $ 27,148   6% $ 39,180   6%
Germany.............................   23,438   8    30,962   7    45,559   7
Netherlands.........................   34,944  12    61,497  13   105,191  16
Sweden..............................   13,859   4    39,743   8    63,657  10
Switzerland.........................   12,071   4    29,133   6    40,992   6
United Kingdom......................   19,682   6    53,885  11    80,088  12
United States.......................  103,190  34   126,358  26   134,774  20
Other countries.....................   82,630  28   112,718  23   152,504  23
                                     -------- ---  -------- ---  -------- ---
Total revenues...................... $302,997 100% $481,444 100% $661,945 100%
                                     ========      ========      ========
</TABLE>

Distribution Channels

   We offer our services through country representatives and through alternate
sales channels such as major telecommunication service providers, value-added
resellers, and licensed distributors. In the year ended March 31, 2001, country
representatives contributed 61% of our total revenues, while alternate sales
channels contributed 39% of our total revenues. The table below shows the
relative contribution to revenues from country representatives and alternate
sales channels, as defined for financial reporting purposes.

<TABLE>
<CAPTION>
                                                      Year Ended March 31,
                                                   ----------------------------
                                                     1999      2000      2001
                                                   --------  --------  --------
                                                     (Dollars in thousands)
<S>                                                <C>       <C>       <C>
Country representatives:
  Number of representatives.......................       56        55        55
  Number of clients...............................    1,129     1,402     1,503
  Country representatives' revenues............... $273,150  $357,494  $405,201
  Percent of total revenues.......................       90%       74%       61%

Alternate sales channels:
  Number of sales channel partners................       17        22        24
  Number of sales channel partners' clients.......      184     1,022     1,014
  Alternate sales channel revenues................ $ 29,847  $123,950  $256,744
  Percent of total revenues.......................       10%       26%       39%
</TABLE>

                                       31
<PAGE>

 Country Representatives

   We currently have 55 country representatives, 10 consolidated and 45 non-
consolidated, which together provide services in more than 60 countries. Our
consolidated country representatives are those in which we own, directly or
indirectly, greater than a 50% equity interest. Our consolidated country
representatives provide services in 13 countries and accounted for
approximately $193.6 million, or approximately 29% of our total revenues, in
the year ended March 31, 2001.

   Our service agreements with our country representatives give us the right to
recommend prices for services, set revenue targets jointly, determine staffing
jointly, appoint one of the three members of the advisory review board, and
terminate the agreement if the country representative fails to meet the revenue
targets or if we cannot agree on revenue targets for two consecutive years. In
addition, each agreement outlines the compensation and pricing arrangements
with the country representatives. Established rates and support charges are
generally the same for all country representatives throughout the world.

   Our country representatives determine the prices they charge clients, in
accordance with our recommended prices and standard discounts, and enter into
contracts with clients to provide services using The World Network. We bill our
country representatives and recognize the full amount of revenues for all of
our services delivered to the clients. The country representatives bill us for
the sales and support services they provide, which we account for as country
representative compensation. The country representative bears the risk of
collection from the client as well as the exchange rate risk.

 Alternate Sales Channels

   Our alternate sales channels sell or take orders for all or a portion of our
suite of services in their territories to clients that require one or more of
our global communications services that the sales channel partners cannot
supply independently. Our relationships typically are governed by multi-year
contracts, under which we provide services to our sales channel partners who
then solicit orders for our services or resell our services to clients on terms
our sales channels determine.

Components of Revenues

   Our revenues are derived from providing a broad range of integrated service
solutions to our multinational clients worldwide:

  . Network Services--includes intranet (formerly referred to as frame
    relay), ATM, remote access, multimedia, Internet and IP-VPN services;

  . Consulting, Integration and Provisioning Services--includes consulting,
    design, and implementation of each client's particular networking needs;
    our Global Connect services whereby we install and manage leased lines
    and customer premise equipment at the client's site to enable the client
    to access The World Network and use our Network Services;

  . Applications Services--includes e-mail, messaging, collaboration, Web
    hosting and other value-added services; and

  . Other Communications Services--includes X.25 transport services, service
    access fees and other communications services.

                                       32
<PAGE>

Revenues by Services

   We currently derive a majority of our revenues from the sale of Network
Services, specifically intranet services, remote access and IP-VPN services, as
shown below. We expect that Network Services will continue to constitute the
largest component of our revenue base going forward. We also anticipate that a
significant portion of our future revenue growth will come from Network
Services and Consulting, Integration and Provisioning Services.

<TABLE>
<CAPTION>
                                              Year Ended March 31,
                                     ----------------------------------------
                                         1999          2000          2001
                                     ------------  ------------  ------------
                                             (Dollars in thousands)

   <S>                               <C>      <C>  <C>      <C>  <C>      <C>
   Network Services................. $144,642  48% $217,006  45% $283,248  43%
   Consulting, Integration and
    Provisioning Services ..........   78,777  26   116,534  24   179,932  27
   Applications Services............   20,068   6    15,286   3    10,540   2
   Other Communications Services....   59,510  20   132,618  28   188,225  28
                                     -------- ---  -------- ---  -------- ---
   Total revenues................... $302,997 100% $481,444 100% $661,945 100%
                                     ========      ========      ========
</TABLE>

Pricing Policies

   The pricing for our services differs depending on the services provided, the
speed of service, geographic location and capacity utilization. In the case of
services permitting dedicated client access to the network by leased circuit,
pricing is generally dependent more on the nature and capacity of the service
provided than on actual usage. For example, the pricing for a connection to be
used for intranet services generally consists of a monthly charge for the
connection and the bandwidth access provided through the connection. Pricing
for dedicated access services is therefore largely based on access equipment
and bandwidth. In the case of remote access services, actual usage and
geographic location are more relevant to the pricing determination, as the
client is generally charged based on the duration of each connected session.
Once a base service is set, additional factors are taken into account such as
charges for additional network services, breadth of the service, and discounts
for larger volume clients that are prepared to guarantee specific revenue
levels.

Client Contracts

   The client contracts generally include an agreed-upon price schedule that
details both fixed and variable prices for contracted services. The client
contracts generally have a term of one to three years, however, when clients
implement a number of our services, they may choose to extend the contracts for
a longer period of time. Our country representatives can easily add additional
services to existing contracts, enabling clients to increase the number of
locations through which they access our network, increase the speed of that
access, increase the sophistication of the services they use, or extend the
term for existing services.

Components of Costs and Expenses

 Country Representative Compensation

   Country representative compensation reflects the amounts paid to the country
representatives for the sales and support services our country representatives
provide to clients. These expenses are variable and increase as the revenues
from country representatives increase. In fiscal 2000 and 2001, country
representative compensation also included amounts paid to AUCS for services
provided under the outsourcing agreement.

 Bandwidth and Related Costs

   Our bandwidth and related costs are primarily comprised of leasing and
amortization expenses associated with the leasing or purchasing of network
circuits. Traditionally, we obtained backbone capacity through

                                       33
<PAGE>

short-term leases. We bear leasing expenses regardless of whether we lease
directly or indirectly through another entity that may lease communications
lines locally on our behalf. As bandwidth prices began to drop and capacity
became available for purchase or long-term lease, we began to replace some of
our short-term leases on major international and regional routes with much more
economical longer-term solutions. Now, we have acquired a majority of our
backbone network via IRU or long-term capitalized leases and the amortization
of these assets are included as an expense. We expect to continue to purchase
such longer-term capacity where it is economical to do so. Bandwidth and
related costs also include related equipment, maintenance and personnel costs.

 Network Operations

   Our network operations expenses include costs associated with our network
management, operations and support activities. These costs include personnel,
occupancy, maintenance, equipment depreciation, outsourcing costs and other
network related costs.

 Selling, General and Administrative

   Selling expenses consist primarily of personnel costs and incentive
compensation related to our consolidated country representative sales force, as
well as costs related to providing centralized sales and marketing support for
our non-consolidated country representatives. Our selling expenses also include
promotion, advertising, travel and entertainment. General and administrative
expenses consist primarily of salaries and other compensation, and occupancy
costs for executive, financial and accounting, human resources, legal and other
administrative personnel, as well as company-wide management incentive related
costs.

Outsourcing Agreement with Stockholders, AUCS, and its Distributors

   On September 30, 1999, the Company entered into agreements with three of its
stockholders (the "Stockholders") and affiliates of the Stockholders which,
among other things, give the Company access to additional multinational
corporate clients of the Stockholders. Our agreements with KPN, Swisscom and
Telia have given us access to multinational corporate clients previously served
by AUCS and may give us access to additional multinational clients to which
KPN, Swisscom and Telia may provide services in the future. We obtain the AUCS
services provided to the multinational clients under the terms of a services
agreement with AUCS, which is based on our standard services agreement. The
pricing of the AUCS service provides us with an agreed-upon gross margin of
approximately 20% on the provision of these services. The services agreement is
terminable upon 180 days' notice by any party. The revenues and expenses
resulting from these agreements are referred to as outsourcing services
revenues and expenses throughout this discussion.

   We also entered into a call option for the underlying tangible assets of
AUCS. Until September 2002, the option allows us to purchase any and all of the
AUCS tangible assets at fair market value not to exceed $130 million. The call
right allows us to purchase the assets of AUCS so that we can continue to offer
the AUCS services to our clients if the services agreement is terminated. The
call option may be subject to regulatory approval and is conditioned upon AUCS'
ability to continue to fulfill its contractual obligations to third parties.

   Additionally, the Company has entered into a three-year management agreement
with AUCS which is cancelable by either party upon 180 days' notice. Under the
terms of the management agreement, the Company earns a management fee equal to
1.5% of the outsourcing revenues up to a defined aggregate maximum, over the
term of the agreement. During 2001, the Company recognized management fee
revenue of $3.7 million related to this agreement. Also under the terms of the
management agreement, the Company may earn an incentive payment, based on
defined financial performance criteria (the "Performance Criteria"), subject to
certain limits. However, if the Performance Criteria are not achieved, the
Company will not receive the incentive payment.


                                       34
<PAGE>

   In December 2000, the Company contracted with AUCS to provide communications
services to certain AT&T/Concert customers which were previously served by
AUCS. We obtain the services provided to the AT&T/Concert customers under the
terms of a services agreement with AUCS which provides us with an agreed-upon
gross margin of approximately 15% on the provision of these services.

Compensation Charges Related to Stock Option and Stock Appreciation Rights
Grants

   In April 1999, we granted options to employees for the purchase of
approximately 3.71 million shares of our Class B common stock at an exercise
price of $0.84 per share pursuant to our 1998 Stock Option Plan. The 1998 Stock
Option Plan was a book value plan, which converted to a market value plan upon
the close of our initial public offering, creating a new measurement date for
the stock options. Since the exercise price of these options was substantially
below the price to the public of $21.00 per share in the offering, we will
record a non-cash compensation charge over the five year vesting period of the
options. The amount of this charge is a function of the public offering price.
Based upon the price of our Class B common stock in the offering, this charge
will total approximately $72.8 million, of which approximately $20.4 million
and $13.4 million was recognized in the fiscal years ended March 31, 2000 and
2001, respectively. The remaining charge will be amortized to expense at a rate
of approximately $3.5 million per quarter through December 31, 2003.

   During December 1998, we issued approximately 1.21 million stock
appreciation rights, or SARs, and during the fiscal year ended March 31, 2000
we issued approximately 561,000 SARs to employees pursuant to our SARs Plan.
The SARs vest 25% per year, commencing in January 2001, and are indexed to our
Class B common stock at a base price of $0.84 per share. We recorded a
compensation charge in each quarter of the vesting period based upon the
difference between the exercise price and market value of our Class B common
stock during the vesting period. The total amount of this charge is a function
of the price of our Class B common stock during the vesting period. During the
fiscal year ended March 31, 2000, these charges were approximately $13.0
million. As of March 31, 2000, approximately 77,000 SARs have been forfeited by
employees. During the fiscal year ended March 31, 2001, we amended our SARs
Plan to provide for a tandem feature which allows for the settlement of the
SARs with shares of our Class B common stock as an alternative to a cash
settlement. The amended SARs Plan provides that the SARs may be settled with
stock or cash at our sole discretion. In accordance with Financial Accounting
Standards Board Interpretation No. 28 "Accounting for Stock Appreciation Rights
and Other Variable Stock Options or Award Plans," we are accounting for the
tandem award as equity instruments and the plan, as amended, as a fixed plan
under the provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." The amendment to the SARs plan created a new
measurement date. The Company credited stock-related compensation by
approximately $5.3 million to reflect the stock price at the new measurement
date. The remaining unrecognized compensation expense of approximately $8.5
million at March 31, 2001, will be amortized ratably over the remaining vesting
period at a rate of approximately $770,000 per quarter through December 31,
2003. During the fiscal year ended March 31, 2001, these charges were
approximately $2.4 million.

                                       35
<PAGE>

Results of Operations

   The following table sets forth certain financial data from our consolidated
statements of operations for the years ended March 31, 1999, 2000 and 2001
expressed in each case as a percentage of revenues.

<TABLE>
<CAPTION>
                                                               Year Ended
                                                               March 31,
                                                             -----------------
                                                             1999  2000   2001
                                                             ----  ----   ----
                                                                 (As a
                                                             percentage of
                                                               revenues)

   <S>                                                       <C>   <C>    <C>
   Revenues................................................. 100%  100%   100%
   Expenses:
     Country representative compensation - non-outsourcing
      services..............................................  18    14     14
     Country representative compensation - outsourcing
      services..............................................   0    17     21
     Bandwidth and related costs............................  17    19     19
     Network operations.....................................  18    15     12
     Selling, general and administrative....................  46    41     30
                                                             ---   ---    ---
     Total expenses.........................................  99   106     96
                                                             ---   ---    ---

   Operating income (loss)..................................   1    (6)     4

   Other income (expense)
     Interest income........................................   0     3      6
     Interest expense.......................................   0    (2)    (2)
     Other, net.............................................   0     0      0
   Provision for income taxes...............................   0    (1)    (4)
   Minority interest........................................   0     0      0
   Extraordinary item.......................................   0     0      0
                                                             ---   ---    ---
   Net income (loss)........................................   1%   (6)%    4%
                                                             ---   ---    ---
</TABLE>

 Year Ended March 31, 2001 Compared to Year Ended March 31, 2000

   Revenues increased $180.5 million, or 37%, from $481.4 million in the year
ended March 31, 2000 to $661.9 million in the year ended March 31, 2001.
Excluding revenues resulting from a significant outsourcing agreement entered
into on September 30, 1999, revenues increased $90.0 million, or 24%, over the
prior period from $382.1 million to $472.1 million. The overall increase in
revenues was due to increases of $66.2 million, or 31%, in Network Services,
$63.4 million, or 54%, in Consulting, Integration and Provisioning Services,
and $55.6 million, or 42%, in Other Communications Services. The majority of
the Network Services growth came from increased sales of intranet and remote
access services. Intranet sales increased $46.5 million, or 36%, from $128.3
million to $174.8 million and remote access sales increased $13.7 million, or
31%, from $43.9 million to $57.6 million, over the period. Other Communications
Services and Consulting, Integration and Provisioning Services increases
included approximately $59 million and $31 million, respectively, in revenues
from outsourcing services as revenues were earned for a full period compared to
a six-month period in the prior year. Excluding revenues from outsourcing
services, Consulting, Integration and Provisioning Services, comprised
primarily of our Global Connect services, increased $32.7 million, or 32%, from
$102.9 million to $135.6 million over the period. Excluding revenues from
outsourcing services, Other Communications Services declined $4.1 million, or
9%, from $46.9 million to $42.8 million. This decrease is largely due to an
expected decline in our mature messaging product line and our X.25 transport
services, as our clients are migrating to more advanced messaging applications
and non-X.25 based transport services, offset by a one-time commitment fee paid
by one of our sales channel partners of $7.8 million.

