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UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549











Form 10-Q





|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ---------------------------------------------------------------------------------------




For the Quarterly Period Ended June 30, 2002





or





| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ----------------------------------------------------------------------------------------




For the Transition Period From  to








---







Commission File Number 333-82540











IPC ACQUISITION CORP.


(Exact name of registrant as specified in its charter)








Delaware

74-3022102(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)88 Pine Street, Wall Street Plaza, New York, NY

10005(Address of principal executive offices)

(Zip Code)








Registrants telephone number,
including area code: (212) 825-9060








Indicate by check mark whether
the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.








Yes x    No  ̈








Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.








Class

Outstanding at July 31,
2002Common Stock par value $0.01

14,060,000 shares








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##### Table of Contents




IPC ACQUISITION CORP.





INDEX





PagePart I.    Financial Information:Item 1.

Financial StatementsA)

Condensed Consolidated Balance Sheets as of September 30, 2001, December 31, 2001 and June 30, 2002

1B)

Condensed Consolidated Statements of Operations for the Three Months ended June 30, 2001 and 2002, the Nine Months ended June 30, 2001, the period from October 1, 2001 to December 20, 2001 and the period from November 15, 2001
(date of initial capitalization) to June 30, 2002

2C)

Condensed Consolidated Statements of Cash Flows for the Nine Months ended June 30, 2001, the period from October 1, 2001 to December 20, 2001 and the period from November 15, 2001 (date of initial capitalization) to June 30,
2002

3D)

Notes to Condensed Consolidated Financial Statements

4Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

17Item 3.

Quantitative and Qualitative Disclosure About Market Risk

25Part II.    Other Information:Item 1.

Legal Proceedings

26Item 2.

Changes in Securities and Use of Proceeds

26Item 3.

Defaults Upon Senior Securities

26Item 4.

Submission of Matters to a Vote of Security Holders

26Item 5.

Other Information

26Item 6.

Exhibits and Reports on Form 8-K

26Signature

27







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##### Table of Contents




Part I  Financial Information:





|ITEM 1. |  | Financial Statements
|------- |  | --------------------







IPC ACQUISITION CORP.


CONDENSED CONSOLIDATED BALANCE SHEETS


(Unaudited)


(In Thousands Except Share Amounts)





PredecessorSeptember 30, 2001


December 31, 2001


June 30, 2002AssetsAssets:Cash

$
4,536


$
25,046


$
51,640Restricted cash






20,800



8,514Accounts receivable, net of allowance of $2,648, $125 and $434, respectively


77,496



66,804



45,463Inventories, net


45,258



67,810



38,004Prepaid and other current assets


2,919



2,832



3,745Total current assets


130,209



183,292



147,366Property, plant and equipment, net


20,368



21,203



18,760Goodwill


185,033



77,310



72,139Intangible assets, net


152,630



215,601



209,553Deferred financing costs, net






19,712



18,236Other assets


871



552



697Total assets

$
489,111


$
517,670


$
466,751Liabilities and Stockholders EquityLiabilities:Current portion of long term debt

$



$
5,250


$
7,875Accounts payable


9,254



6,597



4,984Accrued expenses and other current liabilities


15,029



27,209



24,560Current portion of deferred compensation


471



471



458Income taxes payable


1,934



2,736



5,435Customer advances on installation contracts


41,388



43,327



22,735Deferred revenue on maintenance contracts


10,204



8,633



11,500Due to affiliates


104,106







Deferred purchase price obligation






20,800



8,514Total current liabilities


182,386



115,023



86,061Term loan






99,750



94,500Senior subordinated notes






150,000



150,000Deferred taxes, net


56,679



10,940



4,062Deferred compensation


3,377



3,354



3,325Other long term liabilities


2,623







Total liabilities


245,065



379,067



337,948Commitments and ContingenciesStockholders equity:Common stock-$0.01 par value, authorized 25,000,000 shares; 14,000,000 shares issued and outstanding at December 31,
2001 and June 30, 2002






140



140Paid in capital


278,048



139,560



139,560Accumulated deficit


(32,710
)


(1,382
)


(12,077
)Accumulated other comprehensive income (loss)


(1,292
)


285



1,180Total stockholders equity


244,046



138,603



128,803Total liabilities and stockholders equity

$
489,111


$
517,670


$
466,751





See the accompanying notes.







1




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##### Table of Contents




IPC ACQUISITION CORP.


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)


(In Thousands)





Predecessor





PredecessorThree Months Ended June
30, 2001


Three Months Ended June 30, 2002


Nine Months Ended June 30, 2001


Period from October 1, 2001 to December 20, 2001


Period from November 15, 2001 to June 30, 2002Revenue:Product sales and installations

$
51,236


$
37,087


$
134,104


$
35,691


$
104,416Service


24,826



25,721



75,681



23,089



50,92676,062



62,808



209,785



58,780



155,342Cost of goods sold:Product sales and installations


25,220



30,322



80,968



18,869



89,774Service


14,836



13,617



44,526



13,953



28,67540,056



43,939



125,494



32,822



118,449Gross profit


36,006



18,869



84,291



25,958



36,893Research and development


3,672



3,847



11,888



3,519



7,962Selling, general and administrative expense


8,183



10,352



27,396



17,110



21,247Depreciation and amortization


11,976



4,783



36,155



10,737



9,949Income (loss) from operations


12,175



(113
)


8,852



(5,408
)


(2,265
)Other income (expense):Interest expense, net


(8,722
)


(6,894
)


(21,852
)


(5,987
)


(14,678
)Other income (expense), net


(74
)


(92
)


2,105



49



(64
)Income (loss) before income taxes


3,379



(7,099
)


(10,895
)


(11,346
)


(17,007
)Income tax expense (benefit)


(1,757
)


(1,714
)


5,666



(318
)


(4,930
)Net income (loss)

$
5,136


$
(5,385
)

$
(16,561
)

$
(11,028
)

$
(12,077
)





See the accompanying notes.







2




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IPC ACQUISITION CORP.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


(In Thousands)





PredecessorNine Months Ended June 30, 2001


Period from October 1, 2001 to December 20, 2001


Period from November 15, 2001 to June 30, 2002Cash flows from operating activities:Net loss

$
(16,561
)

$
(11,028
)

$
(12,077
)Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization


4,927



1,393



2,474Amortization of intangibles


31,228



9,344



7,475Amortization of deferred financing costs










1,564Provision for doubtful accounts


853



1,018



445Deferred income taxes


(13,148
)


(4,761
)


(8,368
)Employee deferred compensation charge


(26
)


(19
)


(46
)Changes in operating assets and liabilities:Accounts receivables


(2,751
)


4,702



25,223Inventories


(989
)


1,823



43,771Prepaids and other current assets


4,108



(281
)


(545
)Other assets


140



322



(16
)Accounts payable and accrued expenses


(11,803
)


7,019



(9,520
)Income taxes payable


749



(988
)


3,221Customer advances and deferred revenue


18,384



9,326



(26,885
)Other liabilities






(2,623
)


Net cash provided by operating activities


15,111



15,247



26,716Cash flows from investing activities:Capital expenditures


(6,701
)


(1,902
)


(2,785
)Payment for acquisitions, net of cash acquired (includes restricted cash of $8.5 million)










(345,746
)Net cash used in investing activities


(6,701
)


(1,902
)


(348,531
)Cash flows from financing activities:Proceeds from (repayments of) intercompany borrowings


8,645



(15,134
)


Principal payments on capital leases


(234
)






Principal payments on term loan










(2,625
)Proceeds from term loan, net of issuance costs










98,600Proceeds from senior subordinated notes, net of issuance costs










136,600Proceeds from equity issuance, net










139,700Net cash provided by (used in) financing activities


8,411



(15,134
)


372,275Effect of exchange rate changes on cash


(1,402
)


(1,996
)


1,180Net increase (decrease) in cash


15,419



(3,785
)


51,640Cash, beginning of period


3,152



4,536



Cash, end of period

$
18,571


$
751


$
51,640Supplemental disclosures of cash flow information:Cash paid during the periods for:Income taxes

$
1,986


$
1,338


$
234Interest

$
385


$
66


$
12,830Dividend to parent

$
62,570


$



$






See the accompanying notes.







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IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


June 30, 2002




|1. |  | Basis of Presentation
|-- |  | ---------------------




The accompanying unaudited condensed consolidated financial statements include the accounts of IPC Acquisition Corp. (the Company) and its wholly owned subsidiaries. The unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
certain information and footnote disclosures required by accounting principles generally accepted in the United States for annual financial reporting and should be read in conjunction with the audited consolidated financial statements included in
the Companys Registration Statement on Form S-4 (No. 333-82540) which became effective on May 14, 2002. Certain reclassifications have been made to prior year amounts to conform to the current year presentation.





These unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, that
are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim periods presented. Interim period operating results may not be indicative of the operating results to be expected for the full year or
any other interim period.





The combined financial statements for the period from October 1, 2001 to December 20,
2001 include the accounts of IPC Information Systems, Inc. (the Predecessor), including the Trading Systems division and Information Transport Systems division, operating divisions of a wholly owned subsidiary of Global Crossing Ltd.
(Global Crossing), and Asia Global Crossing IPC Trading Systems Australia Pty. Ltd., an operating division of a wholly owned subsidiary of Asia Global Crossing Ltd. The condensed balance sheet at September 30, 2001 was derived from the
audited combined balance sheet of that date. Intercompany balances and transactions have been eliminated.





