UNITED
STATES
|
SECURITIES
AND EXCHANGE COMMISSION
|
WASHINGTON,
DC 20549
|
FORM
10-Q
|
(Mark
One)
|
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended June 30, 2009
|
|
OR
|
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from _______ to ______
|
|
Commission
File Number: 000-27265
|
|
INTERNAP
NETWORK SERVICES CORPORATION
(Exact
Name of Registrant as Specified in Its
Charter)
|
DELAWARE
|
91-2145721
|
(State
or Other Jurisdiction of
|
(I.R.S.
Employer
|
Incorporation
or Organization)
|
Identification
No.)
|
250
Williams Street
Atlanta,
Georgia 30303
(Address
of Principal Executive Offices, Including Zip Code)
|
|
(404)
302-9700
(Registrant’s
Telephone Number, Including Area Code)
|
|
(Check
one):
|
|||
Large
accelerated filer
|
o
|
Accelerated
filer
|
x
|
Non-accelerated
filer
|
o
|
Smaller
reporting company
|
o
|
(Do
not check if a smaller reporting company)
|
Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes o No x
|
As
of July 31, 2009, 50,724,988 shares of the registrant’s outstanding common
stock, $0.001 par value per share, were
outstanding.
|
Pages
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29
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30
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Three
Months Ended
June
30,
|
Six
Months Ended
June
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenues:
|
||||||||||||||||
Internet
protocol (IP) services
|
$ | 32,099 | $ | 34,636 | $ | 64,308 | $ | 70,320 | ||||||||
Data
center services
|
32,273 | 27,689 | 63,988 | 54,058 | ||||||||||||
Total
revenues
|
64,372 | 62,325 | 128,296 | 124,378 | ||||||||||||
Operating
costs and expenses:
|
||||||||||||||||
Direct
costs of network, sales and services, exclusive of depreciation and
amortization shown below:
|
||||||||||||||||
IP
services
|
12,414 | 13,146 | 24,797 | 26,186 | ||||||||||||
Data
center services
|
24,165 | 20,338 | 47,446 | 38,661 | ||||||||||||
Direct
costs of customer support
|
4,438 | 4,203 | 8,841 | 8,568 | ||||||||||||
Direct
costs of amortization of acquired technologies
|
5,233 | 1,229 | 6,391 | 2,458 | ||||||||||||
Sales
and marketing
|
6,947 | 7,711 | 14,746 | 16,540 | ||||||||||||
General
and administrative
|
10,940 | 13,572 | 24,440 | 23,850 | ||||||||||||
Depreciation
and amortization
|
6,704 | 5,699 | 13,582 | 11,080 | ||||||||||||
Goodwill
impairment and restructuring
|
53,735 | — | 54,605 | — | ||||||||||||
Total
operating costs and expenses
|
124,576 | 65,898 | 194,848 | 127,343 | ||||||||||||
Loss
from operations
|
(60,204 | ) | (3,573 | ) | (66,552 | ) | (2,965 | ) | ||||||||
Non-operating
(income) expense
|
(16 | ) | (305 | ) | 131 | (615 | ) | |||||||||
Loss
before income taxes and equity in loss (earnings) of equity method
investment
|
(60,188 | ) | (3,268 | ) | (66,683 | ) | (2,350 | ) | ||||||||
Provision
for income taxes
|
438 | 46 | 482 | 297 | ||||||||||||
Equity
in loss (earnings) of equity-method investment, net of
taxes
|
19 | (77 | ) | 88 | (149 | ) | ||||||||||
Net
loss
|
$ | (60,645 | ) | $ | (3,237 | ) | $ | (67,253 | ) | $ | (2,498 | ) | ||||
Net
loss per share:
|
||||||||||||||||
Basic
and diluted
|
$ | (1.22 | ) | $ | (0.07 | ) | $ | (1.36 | ) | $ | (0.05 | ) |
June
30,
2009
|
December
31,
2008
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 54,514 | $ | 46,870 | ||||