   Revenues from our country representatives increased $47.7 million, or 13%,
from $357.5 million in the year ended March 31, 2000 to $405.2 million in the
year ended March 31, 2001. Excluding outsourcing services, revenues from
country representatives increased $52.3 million, or 16%, from $331.3 million to

                                       36
<PAGE>

$383.7 million over the year. Outsourcing revenue, which began mid-year during
the prior period, declined by approximately $5 million related to a one-time
recognition of contract termination fees during the prior year. While the
number of our country representatives remained at 55 over the period, revenue
increases were derived through the growth of existing country representatives.
The number of our clients increased 7%, from 1,402 clients as of March 31, 2000
to 1,503 clients as of March 31, 2001. Revenues increased as clients that used
mostly lower revenue generating messaging and X.25 based transport services
were replaced by clients that purchased higher revenue yielding Network
Services. Revenues from our alternate sales channels grew $132.8 million, or
107%, from $124.0 million to $256.7 million over the period. Approximately $95
million of the increase resulted from outsourcing services as revenues from the
outsourcing business were earned for a full year period as compared to a six-
month period in the prior year. The balance of the increase is primarily
attributed to growth through existing sales channel partners. In total, our
alternate sales channel partners resold our suite of services to 8 fewer
clients, from 1,022 clients as of March 31, 2000 to 1,014 clients as of
March 31, 2001.

   In terms of revenues billed on a regional basis, the majority of our growth
was in the EMEA region, which increased $162.9 million, or 54%, from $302.7
million in the year ended March 31, 2000 to $465.5 million in the year ended
March 31, 2001. Approximately $90 million of this revenue growth was in Europe
resulting from outsourcing services as revenues from the outsourcing business
were earned for a full year period as compared to a six-month period in the
prior year. The balance of the increase is due to the addition of new clients
and increases in sales of services to existing clients. Revenues billed in the
Americas grew $6.3 million, or 5%, from $138.6 million to $144.9 million over
the period. Revenues billed in Asia Pacific increased by $11.3 million, or 28%,
from $40.2 million in the year ended March 31, 2000 to $51.5 million in the
year ended March 31, 2001, due to increased sales efforts in a growing market.

   Country Representative Compensation increased $84.2 million, or 56%, from
$151.3 million in the year ended March 31, 2000 to $235.4 million in the year
ended March 31, 2001. Approximately $65 million of this increase resulted from
outsourcing services revenues. The balance of this expense grew in line with
the related revenue.

   Bandwidth and Related Costs increased $35.0 million, or 39%, from $90.5
million in the year ended March 31, 2000 to $125.4 million in the year ended
March 31, 2001. This increase was directly related to higher network leasing
expenses associated with increasing the capacity of our network and our newly
introduced ATM capability, although the unit cost has dropped significantly.
The usage growth reflects additional client port growth and increased capacity
per port, as well as the building of an infrastructure with lower capacity
utilization. Lease expense, the largest component of bandwidth and related
costs, increased $16.1 million, or 21%, from $76.0 million in the year ended
March 31, 2000 to $92.1 million in the year ended March 31, 2001. Amortization
of purchased capacity increased $15.4 million, or 360%, from $4.3 million to
$19.6 million over the period as a result of owning a major portion of our
bandwidth capacity in the backbone of our network.

   Network Operations increased $7.3 million, or 10%, from $72.2 million in the
year ended March 31, 2000 to $79.5 million in the year ended March 31, 2001.
Stock-related compensation charges decreased $6.2 million, or 87%, from $7.2
million in the year ended March 31, 2000 to $934,000 in the year ended March
31, 2001. Depreciation expense related to network equipment increased $6.2
million, or 42%, from $14.6 million in the year ended March 31, 2000 to $20.8
million in the year ended March 31, 2001. The remainder of the increase was
related to the increased costs associated with our network management,
operations and support activities, personnel costs and other network operations
expenses which grew in line with our revenues.

   Selling, General and Administrative increased $1.6 million, or 1%, from
$196.3 million in the year ended March 31, 2000 to $197.9 million in the year
ended March 31, 2001. Stock-related compensation charges decreased $16.0
million, or 61%, from $26.2 million in the year ended March 31, 2000 to $10.2
million in the year ended March 31, 2001. Our sales support expenses for
multinational activities increased $1.7 million from

                                       37
<PAGE>

$68.0 million in the year ended March 31, 2000 to $69.7 million in the year
ended March 31, 2001 which was directly related to revenue growth. Sales and
Marketing personnel-related expenses increased $7.0 million from $61.9 million
in the year ended March 31, 2000 to $68.9 million in the year ended March 31,
2001 due to increased sales and marketing efforts to increase our business.
Administrative expenses, excluding stock-related compensation expense,
increased by $504,000 from $22.7 million in the year ended March 31, 2000 to
$23.2 million in the year ended March 31, 2001.

   Operating Income (Loss) increased by $52.5 million, from a loss of $(28.8)
million in the year ended March 31, 2000 to income of $23.7 million in the year
ended March 31, 2001 due to the factors described above.

   Other Income (Expense) increased $26.2 million, from $6.1 million in the
year ended March 31, 2000 to $32.3 million in the year ended March 31, 2001.
This increase reflects growth in interest income of $28.7 million, from $14.6
million to $43.3 million resulting from the investment of the initial public
offering proceeds received in December 1999. The increased interest expense of
$4.7 million, from $7.2 million to $11.9 million over the period, resulted from
borrowings under the Senior Secured Credit Facility.

   Provision for Income Taxes increased from $4.0 million in the year ended
March 31, 2000 to $28.0 million in the year ended March 31, 2001. The effective
tax rate in the year ended March 31, 2001 is lower than experienced in the
prior year because non-deductible stock based compensation charges and deferred
tax valuation allowance decreased.

   Extraordinary Item, Net of Tax for the year ended March 31, 2001 represents
the write-off of unamortized debt issuance costs associated with the $49.6
million of long-term debt which was repaid prior to its due date during the
year ended March 31, 2001.

   Net Income (Loss) increased from $(26.7) million in the year ended March 31,
2000 to $27.2 million in the year ended March 31, 2001 due to the factors
described above.

 Year Ended March 31, 2000 Compared to Year Ended March 31, 1999

   Revenues increased $178.4 million, or 59%, from $303.0 million in the year
ended March 31, 1999 to $481.4 million in the year ended March 31, 2000.
Excluding revenues resulting from a significant outsourcing agreement entered
into on September 30, 1999, revenues increased $79.1 million, or 26%, over the
prior period from $303.0 million to $382.1 million. This increase was primarily
due to a $72.4 million increase, or 50%, in sales of Network Services over the
period, from $144.6 million to $217.0 million. The majority of the Network
Services growth came from increased sales of intranet and remote access
services. Intranet sales increased $47.4 million, or 59%, from $80.9 million to
$128.3 million and remote access sales increased $21.2 million, or 93%, from
$22.7 million to $43.9 million, over the period. In addition, Consulting,
Integration and Provisioning Services, comprised primarily of our Global
Connect services, increased $24.1 million, or 31%, from $78.8 million to $102.9
million over the period. Our Applications Services declined $4.8 million, or
24%, from $20.1 million to $15.3 million. Other Communications Services,
excluding revenues from outsourcing services, declined $12.6 million, or 21%,
from $59.5 million to $46.9 million. Other Communications Services, excluding
revenues from outsourcing services, decreased over the period largely due to an
expected decline in our mature messaging product line and our X.25 transport
services, as our clients are migrating to more advanced messaging applications
and non-X.25 based transport services. Other Communications Services and
Consulting, Integration and Provisioning Services increases included $85.7
million and $13.6 million, respectively, in revenues from outsourcing services.

   Revenues from our country representatives increased $84.3 million, or 31%,
from $273.2 million in the year ended March 31, 1999 to $357.5 million in the
year ended March 31, 2000. Approximately $26 million of the increase resulted
from outsourcing services. Although we decreased the number of our country
representatives from 56 to 55 over the period, we saw increased revenue that
was derived largely through the

                                       38
<PAGE>

growth of existing country representatives. The number of our clients increased
24%, from 1,129 clients as of March 31, 1999 to 1,402 clients as of March 31,
2000. Approximately 135 of the increased clients resulted from outsourcing
services. Revenues increased as clients that used mostly lower revenue
generating messaging and X.25 based transport services were replaced by clients
that purchased higher revenue yielding Network Services. Revenues from our
alternate sales channels grew $94.2 million, or 316%, from $29.8 million to
$124.0 million over the period. Approximately $73 million of the increase
resulted from outsourcing services, the balance of the increase is primarily
attributed to growth through existing sales channel partners. In total, our
alternate sales channel partners resold our suite of services to a net
additional 838 clients, including 806 new outsource clients, from 184 clients
as of March 31, 1999 to 1,022 clients as of March 31, 2000.

   In terms of revenues billed on a regional basis, the majority of our growth
was in the EMEA region, which increased $144.5 million, or 91%, from $158.2
million in the year ended March 31, 1999 to $302.7 million in the year ended
March 31, 2000. Approximately $99 million of this revenue growth was in Europe
as a result of the outsourcing transaction; the balance of the increase is due
to the addition of new clients and increases in sales of services to existing
clients. Revenues billed in the Americas grew $22.7 million, or 20%, from
$115.9 million to $138.6 million over the period. Revenues billed in Asia
Pacific increased by $11.4 million, or 40%, from $28.8 million in the year
ended March 31, 1999 to $40.2 million in the year ended March 31, 2000, due to
increased sales efforts in a growing market.

   Country Representative Compensation increased $97.5 million, or 181%, from
$53.8 million in the year ended March 31, 1999 to $151.3 million in the year
ended March 31, 2000. Approximately $84 million of this increase resulted from
outsourcing services revenues. The balance of this expense grew in line with
the related revenue.

   Bandwidth and Related Costs increased $37.8 million, or 72%, from $52.7
million in the year ended March 31, 1999 to $90.5 million in the year ended
March 31, 2000. This increase was directly related to higher network leasing
expenses associated with increasing the capacity of our network and our newly
introduced ATM capability. The usage growth reflects additional client port
growth and increased capacity per port. Lease expense, the largest component of
bandwidth and related costs, increased $32.9 million, or 76%, from
$43.1 million in the year ended March 31, 1999 to $76.0 million in the year
ended March 31, 2000. Amortization of purchased capacity increased $3.9
million, from $409,000 to $4.3 million over the period.

   Network Operations increased $17.2 million or 31%, from $55.0 million in the
year ended March 31, 1999 to $72.2 million in the year ended March 31, 2000.
The largest component of this increase was a $7.2 million stock-related
compensation charge recorded in the year ended March 31, 2000. The remainder of
this increase was related to the increased costs associated with our network
management, operations and support activities, personnel costs, depreciation
and other network operations expenses. Depreciation expense related to network
equipment increased $4.9 million, or 51%, from $9.7 million in the year ended
March 31, 1999 to $14.6 million in the year ended March 31, 2000.

   Selling, General and Administrative increased $56.6 million, or 41%, from
$139.7 million in the year ended March 31, 1999 to $196.3 million in the year
ended March 31, 2000. The largest component of the increase was a $26.2 million
stock-related compensation charge recorded in the year ended March 31, 2000.
Our sales support expenses for multinational activities increased $10.6 million
from $57.4 million in the year ended March 31, 1999 to $68.0 million in the
year ended March 31, 2000 which was directly related to revenue growth. In
addition, personnel related expenses increased $6.3 million from $55.6 million
in the year ended March 31, 1999 to $61.9 million in the year ended March 31,
2000 due to increased sales and marketing efforts to increase our business.
Administrative expenses, excluding stock-related compensation expense,
increased by $10.3 million from $12.4 million in the year ended March 31, 1999
to $22.7 million in the year ended March 31, 2000. The increase was primarily
due to legal and accounting fees and other expenses incidental to the
outsourcing transaction, retirement settlement expenses, cancellation of an
incentive program, and moving and building related expenses.


                                       39
<PAGE>

   Operating Income (Loss) decreased by $30.6 million, from income of $1.8
million in the year ended March 31, 1999 to a loss of $(28.8) million in the
year ended March 31, 2000 due to the factors described above.

   Other Income (Expense) increased $4.5 million, from $1.6 million in the year
ended March 31, 1999 to $6.1 million in the year ended March 31, 2000. This
increase reflects growth in interest income of $12.7 million, from $1.9 million
to $14.6 resulting from the investment of the initial public offering proceeds
received December 21, 1999. The increased interest expense of $6.5 million,
from $689,000 to $7.2 million over the period, resulted from borrowings under
the Senior Secured Credit Facility.

   Provision (Credit) for Income Taxes increased from $(180,000) in the year
ended March 31, 1999 to $4.0 million in the year ended March 31, 2000. The
effective tax rate is higher in the year ended March 31, 2000 due to non-
deductible stock based compensation charges and adverse tax consequences
associated with the inability to realize certain subsidiary losses as a tax
benefit.

   Net Income (Loss) decreased from $3.4 million in the year ended March 31,
1999 to $(26.7) million in the year ended March 31, 2000 due to the factors
described above.

Liquidity and Capital Resources

   Net cash provided by operating activities during the year ended March 31,
2001 was $71.7 million compared to $25.6 million in the year ended March 31,
2000. The increase in net cash provided by operating activities in fiscal 2001
was primarily attributable to a $53.9 million increase in net income, a
decrease in the growth of accounts receivable of $41.1 million, and a $24.1
million increase in depreciation and amortization, offset by an increase in the
growth of accounts payable of $69.7 million. Net cash used in investing
activities for fiscal 2001 was $669.9 million compared to $145.7 million for
fiscal 2000. The increase in cash used for investing activities during this
period primarily resulted from increased purchases of property, equipment and
communication lines of $156.7 million and purchases of securities available-
for-sale of $743.1 million offset by increases in proceeds from sales of
securities available-for-sale of $245.4 million and maturities of securities
available-for-sale of $150.1 million. Net cash provided by financing activities
in fiscal 2001 was $9.5 million compared to $839.6 million for the year ended
March 31, 2000.

