8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): January 27, 2004

Inet Technologies, Inc.

(Exact name of registrant as specified in its charter)

Delaware	0-24707	75-2269056
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

1500 North Greenville Avenue Richardson, Texas	75081
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (469) 330-4000

Item 12. Results of Operations and Financial Condition

The Registrant’s earnings press release dated January 27, 2004, reporting its fourth quarter and year-end 2003 results of operations and financial condition, is furnished herewith as Exhibit 99.1 and incorporated by reference herein.

The information furnished in this Item 12 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall such information be deemed incorporated by reference into any filing under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such filing.

SIGNATURES

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

Dated: January 27, 2004	INET TECHNOLOGIES, INC.
	By:	/s/ Jeffrey A. Kupp
		Jeffrey A. Kupp
		Vice President and Chief Financial Officer

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INDEX TO EXHIBITS

Exhibit Number	Description
99.1	Registrant’s earnings press release dated January 27, 2004

EX-99.1

Exhibit 99.1

FOR MORE INFORMATION, CONTACT:

Ms. Kelly Love, CFA

Director of Investor Relations

Inet Technologies, Inc.

(469) 330-4171

INET TECHNOLOGIES REPORTS SEQUENTIAL AND YEAR-OVER-YEAR

GROWTH IN REVENUES AND NET INCOME

Annual Net Income Increases by More Than 50 Percent

Richardson, Texas – January 27, 2004 – Inet Technologies, Inc. (NASDAQ: INTI), a leading global provider of communications software products that enable communications carriers to more strategically and profitably operate their businesses, today reported financial results for its fourth quarter and year ended December 31, 2003.

Revenues for the three months ended December 31, 2003 were $27.3 million versus revenues of $26.0 million in the third quarter of 2003 and $25.0 million in the fourth quarter of 2002. The Company reported net income of $3.4 million, or $0.09 per diluted share, for the fourth quarter of 2003, compared to net income of $2.8 million, or $0.07 per diluted share, for the third quarter of 2003 and net income of $2.7 million, or $0.06 per diluted share, for the fourth quarter of 2002.

“The Inet team’s relentless efforts had a positive impact on our customers and stockholders as well as our future business prospects,” said Elie Akilian, president and chief executive officer of Inet. “Last year, we broadened our product portfolio through the introduction of our Unified Assurance Solution and our Spectra2 version 3.0 product. We experienced great success in the form of key wins with our products to address the mobile data market, and we believe we are well positioned for the opportunities in this growing segment. I am proud of our progress, and I am excited about our prospects as we enter 2004.”

For the year ended December 31, 2003, revenues were $103.8 million versus revenues of $101.9 million for the year ended December 31, 2002. Net income for the year ended December 31, 2003 was $11.7 million, or $0.30 per diluted share, compared to net income of $7.6 million, or $0.16 per diluted share, for the year ended December 31, 2002.

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“Revenues for the year increased slightly over the prior year, and net income grew 54 percent,” said Jeff Kupp, chief financial officer of Inet. “In addition to solid operating results, we continued to strengthen our balance sheet. We were able to achieve these results without reducing the investments in our business that are required to pursue future growth opportunities. Also, we reduced outstanding shares through a large share repurchase in January 2003, and improved the public float and liquidity of our common stock through a secondary stock offering in October 2003. I believe we are well positioned financially to take advantage of a number of opportunities in 2004.”

Financial Guidance

The Company provided the following financial guidance for its first quarter ending March 31, 2004 and for the year ending December 31, 2004. The following guidance is based on current expectations. This guidance is forward-looking and actual results may differ materially.

	Quarter Ending March 31, 2004	Year Ending December 31, 2004
Revenues	$27.0 to $27.4 million	$112 to $117 million
Gross margin	67% to 69%	67% to 71%
Quarterly operating margin	14% to 15%	14% to 22%
EPS	$0.08	$0.36 to $0.38

The wide range in the guidance for quarterly operating margins during 2004 reflects the operating leverage we expect to achieve as we begin to grow our revenues throughout 2004. For the first quarter and year of 2004, the Company expects its tax rate to be approximately 29 percent. The diluted share count is expected to range from the mid-39 million level to approximately 41 million between the first quarter of 2004 and the end of 2004.

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About Inet Technologies, Inc.