Short-term
investments in marketable securities
|
— | 7,199 | ||||||
Accounts
receivable, net of allowance for doubtful accounts of $2,823 and $2,777,
respectively
|
24,026 | 28,634 | ||||||
Inventory
|
429 | 381 | ||||||
Prepaid
expenses and other assets
|
9,426 | 10,866 | ||||||
Deferred
tax asset, current portion, net
|
— | 1 | ||||||
Total
current assets
|
88,395 | 93,951 | ||||||
Property
and equipment, net of accumulated depreciation of $197,520 and $185,895,
respectively
|
94,301 | 97,350 | ||||||
Investments
and other related assets, of which $7,145 and $7,027, respectively, are
measured at fair value
|
8,684 | 8,650 | ||||||
Intangible
assets, net of accumulated amortization of $34,095 and $30,351,
respectively
|
26,064 | 33,942 | ||||||
Goodwill
|
39,464 | 90,977 | ||||||
Deposits
and other assets
|
3,025 | 2,763 | ||||||
Deferred
tax asset, non-current, net
|
2,857 | 2,450 | ||||||
Total
assets
|
$ | 262,790 | $ | 330,083 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 13,441 | $ | 19,642 | ||||
Accrued
liabilities
|
8,616 | 8,756 | ||||||
Deferred
revenues, current portion
|
4,186 | 3,710 | ||||||
Capital
lease obligations, current portion
|
80 | 274 | ||||||
Restructuring
liability, current portion
|
2,991 | 2,800 | ||||||
Other
current liabilities
|
121 | 116 | ||||||
Total
current liabilities
|
29,435 | 35,298 | ||||||
Revolving
line of credit, due after one year
|
20,000 | 20,000 | ||||||
Deferred
revenues, less current portion
|
2,625 | 2,248 | ||||||
Capital
lease obligations, less current portion
|
3,226 | 3,244 | ||||||
Restructuring
liability, less current portion
|
7,229 | 6,222 | ||||||
Deferred
rent
|
15,127 | 14,114 | ||||||
Other
long-term liabilities
|
700 | 762 | ||||||
Total
liabilities
|
78,342 | 81,888 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders’
equity:
|
||||||||
Preferred
stock, $0.001 par value, 20,000 shares authorized; no shares issued or
outstanding
|
— | — | ||||||
Common
stock, $0.001 par value; 60,000 shares authorized; 50,853 and 50,224
shares, respectively
|
51 | 50 | ||||||
Additional
paid-in capital
|
1,219,119 | 1,216,267 | ||||||
Treasury
stock, at cost, 31 and 83 shares, respectively
|
(89 | ) | (370 | ) | ||||
Accumulated
deficit
|
(1,034,076 | ) | (966,823 | ) | ||||
Accumulated
other comprehensive loss
|
(557 | ) | (929 | ) | ||||
Total
stockholders’ equity
|
184,448 | 248,195 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 262,790 | $ | 330,083 |
Six
Months Ended
June
30,
|
||||||||
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
loss
|
$ | (67,253 | ) | $ | (2,498 | ) | ||
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
||||||||
Goodwill
and other intangible asset impairments
|
55,647 | — | ||||||
Depreciation
and amortization
|
15,839 | 13,538 | ||||||
Provision
for doubtful accounts
|
1,444 | 3,697 | ||||||
Equity
in loss (earnings) from equity-method investment
|
88 | (149 | ) | |||||
Non-cash
changes in deferred rent
|
1,013 | 2,147 | ||||||
Stock-based
compensation expense
|
3,363 | 4,449 | ||||||
Deferred
income taxes
|
(406 | ) | 298 | |||||
Other,
net
|
264 | (10 | ) | |||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
3,164 | 3,000 | ||||||
Inventory
|
(48 | ) | (353 | ) | ||||
Prepaid
expenses, deposits and other assets
|
1,190 | (1,302 | ) | |||||