   Our principal capital expenditure requirements involve the upgrade and
expansion of The World Network through the purchase or lease of transmission
capacity and the purchase of network related equipment as well as computer
equipment, furniture and fixtures. We have funded these expenditures to date
primarily through cash from operations, the net proceeds from our initial
public offering, borrowings under our debt facilities and operating and capital
leases. Our capital expenditures for the year ended March 31, 2001 were
approximately $68.2 million for network-related equipment, approximately $214.5
million for the purchase of transmission capacity, and approximately $5.3
million for other capital expenditures. Of these capital expenditures,
$31.2 million were non-cash transactions during the year ended March 31, 2001.
As of March 31, 2001, we had capital lease commitments totaling approximately
$12.1 million payable in various years through 2007 and thereafter.

   In connection with the deployment of our ATM-enabled backbone, we estimate
that we will make less than $125 million of capital expenditures during the
year ending March 31, 2002. We expect that our capital expenditures will be
approximately $150 million in the year ending March 31, 2003. These
expenditures will include payments for the purchase of additional submarine
cable capacity. We expect to use cash from operations together with the
proceeds of the initial public offering and availability under the Senior
Secured Credit Facility to fund these capital expenditures. The exact amount of
future capital expenditures will depend on a number of factors, including
availability under our Senior Secured Credit Facility, our ability to negotiate
contracts to purchase transmission capacity at favorable prices and the demands
of our multinational clients. If we have exhausted the net proceeds of the
initial public offering and borrowings under the Senior Secured

                                       40
<PAGE>

Credit Facility are not available, we may be required to seek additional debt
or equity financing. We cannot assure you that any financing will be available
on commercially reasonable terms or at all, or that any additional debt
financing would be permitted by the terms of our existing indebtedness.

   Our ability to make scheduled payments of principal of, or to pay interest
on, our debt obligations, and our ability to refinance any debt obligations, or
to fund planned capital expenditures, will depend on our future performance,
which, to a certain extent, is subject to general economic, financial,
competitive, regulatory and other factors that are beyond our control. Our
business strategy contemplates substantial capital expenditures in connection
with the upgrade and expansion of The World Network.

   As of March 31, 2001, the Company had cash and cash equivalents of $137.6
million, short-term investments of $464.0 million, working capital of $546.8
million and total assets of $1.3 billion. Indebtedness under the Senior Secured
Credit Facility totaled $90.0 million as of March 31, 2001 with additional
borrowings available under this facility of $100.0 million. Building mortgage
indebtedness as of March 31, 2001 totaled $24.0 million.

   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 at
least the next twelve months.

Inflation

   The impact of inflation on our operations has not been significant to date.
Over the past two years, rising prices for some of our supplies have been
offset by decreasing prices for other services. In particular, our per unit
costs for leased lines and circuits has generally decreased over this period.
However, we cannot assure you that per unit costs for leased lines and circuits
will continue to decline or that a high rate of inflation in the future will
not adversely affect our operating results.

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 60 countries 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.

   Our exposure to exchange rate fluctuations primarily arises from outsourcing
services and assignment agreements with AUCS, which are denominated in euros as
well as operating costs associated with such

                                       41
<PAGE>

agreements. Approximately 30% of the company's revenues for the year ended
March 31, 2001 were generated from the euro-denominated AUCS agreements. The
revenues and the related costs result in a net euro exposure of the gross
profit, which is equal to approximately 20% of revenues. The euro-denominated
gross profit offset by other euro-denominated operating costs generally results
in a natural hedge. However, timing of settlement of euro-denominated accounts
receivables and payables subjects the company to exchange rate risk on
settlement of the receivables and payables. Euro-denominated cash, accounts
receivable and accounts payable related to AUCS agreements were $33.3 million
as of March 31, 2001.

   As of March 31, 2001 we were primarily exposed to the following currencies:
the British pound, the Swiss franc, and the Euro. Based upon a hypothetical
ten-percent strengthening of the U.S. dollar across all currencies, the
potential losses in future earnings due to foreign currency exposures would
have been approximately $2.2 million as of that date.

   As of March 31, 2000 we were primarily exposed to the following currencies:
the Canadian dollar, the British pound, the Dutch guilder, and the Euro. Based
upon a hypothetical ten-percent weakening of the U.S. dollar across all
currencies, the potential losses in future earnings due to foreign currency
exposures would have been approximately $1.6 million as of that date.

 Interest Rate Risk

   We currently maintain an investment portfolio of high quality 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.

   The carrying amount, principal maturity and estimated fair value of our
investment portfolio and long-term debt exposure as of March 31, 2001 are as
follows:

<TABLE>
<CAPTION>
                          Carrying
                           Amount                         Maturity
                          --------  ---------------------------------------------------------   Fair
                            2001      2002      2003     2004     2005     2006    Thereafter  Value
                          --------  --------  --------  -------  -------  -------  ---------- --------
                                                  (Dollars in thousands)
<S>                       <C>       <C>       <C>       <C>      <C>      <C>      <C>        <C>
Investments
Cash equivalents........  $111,126  $    --   $    --   $   --   $   --   $   --    $   --    $111,126
Weighted average
 interest rate..........      4.97%      --        --       --       --       --        --         --
Short-term investments..  $464,035  $179,215  $156,510  $79,642  $ 9,404  $ 2,551   $36,713   $464,035
Weighted average
 interest rate..........      6.09%     5.97%     6.03%    6.26%    6.42%    7.07%     6.36%

Long-Term Debt
Secured bank notes......  $ 90,000  $  3,375  $  8,250  $32,000  $17,000  $29,375   $   --    $ 90,000
Average interest rate...      8.94%     8.94%     8.94%    8.94%    8.94%    8.94%     8.94%
Mortgage loan...........  $ 23,956  $  1,701  $  1,701  $ 1,701  $ 1,701  $ 1,701   $15,451   $ 23,956
Average interest rate...      7.50%     7.50%     7.50%    7.50%    7.50%    7.50%     7.50%
</TABLE>

                                       42
<PAGE>

   The carrying amount, principal maturity and estimated fair value of our
investment portfolio and long-term debt exposure as of March 31, 2000 are as
follows:

<TABLE>
<CAPTION>
                          Carrying
                           Amount                      Maturity
                          --------  ----------------------------------------------------   Fair
                            2000     2001    2002     2003     2004    2005   Thereafter  Value
                          --------  ------  -------  -------  ------  ------  ---------- --------
                                               (Dollars in thousands)
<S>                       <C>       <C>     <C>      <C>      <C>     <C>     <C>        <C>
Investments
Cash equivalents........  $603,621  $  --   $   --   $   --   $  --   $  --    $   --    $603,621
Weighted average
 interest rate..........      5.93%    --       --       --      --      --        --
Short-term investments..  $ 58,807  $  --   $24,476  $21,341  $9,788  $  --    $ 3,202   $ 58,807
Weighted average
 interest rate..........      6.48%    --      6.51%    6.49%   6.13%    --       7.28%

Long-Term Debt
Secured bank notes......  $ 49,625  $  500  $   500  $   500  $  500  $  500   $47,125   $ 49,625
Average interest rate...      8.66%   8.66%    8.66%    8.66%   8.66%   8.66%     8.66%
Mortgage loan...........  $ 25,515  $1,559  $ 1,701  $ 1,701  $1,701  $1,701   $17,152   $ 25,515
Average interest rate...      8.38%   8.38%    8.38%    8.38%   8.38%   8.38%     8.38%
</TABLE>

   We have not historically used derivatives to hedge our interest rate risk.
However, under the terms of our Senior Secured Credit Facility entered into on
August 17, 1999, we are required to enter into hedge agreements to provide that
at least 50% of the outstanding term loans are subject to fixed interest rates.
We have entered into interest rate swap agreements to fix the interest rates
and mitigate our interest rate risk.

Euro Conversion

   On January 1, 1999, 11 of the 15 member countries of the European Union
introduced a new currency, the "euro". The conversion rates between the euro
and the participating nations' existing legacy currencies were fixed
irrevocably as of December 31, 1998. Prior to full implementation of the new
currency on January 1, 2002, there will be a transition period during which
parties may, at their discretion, use either the legacy currencies or the euro
for financial transactions.

   We are not aware of any material operational issues or costs associated with
preparing internal systems for the euro. While it is not possible to accurately
predict the impact the euro will have on the Company's business or on the
economy in general, management does not anticipate that the euro conversion
will have a material adverse impact on the Company's market risk with respect
to foreign exchange, its results of operations, or its financial condition.

Recently Adopted Accounting Standards

   During the fourth quarter of fiscal 2001, the Company implemented Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements", or
SAB 101. As applied to the Company's operations, SAB 101 requires certain
installation fee revenues to be amortized over the life of the related services
rather than be recognized immediately. Deferred revenues and costs are being
amortized over the average expected customer contract life of 4 years. The
Company retroactively adopted this accounting effective April 1, 2000, which
resulted in an equal deferral of revenues and incremental and direct set-up
costs of $22.4 million. There was no effect on net income. The pro forma effect
of adopting SAB 101 on periods prior to April 1, 2000 was not material to the
Company's consolidated financial position or results of operations.

   Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," is effective for all fiscal
years beginning after June 15, 2000. SFAS No.133, as amended, establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. The Company adopted SFAS No. 133 effective April 1, 2001. The
adoption of SFAS No. 133 will not have a significant impact on the Company's
consolidated financial position or results of operations.

                                       43
<PAGE>

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

   Quantitative and qualitative disclosures about market risk is set forth at
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," under Item 7.

Item 8. Financial Statements and Supplementary Data

   Our Consolidated Financial Statements required pursuant to this item are set
forth at the pages indicated at Item 14 of this Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

   Not applicable.

                                       44
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Company

   The information required by this item concerning our directors, is
incorporated by reference to the information set forth in our proxy statement
(2001 Proxy Statement) for the 2001 annual meeting of stockholders to be filed
with the SEC within 120 days after the end of our fiscal year ended March 31,
2001.

Item 11. Executive Compensation

   The information required by this item regarding executive compensation is
incorporated by reference to the information set forth in our 2001 Proxy
Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management

   The information required by this item regarding security ownership of
certain beneficial owners and management is incorporated by reference to the
information set forth in our 2001 Proxy Statement.

Item 13. Certain Relationships and Related Transactions

   The information required by this item regarding certain relationships and
related transactions is incorporated by reference to the information set forth
in our 2001 Proxy Statement.

                                       45
<PAGE>

                                    PART IV

Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K

   (a)(1) Consolidated Financial Statements:

<TABLE>
<CAPTION>
                                                                          Page
                                                                         Number
                                                                         ------
<S>                                                                      <C>
Independent Auditors' Report............................................  F-1

Consolidated Balance Sheets as of March 31, 2000 and 2001...............  F-2

Consolidated Statements of Operations and Comprehensive Income (loss)
 for the Years Ended March 31, 1999, 2000 and 2001......................  F-3

Consolidated Statements of Stockholders' Equity for the Years Ended
 March 31, 1999, 2000 and 2001..........................................  F-4

Consolidated Statements of Cash Flows for the Years Ended March 31,
 1999, 2000 and 2001....................................................  F-5

Notes to Consolidated Financial Statements..............................  F-7
</TABLE>

   (a)(2) Financial Statement Schedules:

Independent Auditors' Report

Schedule II--Valuation and Qualifying Accounts

   Filed with the Securities and Exchange Commission as Exhibit 99.1. All other
schedules have been omitted because the information is not required or is
included in the consolidated financial statements.

   (a)(3) Exhibits:

   Exhibits submitted with this annual report and those incorporated by
reference to other filings are listed on the exhibit index of this Form 10-K as
filed with the Securities and Exchange Commission.

   (b) Reports on Form 8-K:

   The Company filed no current reports on Form 8-K in the fourth quarter ended
March 31, 2001.

                                       46
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors of
Infonet Services Corporation
El Segundo, California:

   We have audited the accompanying consolidated balance sheets of Infonet
Services Corporation and its subsidiaries (the "Company") as of March 31, 2000
and 2001, and the related consolidated statements of operations and
comprehensive income (loss), stockholders' equity, and cash flows for each of
the three years in the period ended March 31, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

   In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of March 31,
2000 and 2001, and the results of its operations and its cash flows for each of
the three years in the period ended March 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP
Deloitte & Touche LLP

Los Angeles, California
June 11, 2001

                                      F-1
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                    (In Thousands, Except per Share Amounts)

<TABLE>
<CAPTION>
                                                               March 31,
                                                         ----------------------
                                                            2000        2001
                                                         ----------  ----------
<S>                                                      <C>         <C>
                        ASSETS
                        ------

CURRENT ASSETS:
  Cash and cash equivalents............................  $  727,681  $  137,599
  Short-term investments...............................      58,807     464,035
  Accounts receivable, net of allowances of $8,364 and
   $13,855 as of March 31, 2000 and 2001,
   respectively........................................     138,762     177,420
  Deferred income taxes................................       6,011       6,792
  Prepaid expenses.....................................       9,308      14,335
  Other current assets.................................         177      10,048
                                                         ----------  ----------
   Total current assets................................     940,746     810,229
                                                         ----------  ----------
PROPERTY, EQUIPMENT AND COMMUNICATION LINES, Net.......     226,562     464,172
GOODWILL AND OTHER INTANGIBLE ASSETS, Net..............       3,425       7,384
OTHER ASSETS...........................................      51,594      64,146
                                                         ----------  ----------
TOTAL ASSETS...........................................  $1,222,327  $1,345,931
                                                         ==========  ==========

         LIABILITIES AND STOCKHOLDERS' EQUITY
         ------------------------------------

CURRENT LIABILITIES:
  Current portion of long-term obligations.............  $    2,059  $    5,076
  Current portion of capital lease obligations.........       3,191       3,169
  Accounts payable.....................................      83,694      76,851
  Network communications...............................      50,717      92,301
  Accrued salaries and related benefits................      22,119      15,859
  Income taxes payable.................................       7,538      13,727
  Advance billings.....................................      22,168      26,799
  Deferred installation revenues.......................         --        9,861
  Other accrued expenses...............................      12,079      18,823
                                                         ----------  ----------
   Total current liabilities...........................     203,565     262,466
                                                         ----------  ----------
DEFERRED REVENUE AND COMPENSATION......................      29,714      37,215
CAPITAL LEASE OBLIGATIONS..............................      12,058       8,954
LONG-TERM OBLIGATIONS..................................      73,081     108,880
LONG-TERM BANDWIDTH OBLIGATIONS........................      27,393         --
MINORITY INTEREST......................................         465         663