Founded in 1989, Inet Technologies is a global provider of communications software products that enable communications carriers to more strategically and profitably operate their businesses. Our Unified Assurance^™ Solution and our Diagnostics products help our customers reduce capital and operating expenditures, improve customer acquisition and retention rates, protect and grow revenues, and more quickly and effectively develop products or services. Using our Unified Assurance Solution products, communications carriers are able to simultaneously manage their voice and data services at the network, service and customer layers to detect network and service problems in real time, enabling proactive identification of specific customers impacted by network or service issues. Our Diagnostics products assist communications carriers and equipment manufacturers in quickly and cost-effectively designing, deploying and maintaining current- and next-generation networks and network elements. Inet is headquartered in Richardson, Texas and has approximately 483 employees worldwide. Inet is an ISO 9001 registered company. For more information, visit Inet on the Web at www.inet.com.

Inet Technologies and Unified Assurance are trademarks of Inet Technologies, Inc. All other trademarks or registered trademarks belong to their respective owners.

This release contains forward-looking statements, including statements regarding our business prospects, our anticipated future financial results and the anticipated results of some of our product and operating strategies. Such forward-looking statements involve risks and uncertainties. Among the important factors that could cause actual results to differ materially from those in the forward-looking statements are any general economic slowdown, any slowdown in telecommunications spending, consolidations or bankruptcies involving our current or prospective customers, unforeseen changes in anticipated expenses or revenues, challenges associated with operating internationally, delays in implementation of our products, product development and introduction delays, increased competition, any reduction in demand for our products and solutions and other factors detailed in Inet’s filings with the Securities and Exchange Commission, including our Quarterly Report on Form 10-Q filed with the SEC on October 21, 2003.

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INET TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

	December 31,
	2003			2002
ASSETS
Current assets:
Cash and cash equivalents	$	118,527		$	189,076
Short-term investments		55,034			—
Trade accounts receivable		10,870			10,211
Unbilled receivables		146			155
Inventories		7,924			7,458
Deferred income taxes		1,628			850
Other current assets		5,055			4,909
Total current assets		199,184			212,659
Property and equipment, net		11,330			15,215
Deferred income taxes		217			—
Other assets		613			300
Total assets	$	211,344		$	228,174
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,919		$	1,078
Income taxes payable		2,408			1,792
Accrued compensation and benefits		4,115			4,113
Deferred revenues		21,554			18,323
Other accrued liabilities		3,724			4,894
Total current liabilities		33,720			30,200
Deferred tax liabilities		—			18
Commitments and contingencies
Stockholders’ equity:
Common Stock		47			47
Additional paid-in capital		77,866			75,075
Unearned stock compensation		(2,610	)		(407	)
Retained earnings		134,932			123,241
Treasury stock		(32,611	)		—
Total stockholders’ equity		177,624			197,956
Total liabilities and stockholders’ equity	$	211,344		$	228,174

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INET TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share data)

	Three months ended December 31,					Years ended December 31,
	2003		2002			2003			2002
Revenues:
Product and license fees	$	19,652	$	17,800		$	73,012		$	74,605
Services		7,619		7,215			30,807			27,281
Total revenues		27,271		25,015			103,819			101,886
Cost of revenues:
Product and license fees		5,952		5,527			19,907			26,705
Services		3,006		3,147			14,219			12,620
Total cost of revenues		8,958		8,674			34,126			39,325
Gross profit		18,313		16,341			69,693			62,561
Operating expenses:
Research and development		7,435		7,044			29,789			29,820
Sales and marketing		4,514		4,001			15,526			16,507
General and administrative		2,231		2,015			9,167			7,982
Restructuring costs		—		—			—			224
		14,180		13,060			54,482			54,533
Income from operations		4,133		3,281			15,211			8,028
Other income (expense):
Interest income		323		582			1,411			2,591
Other income (expense)		68		(40	)		(181	)		163
		391		542			1,230			2,754
Income before provision for income taxes		4,524		3,823			16,441			10,782
Provision for income taxes		1,137		1,085			4,750			3,173
Net income	$	3,387	$	2,738		$	11,691		$	7,609
Earnings per common share:
Basic	$	0.09	$	0.06		$	0.30		$	0.16
Diluted	$	0.09	$	0.06		$	0.30		$	0.16
Weighted-average shares outstanding:
Basic		38,852		47,116			39,059			46,964
Diluted		39,567		47,191			39,516			47,084