Accounts
payable
|
(6,201 | ) | (750 | ) | ||||
Accrued
and other liabilities
|
(140 | ) | (578 | ) | ||||
Deferred
revenue
|
853 | (699 | ) | |||||
Accrued
restructuring liability
|
1,198 | (1,107 | ) | |||||
Net
cash flows provided by operating activities
|
10,015 | 19,683 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Purchases
of property and equipment
|
(9,037 | ) | (19,521 | ) | ||||
Purchases of investments in marketable securities | — | (16,245 | ) | |||||
Maturities
of investments in marketable securities
|
7,206 | 16,295 | ||||||
Change
in restricted cash
|
— | 3,120 | ||||||
Net
cash flows used in investing activities
|
(1,831 | ) | (16,351 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Proceeds
from revolving line of credit, due after one year
|
39,500 | — | ||||||
Principal
payments on revolving line of credit, due after one year
|
(39,500 | ) | — | |||||
Payments
on capital lease obligations
|
(212 | ) | (393 | ) | ||||
Stock-based
compensation plans
|
(307 | ) | 42 | |||||
Other,
net
|
(58 | ) | (42 | ) | ||||
Net
cash flows used in financing activities
|
(577 | ) | (393 | ) | ||||
Effect
of exchange rates on cash and cash equivalents
|
37 | (38 | ) | |||||
Net
increase in cash and cash equivalents
|
7,644 | 2,901 | ||||||
Cash
and cash equivalents at beginning of period
|
46,870 | 52,030 | ||||||
Cash
and cash equivalents at end of period
|
$ | 54,514 | $ | 54,931 |
Common
Stock
|
||||||||||||||||||||||||||||
Shares
|
Par
Value
|
Additional
Paid-In
Capital
|
Treasury
Stock
|
Accumulated
Deficit
|
Accumulated
Other
Comprehensive
Loss
|
Total
Stockholders’
Equity
|
||||||||||||||||||||||
SIX
MONTHS ENDED JUNE 30, 2009:
|
||||||||||||||||||||||||||||
Balance,
December 31, 2008
|
50,224 | $ | 50 | $ | 1,216,267 | $ | (370 | ) | $ | (966,823 | ) | $ | (929 | ) | $ | 248,195 | ||||||||||||
Net
loss
|
— | — | — | — | (67,253 | ) | — | (67,253 | ) | |||||||||||||||||||
Change
in unrealized gains and losses on investments, net of
taxes
|
— | — | — | — | — | 7 | 7 | |||||||||||||||||||||
Foreign
currency translation adjustment
|
— | — | — | — | — | 365 | 365 | |||||||||||||||||||||
Total
comprehensive loss*
|
(66,881 | ) | ||||||||||||||||||||||||||
Stock
compensation plans activity and stock-based compensation
expense
|
629 | 1 | 2,852 | 281 | — | — | 3,134 | |||||||||||||||||||||
Balance,
June 30, 2009
|
50,853 | $ | 51 | $ | 1,219,119 | $ | (89 | ) | $ | (1,034,076 | ) | $ | (557 | ) | $ | 184,448 | ||||||||||||
SIX
MONTHS ENDED JUNE 30, 2008:
|
||||||||||||||||||||||||||||
Balance,
December 31, 2007
|
49,759 | $ | 50 | $ | 1,208,191 | $ | — | $ | (862,010 | ) | $ | 402 | $ | 346,633 | ||||||||||||||
Net
loss
|
— | — | — | — | (2,498 | ) | — | (2,498 | ) | |||||||||||||||||||
Change
in unrealized gains and losses on investments, net of
taxes
|
— | — | — | — | — | (472 | ) | (472 | ) | |||||||||||||||||||
Foreign
currency translation adjustment
|
— | — | — | — | — | 9 | 9 | |||||||||||||||||||||
Total
comprehensive loss*
|
(2,961 | ) | ||||||||||||||||||||||||||
Stock
compensation plans activity and stock-based compensation
expense
|
431 | — | 4,568 | (271 | ) | — | — | 4,297 | ||||||||||||||||||||
Balance,
June 30, 2008
|
50,190 | $ | 50 | $ | 1,212,759 | $ | (271 | ) | $ | (864,508 | ) | $ | (61 | ) | $ | 347,969 |
1.