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Class A common stock, $0.01 par value per share:
   400,000 shares authorized; 370,160 and 364,160
   shares issued as of March 31, 2000 and 2001,
   respectively, and 167,403 and 161,403 shares
   outstanding as of March 31, 2000 and 2001,
   respectively; 202,757 shares held in treasury.......      67,167      66,078
  Class B common stock, $0.01 par value per share:
   600,000 shares authorized; 302,778 and 309,309
   shares issued and outstanding as of March 31, 2000
   and 2001, respectively..............................     959,870     985,889
  Treasury stock, at cost, 202,757 shares..............    (121,184)   (121,184)
  Notes receivable from issuance of common stock.......      (8,134)     (8,465)
  Retained earnings (accumulated deficit)..............     (19,741)      7,492
  Accumulated other comprehensive loss.................      (1,927)     (2,057)
                                                         ----------  ----------
   Total stockholders' equity..........................     876,051     927,753
                                                         ----------  ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............  $1,222,327  $1,345,931
                                                         ==========  ==========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-2
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

     CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
                    (In Thousands, Except per Share Amounts)

<TABLE>
<CAPTION>
                                                         Year Ended March 31,
                                                      -----------------------------
                                                        1999      2000       2001
                                                      --------  ---------  --------
<S>                                                   <C>       <C>        <C>
REVENUES, Net.......................................  $302,997  $ 481,444  $661,945
                                                      --------  ---------  --------

EXPENSES:
  Country representative compensation...............    53,766    151,283   235,438
  Bandwidth and related costs.......................    52,700     90,457   125,438
  Network operations................................    55,041     72,230    79,503
  Selling, general and administrative...............   139,663    196,314   197,879
                                                      --------  ---------  --------
    Total expenses..................................   301,170    510,284   638,258
                                                      --------  ---------  --------
OPERATING INCOME (LOSS).............................     1,827    (28,840)   23,687
                                                      --------  ---------  --------

OTHER INCOME (EXPENSE):
  Interest income...................................     1,881     14,560    43,293
  Interest expense..................................      (689)    (7,162)  (11,892)
  Other, net........................................       382     (1,310)      914
                                                      --------  ---------  --------
    Total other income, net.........................     1,574      6,088    32,315
                                                      --------  ---------  --------

INCOME (LOSS) BEFORE PROVISION (CREDIT) FOR INCOME
 TAXES, MINORITY INTEREST AND EXTRAORDINARY ITEM....     3,401    (22,752)   56,002
PROVISION (CREDIT) FOR INCOME TAXES.................      (180)     3,996    28,043
                                                      --------  ---------  --------

INCOME (LOSS) BEFORE MINORITY INTEREST AND
 EXTRAORDINARY ITEM.................................     3,581    (26,748)   27,959
MINORITY INTEREST...................................       132        (43)      224
                                                      --------  ---------  --------

INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.............     3,449    (26,705)   27,735
EXTRAORDINARY ITEM (Net of income taxes of $363)....       --         --        502
                                                      --------  ---------  --------

NET INCOME (LOSS)...................................     3,449    (26,705)   27,233
                                                      --------  ---------  --------

OTHER COMPREHENSIVE INCOME (LOSS):
  Foreign currency translation adjustments..........      (241)      (573)   (3,099)
  Unrealized gains (losses) on securities, net of
   tax..............................................        16        (36)    2,969
  Minimum pension liability adjustment, net of tax..      (138)       138       --
                                                      --------  ---------  --------
    Total other comprehensive loss, net.............      (363)      (471)     (130)
                                                      --------  ---------  --------

COMPREHENSIVE INCOME (LOSS).........................  $  3,086  $ (27,176) $ 27,103
                                                      ========  =========  ========

BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE..  $   0.01  $   (0.06) $   0.06
                                                      ========  =========  ========

BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES
 OUTSTANDING........................................   373,750    417,197   470,712
                                                      ========  =========  ========
DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES
 OUTSTANDING........................................   373,750    417,197   472,599
                                                      ========  =========  ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                   YEARS ENDED MARCH 31, 1999, 2000 AND 2001
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                       Notes
                                                                     Receivable    Retained    Accumulated
                             Common Stock        Treasury Stock         From       Earnings       Other
                          -------------------  -------------------  Issuance of  (Accumulated Comprehensive
                          Shares     Amount     Shares    Amount    Common Stock   Deficit)   Income (Loss)  Total
                          -------  ----------  --------  ---------  ------------ ------------ ------------- --------
<S>                       <C>      <C>         <C>       <C>        <C>          <C>          <C>           <C>
BALANCE, APRIL 1, 1998..  576,507     191,893  (202,757)  (121,184)       --         4,515        (1,093)     74,131
 Net income.............      --          --        --         --         --         3,449           --        3,449
 Dividends paid.........      --          --        --         --         --          (500)          --         (500)
 Foreign currency
  translation
  adjustments...........      --          --        --         --         --           --           (241)       (241)
 Unrealized gains on
  securities............      --          --        --         --         --           --             16          16
 Minimum pension
  liability adjustments,
  net of tax of $92.....      --          --        --         --         --           --           (138)       (138)
                          -------  ----------  --------  ---------    -------      -------       -------    --------
BALANCE, MARCH 31,
 1999...................  576,507     191,893  (202,757)  (121,184)       --         7,464        (1,456)     76,717
 Net loss...............      --          --        --         --         --       (26,705)          --      (26,705)
 Public offering of
  common stock, net of
  issuance costs........   38,462     766,797       --         --         --           --            --      766,797
 Shares issued pursuant
  to outsourcing
  agreements, net of
  issuance costs........   47,840      39,501       --         --         --           --            --       39,501
 Exercise of stock
  options...............      565         475       --         --         --           --            --          475
 Exercise of stock
  purchase rights.......    9,564       7,998       --         --         --           --            --        7,998
 Stock-based
  compensation charge...      --       20,373       --         --         --           --            --       20,373
 Notes receivable from
  issuance of common
  stock.................      --          --        --         --      (8,134)         --            --       (8,134)
 Dividends paid.........      --          --        --         --         --          (500)          --         (500)
 Foreign currency
  translation
  adjustments...........      --          --        --         --         --           --           (573)       (573)
 Unrealized losses on
  securities............      --          --        --         --         --           --            (36)        (36)
 Minimum pension
  liability adjustments,
  net of tax of $92.....      --          --        --         --         --           --            138         138
                          -------  ----------  --------  ---------    -------      -------       -------    --------
BALANCE, MARCH 31,
 2000...................  672,938   1,027,037  (202,757)  (121,184)    (8,134)     (19,741)       (1,927)    876,051
 Net income.............      --          --        --         --         --        27,233           --       27,233
 Exercise of stock
  options...............      547         460       --         --         --           --            --          460
 Stock-based
  compensation charge...      --       16,400       --         --         --           --            --       16,400
 Conversion of SARs
  plan..................      --        7,775       --         --         --           --            --        7,775
 Repayment of notes
  receivable from
  Issuance of common
  stock.................      --          --        --         --          70          --            --           70
 Stock options
  rescinded.............     (108)        (84)      --         --         --           --            --          (84)
 Employee stock purchase
  plan..................       92         379       --         --         --           --            --          379
 Accrued interest on
  notes receivable......      --          --        --         --        (401)         --            --         (401)
 Foreign currency
  translation
  adjustments...........      --          --        --         --         --           --         (3,099)     (3,099)
 Unrealized gains on
  securities net of tax
  of $1,917.............      --          --        --         --         --           --          2,969       2,969
                          -------  ----------  --------  ---------    -------      -------       -------    --------
BALANCE, MARCH 31,
 2001...................  673,469  $1,051,967  (202,757) $(121,184)   $(8,465)     $ 7,492       $(2,057)   $927,753
                          =======  ==========  ========  =========    =======      =======       =======    ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                    Year Ended March 31,
                                                ------------------------------
                                                  1999      2000       2001
                                                --------  ---------  ---------
<S>                                             <C>       <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)............................ $  3,449  $ (26,705) $  27,233
  Adjustments to reconcile net income (loss) to
   net cash provided by operating activities:
    Depreciation and amortization..............   18,785     27,521     51,654
    Amortization of debt acquisition costs.....      --         551      1,645
    Loss on sale of subsidiary.................      --         --         480
    Extraordinary item.........................      --         --         502
    Stock based compensation charge............      --      33,377     11,112
    Loss (gain) on sale of property, equipment
     and communication lines...................     (283)      (194)        48
    Deferred income taxes......................   (7,539)    (5,910)     3,507
    Minority interest..........................      132        (43)       198
    Discount amortization on marketable
     securities................................      --         --      (1,731)
    Realized gain on marketable securities.....      --         --        (296)
  Changes in assets and liabilities, net of
   business sold:
    Accounts receivable, net...................  (10,974)   (81,500)   (40,403)
    Prepaid expenses...........................   (2,409)      (172)    (5,068)
    Other current assets.......................     (419)       298     (1,348)
    Accounts payable...........................    5,725     65,487     (4,224)
    Network communications.....................   (1,227)     9,500     11,248
    Accrued salaries and related benefits......      644      2,035      3,254
    Income taxes payable.......................    3,099     (2,786)     5,799
    Advance billings...........................    1,978      8,169      4,631
    Deferred installation costs................      --         --         977
    Other accrued expenses.....................     (731)     1,582      3,636
    Deferred income and compensation...........    3,609      7,417      2,340
    Purchases of trading securities............   (7,628)   (30,497)   (26,399)
    Proceeds from sale of trading securities...    5,957     19,447     23,732
    Other operating activities.................     (257)    (1,957)      (786)
                                                --------  ---------  ---------
      Net cash provided by operating
       activities..............................   11,911     25,620     71,741
                                                --------  ---------  ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property, equipment and
   communication lines.........................  (27,033)  (100,141)  (256,842)
  Proceeds from sale of property, equipment and
   communication lines.........................      902         61         90
  Proceeds from sale of subsidiary, net of cash
   given.......................................      --         --         716
  Net acquisition cost of minority interest in
   subsidiary..................................      --         --     (11,682)
  Purchases of securities available-for-sale...  (11,115)   (60,769)  (803,906)
  Proceeds from sale of securities available-
   for-sale....................................    9,922      7,702    253,117
  Maturities of securities available-for-sale..   11,546      2,420    152,526
  Purchases of held-to-maturity securities.....   (4,435)    (3,420)       --
  Maturity of held-to-maturity securities......    2,205     10,281         14
  Other investing activities...................   (2,671)    (1,825)    (3,936)
                                                --------  ---------  ---------
      Net cash used in investing activities....  (20,679)  (145,691)  (669,903)
                                                --------  ---------  ---------
</TABLE>

                                      F-5
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                      Year Ended March 31,
                                                    --------------------------
                                                     1999     2000      2001
                                                    ------  --------  --------
<S>                                                 <C>     <C>       <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of long-term obligations.. 16,000   110,000   117,000
  Payments on long-term obligations................ (7,085)  (69,290)  (78,184)
  Payment of capital lease obligations............. (2,587)   (2,543)   (3,126)
  Payment on long term bandwidth obligations.......    --        --    (27,000)
  Net proceeds from issuance of common stock.......    --    806,814       754
  Repayment of notes receivable from issuance of
   common stock....................................    --        165        70
  Debt issuance cost...............................    --     (5,046)      --
  Dividends paid...................................   (500)     (487)      --
                                                    ------  --------  --------
      Net cash provided by financing activities....  5,828   839,613     9,514
                                                    ------  --------  --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH............    172      (542)   (1,434)
                                                    ------  --------  --------
NET INCREASE (DECREASE) IN CASH AND CASH
 EQUIVALENTS....................................... (2,768)  719,000  (590,082)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR....... 11,449     8,681   727,681
                                                    ------  --------  --------
CASH AND CASH EQUIVALENTS, END OF YEAR............. $8,681  $727,681  $137,599
                                                    ======  ========  ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the year for:
    Income taxes................................... $4,913  $ 12,794  $ 21,351
    Interest....................................... $  698  $  7,146  $ 11,481

SUPPLEMENTAL NONCASH INVESTING AND FINANCING
 ACTIVITIES:
  Acquisitions of equipment through capital
   leases.......................................... $7,443  $ 10,870  $    --
  Acquisitions of communication lines accrued but
   not paid........................................ $  --   $ 37,105  $ 29,554
  Acquisitions of equipment accrued but not paid... $  --   $    --   $  1,601
</TABLE>

   During June 1999, the Company acquired a right of use of capacity in a
fiberoptic submarine cable system for a total commitment of $45.0 million. Of
the total commitment, $18.0 million was settled in cash in June 1999.

   During the year ended March 31, 2000 the Company issued shares of Class C
common stock for notes receivable amounting to approximately $8.0 million.

   In March, 2000, the Company acquired land and a building for its
headquarters facilities for approximately $33.1 million. Of this amount,
approximately $25.5 million was financed with a mortgage loan.

   During April 2000, the Company amended its 1998 Stock Appreciation Rights
Plan ("SARs") resulting in a new measurement date. The Company consequently
reduced the SAR's liability and credited stock-related compensation by
approximately $5.3 million to reflect the stock price at the new measurement
date. The amended SARs Plan provides that the SAR may be settled with stock or
cash at the sole discretion of the Company. In accordance with Financial
Accounting Standards Board Interpretation No. 28 "Accounting for Stock
Appreciation Rights and Other Variable Stock Options or Award Plans" and
Financial Accounting Standards Board Interpretation No. 44 "Accounting for
Certain Transactions Involving Stock Compensation," the Company is accounting
for the tandem awards as equity instruments and the plan, as amended, as a
fixed plan under the provisions of APB Opinion No. 25 "Accounting for Stock
Issued to Employees." Consequently, the Company reclassified the approximately
$7.7 million of remaining SARs liability to class B common stock.

   In connection with the adoption of Staff Accounting Bulletin No.101,
"Revenue Recognition in Financial Statements" the Company recorded deferred
installation fee revenues of $22.4 million as of April 1, 2000 and an equal
amount of incremental and direct set up costs.

          See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   YEARS ENDED MARCH 31, 1999, 2000 AND 2001

l. GENERAL INFORMATION

   Description of Business--Infonet Services Corporation ("Infonet" or the
"Company") provides cross-border managed data communications services to
multinational corporations worldwide. Infonet's largest stockholders include
six of the world's major telecommunication companies. Infonet provides services
directly through country representatives and indirectly through major
international telecommunications carriers and value-added resellers.

   Initial Public Offering--In December 1999, the Company completed its initial
public offering (the "Offering" or "IPO") of 51,282,300 shares of its Class B
common stock at an offering price of $21.00 per share. Of these shares,
12,820,700 Class B shares were sold by six stockholders, and the Company sold
38,461,600 Class B shares. The 12,820,700 shares of Class B common stock sold
consisted of 10,513,000 existing Class B shares and a conversion of 2,307,700
Class A shares to Class B shares. Net proceeds to the Company from the
Offering, after deduction of associated expenses, were approximately $766.8
million.