The
condensed consolidated financial statements for the period from November 15, 2001 (date of initial capitalization) to June 30, 2002 include the accounts of the Company and its wholly owned subsidiaries. The principal activity of the Company consists
of the December 20, 2001 acquisition of the Predecessor (the IPC Acquisition), and the results of operations of the acquired business from such date through June 30, 2002. Intercompany balances and transactions have been eliminated.





Revenue Recognition





Revenue from product sales and installation is recognized upon completion of the installation except for revenue from sales to distributors, which is recognized upon shipment. Under contract
provisions, customers are progress-billed prior to the completion of the installations. The revenue related to these advance payments is deferred until the system installations are completed. All costs incurred on uncompleted contracts are
accumulated and recorded as inventory awaiting installation. In addition, contracts for annual recurring turret and ITS services are generally billed in advance, and are recorded as revenue ratably (on a monthly basis) over the contractual periods.
Revenue from moves, additions and changes, commonly known as MACs, to turret systems is recognized upon completion, which usually occurs in the same month or the month following the order for services.





Goodwill and Other Intangible Assets





Goodwill represents the excess of the cost over the net of the fair value of the identifiable tangible and intangible assets acquired and the fair value of liabilities assumed in acquisitions. For the three months ended June
30, 2001, the nine months ended June 30, 2001 and the period from October 1, 2001 to December 20, 2001, the costs allocated to goodwill were amortized on a straight-line basis over the periods benefited, principally 10 years, and resulted in
amortization of $5.3 million, $15.8 million and $4.7 million, respectively.





The Company adopted Statement of
Financial Accounting Standards (SFAS No.142) Goodwill and Other Intangible Assets effective upon the IPC Acquisition and, in accordance with SFAS No.142, there is no amortization of goodwill and intangible assets that have
indefinite useful lives for the period from November 15, 2001 to June 30, 2002. However, such assets will be tested for impairment at least annually using the two-step process specifically provided in the statement. Other intangible assets are
carried at cost. Technology and customer list are amortized over the estimated useful lives of 7 and 20 years, respectively. Trade name has been deemed to have an indefinite life and will not be subject to amortization expense, but instead will be
subject to annual impairment tests in accordance with the provisions of SFAS No.142.





The Company performed the
first of the required impairment tests of goodwill and indefinite lived intangible assets as of the adoption date of SFAS 142 (December 31, 2001) in the third quarter ending June 30, 2002 and concluded that no impairment has occurred. The Company
believes the recorded values of goodwill and trade name in the amount of $72.1 million and $18.0 million, respectively, are fully recoverable.




4




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IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


June 30, 2002










Effects of Recently Issued Accounting Standards





In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No.143, Accounting for Asset Retirement
Obligations (SFAS 143), which requires entities to record the fair value of the estimated liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity
capitalizes an amount equal to the present value of the estimated liability by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is
depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. SFAS 143 is effective for fiscal years beginning after
June 15, 2002, with earlier application encouraged. The Company will adopt SFAS 143 on October 1, 2002. Management does not believe the adoption of this standard will have a material impact on the Companys condensed consolidated financial
statements.





In August 2001, the FASB issued SFAS No.144, Accounting for the Impairment or Disposal of
Long-Lived Assets, (SFAS No.144). SFAS No.144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes SFAS 121, Accounting for Impairment of Long Lived
Assets and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations  Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary and Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of a business (as previously defined in that Opinion). SFAS No.144 will be adopted by the Company on October 1, 2002. Management does not believe the adoption of this standard will have a
material impact on the Companys condensed consolidated financial statements.





In April 2002, the FASB issued
SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS 145). SFAS 145 eliminates the requirement under SFAS No. 4, Reporting Gains and Losses
from Extinguishment of Debt, to report gains and losses from extinguishments of debt as extraordinary items in the income statement. Accordingly, gains or losses from extinguishments of debt for fiscal years beginning after May 15, 2002 shall
not be reported as extraordinary items unless the extinguishment qualifies as an extraordinary item under the provisions of APB Opinion No. 30, Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions (Opinion 30). Upon adoption of this pronouncement, any gain or loss on extinguishment of debt previously classified as an extraordinary item in
prior periods that does not meet the criteria of Opinion 30 for such classification should be reclassified to conform with the provisions of SFAS 145. Management does not believe the adoption of this standard will have a material impact on the
condensed consolidated financial statements.





In July 2002, the FASB issued SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities (SFAS 146) and nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring) (EITF No. 94-3). SFAS 146 requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred, whereas EITF No. 94-3 had recognized the
liability at the commitment date to an exit plan. The Company is required to adopt the provisions of SFAS 146 effective for exit or disposal activities initiated after December 31, 2002. Management has not yet determined the effect, if any, the
adoption of SFAS 146 will have on the Companys condensed consolidated financial statements.








Comprehensive Income (Loss)





The balance sheets and statements of operations of the
Companys foreign operations are measured using the local currency as the functional currency. Assets and liabilities of these foreign operations are translated at the period-end exchange rate and revenue and expense amounts are translated at
the average rates of exchange prevailing during the year. The resulting foreign currency translation adjustments are accumulated as a component of other comprehensive income (loss).





Predecessor





PredecessorThree Months Ended June 30,


Nine Months Ended June 30, 2001


October 1, 2001 to December 20, 2001


November 15, 2001 to June 30, 2002(in thousands)

2001


2002Reported net income (loss)

$
5,136


$
(5,385
)

$
(16,561
)

$
(11,028
)

$
(12,077
)Translation adjustment


(2,064
)


2,214



(1,294
)


(1,965
)


1,180Total comprehensive income (loss)

$
3,072


$
(3,171
)

$
(17,855
)

$
(12,993
)

$
(10,897
)




5




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##### Table of Contents

|2. |  | The IPC Acquisition
|-- |  | -------------------




On December 20, 2001, the Company purchased 100% of the common stock of IPC Information Systems, Inc. and 100% of the ordinary shares of Asia Global Crossing IPC Trading Systems Australia Pty. Ltd. from Global Crossing Ltd.
and its affiliates. In addition, the Company acquired various assets owned by affiliates of Global Crossing related to the operation of these businesses. Under the purchase agreement, the total purchase price for the shares and assets was $360
million, subject to various adjustments for working capital and customer advances.





At the closing, the purchase
price was reduced by approximately $9.75 million for estimated working capital and customer advances adjustments. On January 16, 2002, Global Crossing and its affiliates paid the Company $3.0 million based upon a revised estimate of the working
capital and customer advances adjustments. On January 31, 2002, the Company delivered to Global Crossing and its affiliates its determination of the amount of working capital and customer advances as of the closing. Based on the Companys
determination of these amounts, Global Crossing or various of its affiliates are obligated to pay the Company an additional amount of $4.8 million. The Company has not been paid this additional amount. The Company is currently negotiating with
Global Crossing with regard to an agreed upon amount. Collection of the $4.8 million or any further settlement of this working capital calculation will be subject to bankruptcy court approval, the Companys rights of offset with respect to
amounts owed by the Company to Global Crossing and the extent to which assets are available for distribution to Global Crossings creditors.





The IPC Acquisition was accounted for by the purchase method and acquired intangible assets are recognized apart from goodwill in accordance with SFAS No.141, Business Combinations
(SFAS No.141). The purchase price exceeded the fair value of the net assets acquired by approximately $72.1 million. This excess has been recorded in the accompanying condensed consolidated balance sheet as goodwill and will not be
amortized in accordance with SFAS No.142. SFAS No.142 eliminates the requirement to amortize goodwill and intangible assets that have indefinite useful lives. However, it requires that such assets be tested for impairment at least annually using the
guidance specifically provided in the statement. Accordingly, the Companys condensed consolidated financial statements for the periods ended June 30, 2002 are not comparable to any prior period. In connection with the IPC Acquisition, the
Company recorded the following amounts to reflect the purchase price allocation described above (in thousands):





Goodwill

$
72,139Fair value increase to inventory


34,300Identified intangibles:Customer list


153,000Technology


45,000Trade name


18,000Deferred taxes


(12,430
)Net impact of purchase accounting adjustments

$
310,009





The IPC Acquisition was financed with the net proceeds from the
issuance of the outstanding senior subordinated notes, borrowings under the senior secured credit facilities and a common equity contribution of $140 million by a group led by Goldman Sachs Capital Partners, or GSCP 2000, and its affiliates. Under
the terms of the purchase agreement, approximately $20.8 million of the purchase price was not paid to Global Crossing at the closing. This deferred portion of the purchase price will not be paid to Global Crossing unless various contingent
liabilities of former affiliates that the Company guaranteed have been paid by Global Crossing or the Company has been released from these guarantees. Such contingent liabilities include equipment lease, real estate and employee obligations and may
include other third party obligations. An amount equal to the deferred payment was deposited into a bank account in the Companys name and will be released to the Company as the guaranteed obligations and other liabilities are paid by Global
Crossing or the Company is released from these obligations and other liabilities. While the Company has structured this agreement so that the Company retains ownership of the deposited funds, there can be no assurance that a contrary position will
not be taken in Global Crossings bankruptcy case. Through June 30, 2002, the Company has paid approximately $12.3 million of these contingent liabilities and an equal amount has been withdrawn from the aforementioned bank account.





At the closing of the IPC Acquisition, the Company entered into a network services, channel sales and transition
services agreement with Global Crossing and its related subsidiaries. Following the commencement of Global Crossings bankruptcy case, Global Crossing failed to perform various obligations under the network services, channel sales and
transition services agreement. On March 11, 2002, the Company filed a motion with the United States Bankruptcy Court for the Southern District of New York to compel Global Crossing to assume or reject this agreement. Thereafter, the Company
negotiated with Global Crossing to resolve the issues raised in its motion and subsequently reached an agreement, subject to bankruptcy court approval.