|
Nature
of Operations and Basis of
Presentation
|
2.
|
Segments
|
IP
Services
|
Data
Center
Services
|
Total
|
||||||||||
Three
Months Ended June 30, 2009:
|
||||||||||||
Revenues
|
$ | 32,099 | $ | 32,273 | $ | 64,372 | ||||||
Direct
costs of network, sales and services, exclusive of depreciation and
amortization, included below
|
12,414 | 24,165 | 36,579 | |||||||||
Segment
gross profit
|
$ | 19,685 | $ | 8,108 | 27,793 | |||||||
Other
operating expenses, including depreciation and
amortization
|
87,997 | |||||||||||
Loss
from operations
|
(60,204 | ) | ||||||||||
Non-operating
income
|
16 | |||||||||||
Loss
before income taxes and equity in loss (earnings) of equity-method
investment
|
$ | (60,188 | ) | |||||||||
Three
Months Ended June 30, 2008:
|
||||||||||||
Revenues
|
$ | 34,636 | $ | 27,689 | $ | 62,325 | ||||||
Direct
costs of network, sales and services, exclusive of depreciation and
amortization, included below
|
13,146 | 20,338 | 33,484 | |||||||||
Segment
gross profit
|
$ | 21,490 | $ | 7,351 | 28,841 | |||||||
Other
operating expenses, including depreciation and
amortization
|
32,414 | |||||||||||
Loss
from operations
|
(3,573 | ) | ||||||||||
Non-operating
income
|
305 | |||||||||||
Loss
before income taxes and equity in loss (earnings) of equity-method
investment
|
$ | (3,268 | ) | |||||||||
Six
Months Ended June 30, 2009:
|
||||||||||||
Revenues
|
$ | 64,308 | $ | 63,988 | $ | 128,296 | ||||||
Direct
costs of network, sales and services, exclusive of depreciation and
amortization, included below
|
24,797 | 47,446 | 72,243 | |||||||||
Segment
gross profit
|
$ | 39,511 | $ | 16,542 | 56,053 | |||||||
Other
operating expenses, including depreciation and
amortization
|
122,605 | |||||||||||
Loss
from operations
|
(66,552 | ) | ||||||||||
Non-operating
(expense)
|
(131 | ) | ||||||||||
Loss
before income taxes and equity in loss (earnings) of equity-method
investment
|
$ | (66,683 | ) | |||||||||
Six
Months Ended June 30, 2008:
|
||||||||||||
Revenues
|
$ | 70,320 | $ | 54,058 | $ | 124,378 | ||||||
Direct
costs of network, sales and services, exclusive of depreciation and
amortization, included below
|
26,186 | 38,661 | 64,847 | |||||||||
Segment
gross profit
|
$ | 44,134 | $ | 15,397 | 59,531 | |||||||
Other
operating expenses, including depreciation and
amortization
|
62,496 | |||||||||||
Loss
from operations
|
(2,965 | ) | ||||||||||
Non-operating
income
|
615 | |||||||||||
Loss
before income taxes and equity in loss (earnings) of equity-method
investment
|
$ | (2,350 | ) |
IP
Services
|
Data
Center
Services
|
Total
|
||||||||||
June
30, 2009:
|
||||||||||||
Goodwill
|
$ | 39,464 | $ | — | $ | 39,464 | ||||||
Total
assets
|
173,329 | 89,461 | 262,790 | |||||||||
December
31, 2008:
|
||||||||||||
Goodwill
|
$ | 77,312 | $ | 13,665 | $ | 90,977 | ||||||
Total
assets
|
225,382 | 104,701 | 330,083 |
3.