   Fiscal Year--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 52-week periods ended April 2, 1999, March 31, 2000 and March
30, 2001 as the years ended March 31, 1999, 2000 and 2001, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Principles of Consolidation--All majority-owned subsidiaries and
subsidiaries where the Company exercises economic control are included in the
consolidated financial statements. All significant intercompany accounts and
transactions have been eliminated. The Company's investments in 20% to 50%
owned companies in which it has the ability to exercise significant influence
over operating and financial policies of the investee are accounted for using
the equity method.

   Use of Estimates--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and 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. As with any estimates,
actual results could differ from those estimates.

   Cash and Cash Equivalents--The Company considers all highly liquid
instruments purchased with a maturity of three months or less to be cash
equivalents.

   Fair Value of Financial Instruments--The carrying amounts of cash
equivalents, accounts receivable, and accounts payable approximate fair value
because of the short-term maturities of these instruments. The carrying amount
of available-for-sale securities classified as short-term investments and
trading securities classified as other assets reflects their fair value since
these securities are marked to market. Long-term debt obligations approximate
fair value because related interest rates approximate market rates. The fair
value of the interest rate swaps (see Note 8) at March 31, 2000, and 2001 was
approximately $9,000 and approximately ($894,000), respectively.

   Concentrations of Credit Risk--The Company's financial instruments that are
exposed to concentration of credit risk consist primarily of its cash
equivalents, available-for-sale investments, and accounts receivable. The
Company restricts investments in cash equivalents and available-for-sale
investments to financial institutions with high credit standing. Credit risk on
accounts receivable is minimized as a result of the large and diverse nature of
the Company's worldwide customer base. The Company performs ongoing credit
evaluations of its customers' financial condition and maintains allowances for
potential credit losses.


                                      F-7
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   Revenue Recognition--The Company records 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 l to 3 years.
Installation fee revenues are amortized over the average customer 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
revenue when earned. An allowance for customer credits is accrued concurrently
with the recognition of revenue.

   Depreciation and Amortization--The cost of property, equipment and
communication lines, less applicable estimated residual values, is depreciated
over their estimated useful lives, on the straight-line method, from the date
the specific asset is complete, installed, and ready for normal use, as
follows:

<TABLE>
   <S>                                  <C>
   Communication, computer and related
    equipment.......................... 3 to 5 years
   Communication lines................. Shorter of lease term or 15 years
   Buildings........................... 40 years
   Leasehold improvements.............. Shorter of lease term or useful lives
   Furniture and other equipment....... 5 to l0 years
</TABLE>

   Investments in Securities--Short-term investments are classified as
available-for-sale with unrealized gains and losses reported as a separate
component of accumulated other comprehensive income (loss). Cost and realized
gains and losses from the sale of these investments are based on the specific
identification method.

   Securities held in a trust pursuant to the Company's SERP (see Note 10) are
classified as held-to-maturity due to the fact that the Company has the
positive intent and ability to hold the securities to maturity. These
securities are stated at amortized cost, and are included in other assets.

   Securities held in a trust pursuant to the Company's IDIP (see Note 12) are
accounted for as trading securities due to the fact that the securities in this
trust are invested in accordance with the participants' direction. These
securities are recorded in other assets. Both realized and unrealized gains and
losses are included in other income.

   Goodwill and Other Intangible Assets--Goodwill arising from the acquisition
of businesses is amortized on a straight-line basis over a period of 20 years.
Intangible assets include customer base and trademarks, which are amortized
over 10 years on a straight-line basis and purchased technology, which is being
amortized over 5 years on a straight line basis.

   Impairment of Long-Lived Assets--The Company evaluates long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may no longer be recoverable. If the estimated
future cash flows (undiscounted and without interest charges) from the use of
an asset are less than the carrying value, a write-down would be recorded to
reduce the related asset to its estimated fair value. For purposes of
estimating future cash flows from possibly impaired assets, the Company groups
assets at the lowest level for which there are identifiable cash flows that are
largely independent of the cash flows of other groups of assets.

   Advertising Costs--Advertising costs are expensed as incurred and totaled
approximately $2.9 million, $5.0 million, and $5.7 million for the years ended
March 31, 1999, 2000 and 2001, respectively.

   Income Taxes--Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and income tax bases
of assets and liabilities. Such deferred income tax asset and liability
computations are based on enacted tax laws and rates applicable to periods in
which the differences are expected to reverse. If necessary, a valuation
allowance is established to reduce deferred income tax assets to the amount
expected to be realized. U.S. income taxes have not been provided for the
undistributed

                                      F-8
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

earnings of the Company's foreign subsidiaries, since such earnings are
intended to be permanently reinvested in the operations of those subsidiaries.
At March 31, 2001, the cumulative undistributed earnings of the Company's
foreign subsidiaries was approximately $29,925,000 and unrecognized deferred
taxes were not material.

   Foreign Currency Translation--For the Company's foreign operations, the
balance sheet accounts are translated at the year-end exchange rate, and income
statement items are translated at the average exchange rate for the year.
Resulting translation adjustments are recorded as a separate component of
accumulated other comprehensive income (loss). Assets and liabilities
denominated in foreign currencies are remeasured at the balance sheet date.
Resulting exchange rate gains or losses are included as a component of current
period earnings. Exchange gains and losses are not material in amount in any
period.

   New Accounting Pronouncements--During the fourth quarter of fiscal 2001, the
Company implemented Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements", ("SAB 101"). As applied to the Company's operations, SAB
101 requires certain installation fee revenues to be amortized over the life of
the related services rather than be recognized immediately. SAB 101 Topic
13.A.3, " Accounting for certain costs of revenues" refers to contract
acquisition and origination costs and indicates that certain incremental and
direct set-up costs may be deferred and accounted for by analogy to SFAS No.
91, "Accounting for Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases", and FASB Technical
Bulletin No. 90-1, "Accounting for Separately Priced Extended Warranty and
Product Maintenance Contracts." Consequently, the Company has limited deferrals
of incremental and direct set-up costs which are related to the installation
fee revenues to the lesser of the costs incurred or the revenue deferred.
Deferred revenues and costs are being amortized over the average expected
customer contract life of 4 years.

   As required by SAB 101, during the fourth quarter of fiscal 2001, the
Company retroactively adopted this accounting effective April 1, 2000, which
resulted in an equal deferral of revenues and incremental and direct set-up
costs of $22.4 million. There was no effect on net income. The pro forma effect
of adopting SAB 101 on periods prior to April 1, 2000 was not material to the
Company's consolidated financial position or results of operations.

   Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," is effective for all fiscal
years beginning after June 15, 2000. SFAS No.133, as amended, establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. Under SFAS No.133, certain contracts that were not formerly
considered derivatives may now meet the definition of a derivative. SFAS 133,
requires that all instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income (loss), depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. The Company adopted SFAS No.133 effective April 1, 2001.
The adoption of SFAS No. 133 will not have a significant impact on the
Company's consolidated financial position or result of operations.

   Reclassifications--Certain reclassifications have been made to the prior
year financial statements to conform to the current year presentation.


                                      F-9
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

3. INVESTMENTS IN SECURITIES

   The following is a summary of the available-for-sale securities classified
as current assets (in thousands).

<TABLE>
<CAPTION>
                                                             Amortized   Fair
                                                               Cost     Value
                                                             --------- --------
   <S>                                                       <C>       <C>
   As of March 31, 2000:
     U.S. government securities............................  $ 41,915  $ 41,899
     Corporate debt instruments............................    16,922    16,908
                                                             --------  --------
                                                             $ 58,837  $ 58,807
                                                             ========  ========
</TABLE>

<TABLE>
   <S>                                                        <C>      <C>
   As of March 31, 2001:
     U.S. government securities.............................. $237,517 $240,920
     Corporate debt instruments..............................  221,534  223,115
                                                              -------- --------
                                                              $459,051 $464,035
                                                              ======== ========
</TABLE>

   The estimated fair value of available-for-sale securities by contractual
maturity at March 31, 2001 is as follows (in thousands):

<TABLE>
   <S>                                                                 <C>
   Due within one year................................................ $179,215
   Due after one year through five years..............................  248,107
   Due after five years through ten years.............................    1,389
   Due after ten years................................................   35,324
                                                                       --------
                                                                       $464,035
                                                                       ========
</TABLE>

   Proceeds from the sale and maturities of available-for-sale securities
amounted to approximately $21.5 million, $10.1 million and $405.6 million for
the years ended March 31, 1999, 2000 and 2001, respectively. Gross unrealized
and realized gains and losses on available-for-sale securities were not
material during fiscal 1999 or 2000. Gross unrealized gains on available for
sale securities were approximately $4.9 million for the year ended March 31,
2001. Realized gains and losses for available-for-sale securities were
approximately $700,000 and $404,000, respectively, during fiscal 2001.

   The following is a summary of the held-to-maturity securities classified as
other assets (in thousands).

<TABLE>
<CAPTION>
                                                              Amortized   Fair
                                                                Cost     Value
                                                              --------- --------
   <S>                                                        <C>       <C>
   As of March 31, 2000:
     Other debt securities..................................  $     24  $     24
                                                              --------  --------
                                                              $     24  $     24
                                                              ========  ========
   As of March 31, 2001:
     Other debt securities..................................  $     11  $     11
                                                              --------  --------
                                                              $     11  $     11
                                                              ========  ========
</TABLE>

   Gross unrealized gains and losses on held-to-maturity securities were not
material in each of the three years in the period ended March 31, 2001. At
March 31, 2001, maturities on held-to-maturity debt securities are overnight.


                                      F-10
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   The net unrealized holding gains on trading securities amounted to
approximately $96,000 and $589,000 for the years ended March 31, 1999 and 2000
respectively. The net unrealized holding losses on trading securities amounted
to approximately $3.8 million for the year ended March 31, 2001.

4. INCOME TAXES

   The provision (credit) for income taxes is summarized as follows (in
thousands):

<TABLE>
<CAPTION>
                                                       Year Ended March 31,
                                                     --------------------------
                                                      1999      2000     2001
                                                     -------  --------  -------
   <S>                                               <C>      <C>       <C>
   Current:
     Federal........................................ $ 3,729  $  3,934  $17,007
     State..........................................   1,078     1,310    3,861
     Foreign........................................   2,552     4,662    4,699
                                                     -------  --------  -------
                                                       7,359     9,906   25,567
                                                     -------  --------  -------
   Deferred:
     Federal........................................  (6,023)   (4,224)   1,995
     State..........................................  (1,516)     (794)     561
     Foreign........................................     --       (892)     (80)
                                                     -------  --------  -------
                                                      (7,539)   (5,910)   2,476
                                                     -------  --------  -------
                                                     $  (180) $  3,996  $28,043
                                                     =======  ========  =======
</TABLE>

   The components of income (loss) before provision (credit) for income taxes,
minority interest and extraordinary item are (in thousands):

<TABLE>
<CAPTION>
                                                        Year Ended March 31,
                                                      --------------------------
                                                       1999      2000     2001
                                                      -------  --------  -------
   <S>                                                <C>      <C>       <C>
   Domestic.......................................... $(4,537) $(32,475) $44,110
   Foreign...........................................   7,938     9,723   11,892
                                                      -------  --------  -------
                                                      $ 3,401  $(22,752) $56,002
                                                      =======  ========  =======
</TABLE>

                                      F-11
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   The following table reconciles the difference between the U.S. federal
statutory tax rate and the rates used by the Company in the determination of
net income (loss) (in thousands):

<TABLE>
<CAPTION>
                                                     Year Ended March 31,
                                                    ------------------------
                                                     1999    2000     2001
                                                    ------  -------  -------
   <S>                                              <C>     <C>      <C>
   Provision (credit) for income taxes, at 34% for
    1999 and 2000 and at 35% for 2001.............. $1,156  $(7,736) $19,601
   State taxes, net of federal effect..............   (289)     340    2,875
   Difference in U.S. federal and foreign tax
    rates, net.....................................    282      464      163
   Valuation allowance............................. (1,617)   3,923    1,335
   Non-deductible expense items....................    233    6,646    4,983
   Other...........................................     55      359     (914)
                                                    ------  -------  -------
                                                    $ (180) $ 3,996  $28,043
                                                    ======  =======  =======
</TABLE>

   The principal components of deferred tax assets and (liabilities) are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                     Year Ended March 31,
                                                   -------------------------
                                                     1999    2000     2001
                                                   -------- -------  -------
   <S>                                             <C>      <C>      <C>
   Differences between book and tax basis of
    property...................................... $  6,155 $ 2,999  $(2,426)
   Compensation and benefit accruals..............    5,933  13,940   14,563
   Billings in excess of revenues.................    3,953   4,383    4,759
   Net operating loss carryforwards...............      --    3,923    5,269
   Other..........................................      389   1,018    1,147
                                                   -------- -------  -------
                                                     16,430  26,263   23,312
   Valuation allowance............................      --   (3,923)     --
                                                   -------- -------  -------
                                                   $ 16,430 $22,340  $23,312
                                                   ======== =======  =======
</TABLE>

   Deferred tax assets for the years ending March 31, 2000 and 2001 include tax
benefits resulting from the net operating loss carryforward ("NOL") of a
subsidiary of the Company. In fiscal year 2000 the tax benefit was offset by a
valuation allowance established because ownership of the subsidiary was below
that needed for inclusion in a consolidated tax filing and, absent group
income, realization of the tax asset was in doubt. In fiscal year 2001 the
Company acquired additional ownership, enabling it to include the subsidiary in
its consolidated tax filing and use the NOL over time against group taxable
income. The valuation allowance was credited to the cost of the acquired
subsidiary's stock.

   During the year ended March 31, 2001 the Company filed a request for
determination with the Internal Revenue Service ("IRS') regarding the propriety
of establishment of an intangible asset, for tax purposes only, arising in
connection with the September 1999 transactions in which the Company obtained
access to the customers of AUCS Communication Services N.V. A favorable
determination from the IRS could result in establishment of a deferred tax
asset that could be material. As there is no assurance that the IRS will
determine in the Company's favor, no deferred tax asset (nor its consequent
increase to stockholders' equity) has yet been recorded in the Company's
financial statements.

   Though realization of the Company's deferred tax assets is not assured,
management believes that it is more likely than not that all deferred tax
assets at March 31, 2001 will be realized. If, however, estimates of future
taxable income were to materially decline, the carrying value of those deferred
tax assets could be reduced.