6




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IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


June 30, 2002




On July 11, 2002, the bankruptcy court entered an order authorizing Global Crossing and its related subsidiaries to assume the agreement, as amended. The amended agreement
sets forth the amounts owed to each party under the agreement. The amended agreement further provides for a mutual release of each party for failure to perform any obligations under the agreement through May 31, 2002. In addition, certain of the
Companys obligations under the agreement have been suspended until the earlier of the termination of the amended agreement, the effective date of a plan of reorganization under applicable bankruptcy laws of Global Crossing and its related
subsidiaries (other than a plan involving a sale that is not a sale of all or substantially all of the assets of Global Crossing and its related subsidiaries), or the sale of all or substantially all of the assets of Global Crossing and its related
subsidiaries to a single buyer or group of buyers acting together.





Set forth below is the unaudited pro forma
results of operations of the Company for the three months ended June 30, 2001 and 2002, the nine months ended June 30, 2001, the period from October 1, 2001 through December 20, 2001 and the period from November 15, 2001 through June 30, 2002 as if
the IPC Acquisition and the related financings occurred as of the beginning of each period.





The unaudited pro
forma financial information is presented for informational purposes only and does not purport to represent the results of operations of the Company for the periods described above had the IPC Acquisition and the related financings occurred as of the
beginning of each period, or to project the results for any future period.





The unaudited pro forma financial
information gives effect to (a) the IPC Acquisition (b) the offering of the outstanding senior subordinated notes, (c) term loan borrowings under our senior secured credit facilities, (d) the purchase accounting adjustments associated with the IPC
Acquisition, (e) the common equity contribution and (f) the related fees and expenses. The unaudited pro forma financial information assumes that no post-closing working capital adjustments have been made in connection with the IPC Acquisition. The
unaudited pro forma financial information of the Company does not include various one-time costs for operating expenses and capital expenditures associated with establishing the Company as a stand-alone entity.





Predecessor




PredecessorThree Months Ended June
30,


Nine Months Ended June 30, 2001

October 1, 2001 to December 20, 2001


November 15, 2001 to June 30, 2002(in thousands)

2001

2002Revenue

$
76,062

$
62,808


$
209,785

$
58,780


$
155,342Net income (loss)

$
7,569

$
(5,385
)

$
6,918

$
(3,870
)

$
(12,077
)





|3. |  | Inventories (in thousands)
|-- |  | --------------------------




PredecessorSeptember 30, 2001

December 31, 2001

June 30, 2002Components and manufacturing work in process

$
9,720

$
7,114

$
6,954Inventory on customer sites awaiting installation


25,775


51,536


21,430Parts and maintenance supplies


9,763


9,160


9,620$
45,258

$
67,810

$
38,004





|4. |  | Goodwill and Intangible Assets
|-- |  | ------------------------------




The Company adopted SFAS No. 142, effective December 20, 2001 (the date of the IPC Acquisition). Under SFAS No. 142, goodwill and intangible assets that have indefinite useful lives are no longer
amortized. Rather, they are reviewed for impairment annually or more frequently if certain indicators arise. Had the Company been accounting for its goodwill and indefinite lived intangible assets under SFAS No. 142 for all periods presented, the
Companys net income (loss) would have been as follows:





Predecessor




PredecessorThree Months Ended June
30,


Nine Months Ended June 30, 2001


October 1, 2001 to December 20, 2001


November 15, 2001 to June 30, 2002(in thousands)

2001

2002Reported net income (loss)

$
5,136

$
(5,385
)

$
(16,561
)

$
(11,028
)

$
(12,077
)Add back goodwill amortization, net of tax


3,342






10,072



2,978



Add back indefinite lived intangible assets amortization, net of tax


983






3,031



950



Adjusted net income (loss)

$
9,461

$
(5,385
)

$
(3,458
)

$
(7,100
)

$
(12,077
)







7




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##### Table of Contents



IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


June 30, 2002







The following table reflects the gross carrying amount and accumulated amortization of the Companys goodwill and intangible assets
included in the condensed consolidated balance sheets as of the dates indicated:





Predecessor(in thousands)

September 30, 2001


December 31, 2001


June 30, 2002Intangible assets:Amortized intangible assets:Technology

$
35,940


$
45,000


$
45,000Customer list


108,904



153,000



154,029Accumulated amortization


(20,698
)


(399
)


(7,476
)Net carrying amount

$
124,146


$
197,601


$
191,553Non-amortized intangible assets:Goodwill

$
185,033


$
77,310


$
72,139Trade name


15,867



18,000



18,000Assembled workforce


12,617







Net carrying amount

$
213,517


$
95,310


$
90,139





Amortization expense for those intangible assets required to be
amortized under SFAS No. 142 was $7.5 million for the period from November 15, 2001 to June 30, 2002. Amortization expense prior to the adoption of SFAS No. 142 was $9.3 million and $31.2 million for the period from October 1, 2001 to December 20,
2001 and the nine months ended June 30, 2001, respectively.








|5. |  | Accrued Expenses (in thousands)
|-- |  | -------------------------------




PredecessorSeptember 30, 2001

December 31, 2001

June 30, 2002Accrued compensation and benefits

$
6,273

$
6,874

$
7,210Warranty reserves


2,373


2,430


2,894Sales taxes payable


792


1,033


668Job accruals


4,010


2,530


2,142Accrued transaction costs





7,900


2,702Accrued interest





757


769Other accruals


1,581


5,685


8,175$
15,029

$
27,209

$
24,560








|6. |  | Long Term Debt
|-- |  | --------------




Senior Secured Credit Facilities





On December 20, 2001, the Company and a group of lenders
entered into senior secured credit facilities, comprised of (i) a $105 million term loan with a variable interest rate of 7.5% at June 30, 2002 and (ii) a $15 million revolving credit facility. The maturity date of the loans is December 31, 2006.
The senior secured credit facilities are guaranteed by certain of the Companys domestic restricted subsidiaries.





In addition to customary affirmative covenants, the senior secured credit facilities require the Company to enter into interest-rate hedging agreements to the extent necessary for 50% of the total outstanding consolidated
indebtedness to be at a fixed rate. The senior secured credit facility includes negative covenants that, among other things, restrict the Companys and its subsidiaries ability to: incur additional indebtedness (including guarantees of
certain obligations); engage in mergers, consolidations, liquidations and dissolutions; sell assets; enter into capital leases; pay dividends or make other payments in respect of capital stock; make acquisitions; make investments, loans and
advances; make payments with respect to or modify subordinated debt instruments; and enter into agreements with negative pledge clauses or clauses restricting subsidiary distributions. The senior secured credit facilities also contain minimum
interest coverage and fixed charge coverage ratios and maximum senior secured and total leverage ratios. The senior secured credit facilities also contain a restriction on the amount of capital expenditures.




8




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##### Table of Contents



IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


June 30, 2002







As of June 30, 2002, annual principal payments required under the $105 million term loan, by calendar year, are as follows (in thousands):





2002

$
2,6252003


10,5002004


10,5002005


10,5002006


68,250$
102,375








Senior Subordinated Notes





The Company issued $150 million in aggregate principal amount of 11.50% senior subordinated notes on
December 20, 2001 to fund a portion of the consideration for the IPC Acquisition. Under the terms of the indenture governing the senior subordinated notes, the Company may, subject to certain restrictions, issue additional notes up to a maximum
aggregate principal amount of $250 million. The senior subordinated notes mature on December 15, 2009. The senior subordinated notes are guaranteed by certain of the Companys domestic restricted subsidiaries.





Interest on the senior subordinated notes accrue at the rate of 11.50% per annum and is payable semi-annually in
arrears on June 15 and December 15, commencing on June 15, 2002. Pursuant to a registration rights agreement entered into at the time the senior subordinated notes were issued, the Company completed an exchange offer registered under the Securities
Act of 1933, as amended, in which all outstanding senior subordinated notes were exchanged for senior subordinated notes having substantially identical terms.





The indenture governing the senior subordinated notes contains covenants that impose significant restrictions on the Company. These restrictions include limitations on the
ability of the Company and its restricted subsidiaries to: incur indebtedness or issue preferred shares; pay dividends or make distributions in respect of capital stock or to make other restricted payments; create liens; agree to payment
restrictions affecting restricted subsidiaries; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; enter into transactions with affiliates; and designate subsidiaries as unrestricted subsidiaries.








|7. |  | Foreign Currency Instruments
|-- |  | ----------------------------




As an international company, the Company is exposed to foreign currency risk. In order to minimize the risk to the effects caused by currency fluctuations, the Company entered into
foreign currency hedging contracts in the current quarter, commonly known as collars. The Company intends to use these collars to minimize exchange rate risk when repatriating funds from its UK subsidiary. The Company expects to repatriate funds at
year-end in connection with its required bank debt payments. The currency hedged was the British Pound.