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INET TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Years Ended December 31,
	2003			2002			2001
Cash flows from operating activities:
Net income	$	11,691		$	7,609		$	193
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6,867			7,078			7,875
Amortization of purchase discount on investments		(35	)		—			—
Loss on sale or disposal of assets		4			10			326
Deferred income taxes (benefits)		(1,013	)		1,294			(948	)
Stock compensation		347			18			—
Change in operating assets and liabilities:
(Increase) decrease in trade accounts receivable		(659	)		4,723			32,700
(Increase) decrease in unbilled receivables		9			1,800			(30	)
(Increase) decrease in inventories		(466	)		4,996			(3,073	)
Decrease in income taxes receivable		—			615			11,422
(Increase) decrease in other assets		(459	)		539			(2,154	)
Increase (decrease) in accounts payable		841			140			(3,691	)
Increase in income taxes payable		1,143			2,034			—
Increase (decrease) in accrued compensation and benefits		2			1,638			(5,410	)
Increase (decrease) in deferred revenues		3,231			1,530			(5,951	)
Increase (decrease) in other accrued liabilities		(170	)		849			(2,331	)
Net cash provided by operating activities		21,333			34,873			28,928
Cash flows from investing activities:
Purchases of short-term investments		(54,999	)		—			—
Purchases of property and equipment		(3,986	)		(2,290	)		(8,470	)
Net cash used in investing activities		(58,985	)		(2,290	)		(8,470	)
Cash flows from financing activities:
Repurchase of common stock		(35,644	)		—			—
Proceeds from issuance of common stock upon exercise of stock options and purchases under employee stock purchase plan		2,747			1,604			3,012
Net cash provided by (used in) financing activities		(32,897	)		1,604			3,012
Net increase (decrease) in cash and cash equivalents		(70,549	)		34,187			23,470
Cash and cash equivalents at beginning of period		189,076			154,889			131,419
Cash and cash equivalents at end of period	$	118,527		$	189,076		$	154,889
Supplemental disclosures:
Income taxes paid	$	2,564		$	2,182		$	508

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INET TECHNOLOGIES, INC.

ADDITIONAL FINANCIAL INFORMATION

(Unaudited)

The following table presents additional financial information about Inet Technologies, Inc. for the three months ended December 31, 2003; September 30, 2003; June 30, 2003; March 31, 2003 and December 31, 2002, respectively.

	12/31/03			9/30/03			6/30/03			3/31/03			12/31/02
Total revenues (in 000s) (1)	$	27,271	(2)	$	26,034		$	25,472		$	25,042		$	25,015
Cash (in 000s)	$	118,527		$	168,742		$	162,312		$	163,139		$	189,076
Short-term investments (in 000s)	$	55,034			—			—			—			—
Days sales outstanding (with unbilled)		37			27			50			43			38
Inventory (in 000s):
Raw materials	$	3,498		$	2,856		$	2,765		$	3,268		$	3,774
WIP		219			90			412			154			445
Finished goods		4,207			3,669			3,592			5,003			3,239
	$	7,924		$	6,615		$	6,769		$	8,425		$	7,458
Inventory turns		4.5			5.1			5.7			3.4			4.6
Total employees:		483			479			475			472			470
R&D		245			243			242			246			247
Support/Integration		127			124			122			121			121
Sales and marketing		66			69			66			61			62
General and administrative		45			43			45			44			40
Margins and operating expenses as a % of total revenues:
Gross margin – total		67.2	%		67.5	%		62.2	%		71.8	%		65.3	%
Gross margin – product & license fees		69.7			73.9			64.3			83.4			68.9
Gross margin – services		60.5			53.0			57.1			44.6			56.4
Research and development		27.3			28.5			28.5			30.7			28.2
Sales and marketing		16.6			14.9			14.2			14.0			16.0
General and administrative		8.2			9.4			8.1			9.7			8.1
Operating income margin		15.2			14.7			11.4			17.4			13.1
Net income margin		12.4			10.7			8.9			13.0			10.9
Operating cash flow (in 000s)	$	5,765		$	5,642		$	116		$	9,810		$	18,099
Capital expenditures (in 000s)	$	1,066		$	666		$	1,322		$	932		$	735
Common stock outstanding (in 000s)		38,920			38,722			38,436			38,362			47,158
Revenues from international markets:		77	%		63	%		72	%		81	%		71	%
EMEA		70	%		53	%		61	%		71	%		63	%
Asia/Pacific		6	%		8	%		9	%		8	%		5	%
Other		1	%		2	%		3	%		2	%		3	%
Top 10 customers as % of total revenues (3)		66	%		71	%		60	%		69	%		71	%

(1) For the full year of 2003, revenues from wireless customers represented approximately 30% of total revenues compared to 26% in 2002.

(2) During this period, one international fixed-line customer accounted for approximately 18% of total revenues and another international fixed-line customer accounted for approximately 16% of total revenues.

(3) For the full year of 2003, revenues from the top 10 customers in the period represented approximately 60% of total revenues.

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