                                      F-12
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5. COMMITMENTS AND CONTINGENCIES

   Leases--Minimum fixed payments required for the next five years and
thereafter under capital and operating leases in effect at March 31, 2001 are
as follows (in thousands):

<TABLE>
<CAPTION>
                                                              Operating Leases
                                                     Capital  -----------------
                                                     Leases    Real
                                                    Equipment Estate  Equipment
                                                    --------- ------- ---------
   <S>                                              <C>       <C>     <C>
   2002............................................    3,946    3,849   3,731
   2003............................................    3,391    3,202   2,808
   2004............................................    2,592    2,960     395
   2005............................................    1,722    2,495     140
   2006............................................    1,722    1,265       3
   Thereafter......................................    1,292    4,082     --
                                                     -------  -------  ------
                                                      14,665  $17,853  $7,077
                                                              =======  ======
   Imputed interest................................   (2,542)
                                                     -------
   Present value of net minimum lease payments.....  $12,123
                                                     =======
</TABLE>

   Rental expense under noncancelable operating leases for the use of real
estate and equipment amounted to approximately $8,886,000, $13,006,000 and
$8,415,000 in 1999, 2000 and 2001, respectively.

   Capital leases pertain to amounts due under leases for the use of furniture
and communications and related equipment. The net book value of the related
assets included in property, equipment and communication lines was
approximately $14,562,000 and $12,895,000 at March 31, 2000 and 2001,
respectively.

   The Company leases certain communication lines and related bandwidth for its
backbone network under short-term arrangements which are cancelable by either
party.

   At March 31, 2001, the Company is also committed under contracts which
resulted from the acquisition of bandwidth for periods of up to fifteen years.
Total future payments required under these contracts will total $68.1 million
in fiscal year 2002.

   Commitments--Included in other assets is $2.0 million of cash pledged to
collateralize a loan made by a third party to a former officer of the Company.

   Contingencies--During 2001, the Company acquired bandwidth for approximately
$9.0 million from a network service provider, which, subsequent to March 31,
2001 filed voluntary petitions for chapter 11 protection with the United States
Bankruptcy Court and made analogous filings in the United Kingdom. Information
available to the Company currently indicates that it is more likely than not
that the network service provider will continue to perform under the original
terms of the agreement. As such, the Company is of the opinion that the
carrying value of the related asset is not impaired. The Company will continue
to monitor the situation and will record an impairment charge whenever events
or changes in circumstances indicate that the carrying value of the asset is no
longer recoverable.

   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 financial statements.

                                      F-13
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6. PROPERTY, EQUIPMENT AND COMMUNICATION LINES

   Property, equipment and communication lines recorded at cost consist of the
following (in thousands):

<TABLE>
<CAPTION>
                                                                  March 31,
                                                              -----------------
                                                                2000     2001
                                                              -------- --------
   <S>                                                        <C>      <C>
   Communication, computer and related equipment............. $160,461 $225,987
   Communication lines.......................................  112,786  326,733
   Land, buildings and leasehold improvements................   48,041   50,804
   Furniture and other equipment.............................   17,347   16,714
                                                              -------- --------
                                                               338,635  620,238
   Less accumulated depreciation and amortization............  112,073  156,066
                                                              -------- --------
   Net property, equipment and communication lines........... $226,562 $464,172
                                                              ======== ========
</TABLE>

7. OTHER ASSETS

   Other assets consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                   March 31,
                                                                ---------------
                                                                 2000    2001
                                                                ------- -------
   <S>                                                          <C>     <C>
   SERP minimum pension liability (see Note 10)................ $ 1,924 $ 1,911
   SERP assets (see Note 10)...................................      24      11
   IDIP assets (see Note 12)...................................  21,217  19,595
   Deferred income taxes.......................................  16,329  16,520
   Unamortized debt issuance costs.............................   4,495   2,850
   Deferred installation costs.................................     --   13,089
   Unconsolidated investments in affiliates....................   1,088   3,988
   Employees loan receivable and interest......................     --    2,421
   Other.......................................................   6,517   3,761
                                                                ------- -------
                                                                $51,594 $64,146
                                                                ======= =======
</TABLE>

   On December 8, 2000, the Company loaned, on a collateralized and interest-
bearing basis, an aggregate of $2.4 million to several current and former
employees who are not corporate officers of the Company (the "Notes"). The
Notes are payable on demand. Interest is based on 3-month LIBOR plus .75%
(7.35% at March 31, 2001) as determined at the as defined Rate Determination
Date. Interest is due and payable in arrears on July 1, 2001 and on each six
month anniversary thereafter until the Notes are paid in full.

8. LONG-TERM OBLIGATIONS

   On August 17, 1999, the Company entered into a credit agreement with a
syndicate of lenders which provided credit facilities to the Company in an
aggregate amount of $250.0 million (the "Senior Secured Credit Facility"). The
Senior Secured Credit Facility consists of two term loan borrowing facilities,
in the amount of $100.0 million (the "Delayed Draw Term Loan") and $50.0
million (the "Tranche B Term Loan"), respectively, and a revolving credit
borrowing facility in the amount of $100.0 million (the "Revolving Credit
Facility").

   The Tranche B Term Loan bears interest, at the Company's option, at the Base
Rate, as defined below, plus 1.75% or the eurodollar rate plus 2.75%, and
matures in 28 consecutive unequal quarterly installments,

                                      F-14
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

which commenced on September 30, 1999. The Delayed Draw Term Loan was
accessible until August 20, 2000, bears interest at the Company's option at the
Base Rate, as defined below, plus 1.50% or the eurodollar rate plus 2.50%
(8.94% at March 31, 2001), and matures in 20 consecutive unequal quarterly
installments commencing on September 30, 2001. The Revolving Credit Facility
bears interest, at the Company's option, at the Base Rate, as defined below,
plus .50% to 1.50% or the eurodollar rate plus 1.50% to 2.50% which margins
vary based on the Company's leverage ratio and matures on August 17, 2005.
These margins were .50% for Base Rate Loans and 1.50% for eurodollar rate loans
at March 31, 2001. The Base Rate is defined as the greatest of the Prime Rate,
the Base CD Rate plus 1.00% and the Federal Funds Effective Rate plus .50% in
effect on a given day. The Company is required to enter into hedge agreements
to provide that at least 50% of the outstanding term loans are subject to
either a fixed interest rate or interest rate protection for a period
acceptable to the administrative agent.

   The loans under the Senior Secured Credit Facility are secured by
substantially all of the domestic tangible assets and all intangible assets of
the Company and its domestic subsidiaries, excluding certain specific assets
identified in the credit agreement. The Senior Secured Credit Facility contains
certain affirmative and negative covenants which include restrictions on
certain transactions of the Company. The Company was in compliance with all
such covenants at March 31, 2001. The Senior Secured Credit Facility also
provides for letters of credit to be available to the Company. Furthermore, the
credit agreement requires the Company to pay commitment fees of between .50%
and 1.00% per year, calculated quarterly, on the average daily amount of
available credit, dependent on the amount of the aggregate principal amounts
outstanding under the Senior Secured Credit Facility. These commitment fees are
payable quarterly in arrears.

   Outstanding indebtedness under the Tranche B Term Loan totaled approximately
$49.6 million at March 31, 2000 and was repaid in April 2000. Borrowings of
$10.0 million were made against the Delayed Draw Term Loan during the year
ended March 31, 2000 and were repaid incident to receipt of proceeds over a
predetermined amount from the IPO. Maximum borrowings available under the
Senior Secured Credit Facility were reduced as a result of the repayment of
borrowings against the Tranche B Term loan and the Delayed Draw Term Loan and
totaled $190.0 million at March 31, 2001. At March 31, 2001 the Company had
$90.0 million outstanding under the Delayed Draw Term Loan.

   On March 28, 2000, the Company entered into a mortgage agreement with a bank
to provide financing for the purchase of the Company's headquarters facility.
The mortgage provided financing of approximately $25.5 million over a 15-year
period at the bank's eurodollar rate plus 1.75% or at the bank's reference rate
less .50% (7.50% at March 31, 2001) at the Company's option. The mortgage is
secured by the subject property. At March 31, 2001 the Company had $23.9
million outstanding under the mortgage agreement.

   Maturities of long-term debt for the next five years are as follows (in
thousands):

<TABLE>
     <S>                                                               <C>
     Fiscal Year:
       2002........................................................... $  5,076
       2003...........................................................    9,951
       2004...........................................................   33,701
       2005...........................................................   18,701
       2006...........................................................   31,076
       Thereafter.....................................................   15,451
                                                                       --------
     Total............................................................  113,956
     Less current portion.............................................   (5,076)
                                                                       --------
                                                                       $108,880
                                                                       ========
</TABLE>



                                      F-15
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   During fiscal years 2000 and 2001, the Company entered into interest rate
swaps, for an aggregate notional amount of $74.0 million, as required under the
terms of the Senior Secured Credit Facility and to minimize financing costs
associated with indebtedness. The following table sets forth the notional
amount, weighted average pay rate, weighted average receive rate, weighted
average maturity, range of maturities and the fair value of the interest rate
swaps (dollars in thousands):

<TABLE>
<CAPTION>
                                   Weighted   Weighted   Weighted
                          Notional average    average     average   Range of  Fair
                           amount  pay rate receive rate maturity  maturities value
                          -------- -------- ------------ --------- ---------- -----
<S>                       <C>      <C>      <C>          <C>       <C>        <C>
Swaps hedging the Senior
 Secured
 Credit Facility........  $50,000    6.81%      6.44%    1.5 years 1-2 years  $(582)
Swap hedging mortgage
 indebtedness...........  $24,000    7.59%      7.50%     14 years  14 years  $(312)
</TABLE>

9. LONG-TERM BANDWIDTH OBLIGATIONS

   During the year ended March 31, 2000, the Company entered into agreements
for long-term rights of use of capacity in various cable systems. The remaining
installment payment under one of these agreements of approximately $27.4
million was paid during fiscal year 2001.

10. EMPLOYEE BENEFIT PLANS

   Pensions--The Infonet Pension Plan (the "Plan") is a contributory defined
benefit pension plan in which substantially all domestic employees are eligible
to participate. The benefits for the Plan are based on years of participation
and the employee's compensation over the entire period of participation in the
Plan. In addition, the Company has a Supplemental Executive Retirement Plan
(the "SERP"), which is a nonqualified, noncontributory pension plan. The SERP
is a defined benefit retirement plan for designated key officers and executives
and provides for benefits based on years of service, age of participant, and
the participant's average compensation during his or her final period of
employment under the SERP.

                                      F-16
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets over the two years ended December
31, 1999 and 2000, and a statement of the funded status as of the plans' year
ends of December 31, 1999 and 2000 which are included in the Company's 2000 and
2001 financial statements, respectively. (dollars in thousands):

<TABLE>
<CAPTION>
                                                                  Other
                                                Pension       Postretirement
                                               Benefits          Benefits
                                            ----------------  ---------------
                                             2000     2001     2000    2001
                                            -------  -------  ------- -------
<S>                                         <C>      <C>      <C>     <C>
Change in benefit obligation
Benefit obligation at beginning of year.... $24,817   17,515  $  555      535
Service cost...............................   1,160      957     --         5
Interest cost..............................   1,338    1,306      36       61
Plan participants' contributions...........     643      789     --       --
Actuarial gain.............................  (4,213)    (202)    (28)     (16)
Benefits paid..............................    (479)    (646)    (28)     (42)
Amendment..................................     --       --      --       539
Settlements................................  (5,751)    (380)    --       --
                                            -------  -------  ------  -------
Benefits obligation at end of year.........  17,515   19,339     535    1,082
                                            -------  -------  ------  -------
Change in plan assets
Fair value of plan assets at beginning of
 year......................................  14,118   17,360     --       --
Actual return on plan assets...............   3,078     (213)    --       --
Plan participants' contributions...........     643      789     --     3,669
Benefits paid..............................    (479)    (645)    --    (3,669)
                                            -------  -------  ------  -------
Fair value of plan assets at end of year...  17,360   17,291     --       --
                                            -------  -------  ------  -------
Funded status..............................    (155)  (2,048)   (535)  (1,082)
Unrecognized net actuarial gain............  (3,989)  (2,138)   (809)    (772)
Unrecognized prior service cost............   2,558    2,087     961    1,425
                                            -------  -------  ------  -------
Net amount recognized...................... $(1,586) $(2,099) $ (383) $  (429)
                                            =======  =======  ======  =======
Amounts recognized in the consolidated
 balance sheets consist of:
Prepaid benefit cost....................... $   483  $   --   $  --   $   --
Accrued benefit liability..................  (3,993)  (4,012)   (535)  (1,082)
Intangible asset...........................   1,924    1,913     152      653
                                            -------  -------  ------  -------
Net amount recognized...................... $(1,586) $(2,099) $ (383) $  (429)
                                            =======  =======  ======  =======
Weighted-average assumptions as of
 year-end:
Discount rate..............................    7.75%    7.50%   7.75%    7.50%
Expected return on plan assets.............    9.00%    9.00%    N/A      N/A
Rate of compensation increase..............    4.43%    5.43%    N/A      N/A
</TABLE>

   The rate of compensation increase shown is for the qualified pension plan.
For the nonqualified pension plan, compensation is assumed to increase at a 4%
annual rate.

   For measurement purposes, an 8% annual rate of increase in the per capita
cost of covered health care benefits was assumed in 2001. The rate was assumed
to decrease gradually to 5% for 2004 and remain at that level thereafter.

                                      F-17
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   Net periodic benefit cost for pension plans include the following components
(in thousands):

<TABLE>
<CAPTION>
                                                                        Other
                                                                    Postretirement
                                            Pension Benefits           Benefits
                                         -------------------------  ----------------
                                          1999     2000     2001    1999  2000  2001
                                         -------  -------  -------  ----  ----  ----
   <S>                                   <C>      <C>      <C>      <C>   <C>   <C>
   Service cost........................  $ 1,007  $ 1,160  $   956  $--   $--   $  5
   Interest cost.......................    1,398    1,338    1,306    40    36    61
   Expected return on plan assets......   (1,108)  (1,267)  (1,573)  --    --    --
   Amortization of prior service cost..      478      478      470    64    64    75
   Recognized actuarial (gain) loss....      103      185     (267)  (54)  (55)  (53)
                                         -------  -------  -------  ----  ----  ----
   Net periodic benefit cost...........  $ 1,878  $ 1,894  $   892  $ 50  $ 45  $ 88
                                         =======  =======  =======  ====  ====  ====
</TABLE>

   The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $10,077, $7,251, and $0, respectively as of March
31, 1999, $3,053, $1,441, and $0, respectively as of March 31, 2000 and $2,287,
$1,890, and $0, respectively, as of March 31, 2001 (all figures are in
thousands).

   Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage-point change in
assumed health care cost trend rates would have the following effects (in
thousands):

<TABLE>
<CAPTION>
                                                      1% Increase 1% Decrease
                                                      ----------- -----------
   <S>                                                <C>         <C>
   Effect on total service and interest cost
    components.......................................     $ 6        $ (6)
   Effect on postretirement benefit obligation.......     $67        $(68)
</TABLE>

   At March 31, 2000 and 2001, the Company earmarked a total of approximately
$24,000 and approximately $11,000, respectively, and placed this amount in a
rabbi trust to satisfy future SERP liabilities. These assets are accounted for
as "held-to-maturity" and included in other assets in the accompanying
consolidated financial statements. During the year ended March 31, 2000,
proceeds from the securities in the rabbi trust were used to satisfy the SERP
settlements for designated officers. During the year ended March 31, 2000, the
Company's SERP incurred a settlement of approximately $7.8 million of the
vested benefit obligation due to a transfer of assets by plan participants from
the SERP into the IDIP. The Company recorded a settlement loss of approximately
$2.3 million as a result of this settlement.

   Employees outside the United States are generally enrolled in pension plans
in the country of domicile. These plans are not considered to be significant
individually or in the aggregate to the Company's financial statements. The
pension liabilities and their related costs are computed in accordance with the
laws of the individual countries and appropriate actuarial practices.

11. STOCKHOLDERS' EQUITY

   On September 30, 1999, the Company entered into agreements with three of its
stockholders (the "Stockholders") and affiliates of the Stockholders which,
among other things, gave the Company access to additional multinational
corporate clients of the Stockholders. In exchange for the right to market the
Company's services to clients of the Stockholders and $40.0 million in cash,
the Company issued 47.84 million shares of Class B common stock to the
Stockholders. The shares issued were recorded at $40.0 million, which
represents the cash received by the Company. Staff Accounting Bulletin 48,
"Transfer of Nonmonetary Assets by Promoters or Shareholders," requires that
transfers of nonmonetary assets to a company by stockholders in

                                      F-18
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

exchange for stock prior to or at the time of the Company's IPO be recorded at
the transferor's historical cost basis. Accordingly, the right to market the
Company's services to the customers of the Stockholders was valued at the
Stockholders' basis of $0.

   Contemporaneous with the Company's IPO, approximately 2.3 million shares of
the Class A common stock held by a stockholder were converted into an equal
number of shares of Class B common stock. During January 2000, the Company's
underwriters elected to exercise the right to purchase additional shares to
cover over-allotments and approximately 1.3 million shares of Class A common
stock held by a stockholder were converted into an equal number of shares of
Class B common stock. This resulted in a total conversion of Class A common
stock to Class B common stock of approximately 3.6 million shares.

   Class A shares and Class B shares vote together as a single class with the
Class A shares entitled to ten votes, and the Class B shares entitled to one
vote. Class A and Class B shares are entitled to receive dividends on an equal
basis other than a dividend of capital stock. The Restated Certificate of
Incorporation prohibits the Company and Board of Directors from issuing any
further shares of Class C common stock.

12. STOCK INCENTIVE AND DEFERRED COMPENSATION PLANS

   During 1999, the Company's Board of Directors adopted the 1998 Employee
Stock Purchase Plan (the "Purchase Plan"), the 1998 Stock Appreciation Rights
Plan (the "SARs Plan"), the 1998 Stock Option Plan (the "1998 Option Plan") and
the 1999 Stock Option Plan (the "1999 Option Plan"). The Company has elected to
account for stock-based compensation resulting from stock options issued to
employees in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No.
123, "Accounting for Stock-Based Compensation," encourages a fair value-based
method of accounting for stock-based compensation resulting from stock options
issued to employees. As permitted by SFAS No. 123, the Company adopted its
disclosure-only requirements.

   Under the 1998 Option Plan, the Company was authorized to issue options to
purchase up to 8.97 million shares of its Class C common stock. Options issued
under the 1998 plan vest ratably over a four or five year period beginning one
year from the date of the grant. All options must be exercised within ten years
from the date of original grant. The 1998 Option Plan was a book value plan
whereby participants were granted options to purchase shares of the Company's
stock at book value at the date of grant, as calculated in accordance with the
1998 Option Plan. The 1998 Option Plan provided that book value is determined
using a formula based on a multiple of the Company's consolidated revenue. The
1998 Option Plan also provided that the Company had a call right to repurchase
the shares from stockholders under the 1998 Option Plan who leave the Company's
employ, or on or after March 15, 2003, provided that the stock was not publicly
traded. The stockholders under the 1998 Option Plan also had a right to put
shares purchased under the 1998 Option Plan to the Company, which then had to
repurchase the shares at their book value as of that date, provided that the
stock was not publicly traded. The 1998 Option Plan was converted to a market
value plan, and the Class C common stock was converted to Class B common stock
on December 16, 1999, the date of the Company's Offering. In accordance with
APB Opinion No. 25 "Accounting for Stock Issued to Employees" and Emerging
Issues Task Force Issue No. 88-6, "Book Value Stock Plans in an Initial Public
Offering" the Company recorded a charge to compensation expense of $0,
approximately $20.4 million and approximately $13.4 million in fiscal years
1999, 2000 and 2001, respectively. The remaining unrecognized compensation
expense of approximately $37.1 million will be amortized ratably over the
remaining vesting period at a rate of approximately $3.4 million per quarter
through December 31, 2003.

   Under the Purchase Plan, the Company was authorized to issue up to 17.94
million shares of its Class C common stock to 35 participants designated by the
Committee which administers the Purchase Plan. The Purchase Plan was a book
value plan whereby participants could purchase shares of the Company's stock at

                                      F-19
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

book value at the date of grant, as calculated in accordance with the Purchase
Plan. The Purchase Plan provided that book value is determined using a formula
based on a multiple of the Company's consolidated revenue. The Purchase Plan
also provided that the Company had a call right to repurchase the shares from
stockholders under the Purchase Plan who left the Company's employ, or on or
after March 15, 2003, provided that the stock was not publicly traded. The
stockholders under the Purchase Plan also had a right to put shares purchased
under the Purchase Plan to the Company, which then had to repurchase the shares
at their book value as of that date, provided that the stock was not publicly
traded. During 1999, the Company granted purchase rights with respect to
approximately 9.62 million shares at $0.84 per share. Also during 1999,
approximately 9.56 million of the approximately 9.62 million rights granted
under the Purchase Plan were exercised by employees and the remaining rights
expired unexercised. Of the total shares issued, approximately 9.52 million
shares were purchased with full recourse notes in the amount of approximately
$7,956,000, by the employees to the Company, and approximately 48,000 shares
issued were purchased with cash. The approximately 9.56 million shares of Class
C common stock issued pursuant to the exercise of purchase rights were
converted into an equal number of shares of Class B common stock on December
16, 1999, the date of the Company's IPO, in accordance with the provisions of
the Purchase Plan.

   Pursuant to the Company's SARs Plan, the maximum number of SARs that could
be offered was approximately 1.50 million and the termination date was October
20, 2004 or earlier if certain conditions of the SARs Plan had been fully met.
During 1999, the Company amended the SARs Plan by eliminating the limit on the
maximum number of SARs that could be offered and the termination date of
October 20, 2004. Prior to the Company's IPO on December 16, 1999, the SARs
were indexed to the Company's Class C common stock. Subsequent to the Company's
IPO, these SARs are indexed to the Company's Class B common stock in accordance
with the provisions of the SARs Plan. The SARs vest at 25% per year over four
years with the first quartile vesting on January 1, 2001. During the years
ended March 31, 1999 and 2000, the Company granted approximately 1.21 million
SARs and approximately 561,000 SARs, respectively, at a base price of $0.84 per
share. As of March 31, 2000, approximately 77,000 SARs of the total of
approximately 1.77 million SARs granted were forfeited. In accordance with
Financial Accounting Standards Board Interpretation No. 28, "Accounting for
Stock Appreciation Rights and Other Variable Stock Option or Award Plans," and
Financial Accounting Standard Board Interpretation No.44, "Accounting for
Certain Transactions Involving Stock Compensation" the Company recorded a
charge to compensation expense of $0 and approximately $13.0 million in fiscal
years 1999 and 2000, respectively. On April 25, 2000 the Company amended the
SARs Plan to provide for a tandem feature which allows for the settlement of
the SARs with shares of Class B common stock as an alternative to a cash
settlement. The amended SARs Plan provides that the SAR may be settled with
stock or cash at the sole discretion of the Company. In accordance with
Financial Accounting Standards Board Interpretation No.28 "Accounting for Stock
Appreciation Rights and Other Variable Stock Options or Award Plans" and
Financial Accounting Standards Board Interpretation No. 44 "Accounting for
Certain Transactions Involving Stock Compensation," the Company is accounting
for the tandem award as equity instruments and the plan, as amended, as a fixed
plan under the provisions of APB Opinion No. 25 "Accounting for Stock Issued to
Employees." The amendment to the SARs plan created a new measurement date. The
Company credited stock-related compensation by approximately $5.3 million to
reflect the stock price at the new measurement date. The remaining unrecognized
compensation expense of approximately $8.5 million at the date of the amendment
will be amortized ratably over the remaining vesting period at a rate of
approximately $770,000 per quarter through December 31, 2003.

   Under the 1999 Option Plan, the Company is authorized to issue up to a
maximum of approximately 10.6 million shares of its Class B common stock to
executives and other employees and directors of, and consultants to, the
Company and its affiliates. Options issued under this plan generally vest
ratably over periods from three to five years and expire on November 22, 2009
or earlier if certain conditions of the 1999 Option Plan have been fully met.


                                      F-20
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   On April 18, 2000 the Company's board of directors adopted the 2000 Omnibus
Stock Plan (the "Omnibus Plan"), which authorizes the Company to grant or issue
options, restricted stock and performance awards, dividend equivalents,
deferred stock and stock payments up to a total of 6,000,000 shares (which
number has received board approval to be increased to 10,000,000 shares,
subject to stockholder approval). Options issued under the Omnibus Plan vest as
determined by the Company's Compensation Committee at the time of grant and
typically must be exercised within 10 years from the date of grant.

   The Company's board of directors also adopted on April 18, 2000 the 2000
Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") which is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code of 1986, as amended. The maximum number of shares
which may be issued under the Employee Stock Purchase Plan is 2,000,000.

   The following summarizes stock option activity (shares in thousands):

<TABLE>
<CAPTION>
                                                                        Weighted
                                                                        Average
                                                                        Exercise
                                                                Shares   Price
                                                                ------  --------
   <S>                                                          <C>     <C>
   Outstanding at March 31, 1999...............................    --    $  --
   Granted..................................................... 14,173    16.89
   Exercised...................................................   (566)    0.84
   Cancelled...................................................   (215)    0.84
                                                                ------   ------
   Outstanding at March 31, 2000............................... 13,392   $17.82
   Granted..................................................... 11,828     7.03
   Exercised...................................................   (547)     .84
   Cancelled...................................................   (588)    6.40
   Rescinded...................................................    108      .84
                                                                ------   ------
   Outstanding at March 31, 2001............................... 24,193   $13.13
                                                                ======   ======
</TABLE>

   The following summarizes stock options outstanding and exercisable as of
March 31, 2001 (shares in thousands):

<TABLE>
<CAPTION>
                                        Options Outstanding                      Options Exercisable
                         --------------------------------------------------- ----------------------------
                           Number       Weighted average    Weighted average   Number    Weighted average
Range of Exercise Price  outstanding Remaining life (years)  exercise price  exercisable  exercise price
-----------------------  ----------- ---------------------  ---------------- ----------- ----------------
<S>                      <C>         <C>                    <C>              <C>         <C>
     $0.84                  3,834             6.4                $ 0.84           756         $ 0.84
  $5.15-6.00                7,238             9.7                $ 5.77           --             --
 $13.50-17.81               2,656             9.2                $13.75            55         $13.75
 $21.00-$25.20             10,465             8.7                $22.58         2,141         $22.58
 -------------             ------             ---                ------         -----         ------
 $0.84-$25.20              24,193             8.7                $13.13         2,952         $16.85
 =============             ======             ===                ======         =====         ======
</TABLE>

                                      F-21
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   The Company used the Black-Scholes option pricing model to determine the
fair value of grants made in fiscal 2000 and 2001. The following assumptions
were applied in determining the pro forma compensation costs:

<TABLE>
<CAPTION>
                                                                  Year Ended
                                                                 December 31,
                                                                 --------------
                                                                  2000    2001
                                                                 ------  ------
   <S>                                                           <C>     <C>
   Weighted average risk-free rate of return, annual............   5.88%   5.77%
   Expected option life, in years...............................    6.0     4.1
   Expected volatility..........................................     50%     85%
   Expected dividend yield......................................    --      --
   Fair value of options:
     Granted at market price.................................... $ 7.53  $ 4.81
     Granted at prices exceeding market......................... $11.93  $ 8.45
     Granted at prices less than market......................... $  --   $12.88
</TABLE>

   The following table represents pro forma net income (loss) and pro forma
earnings (loss) per share had the Company elected to account for stock-based
compensation in the fiscal year ended March 31, 2000 and 2001 in accordance
with SFAS No. 123 (in thousands, except per share amounts).

<TABLE>
<CAPTION>
                                                                 March 31,
                                                              -----------------
                                                                2000     2001
                                                              --------  -------
   <S>                                                        <C>       <C>
   Net income (loss):
     As reported............................................. $(26,705) $27,233
     Pro forma............................................... $(32,117) $ 3,549
   Earnings (loss) per share:
     As reported............................................. $  (0.06) $  0.06
     Pro forma............................................... $  (0.08) $  0.01
</TABLE>

   During December 2000, the Company and two of its officers rescinded the
exercise of approximately 108,000 incentive stock options exercised by those
officers earlier in the year. In connection with the rescission, the Company
recorded a charge to earnings of approximately $6,000 which represented the
excess of the sum of (i) the cash refund of the exercise price to the officers
and (ii) the intrinsic value of the options issued at the date of the
rescission over the fair value of the shares exchanged by the officers.

   The Company has a nonqualified deferred income plan (the "IDIP") for
employees earning over a prescribed amount. Participants may defer receipt of
compensation, which is held by the Company in trust and is invested in
accordance with the participants' directions. As of March 31, 1999, 2000 and
2001 the trust assets held by the Company aggregated approximately $9.8
million, $21.2 million and $19.6 million respectively; the vested portion of
trust assets aggregated approximately $8.5 million, $21.2 million and
$19.6 million respectively. These assets are accounted for as trading
securities and included in other assets in the accompanying financial
statements.

   In 1995, the Company created an agreement with the participants of the
Infonet Phantom Stock Option Plan (the "Phantom Stock Plan") whereby the
participants could elect either a cash or deferral option for the vested value
of grants under the Phantom Stock Plan at the end of 1994, effectively
terminating the Phantom Stock Plan. Participants who elected the deferral
option were eligible to receive additional amounts through 1999, based on the
Company's achieving revenue and profit goals and the individuals' continued
employment. The related expense in 1999 was $830,000. Participants had an
option to have their annual vested portion contributed to their individual
account as part of the IDIP.