Under Statement of Financial Accounting Standards No.133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), the Company is required to
recognize all derivatives as either assets or liabilities in the condensed consolidated statement of financial position and measure those instruments at fair value. For these specific transactions, the resulting net gain or loss has been recognized
as a component of other income and expense in the condensed consolidated statement of operations. On June 21, 2002, the Company entered into two collars with notional amounts of £4 million and £6 million and expiration dates of September
13, 2002 and September 18, 2002, respectively. As of June 30, 2002 the Company recognized an unrealized loss of $0.2 million in the condensed consolidated statement of operations representing the fair value of these collars at that date.








|8. |  | Business Segment Information
|-- |  | ----------------------------







The Companys operations include the Trading Systems and Information Transport Systems, or ITS divisions. Trading Systems reports sales of turret
systems to distributors and direct sales and installations of turret systems as Product sales and installations. It reports revenue from turret system maintenance, including annual and multi-year service contracts, and from moves,
additions and changes to existing turret system installations as Service. ITS reports revenue from the design, integration and implementation of cabling infrastructure projects including Local and Wide Area Networks, and from the sales
of intelligent network products, such as hubs, bridges and routers as Product sales and installation. It reports revenue from on-site maintenance of customer cable infrastructure, including annual and multi-year contracts, and from the
provision of outsourcing




9




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IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


June 30, 2002




services for the support, expansion and upgrading of existing customer networks, as Service. The Company evaluates performance based on direct margin and income from operations.





PredecessorTrading Systems


ITS

Consolidated(in thousands)Period from October 1, 2000 to June 30, 2001Revenue:Product sales and installations

$
103,658


$
30,446

$
134,104Service


63,446



12,235


75,681Total revenue

$
167,104


$
42,681

$
209,785Direct margin


96,612



9,018


105,630Income from operations


5,894



2,958


8,852Depreciation and amortization


35,956



199


36,155Interest expense, net


(21,852
)





(21,852
)Income tax provision


5,666






5,666Total assets

$
482,696


$
33,376

$
516,072Capital expenditures

$
6,362


$
339

$
6,701





PredecessorTrading Systems


ITS

Consolidated(in thousands)Period from October 1, 2001 to December 20, 2001Revenue:Product sales and installations

$
27,444


$
8,247

$
35,691Service


18,795



4,294


23,089Total revenue

$
46,239


$
12,541

$
58,780Direct margin


28,690



2,734


31,424Income (loss) from operations


(6,498
)


1,090


(5,408
)Depreciation and amortization


10,729



8


10,737Interest expense, net


(5,987
)





(5,987
)Income tax benefit


(318
)





(318
)Total assets

$
350,787


$
29,179

$
379,966Capital expenditures

$
1,897


$
5

$
1,902





PredecessorTrading Systems


ITS

Consolidated(in thousands)Period from November 15, 2001 to June 30, 2002Revenue:Product sales and installations

$
88,512


$
15,904

$
104,416Service


44,348



6,578


50,926Total revenue

$
132,860


$
22,482

$
155,342Direct margin


46,326



4,013


50,339Income (loss) from operations


(2,635
)


370


(2,265
)Depreciation and amortization


9,733



216


9,949Interest expense, net


(14,678
)





(14,678
)Income tax benefit


(4,930
)





(4,930
)Total assets

$
430,984


$
35,767

$
466,751Capital expenditures

$
2,766


$
19

$
2,785







10




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##### Table of Contents



IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


June 30, 2002










|9. |  | Guarantor Subsidiaries Financial Information
|-- |  | ---------------------------------------------




Certain of the Companys domestic restricted subsidiaries guarantee the senior secured credit facilities and the senior subordinated notes. Information regarding the
guarantors is as follows (in thousands):





Condensed Combining Statement of Operations


For the Period October 1, 2000 to June 30, 2001





PredecessorGuarantor Subsidiaries


Non-Guarantor Subsidiaries


Eliminations


CombinedRevenue

$
181,646


$
44,555


$
(16,416
)

$
209,785Cost of goods sold


109,324



33,108



(16,938
)


125,494Gross profit


72,322



11,447



522



84,291Other operating expenses


63,566



11,873







75,439Income (loss) from operations


8,756



(426
)


522



8,852Interest expense and other, net


(19,853
)


106







(19,747
)Income tax provision (benefit)


2,181



3,485







5,666Net income (loss)

$
(13,278
)

$
(3,805
)

$
522


$
(16,561
)








Condensed Combining Statement of Cash Flows


For the Period October 1, 2000 to June 30, 2001





PredecessorGuarantor Subsidiaries


Non-Guarantor Subsidiaries


Eliminations

CombinedNet cash provided by operating activities

$
3,919


$
11,192


$


$
15,111Capital expenditures


(6,555
)


(146
)





(6,701
)Net cash used in investing activities


(6,555
)


(146
)





(6,701
)Proceeds from (repayments of) intercompany borrowings


15,868



(7,223
)





8,645Principal payments on capital leases


(234
)









(234
)Net cash provided by financing activities


15,634



(7,223
)





8,411Effect of exchange rate changes on cash






(1,402
)





(1,402
)Net increase in cash


12,998



2,421






15,419Cash at beginning of period


393



2,759






3,152Cash at end of period

$
13,391


$
5,180


$


$
18,571




11




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##### Table of Contents



IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


June 30, 2002







Condensed Combining Balance Sheet at September 30, 2001





PredecessorGuarantor Subsidiaries


Non-Guarantor Subsidiaries


Eliminations


CombinedAssets:Cash

$
(703
)

$
5,239


$



$
4,536Accounts receivable, net


64,005



13,491







77,496Inventories, net


41,991



8,254



(4,987
)


45,258Prepaid and other current assets


410



2,509







2,919Due from affiliate


(13,977
)


13,597



380



Total current assets


91,726



43,090



(4,607
)


130,209Property, plant and equipment, net


18,595



1,773







20,368Goodwill and intangibles, net


265,467



72,196







337,663Deferred financing costs














Other assets


722



149







871Total assets

$
376,510


$
117,208


$
(4,607
)

$
489,111Liabilities and stockholders equity:Accounts payable, accrued expenses and other current liabilities

$
17,521


$
9,167


$



$
26,688Customer advances and deferred revenue


45,138



6,454







51,592Due to affiliates


104,106











104,106Total current liabilities


166,765



15,621







182,386Other long-term liabilities


62,679











62,679Total liabilities


229,444



15,621







245,065Total stockholders equity


147,066



101,587



(4,607
)


244,046Total liabilities and stockholders equity

$
376,510


$
117,208


$
(4,607
)

$
489,111Condensed Combining Statement of Operations For the Period
October 1, 2001 to December 20, 2001PredecessorGuarantor Subsidiaries


Non-Guarantor Subsidiaries


Eliminations


CombinedRevenue

$
52,098


$
13,777


$
(7,095
)

$
58,780Cost of goods sold


30,610



9,226



(7,014
)


32,822Gross profit


21,488



4,551



(81
)


25,958Other operating expenses


28,427



2,939







31,366Income (loss) from operations


(6,939
)


1,612



(81
)


(5,408
)Interest expense and other, net


(6,218
)


280







(5,938
)Income tax provision (benefit)


639



(957
)






(318
)Net income (loss)

$
(13,796
)

$
2,849


$
(81
)

$
(11,028
)




12




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IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


June 30, 2002







Condensed Combining Statement of Cash Flows


For the Period October 1, 2001 to
December 20, 2001





PredecessorGuarantor Subsidiaries


Non-Guarantor Subsidiaries


Eliminations

CombinedNet cash provided by (used in) operating activities

$
19,702


$
(4,455
)

$


$
15,247Capital expenditures


(1,875
)


(27
)





(1,902
)Net cash used in investing activities


(1,875
)


(27
)





(1,902
)Proceeds from (repayments of) intercompany borrowings


(16,428
)


1,294






(15,134
)Net cash (used in) provided by financing activities


(16,428
)


1,294






(15,134
)Effect of exchange rate changes on cash


(1,076
)


(920
)





(1,996
)Net increase (decrease) in cash


323



(4,108
)





(3,785
)Cash at beginning of period


(703
)


5,239






4,536Cash at end of period

$
(380
)

$
1,131


$


$
751





Condensed Consolidating Balance Sheet at December 31, 2001





IPC Acquisition

Guarantor Subsidiaries

Non-Guarantor Subsidiaries


Eliminations


ConsolidatedAssets:Cash

$
24,654

$
549

$
(157
)

$



$
25,046Restricted cash


20,800













20,800Accounts receivable, net





44,663


22,141







66,804Inventories, net





64,782


7,233



(4,205
)


67,810Prepaid and other current assets





828


2,004







2,832Due from affiliate





34,169


(34,630
)


461



Total current assets


45,454


144,991


(3,409
)


(3,744
)


183,292Investment in subsidiaries


360,177









(360,177
)


Property, plant and equipment, net





19,427


1,776







21,203Goodwill and intangibles, net





224,679


68,232







292,911Deferred financing costs, net


19,712













19,712Other assets





663


(111
)






552Total assets

$
425,343

$
389,760

$
66,488


$
(363,921
)

$
517,670Liabilities and stockholders equity:Current portion of long-term debt

$
5,250

$


$



$



$
5,250Accounts payable, accrued expenses and other current liabilities





33,057


3,956







37,013Customer advances and deferred revenue





45,003


6,957







51,960Deferred purchase price obligation


20,800













20,800Total current liabilities


26,050


78,060


10,913







115,023Long-term debt


249,750













249,750Other long-term liabilities


10,940


3,354










14,294Total liabilities


286,740


81,414


10,913







379,067Total stockholders equity


138,603


308,346


55,575



(363,921
)


138,603Total liabilities and stockholders equity

$
425,343

$
389,760

$
66,488


$
(363,921
)

$
517,670




13




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IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


June 30, 2002




Condensed Consolidating Balance Sheet at June 30, 2002











IPC Acquisition


Guarantor Subsidiaries

Non-Guarantor Subsidiaries


Eliminations


ConsolidatedAssets:Cash

$
19,257


$
3,374

$
29,009


$



$
51,640Restricted cash


8,514














8,514Accounts receivable, net






27,421


18,042







45,463Inventories, net






32,359


11,878



(6,233
)