|
Goodwill
and Other Intangible Assets
|
Data
|
||||||||||||
IP
|
Center
|
|||||||||||
Services
|
Services
|
Total
|
||||||||||
Balance,
January 1, 2008
|
||||||||||||
Goodwill
|
$ | 152,087 | $ | 38,590 | $ | 190,677 | ||||||
Impairment
|
(74,775 | ) | (24,925 | ) | (99,700 | ) | ||||||
Balance,
December 31, 2008
|
||||||||||||
Goodwill
|
152,087 | 38,590 | 190,677 | |||||||||
Accumulated
impairment losses
|
(74,775 | ) | (24,925 | ) | (99,700 | ) | ||||||
Subtotal
|
77,312 | 13,665 | 90,977 | |||||||||
Impairment
|
(37,848 | ) | (13,665 | ) | (51,513 | ) | ||||||
Balance,
June 30, 2009
|
||||||||||||
Goodwill
|
152,087 | 38,590 | 190,677 | |||||||||
Accumulated
impairment losses
|
(112,623 | ) | (38,590 | ) | (151,213 | ) | ||||||
Total
|
$ | 39,464 | $ | - | $ | 39,464 |
●
|
Income
Approach: To determine fair value, we discounted the expected cash
flows of the former CDN services segment and the FCP products reporting
unit within the IP services segment. We calculated expected cash flows
using a compounded annual revenue growth rate of approximately 20% for CDN
services and 3% for FCP products, forecasting existing cost structures and
considering capital reinvestment requirements. We used a discount
rate of 16% for CDN services and 18% for FCP products, representing the
estimated weighted average cost of capital, which reflects the overall
level of inherent risk involved in the respective operations and the rate
of return an outside investor would expect to earn. To estimate cash flows
beyond the final year of our model, we used a terminal value and
incorporated the present value of the resulting terminal value into our
estimate of fair value.
|
|
●
|
Market-Based
Approach: To corroborate the results of the income approach
described above, we estimated the fair value of our CDN services segment
and FCP products reporting unit within the IP services segment using
several market-based approaches, including the enterprise value that we
derive based on our stock price. We also used the guideline company
method, which focuses on comparing our risk profile and growth prospects,
to select reasonably similar/guideline publicly traded companies. Using
the guideline company method, we selected revenue multiples below the
median for our comparable
companies.
|
●
|
an
impairment charge of $4.1 million in acquired developed CDN advertising
technology due to a strategic change in market focus,
|
|
●
|
a
change in estimates that resulted in an acceleration of amortization
expense of our acquired CDN customer relationships over a shorter
estimated useful life (from 38 months remaining as of June 1, 2009 to 11
months) to reflect our historical churn rate for acquired CDN
customers,
|
|
●
|
a
change in estimates that resulted in an acceleration of amortization
expense of our acquired CDN trade names over a shorter estimated useful
life (from 32 months remaining as of June 1, 2009 to 17 months) to reflect
the decreased value of the acquired trade names to our business,
and
|
|
●
|
a
change in estimates that resulted in an acceleration of amortization
expense of our CDN non-compete agreements over a shorter estimated useful
life (from nine months remaining as of June 1, 2009 to one month) to
reflect the decreased value of the non-compete agreements to our
business.
|
June
30, 2009
|
December
31, 2008
|
|||||||||||||||
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
|||||||||||||
Technology
based
|
$ | 35,927 | $ | (15,575 | ) | $ | 40,061 | $ | (13,317 | ) | ||||||
Contract
based
|
24,232 | (18,520 | ) | 24,232 | (17,034 | ) | ||||||||||
Total
|
$ | 60,159 | $ | (34,095 | ) | $ | 64,293 | $ | (30,351 | ) |
4.