                                      F-22
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

13. RELATED-PARTY TRANSACTIONS

   Related parties consist of non-consolidated country representative
organizations in which the Company holds less than a fifty percent ownership
interest, country representative organizations owned directly or indirectly by
the Company's stockholders, and the Company's stockholders and affiliates of
the Company's stockholders.

   Related party transactions for the years ended March 31 comprise the
following (in thousands):

<TABLE>
<CAPTION>
                                                       1999     2000     2001
                                                      ------- -------- --------
   <S>                                                <C>     <C>      <C>
   Revenues, net..................................... $88,278 $194,740 $294,696
   Country representative compensation...............  40,031  131,234  218,942
   Bandwidth and related costs.......................   9,002   17,543   17,990
   Selling, general and administrative...............   9,181   10,608   14,097
</TABLE>

   Approximately $70.2 million of unamortized cost for bandwidth capacity
acquisitions from related parties will be expensed in future periods in
accordance with the Company's accounting policies. Accumulated amortization as
of March 31, 2001 is approximately $6 million.

   Related party balances as of March 31 comprise the following (in thousands):

<TABLE>
<CAPTION>
                                                                 2000    2001
                                                                ------- -------
   <S>                                                          <C>     <C>
   Accounts receivable......................................... $60,214 $51,205
   Accounts payable............................................  58,986  50,579
   Network communications......................................  23,584  15,363
</TABLE>

   As part of the agreements entered into with related parties of the Company
on September 30, 1999 (see Note 11), the Company also entered into a three-year
management agreement (the "Management Agreement") with a related party. Under
the terms of the Management Agreement, the Company earns a management fee equal
to 1.5% of the consolidated revenues of the related party up to a defined
aggregate maximum, over the term of the agreement. During 2001, the Company
recognized management fee revenue of $3.7 million related to this agreement.
Also under the terms of the Management Agreement, the Company may earn an
incentive payment, based on defined financial performance criteria (the
"Performance Criteria"), subject to certain limits. However, if the Performance
Criteria are not achieved, the Company will not receive the incentive payment.
The Company also entered into an agreement which gives the Company a call
option until September 2002, to purchase any and all of the tangible assets of
the related party at fair value, not to exceed $130 million.

14. ACQUISITIONS AND DIVESTITURES

   In June 2000, the Company sold its interest in Infonet Software Solutions
Inc. for $1.5 million in cash, resulting in a loss of $480,000.

   In August 2000, the Company paid $12 million in cash to acquire the
remaining 51 percent in its subsidiary Networks Telephony Corporation ("NTC").
This acquisition increased the Company's ownership in NTC to 100 percent. The
excess of the purchase price of the stock over the fair value of the additional
interest obtained in NTC's tangible net assets was $7.8 million and was
allocated to purchased technology. Had the acquisition occured as of April 1,
1999 pro forma consolidated revenues, net income (loss) and net income (loss)
per share would not have been materially different than the amounts reported
for any period.

   In September 1999, the Company committed to a plan to dispose of its
subsidiary, ESG Communications Inc. ("ESG"). ESG was formed as a wholly owned
subsidiary of the Company in March 1998 to sell

                                      F-23
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

telecommunications services over international bypass routes. Since formation,
ESG had established seven routes. However, substantially increased competition
and other market factors decreased the prices which ESG could charge its
customers to less than half of those anticipated by the Company at the time of
formation of ESG. These decreased prices and less than anticipated volumes
resulted in current and forecasted negative cash flows from the operation of
each of ESG's routes. Management's plans to dispose of ESG called for the sale
or abandonment of those routes. All of ESG's routes were shut down and
abandoned as of March 31, 2000.

   In connection with its decision to dispose of ESG, the Company recorded a
total charge of $4.0 million. This charge was comprised of $3.6 million related
to the impairment of communication equipment, of which approximately $1.2
million related to routes abandoned before September 30, 1999, and $400,000
related to remaining payments, after operations ceased, under communication
line leases which had no alternative use to the Company. All such lease
payments were made in cash before September 2000. The $3.6 million impairment
charge and the $400,000 charge for lease payments are included in network
operations, and bandwidth and related costs, respectively, in the accompanying
consolidated statement of operations for the year ended March 31, 2000. The
impairment charge was determined to be equal to the carrying value of the
equipment, as the discounted estimated future cash flows from each of the
routes were negative. The proceeds from the sale of the equipment were not
material. Revenues and losses from operations of ESG were $270,000 and
$1.4 million, respectively, for the year ended March 31, 1999, and $1.7 million
and $7.2 million, respectively, for the year ended March 31, 2000.

15. EXTRAORDINARY ITEM

   In April 2000, the Company recorded an extraordinary item totaling $502,000,
net of tax of $363,000 as a result of the write-off of unamortized debt
issuance costs associated with the repayment of $49.6 million of the Company's
outstanding debt in April 2000.

16. EARNINGS (LOSS) PER SHARE

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

   At March 31, 1999 and 2000, the only forms of potential common stock were
purchase rights and stock options, respectively. At March 31, 2001, the only
forms of potential common stock were purchase rights and stock options. The
inclusion of potential common stock as of March 31, 1999 and 2000 had an anti-
dilutive effect on earnings per share. As of March 31, 2001, the dilutive
effect of the purchase rights and stock options resulted in diluted weighted
average number of common shares of 472.6 million shares. Options to purchase
approximately 17.8 million shares of common stock were outstanding at March 31,
2001, but were not included in the computation of diluted earnings per share
because to do so would have been antidilutive.

17. 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
customers with a complete global networking solution.

   The Company has organized its operating segments around differences in
distribution channels used to deliver its services to customers. 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. The Company's
management evaluates performance based on operating

                                      F-24
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.

   Summarized financial information concerning the Company's reportable
segments is shown in the following table (in thousands).
<TABLE>
<CAPTION>
                                                  Year Ended March 31,
                                             --------------------------------
                                               1999       2000        2001
                                             --------  ----------  ----------
<S>                                          <C>       <C>         <C>
Reportable segments:
Revenues from external customers:
  Direct.................................... $273,150  $  357,494  $  405,201
  Alternate.................................   29,847     123,950     256,744
                                             --------  ----------  ----------
    Totals.................................. $302,997  $  481,444  $  661,945
                                             ========  ==========  ==========
Operating contribution:
  Direct.................................... $ 97,350  $  115,928  $  156,664
  Alternate.................................   16,975      43,086      96,662
                                             --------  ----------  ----------
    Totals.................................. $114,325  $  159,014  $  253,326
                                             ========  ==========  ==========
Depreciation and amortization:
  Direct ................................... $  5,163  $    6,760  $    7,886
  Alternate.................................       36           8          15
                                             --------  ----------  ----------
    Totals.................................. $  5,199  $    6,768  $    7,901
                                             ========  ==========  ==========

<CAPTION>
                                                       March 31,
                                             --------------------------------
                                               1999       2000        2001
                                             --------  ----------  ----------
<S>                                          <C>       <C>         <C>
Total assets:
  Direct.................................... $ 63,459  $   85,363  $   91,946
  Alternate.................................    8,683      63,804     100,525
                                             --------  ----------  ----------
    Totals.................................. $ 72,142  $  149,167  $  192,471
                                             ========  ==========  ==========

<CAPTION>
                                                  Year Ended March 31,
                                             --------------------------------
                                               1999       2000        2001
                                             --------  ----------  ----------
<S>                                          <C>       <C>         <C>
Reconciliation:
Operating contribution from reportable
 segments................................... $114,325  $  159,014  $  253,326
Core network, overhead and other non-
 allocable costs............................ (110,924)   (181,766)   (197,324)
                                             --------  ----------  ----------
Income (loss) before income taxes and
 minority interest.......................... $  3,401  $  (22,752) $   56,002
                                             ========  ==========  ==========

<CAPTION>
                                                       March 31,
                                             --------------------------------
                                               1999       2000        2001
                                             --------  ----------  ----------
<S>                                          <C>       <C>         <C>
Total assets of reportable segments......... $ 72,142  $  149,167  $  192,471
Core network, corporate and other non-
 allocable assets...........................  110,121   1,073,160   1,153,460
                                             --------  ----------  ----------
Total assets................................ $182,263  $1,222,327  $1,345,931
                                             ========  ==========  ==========
</TABLE>

                                      F-25
<PAGE>

                 INFONET SERVICES CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


<TABLE>
<CAPTION>
                                                       Year Ended March 31,
                                                    --------------------------
                                                      1999     2000     2001
                                                    -------- -------- --------
<S>                                                 <C>      <C>      <C>
Geographic Information:
Revenues from external customers based upon the
 country in which invoices are produced are as
 follows:
  United States.................................... $103,190 $126,358 $134,774
  Netherlands......................................   34,944   61,497  105,191
  United Kingdom...................................   19,682   53,885   80,088
  Sweden...........................................   13,859   39,743   63,657
  Germany..........................................   23,438   30,962   45,559
  Switzerland......................................   12,071   29,133   40,992
  France...........................................   13,183   27,148   39,180
  Other............................................   82,630  112,718  152,504
                                                    -------- -------- --------
                                                    $302,997 $481,444 $661,945
                                                    ======== ======== ========

<CAPTION>
                                                            March 31,
                                                    --------------------------
                                                      1999     2000     2001
                                                    -------- -------- --------
<S>                                                 <C>      <C>      <C>
Long-lived assets:
  United States.................................... $ 44,529 $218,545 $456,107
  United Kingdom...................................    2,862    3,172    2,919
  Other............................................    5,015    4,845    5,146
                                                    -------- -------- --------
                                                    $ 52,406 $226,562 $464,172
                                                    ======== ======== ========

<CAPTION>
                                                       Year Ended March 31,
                                                    --------------------------
                                                      1999     2000     2001
                                                    -------- -------- --------
<S>                                                 <C>      <C>      <C>
Services Information:
Revenues from external customers:
  Network services................................. $144,642 $217,006 $283,248
  Consulting, integration and provisioning
   services........................................   78,777  116,534  179,932
  Applications services............................   20,068   15,286   10,540
  Other communications services....................   59,510  132,618  188,225
                                                    -------- -------- --------
                                                    $302,997 $481,444 $661,945
                                                    ======== ======== ========
</TABLE>

                                      F-26
<PAGE>

                                   SIGNATURES

   Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of El Segundo, State of California, on the 25th day of June, 2001.

                                          INFONET SERVICES CORPORATION

                                                  /s/  Jose A. Collazo
                                          By: _________________________________
                                                      Jose A. Collazo
                                               President and Chairman of the
                                                     Board of Directors

   Pursuant to the requirements of the Exchange Act, this Report has been
signed by the following persons on June 25, 2001, in the capacities indicated:.

<TABLE>
<CAPTION>
             Signature                           Title
             ---------                           -----


<S>                                  <C>
      /s/ Jose A. Collazo            President and Chairman of
____________________________________  the Board of Directors
          Jose A. Collazo


      /s/ Akbar H. Firdosy           Chief Financial Officer
____________________________________  (Principal Financial and
          Akbar H. Firdosy            Accounting Officer)


         /s/ Makoto Arai             Director
____________________________________
            Makoto Arai


      /s/ Douglas Campbell           Director
____________________________________
          Douglas Campbell


       /s/ Eric M. DeJong            Director
____________________________________
           Eric M. DeJong


       /s/ Morgan Ekberg             Director
____________________________________
           Morgan Ekberg


     /s/ Timothy P. Hartman          Director
____________________________________
         Timothy P. Hartman


        /s/ Heinz Karrer             Director
____________________________________
            Heinz Karrer


    /s/ Matthew J. O'Rourke          Director
____________________________________
        Matthew J. O'Rourke


      /s/ Rafael Sagrario            Director
____________________________________
          Rafael Sagrario
</TABLE>

                                      F-27
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
  Number  Description
  ------  -----------
 <C>      <S>
  3.1     Restated Certificate of Incorporation #

  3.2     Amended and Restated Bylaws #

  9.1     Form of Amended and Restated Stockholders Agreement to be in effect
          upon the closing of this offering #

 10.1     1998 Stock Option Plan #

 10.2     1998 Stock Purchase Plan #

 10.3     1999 Stock Option Plan #

 10.4     Infonet Deferred Income Plan #

 10.5     1998 Stock Appreciation Rights Plan #

 10.6     Supplemental Executive Retirement Plan #

 10.7     Senior Secured Credit Agreement, dated as of August 17, 1999#, as
          amended by Amendment No. 1 filed as Exhibit 10.1 with the Company's
          Form 10-Q for the period ended June 30, 2000 and Amendment No. 2
          filed as Exhibit 10.7(a) with the Company's Form 10-Q for the period
          ended September 30, 2000

 10.8     Employment Agreement of Jose A. Collazo #

 10.10    Standard Infonet Services Agreement #

 10.11    Capacity Right of Use Agreement with FLAG Limited dated as of June
          25, 1999 #

 10.12    AUCS Services Agreement, dated as of September 30, 1999 #

 10.13    AUCS Call Option Deed, dated as of September 30, 1999 #

 10.14    AUCS Management Agreement, dated as of September 30, 1999 #, as
          amended by the Deed of Amendment attached hereto

 10.15    AUCS Assignment Agreement, dated as of September 30, 1999 #

 10.16    Lease for Grand Avenue Corporate Center at 2160 Grand Avenue, El
          Segundo, California #

 10.17    Employment Agreement of Mr. Akbar Firdosy #

 10.18    Infonet Services Corporation 2000 Omnibus Stock Plan*

 10.18(a) Amendment to the Infonet Services Corporation 2000 Omnibus Stock
          Plan, filed with the Company's Form 10-Q for the period ended
          December 31, 2001

 10.19    Infonet Services Corporation 2000 Employee Stock Purchase Plan*

 10.20    Employment Agreement of Paul A. Galleberg, filed with the Company's
          Form 10-Q for the period ended December 31, 2001

 10.21    Consulting Agreement of Ernest U. Gambaro, filed with the Company's
          Form 10-Q for the period ended December 31, 2001

 10.22    Secured Demand Promissory Note between Michael J. Timmins and Janice
          Timmins JTWROS, a trust, and Infonet Services Corporation

 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

 21.1     Consolidated Subsidiaries as of March 31, 2001

 23.1     Consent of Deloitte & Touche LLP
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
 Number Description
 ------ -----------
 <C>    <S>
 99.1   Schedule II--Valuation and Qualifying Accounts
</TABLE>
--------
#  Incorporated by reference to the corresponding exhibit number from the
   Registrant's Registration Statement on Form S-1 filed with the Commission on
   December 15, 1999.

*  Incorporated by reference to Appendices A and B, respectively, of Infonet
   Services Corporation's definitive proxy statement filed with the Commission
   on July 27, 2000.