38,004Prepaid and other current assets






921


2,824







3,745Due from affiliate


(16,867
)


72,339


(55,933
)


461



Total current assets


10,904



136,414


5,820



(5,772
)


147,366Investment in subsidiaries


365,383










(365,383
)


Property, plant and equipment, net






17,028


1,732







18,760Goodwill and intangibles, net






213,571


68,121







281,692Deferred financing costs, net


18,236














18,236Other assets






646


51







697Total assets

$
394,523


$
367,659

$
75,724


$
(371,155
)

$
466,751Liabilities and stockholders equity:Current portion of long-term debt

$
7,875


$


$



$



$
7,875Accounts payable, accrued expenses and other current liabilities


769



24,150


10,518







35,437Customer advances and deferred revenue






24,044


10,191







34,235Deferred purchase price obligation


8,514














8,514Total current liabilities


17,158



48,194


20,709







86,061Long-term debt


244,500














244,500Other long-term liabilities


4,062



3,325










7,387Total liabilities


265,720



51,519


20,709







337,948Total stockholders equity


128,803



316,140


55,015



(371,155
)


128,803Total liabilities and stockholders equity

$
394,523


$
367,659

$
75,724


$
(371,155
)

$
466,751











Condensed Consolidating Statement of Operations


For the Period November 15, 2001 to June 30, 2002


IPC Acquisition


Guarantor Subsidiaries


Non-Guarantor Subsidiaries

Eliminations


ConsolidatedRevenue

$



$
133,922


$
36,064

$
(14,644
)

$
155,342Cost of goods sold






108,623



23,386


(13,560
)


118,449Gross profit






25,299



12,678


(1,084
)


36,893Other operating expenses






32,588



6,570






39,158Income (loss) from operations






(7,289
)


6,108


(1,084
)


(2,265
)Interest expense and other, net


(14,720
)


(168
)


146






(14,742
)Income tax provision (benefit)






(6,196
)


1,266






(4,930
)Net income (loss)

$
(14,720
)

$
(1,261
)

$
4,988

$
(1,084
)

$
(12,077
)




14




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IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


June 30, 2002




Condensed Consolidating Statement of Cash Flows


For the Period November 15, 2001 to June 30, 2002





IPC Acquisition


Guarantor Subsidiaries


Non-Guarantor Subsidiaries


Eliminations


ConsolidatedNet cash (used in) provided by operating activities

$
(2,772
)

$
1,767


$
27,721


$



$
26,716Capital expenditures






(1,819
)


(966
)






(2,785
)Payment for acquisitions, net of cash acquired and working capital adjustments


(350,246
)


3,806



(57
)


751



(345,746
)Net cash (used in) provided by investing activities


(350,246
)


1,987



(1,023
)


751



(348,531
)Proceeds from debt, net of issuance costs


235,200















235,200Principal payments on debt


(2,625
)














(2,625
)Proceeds from equity issuances, net


139,700















139,700Net cash provided by financing activities


372,275















372,275Effect of exchange rate changes on cash










1,180







1,180Net increase in cash


19,257



3,754



27,878



751



51,640Cash at beginning of period






(380
)


1,131



(751
)


Cash at end of period

$
19,257


$
3,374


$
29,009


$



$
51,640





|10. |  | Acquisition
|--- |  | -----------




Acquisition of Hitachi Turret Business





On March 11, 2002, the Company entered into an
agreement to purchase the international customer base and related assets of the turret business of Hitachi, Ltd for a purchase price of approximately $2.5 million. This transaction was completed on March 29, 2002, and has been accounted for under
purchase accounting in accordance with SFAS No.141.





|11. |  | 2002 Stock Option Plan
|--- |  | ----------------------




In February 2002, the Company adopted the 2002 Stock Option Plan. The option plan provides for the grant of options to purchase shares of the Companys common stock to selected employees, officers, consultants and
directors. The purpose of the option plan is to provide an incentive to employees, officers, consultants and directors to devote their abilities and industry to the Companys success. The maximum number of shares that may be made the subject of
options granted under the option plan is 900,000. Through June 30, 2002, the Company has granted 754,025 stock options with an option price of $10 per share under the option plan. The Company will account for these options pursuant to APB Opinion
No. 25 Accounting for Stock Options Issued to Employees. Accordingly, no compensation expense will be recognized for these grants.





The option plan is administered by the compensation committee of the Companys Board of Directors, which determines the individuals to whom options are awarded, the number of shares subject to
each award, the exercise price of the option and other terms and conditions of the awards. Unless otherwise provided by the compensation committee, an option becomes exercisable for 25% of the shares subject to the option on each of the first four
anniversaries of the date the compensation committee grants the option. Options granted under the option plan are non-transferable and the shares acquired upon exercise of options are subject to certain transfer restrictions. The terms and
conditions of each option are set forth in an option agreement.





The option plan provides that the effect, if any,
on an option upon a change in control or sale in which certain of the Companys current stockholders dispose of all of their interests in the Company or any successor corporation will be set forth in the option agreement. Under the form of
option agreement that has been approved by the Companys compensation committee for current use under the plan, upon a change in control as defined in the plan, 50% of the unvested portion of each option will immediately become vested and
exercisable. In the event an option holders employment is terminated by the Company for any reason other than cause, death or disability within one year following the change in control, the option will become fully vested and exercisable and
remain exercisable for 180 days. The form of agreement also provides that in the event of certain corporate




15




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##### Table of Contents



IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


June 30, 2002







transactions, after which Goldman Sachs & Co. and its affiliates no longer have any ownership interest in the Company or any successor corporation, the
option will become fully vested and exercisable.





|12. |  | Key Employee Equity Investment Plan
|--- |  | -----------------------------------




In February 2002, the Company adopted the Key Employee Equity Investment Plan. Under the plan, certain employees and directors will be given the opportunity to purchase shares of the Companys
common stock at its current fair market value. The plan is administered by the compensation committee of the Companys Board of Directors, which determines the individuals who will be entitled to participate in the plan, the number of shares to
be offered to each participant and the terms and conditions of each offer. Up to 100,000 shares in the aggregate may be sold under the plan. Prior to the adoption of the Sarbanes-Oxley Act in July 2002, participants were permitted to pay for up to
two-thirds of the purchase price with a promissory note that would be secured by the purchased shares. Since the adoption of the Sarbanes-Oxley Act, certain participants may not be permitted to purchase shares under the plan with such promissory
notes. The shares will be subject to certain transfer restrictions. Through July 31, 2002, 60,000 shares have been purchased under the plan.





|13. |  | Commitments and Contingencies
|--- |  | -----------------------------




The Company guaranteed certain equipment lease, real estate, employee and other obligations of former affiliates. At the closing of the IPC Acquisition, the Company deferred payment to Global Crossing
of $20.8 million of the purchase price, which represents the amounts of these guaranteed obligations as certified by Global Crossing. There can be no assurance that the amounts certified by Global Crossing included all of the amounts actually
guaranteed. To date, the Company has paid approximately $12.3 million with respect to the guaranteed obligations. The Company may be liable for additional guaranteed obligations to the extent claims are asserted by third parties against the Company.





In addition, except as described below, the Company is not a party to any pending legal proceedings other than
claims and lawsuits arising in the normal course of business. Management believes these proceedings will not have a material adverse effect on the Companys consolidated financial condition or results of operations.





On June 27, 2000, an action was brought against several defendants, including IPC Information Systems, Inc., in the United States District
Court for the Southern District of New York by two electrical contractors alleging that IPC Information Systems violated federal antitrust and New York state law by conspiring with the International Brotherhood of Electrical Workers Local Union
Number 3, AFL-CIO, and five electrical contractors, to exclude plaintiffs from telecommunications wiring and systems installation jobs in the New York City metropolitan area. The Company believes the suit is without merit. However, there can be no
assurance that the resolution of this lawsuit will ultimately be favorable. Plaintiffs are seeking injunctive relief and damages from the defendants in excess of an aggregate of $50 million.




16




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##### Table of Contents

|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- |  | -------------------------------------------------------------------------------------




You should read the following discussion of our financial condition and results of operations with our condensed consolidated financial statements and related notes included elsewhere in this quarterly report.





Some of the matters discussed in this filing include forward-looking statements. Statements that are predictive in nature, that
depend upon or refer to future events or conditions or that include words such as expects, anticipates, intends, plans, believes, estimates, thinks, and similar
expressions are forward-looking statements. These statements involve known and unknown risks, uncertainties and other risk factors, including but not limited to those described in our Registration Statement on Form S-4 (No. 333-82540), that may
cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements.





Although we believe that these statements are based upon reasonable assumptions, we can give no assurance that our goals will be achieved. Given these uncertainties,
prospective investors are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements are made as of the date of this filing. We assume no obligation to update or revise them or provide reasons why
actual results may differ.





Overview





We are the leader in advanced trading room communications systems known as turret systems, or dealerboards, based on our installed base of approximately 108,000 institutional trading positions
worldwide. Our primary business is the design, manufacture, installation and service of turret systems for the trading operations of investment and commercial banks, foreign exchange and commodity brokers and dealers, market exchanges, mutual and
hedge fund companies, asset managers, insurance companies and energy trading companies. We also install and service the cabling infrastructure and networks within buildings that connect voice and data communications devices for traders and others in
the global financial, exchange and energy trading industries.