|
Restructuring
|
December
31,
2008
Restructuring
Liability
|
Initial
Restructuring
Charges
|
Subsequent
Plan
Adjustments1
|
Cash
Payments
|
June
30,
2009
Restructuring
Liability
|
||||||||||||||||
Activity
for 2009 restructuring charge:
|
||||||||||||||||||||
Employee
separations
|
$ | — | $ | 877 | $ | 47 | $ | (736 | ) | $ | 188 | |||||||||
Real
estate obligations
|
— | 129 | 5 | (6 | ) | 128 | ||||||||||||||
— | 1,006 | 52 | (742 | ) | 316 | |||||||||||||||
Activity
for 2007 restructuring charge:
|
||||||||||||||||||||
Real
estate obligations
|
6,276 | — | 1,768 | (929 | ) | 7,115 | ||||||||||||||
Activity
for 2001 restructuring charge:
|
||||||||||||||||||||
Real
estate obligations
|
2,746 | — | 324 | (281 | ) | 2,789 | ||||||||||||||
Total
|
$ | 9,022 | $ | 1,006 | $ | 2,144 | $ | (1,952 | ) | $ | 10,220 |
1
Includes a reclassification of accrued liabilities and deferred rent of
approximately $0.1
million.
|
5.
|
Stock-Based
Compensation and Executive
Transition
|
6.
|
Income
Taxes
|
7.
|
Net
Loss Per Share
|
Three
Months Ended
June
30,
|
Six
Months Ended
June
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
loss and net loss available to common stockholders
|
$ | (60,645 | ) | $ | (3,237 | ) | $ | (67,253 | ) | $ | (2,498 | ) | ||||
Weighted
average shares outstanding, basic and diluted
|
49,586 | 49,208 | 49,499 | 49,159 | ||||||||||||
Net
loss per share, basic and diluted
|
$ | (1.22 | ) | $ | (0.07 | ) | $ | (1.36 | ) | $ | (0.05 | ) | ||||
Anti-dilutive
securities not included in diluted net loss per share
calculation:
|
||||||||||||||||
Stock
compensation plans
|
5,648 | 4,137 | 5,648 | 4,137 | ||||||||||||
Warrants to purchase
common stock1
|
— | 34 | — | 34 | ||||||||||||
Total
anti-dilutive securities
|
5,648 | 4,171 | 5,648 | 4,171 |
8.
|
Fair
Value Measurements
|
Level
1: Quoted prices in active markets for identical assets or
liabilities;
|
|
Level
2: Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active or other inputs that are
observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities;
and
|
|
Level
3: Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or
liabilities.
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||||||
Available
for sale securities:
|
||||||||||||||||
Money market
funds1
|
$ | 26,008 | $ | — | $ | — | $ | 26,008 | ||||||||
Trading
securities:
|
||||||||||||||||
Auction rate
securities2
|
— | — | 6,578 | 6,578 | ||||||||||||
ARS Rights2
|
— | — | 567 | 567 | ||||||||||||
Total
|
$ | 26,008 | $ | — | $ | 7,145 | $ | 33,153 |
Auction
Rate
Securities
|
ARS
Rights
|
||||||||
Balance,
January 1, 2009
|
$ | 6,378 | $ | 649 | |||||
Total
gains or (losses) (realized/unrealized) included in
earnings
|
200 | (82 | ) | ||||||
Balance,
June 30, 2009
|
$ | 6,578 | $ | 567 | |||||
The
amount of total gains or losses for the period included in earnings
attributable to the change in unrealized gains or losses relating to
assets still held as of June 30, 2009
|
$ | 200 | $ | (82 | ) |
Level
1
|
Level
2
|
Level
3
|
Total
|
||||||||||||||
Goodwill
|
$ | — | $ | — | $ | 39,464 | $ | 39,464 | |||||||||
Other
intangible assets
|
— | — | 26,064 | 26,064 | |||||||||||||
Total
|
$ | — | $ | — | $ | 65,528 | $ | 65,528 |
As
of June 30, 2009
|
As
of December 31, 2008
|
||||||||||||||||
Carrying
Amount
|
Fair
Value
|
Carrying
Amount
|
Fair
Value
|
||||||||||||||
Revolving
line of credit
|
$ | 20,000 | $ | 20,000 | $ | 20,000 | $ | 20,000 | |||||||||
Other
liabilities
|
821 | 847 | 878 | 897 | |||||||||||||
Total
|
$ | 20,821 | $ | 20,847 | $ | 20,878 | $ | 20,897 |
9.