Our two major operating units are Trading Systems
and Information Transport Systems, or ITS. Trading Systems reports (1) sales of turret systems to distributors and direct sales and installations of turret systems as Product sales and installation, and (2) revenue from turret system
maintenance, including annual and multi-year service contracts, and from moves, additions and changes, commonly known as MACs, to existing turret system installations as Service. ITS reports (1) revenue from design, integration and
implementation of cabling infrastructure projects, including local and wide area networks, and from sales of intelligent network products, such as hubs, bridges and routers, as Product sales and installation and (2) revenue from on-site
maintenance of customer cable infrastructures and from the provision of outsourcing services for the support, expansion and upgrading of existing customer networks as Service.





Revenue from Trading Systems and ITS sales and installation is recognized upon completion of the installation, except for revenue from sales of turret products to
distributors, which is recognized upon shipment by us. Under contract provisions, customers are progress-billed prior to the completion of the installation. The revenue related to such advance payments is deferred until system installation is
completed. All costs incurred on uncompleted contracts are accumulated and recorded as inventory on customer sites awaiting installation. In addition, contracts for annual recurring turret and ITS services are generally billed in advance, and are
recorded as revenue ratably (on a monthly basis) over the contractual periods. Revenue from MACs to turret systems is recognized upon completion, which usually occurs in the same month or the month following the order for services.





Cost of revenue for Trading Systems and ITS includes material and labor associated with the installation of a project or the
service performed.





Our revenues and operating results could fluctuate significantly from period to period. Given
the relatively large sales price of our trading systems and our recognition of revenue only upon completion of installations, a limited number of system installations may account for a substantial portion of revenues in any particular period. As a
result of these and other factors, we could experience significant fluctuations in revenues and operating results in future periods. In addition, our customers are concentrated in the global financial, exchange and energy trading industries and our
revenues may decline during periods of economic downturn that impact those sectors.





Impact of the Acquisition





During the period that we were owned by Global Crossing, we provided services to Global Crossing at cost and Global Crossing
performed certain administrative services on our behalf and allocated a charge for those services to us. Going forward, any services we provide to Global Crossing or that Global Crossing provides to us will be on an arms-length basis. Since
the IPC Acquisition was accounted for as a purchase, the book value of our assets was adjusted to reflect the allocation of the excess of the purchase price over the net assets acquired. As a result, our historical results of operations and
financial position are not necessarily indicative of our future results of operations or financial condition. The amounts presented below for the nine months




17




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##### Table of Contents

ended June 30, 2002 represent the sum of the amounts separately reported for the pre-acquisition period from October 1, 2001 to December 20,
2001 and the post-acquisition period from December 21, 2001 to June 30, 2002.





Recent Events





We expect the current market conditions to cause our customers to exercise caution with information technology and communications
spending, which may cause decreased product sales and installation revenue in 2003. Accordingly, we expect to reduce our work force by approximately 8% in the fourth quarter of the 2002 fiscal year to reduce fixed costs in 2003. We will record a
charge at the time we implement the reduction of our workforce.





Comparison of the Three Months (Q3 2002) and Nine Months
(YTD 2002) Ended June 30, 2002 to the Three Months (Q3 2001) and Nine Months (YTD 2001) Ended June 30, 2001.





The following table sets forth, as a percentage of revenue, our condensed consolidated statements of operations for the periods indicated.





Q3 2002


Q3 2001


YTD 2002


YTD 2001Revenue:Product sales and installations

59
%

67
%

65
%

64
%Service

41
%

33
%

35
%

36
%100
%

100
%

100
%

100
%Cost of goods sold:Product sales and installations

48
%

33
%

51
%

39
%Service

22
%

20
%

20
%

21
%70
%

53
%

71
%

60
%Gross profit

30
%

47
%

29
%

40
%Research and development

6
%

5
%

5
%

6
%Selling, general and administrative expense

16
%

11
%

18
%

13
%Depreciation and amortization

8
%

15
%

10
%

17
%Income (loss) from operations

0
%

16
%

(4
)%

4
%Other income (expense):Interest expense, net

(11
)%

(11
)%

(10
)%

(10
)%Other income, net

0
%

0
%

0
%

1
%Income (loss) before income taxes

(11
)%

5
%

(14
)%

(5
)%Income tax expense (benefit)

(3
)%

(2
)%

(3
)%

3
%Net income (loss)

(8
)%

7
%

(11
)%

(8
)%





Revenue.





The following table sets forth our consolidated revenue and revenue as reported for our two major operating units.





ConsolidatedQ3 2002

Q3 2001

$ Change


% Change

YTD 2002

YTD 2001

$ Change


% ChangeREVENUE:Product sales and installations

$
37,087

$
51,236

$
(14,149
)

(28)%

$
140,107

$
134,104

$
6,003


4%Service


25,721


24,826


895


4%


74,015


75,681


(1,666
)

(2)%Total

$
62,808

$
76,062

$
(13,254
)

(17)%

$
214,122

$
209,785

$
4,337


2%Trading Systems DivisionQ3 2002

Q3 2001

$ Change


% Change

YTD 2002

YTD 2001

$ Change


% ChangeREVENUE:Product sales and installations

$
31,655

$
40,406

$
(8,751
)

(22)%

$
115,956

$
103,658

$
12,298


12%Service


22,350


20,953


1,397


7%


63,143


63,446


(303
)

0%Total

$
54,005

$
61,359

$
(7,354
)

(12)%

$
179,099

$
167,104

$
11,995


7%




18




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##### Table of Contents




ITS DivisionQ3 2002

Q3 2001

$ Change


% Change

YTD 2002

YTD 2001

$ Change


% ChangeREVENUE:Product sales and installations

$
5,8432

$
10,830

$
(5,398
)

(50)%

$
24,151

$
30,446

$
(6,295
)

(21)%Service


3,371


3,873


(502
)

(13)%


10,872


12,235


(1,363
)

(11)%Total

$
8,803

$
14,703

$
(5,900
)

(40)%

$
35,023

$
42,681

$
(7,658
)

(18)%





Our Q3 2002 consolidated revenues decreased from Q3 2001
consolidated revenues because of a decline in large installation projects. Our YTD 2002 consolidated revenues increased from YTD 2001 consolidated revenues because of large Trading Systems installations in the first half of the year. While YTD 2002
consolidated revenues were higher than YTD 2001 consolidated revenues, we expect consolidated revenues for the full 2002 fiscal year to be lower than consolidated revenues in the 2001 fiscal year due in part to the continued uncertainty in the
financial markets since the events of September 11 th and the overall decline in the global economy, both
of which have caused our customers to extend their planning and implementation cycles.





Revenue from new Trading
Systems installation projects in Q3 2002 decreased from Q3 2001 because of a decline in large installation projects. YTD 2002 revenues from new Trading Systems installation projects increased from YTD 2001 revenues from new Trading Systems
installation projects due to the completion of a large installation project for $14.3 million in Q2 2002, while there were no installations of comparable size in YTD 2001.





Trading Systems service revenue increased in Q3 2002 from Q3 2001 due to the purchase of the Hitachi, Ltd. Trading system service base in March 2002. YTD 2002 service
revenue decreased from YTD 2001 due to the loss of trading floors as a result of the events of September 11 th .





Revenue from new ITS installation projects decreased in Q3 2002 from Q3 2001 due to
the timing of completion of large installation projects. There were three large installations totaling $5.3 million that were completed in Q3 2001 as compared to one installation for $2.9 million in Q3 2002. There were also a higher number of
average size jobs completed in Q3 2001 as compared to Q3 2002.





ITS service-related revenue decreased in Q3 2002
and YTD 2002 from Q3 2001 and YTD 2001 due to a large customer merger in the financial industry, which resulted in continued but lower service requirements for that customer.





Cost of Revenue.





The
following table sets forth our consolidated cost of revenue (excluding depreciation and amortization) and cost of revenue as reported for our two major operating units (including and excluding the amortization of inventory step-ups).





ConsolidatedQ3 2002

% of Rev.

Q3 2001

% of Rev.

% Change

YTD 2002

% of Rev.

YTD 2001

% of Rev.

% ChangeCOST OF REVENUE (including amortization of inventory step-up):Product sales and installations

$
30,322

82%

$
25,220

49%

33%

$
108,643

78%

$
80,968

60%

18%Service


13,617

53%


14,836

60%

(7)%


42,628

58%


44,526

59%

(1)%Total

$
43,939

70%

$
40,056

53%

17%

$
151,271

71%

$
125,494

60%

11%Trading Systems DivisionQ3 2002

% of Rev.

Q3 2001

% of Rev.

% Change

YTD 2002

% of Rev.

YTD 2001

% of Rev.

% ChangeCOST OF REVENUE (including amortization of inventory step-up):Product sales and installations

$
25,349

80%

$
16,037

40%

40%

$
87,368

75%

$
55,330

53%

22%Service


10,769

48%


11,331

54%

(6)%


32,948

52%


33,652

53%

(1)%Total

$
36,118

67%

$
27,368

45%

22%

$
120,316

67%

$
88,982

53%

14%ITS DivisionQ3 2002

% of Rev.

Q3 2001

% of Rev.

% Change

YTD 2002

% of Rev.

YTD 2001

% of Rev.

% ChangeCOST OF REVENUE (including amortization of inventory step-up):Product sales and installations

$
4,973

92%

$
9,183

85%

7%

$
21,275

88%

$
25,638

84%

4%Service


2,848

85%


3,505

91%

(6)%


9,680

89%


10,874

89%

0%Total

$
7,821

89%

$
12,688

86%

3%

$
30,955

88%

$
36,512

86%

2%




19




---

##### Table of Contents

ConsolidatedCOST OF REVENUE (excluding
amortization of inventory step-up):

Q3 2002

% of Rev.

Q3 2001

% of Rev.

% Change


YTD 2002

% of Rev.

YTD 2001

% of Rev.

% ChangeProduct sales and installations

$
19,948

54%

$
25,220

49%

5%


$
75,149

54%

$
70,290

52%

2%Service


13,617

53%


14,836

60%

(7%
)


41,822

57%


44,526

59%

(2%
)Total

$
33,565

53%

$
40,056

53%

0%


$
116,971

55%

$
114,816

55%

0%Trading Systems DivisionCOST OF REVENUE (excluding
amortization of inventory step-up):

Q3 2002

% of Rev.

Q3 2001

% of Rev.

% Change


YTD 2002

% of Rev.

YTD 2001

% of Rev.

% ChangeProduct sales and installations

$
15,308

48%

$
16,037

40%

8%


$
55,110

48%

$
45,664

44%

4%Service


10,769

48%


11,331

54%

(6%
)


32,208

51%


33,652

53%

(2%
)Total

$
26,077

48%

$
27,368

45%

3%


$
87,318

49%

$
79,316

47%

2%ITS DivisionCOST OF REVENUE (excluding
amortization of inventory step-up):

Q3 2002

% of Rev.

Q3 2001

% of Rev.

% Change


YTD 2002

% of Rev.

YTD 2001

% of Rev.

% ChangeProduct sales and installations

$
4,640

85%

$
9,183

85%

0%


$
20,039

83%

$
24,626

81%

2%Service


2,848

84%


3,505

90%

(6%
)


9,614

88%


10,874

89%

(1%
)Total

$
7,488

85%

$
12,688

86%

(1%
)

$
29,653

85%

$
35,500

83%

2%





Consolidated cost of revenue for each period reflects a charge
resulting from the amortization of the step up in inventory of $10.4 million and $34.3 million (relating to the IPC Acquisition in December 2001) and $0.0 million and $10.7 million (relating to the June 2000 acquisition of IPC Information Systems,
Inc. by Global Crossing) for Q3 2002 and YTD 2002 and Q3 2001 and YTD 2001, respectively. This purchase accounting inventory fair-value step up is a non-cash GAAP adjustment that is recorded when a company is acquired as we have been in the two
respective years.





Consolidated product sales and installation cost of revenue (excluding the inventory step-up,
depreciation and amortization) as a percentage of revenue increased in Q3 2002 from Q3 2001 and YTD 2002 from YTD 2001. This was due to product mix and sales of new products, which can have lower margins when first introduced as they were in 2002.





Consolidated service cost of revenue (excluding the inventory step-up, depreciation and amortization) as a
percentage of revenue decreased in Q3 2002 from Q3 2001 and YTD 2002 from YTD 2001 due to an increased mix of maintenance revenue, which have higher margins than MAC revenue, included in service revenue.





Trading Systems product sales and installation cost of revenue (excluding the inventory step up, depreciation and amortization) as a
percentage of revenue increased on a quarterly basis in Q3 2002 from Q3 2001 due to product mix and sales of new products, which can have lower margins when first introduced. The decrease in Trading Systems cost of revenue was mainly in sales of our
products, which sell at higher margins than the resale of third party products. The increase in YTD 2002 cost of revenue is mainly due to the completion of a large installation of our new voice-over-IP trading system, the IQmx tm , sold to a large global customer at a lower than average margin. This is typical with the introduction of a new
voice trading system. This increase was partially offset by a higher volume of total product sales and installation revenue with no significant increase in fixed costs compared to the same period a year ago.





Trading Systems service cost of revenue (excluding the inventory step up, depreciation and amortization) as a percentage of revenue
decreased in Q3 2002 from Q3 2001and in YTD 2002 due to an increased mix of maintenance revenue, which have higher margins than MAC revenue, included in service revenue.





ITS product sales and installation cost of revenue (excluding the inventory step up, depreciation and amortization) as a percentage of revenue remained relatively flat in
Q3 2002 and increased slightly in YTD 2002. The increase on a YTD basis is mainly due to pricing pressures in 2002 resulting from general economic conditions.





ITS service cost of revenue (excluding the inventory step up, depreciation and amortization) as a percentage of revenue decreased in Q3 2002 from Q3 2001 due to higher margins being realized from
disaster recovery work. Cost of revenue in YTD 2002 remained relatively flat as the higher margins realized in Q3 2002 offset the higher percentage of cost of revenue.





Research and Development Expense.





ConsolidatedQ3 2002

Q3 2001

$ Change

% Change

YTD 2002

YTD 2001

$ Change

% ChangeResearch and development

$3,847

$3,672

$175

5%

$11,481

$11,888

$(407)

(3%)





Research and development efforts are focused on the next generation
of the Trading Systems products, applications, and enhancements to our current product lines. Our investments on a quarter to quarter and year to date basis reflected above are substantially the same from period to period. We expect to adjust our
research and development expenditures downward in the future in an effort to reduce fixed costs.




20




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##### Table of Contents

Selling, General and Administrative Expense.





ConsolidatedQ3 2002

Q3 2001

$ Change

% Change

YTD 2002

YTD 2001

$ Change

% ChangeSelling, general & administrative expense

$10,352

$8,183

$2,169

27%

$38,357

$27,396

$10,961

40%





Selling, general and administrative expenses increased in Q3 2002
from Q3 2001 primarily due to the inclusion of expenses in Q3 2002 that were necessary to operate as a stand alone entity, combined with the lack of comparable expenses in Q3 2001. The increase in YTD 2002 reflects the stand alone operating costs,
the inclusion of $2.5 million of employee bonuses related to the IPC Acquisition and a $6.9 million charge for corporate related services from Global Crossing in YTD 2002, as compared to only a $1.9 million charge for corporate related services from
Global Crossing in YTD 2001.





Depreciation and Amortization.





ConsolidatedQ3 2002

Q3 2001

$ Change

% Change

YTD 2002

YTD 2001

$ Change

% ChangeDepreciation and amortization

$4,783

$11,976

$(7,193)

(60%)

$20,686

$36,155

$(15,469)

(43%)





The decrease in depreciation and amortization in Q3 2002 from Q3
2001 and YTD 2002 from YTD 2001 principally reflects the adoption during this fiscal year of SFAS No.142, in which goodwill and indefinite lived intangible assets are no longer subject to periodic amortization, as well as the change in carrying
amount of amortizable intangible assets resulting from the IPC Acquisition.





Interest Expense, net.





ConsolidatedQ3 2002

Q3 2001

$ Change

% Change

YTD 2002

YTD 2001

$ Change

% ChangeInterest expense, net

$
6,894

$
8,722

$
(1,828)

(21%)

$
20,665

$
21,852

$
(1,187)

(5%)





The decreases in interest expense, net in Q3 2002 from Q3 2001 and
YTD 2002 from YTD 2001 are primarily due to the fact that interest charged on the outstanding senior subordinated notes and indebtedness under our senior secured credit facilities is lower than the intercompany amounts previously allocated by Global
Crossing.





Provision for Income Taxes.





Our effective tax rate for the three and nine months ended June 30, 2002 was 24.0% and 19.0%, respectively, compared to (52.0)% for each of the similar periods of the prior
year. The comparability of these periods is significantly impacted by the IPC Acquisition and reflects the tax impact of the purchase accounting.







21




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##### Table of Contents

Liquidity and Capital Resources





Cash provided by operating activities was $42.0 million for YTD 2002 as compared to $15.1 million for YTD 2001. This increase of $26.9 million from the prior year period reflect the improvements to our
working capital position and specifically our improved collection of accounts receivables.





Cash used in investing
activities was $350.4 million for YTD 2002 as compared to $6.7 million for YTD 2001. Cash used in investing activities for YTD 2002 related almost exclusively to cash used for the IPC Acquisition. Cash used in investing activities for the equivalent
period of 2001 related exclusively to capital expenditures.





Cash provided by financing activities was $357.1
million for YTD 2002 as compared to $8.4 million for the YTD 2001. This increase of $348.7 million related to the financing activity resulting from the IPC Acquisition. Cash inflows in YTD 2002 of $140 million of common equity contribution from our
equity sponsor, GSCP 2000 and its affiliates, the proceeds of the offering of $150 million of senior subordinated notes and the borrowing of $105 million under our senior secured credit facilities were partially offset by certain intercompany
activity which occurred prior to the IPC Acquisition. Cash inflows in YTD 2001 related primarily to proceeds from intercompany borrowings from our former parent.





The effect of exchange rate changes on cash resulted in a net decrease of cash of approximately $0.8 million for YTD 2002 as compared to $1.4 million for YTD 2001.





Our primary future uses of cash will be to fund interest expense and principal repayments on our debt, capital expenditures, and research
and development efforts as well as for working capital. Our primary future sources of cash will be cash flows from operations and, if necessary, borrowings under the revolving credit facility. At June 30, 2002, we had $51.6 million of unrestricted
cash and $8.5 million of restricted cash. The restricted cash balance relates to the deferred purchase obligation under the agreement relating to the IPC Acquisition. Through June 30, 2002, we have paid approximately $12.3 million of the contingent
liabilities related to the deferred purchase obligation. Additionally, we had liquidity available to us through our $15 million revolving credit facility under our senior secured credit facilities under which there were no amounts outstanding at
June 30, 2002. However, the amount available under our revolving credit facility is reduced to $10.7 million by outstanding letters of credit of $4.3 million at June 30, 2002.