|
Contingencies
and Litigation
|
10.
|
Recent
Accounting Pronouncements
|
11.
|
Subsequent
Events
|
●
|
an
impairment charge of $4.1 million in acquired developed CDN advertising
technology due to a strategic change in market focus,
|
|
●
|
a
change in estimates that resulted in an acceleration of amortization
expense of our acquired CDN customer relationships over a shorter
estimated useful life (38 months remaining as of June 1, 2009 to 11
months) to reflect our historical churn rate for acquired CDN
customers,
|
|
●
|
a
change in estimates that resulted in an acceleration of amortization
expense of our acquired CDN trade names over a shorter estimated useful
life (32 months remaining as of June 1, 2009 to 27 months) to reflect the
decreased value of the acquired trade names to our business,
and
|
|
●
|
a
change in estimates that resulted in an acceleration of amortization
expense of our CDN non-compete agreements over a shorter estimated useful
life (nine months remaining as of June 1, 2009 to one month) to reflect
the decreased value of the non-compete agreements to our
business.
|
●
|
costs
for connecting to and accessing Internet network service providers, or
NSPs, and competitive local exchange providers;
|
|
●
|
facility
and occupancy costs for housing and operating our and our customers’
network equipment;
|
|
●
|
costs
of FCP solutions sold;
|
|
●
|
costs
incurred for providing additional third party services to our customers;
and
|
|
●
|
royalties
and costs of license fees for operating systems
software.
|
Three
Months Ended
June
30,
|
Six
Months Ended
June
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenues:
|
||||||||||||||||
IP
services
|
49.9 | % | 55.6 | % | 50.1 | % | 56.5 | % | ||||||||
Data
center services
|
50.1 | 44.4 | 49.9 | 43.5 | ||||||||||||
Total
revenues
|
100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||
Operating
costs and expenses:
|
||||||||||||||||
Direct
costs of network, sales and services, exclusive of depreciation and
amortization shown below:
|
||||||||||||||||
IP
services
|
19.3 | 21.1 | 19.3 | 21.1 | ||||||||||||
Data
center services
|
37.5 | 32.6 | 37.0 | 31.1 | ||||||||||||
Direct
costs of customer support
|
6.9 | 6.7 | 6.9 | 6.9 | ||||||||||||
Direct
costs of amortization of acquired technologies
|
8.1 | 2.0 | 5.0 | 2.0 | ||||||||||||
Sales
and marketing
|
10.8 | 12.4 | 11.5 | 13.3 | ||||||||||||
General
and administrative
|
17.0 | 21.8 | 19.0 | 19.1 | ||||||||||||
Depreciation
and amortization
|
10.4 | 9.1 | 10.6 | 8.9 | ||||||||||||
Goodwill
impairment and restructuring
|
83.5 | — | 42.6 | — | ||||||||||||
Total
operating costs and expenses
|
193.5 | 105.7 | 151.9 | 102.4 | ||||||||||||
Loss
from operations
|
(93.5 | )% | (5.7 | )% | (51.9 | )% | (2.4 | )% |
Three
Months Ended
June
30,
|
Six
Months Ended
June
30,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||
Direct
costs of customer support
|
$
|
288
|
$
|
326
|
$
|
541
|
$
|
812
|
||||||
Sales
and marketing
|
368
|
474
|
740
|
948
|
||||||||||
General
and administrative
|
652
|
1,274
|
2,082
|
2,689
|
||||||||||
Total
|
$
|
1,308
|
$
|
2,074
|
$
|
3,363
|
$
|
4,449
|
●
|
converted
the outstanding term loan balance of $20.0 million as of September 30,
2008 into a loan under the revolving line of credit facility under the
Credit Agreement;
|
|
●
|
terminated
the term loan facility under the Credit Agreement;
|
|
●
|
increased
the total “Revolving Credit Commitment,” as defined in the Amended Credit
Agreement, from $5.0 million to $35.0 million;
|
|
●
|
increased
the “Letter of Credit Sublimit,” as defined in the Amended Credit
Agreement, from $5.0 million to $7.0 million;
|
|
●
|
provided
us and Bank of America with an option to enter into a lease financing
agreement not to exceed $10.0 million; and
|
|
●
|
modified
certain covenants and
definitions.