Our ability to make payments on our indebtedness, including the senior subordinated notes, and to fund planned capital expenditures and research and development efforts
will depend on our ability to generate cash in the future, which is subject, in part, to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.





We believe our cash flow from operations, available cash and available borrowings under the revolving credit facility will be adequate to
meet our current and long-term liquidity needs.





Contractual Obligations and Other Commercial Commitments





The following summarizes our contractual obligations at June 30, 2002, and the effect such obligations are expected to have on our
liquidity and cash flow in future periods.





Payments Due by Period(in thousands)

Total

Less than 1
year

1-3 years

4-5 years

After 5 yearsContractual Obligations:Deferred Compensation Agreements

$
5,627

$
188

$
936

$
1,024

$
3,479Operating Leases


14,253


2,340


7,997


2,969


947Total Contractual Cash Obligations

$
19,880

$
2,528

$
8,933

$
3,993

$
4,426Amount of Commitment Expiration Per PeriodTotal Amounts Committed

Less than 1
year

1-3 years

4-5 years

Over 5 yearsOther Commercial Commitments:Line of Credit

$


$


$


$


$
Standby Letters of Credit


4,250


4,250








Guaranties for Global Crossing Affiliates


9,057


9,057








Total Commercial Commitments

$
13,307

$
13,307

$


$


$











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##### Table of Contents




Recent Accounting Pronouncements





In August 2001, the FASB issued SFAS No.143, Accounting for Asset Retirement Obligations, which requires entities to record the fair value of the estimated
liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes an amount equal to the present value of the estimated liability by increasing the carrying amount of
the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon settlement. SFAS 143 is effective for fiscal years beginning after June 15, 2002, with earlier application encouraged. We will adopt SFAS 143 on October 1, 2002. Management does not
believe the adoption of this standard will have a material impact on our consolidated financial statements.





In
August 2001, the FASB issued SFAS No.144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No.144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement
supersedes SFAS 121, Accounting for Impairment of Long Lived Assets and the accounting and reporting provisions of APB Opinion No.30, Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a
Business, and Extraordinary and Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business (as previously defined in that Opinion). This statement will be adopted by us on October 1, 2002.
Management does not believe the adoption of this standard will have a material impact on our consolidated financial statements.





In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS 145 eliminates the requirement under SFAS No. 4,
Reporting Gains and Losses from Extinguishment of Debt, to report gains and losses from extinguishments of debt as extraordinary items in the income statement. Accordingly, gains or losses from extinguishments of debt for fiscal years
beginning after May 15, 2002 shall not be reported as extraordinary items unless the extinguishment qualifies as an extraordinary item under the provisions of APB Opinion No. 30, Reporting the Results of OperationsReporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions (Opinion 30). Upon adoption of this pronouncement, any gain of loss on extinguishment of debt previously
classified as an extraordinary item in prior periods that does not meet the criteria of Opinion 30 for such classification should be reclassified to conform with the provisions of SFAS 145. Management does not believe the adoption of this standard
will have a material impact on the condensed consolidated financial statements.





In July 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities and nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring). SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, whereas EITF No. 94-3 had recognized the liability at the commitment date to
an exit plan. The Company is required to adopt the provisions of SFAS 146 effective for exit or disposal activities initiated after December 31, 2002. Management has not yet determined the effect, if any, the adoption of SFAS 146 will have on the
Companys condensed consolidated financial statements.





Summary of Critical Accounting Policies





Revenue Recognition





Revenue from product sales and installation is recognized upon completion of the installation, except for revenue from sales of turret products to distributors, which is recognized upon shipment by us. Under contract provisions,
customers are progress-billed prior to the completion of the installation. The revenue related to such advance payments is deferred until system installation is completed. All costs incurred on uncompleted contracts are accumulated and recorded as
inventory awaiting installation. In addition, contracts for annual recurring turret and ITS services are generally billed in advance, and are recorded as revenue ratably (on a monthly basis) over the contractual periods. Revenue from moves,
additions and changes to turret systems is recognized upon completion, which usually occurs in the same month or the month following the order for services.





Inventories





Inventories are stated at the lower of FIFO (first in, first out)
cost or market but not in excess of net realizable value. Inventory costs include all direct manufacturing costs and applied overhead. Allowances are established based on managements estimate of inventory on hand that is potentially obsolete
or for which its market value is below cost.




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Impairment of Long-Lived Assets





We review long-lived assets, including property, plant and equipment and intangible assets, for impairment whenever events or changes in business circumstances indicate
that the carrying amount of the assets may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the assets and its eventual disposition is less than its
carrying amount. Impairment, if any, is assessed using discounted cash flows. No impairments have occurred.








Income Taxes





In accordance with SFAS No. 109, Accounting for Income Taxes, we
recognize deferred income taxes for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end, based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized. The
provision for income taxes is the tax payable for the period and the change during the period in deferred tax assets and liabilities.





For periods prior to the IPC Acquisition, we had filed a consolidated federal tax return and separate and combined state tax returns with our parent. For purposes of the accompanying combined financial statements for the
period October 1, 2001 to December 20, 2001, income taxes have been prepared in accordance with SFAS No.109, Accounting for Income Taxes and SEC Staff Accounting Bulletin Topic 1B, Allocation of Expenses and Related Disclosure in
Financial Statements of Subsidiaries, utilizing the separate return method. Resulting payables for taxes have been recorded as adjustments to the intercompany accounts. For periods subsequent to December 20, 2001, we are required to file
separate stand-alone tax returns.







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ITEM 3.    
Quantitative and Qualitative Disclosure About Market Risk





Market risks relating to our
operations result primarily from changes in interest rates and changes in foreign exchange rates. We monitor our interest rate and foreign exchange rate exposures on an ongoing basis. We have not entered into any interest rate hedging contracts.





As an international company, the Company is exposed to foreign currency risk. In order to minimize the risk
caused by currency fluctuations, the Company entered into foreign currency hedging contracts in the current quarter, commonly known as collars. The Company intends to use these collars to minimize exchange rate risk when repatriating funds from our
UK subsidiary. We expect to repatriate funds at year-end in connection with our required bank debt payments. The currency hedged was the British Pound.





Under Statement of Financial Accounting Standards No.133, Accounting for Derivative Instruments and Hedging Activities, the Company is required to recognize all derivatives as either assets
or liabilities in the condensed consolidated statement of financial position and measure those instruments at fair value. For these specific transactions, the resulting net gain or loss has been recognized as a component of other income and expense
in the condensed consolidated statement of operations. On June 21, 2002, the Company entered into two collars with notional amounts of £4 million and £6 million and expiration dates of September 13, 2002 and September 18, 2002,
respectively. As of June 30, 2002 the Company recognized an unrealized loss of $0.2 million in the condensed consolidated statement of operations representing the fair value of these collars at that date.





The following table provides information about our financial instruments that are sensitive to changes in interest rates. For debt
obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. The fair market value of our long-term debt equals its carrying value at June 30, 2002, as there were no significant
fluctuations in interest rates in the period from issuance on December 20, 2001 to June 30, 2002.





Fair Value on June 30, 2002

Future Principal Payments(in millions)


2002

2003

2004

2005

2006

Thereafter

TotalLong-Term Debt:Fixed RateSenior Subordinated Notes, interest payable at 11.50%, maturing 2009

$
153.0

$


$


$


$


$


$
150.0

$
150.0Variable RateSenior Secured Credit Facilities Term Loan (7.50% at June 30, 2002)

$
102.4

$
2.6

$
10.5

$
10.5

$
10.5

$
68.3

$


$
102.4







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Part II  Other Information:





Item 1.    
Legal Proceedings





Except as described below, we are not a party to any pending legal
proceedings other than claims and lawsuits arising in the ordinary course of business. We believe these proceedings will not have a material adverse effect on our consolidated financial condition or results of operations.





On June 27, 2000, an action was brought against several defendants, including IPC Information Systems, Inc. in the United States District
Court for the Southern District of New York by two electrical contractors alleging that IPC Information Systems violated federal antitrust and New York State law by conspiring with the International Brotherhood of Electrical Workers Local Union
Number 3, AFL-CIO, and five electrical contractors, to exclude plaintiffs from telecommunications wiring and systems installation jobs in the New York City metropolitan area. We believe the suit is without merit. However, there can be no assurance
that the resolution of this lawsuit will ultimately be favorable. Plaintiffs are seeking injunctive relief and damages from the defendants in excess of an aggregate of $50 million.





Item 2.

Changes in Securities and Use of ProceedsNoneItem 3.

Defaults Upon Senior SecuritiesNoneItem 4.

Submission of Matters to a Vote of Security HoldersNoneItem 5.

Other InformationNoneItem 6.

Exhibits and Reports on Form 8-K(A) EXHIBITS10.1

Amendment dated as of July 3, 2002 among IPC Acquisition Corp., IPC Information Systems, Inc., IPC Information Systems Australia Pty Ltd, Asia Global Crossing
Asia Pacific Commercial Ltd., Global Crossing Limited and Global Crossing Telecommunications Inc., to the Network Services, Channel Sales and Transition Services Agreement dated as of December 20, 2001.99.1

Certificate of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.2

Certificate of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(B)

REPORTS ON FORM 8-KThe Company has filed no reports on Form 8-K during the quarter ended June 30, 2002.







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SIGNATURE





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





IPC Acquisition Corp.Dated: August 14, 2002

By:     /s/     Timothy WhelanTimothy WhelanChief Financial Officer (Principal
Financial and Accounting Officer and Duly Authorized Officer)




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