|
(c)
|
Total
Number
|
(d)
|
Maximum
|
||||||||||
of
Shares (or
|
Number
(or
|
||||||||||||
Units)
|
Approximate
|
||||||||||||
Purchased
as
|
Dollar
Value) of
|
||||||||||||
Part
|
Shares
(or Units)
|
||||||||||||
(a)
|
Total
Number
|
of
Publicly
|
That
May Yet Be
|
||||||||||
of
Shares (or
|
(b)
|
Average
Price
|
Announced
|
Purchased
Under
|
|||||||||
Units) Purchased1 |
Paid
per Share
|
Plans
|
the
Plans or
|
||||||||||
Period
|
(or
Unit)
|
or
Programs
|
Programs
|
||||||||||
April
1 to 30, 2009
|
21,858
|
$
|
2.79
|
—
|
—
|
||||||||
May
1 to 31, 2009
|
1,376
|
2.81
|
—
|
—
|
|||||||||
June
1 to 30, 2009
|
3,612
|
3.53
|
—
|
—
|
|||||||||
Total
|
26,846
|
$
|
2.89
|
—
|
—
|
Number
of Votes
|
|||||||||||||
Description
of Proposals
|
For
|
Against
|
Withheld/
Abstain
|
Broker
Non-Votes
|
|||||||||
Election
of Directors for terms expiring in 2012:
|
|||||||||||||
J.
Eric Cooney
|
40,212,984
|
N/A
|
901,844
|
N/A
|
|||||||||
Charles
B. Coe
|
36,656,507
|
N/A
|
4,458,322
|
N/A
|
|||||||||
Patricia
L. Higgins
|
36,426,287
|
N/A
|
4,688,542
|
N/A
|
|||||||||
The
following directors, who did not stand for election at the 2009 annual
meeting of stockholders, also currently sit on our board of directors:
Gary M. Pfeiffer and Kevin L. Ober, whose terms expire in 2010; and Eugene
Eidenberg, William J. Harding and Daniel C. Stanzione, whose terms expire
in 2011
|
|||||||||||||
Ratification
of PricewaterhouseCoopers LLP as our independent registered public
accounting firm for the fiscal year ending December 31,
2009
|
40,110,023
|
953,056
|
51,749
|
N/A
|
|||||||||
Vote
on a stockholder proposal relating to our Rights Agreement
|
19,675,511
|
7,397,890
|
105,393
|
13,936,034
|
Exhibit
Number
|
Description
|
|
31.1*
|
Rule
13a-14(a)/15d-14(a) Certification, executed by J. Eric Cooney, President,
Chief Executive Officer and Director of the Company.
|
|
31.2*
|
Rule
13a-14(a)/15d-14(a) Certification, executed by George E. Kilguss, III,
Vice President and Chief Financial Officer of the
Company.
|
|
32.1*
|
Section
1350 Certification, executed by J. Eric Cooney, President, Chief Executive
Officer and Director of the Company.
|
|
32.2*
|
Section
1350 Certification, executed by George E. Kilguss, III, Vice President and
Chief Financial Officer of the
Company.
|
*
|
Documents
filed herewith.
|
INTERNAP
NETWORK SERVICES CORPORATION
|
||||
(Registrant)
|
||||
By:
|
/s/
George E. Kilguss, III
|
|||
George
E. Kilguss, III
|
||||
Vice
President and Chief Financial Officer
|
||||
(Principal
Financial and Accounting Officer)
|
||||
Date:
August 5, 2009
|