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UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549








Form 10-Q








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




For the Quarterly Period Ended March 31, 2002





or





| ̈ |  | TRANSITION REPORT PERSUANT 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  No
X





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 May 31, 2002Common Stock par value $0.01

14,000,000 shares








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##### Table of Contents

IPC ACQUISITION CORP.





INDEX





Part I. Financial Information:Item 1.

Financial Statements

PageA)

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

1B)

Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2001 and 2002, the Six Months ended March 31, 2001, the period
from October 1, 2001 to December 20, 2001 and the period from November 15, 2001 to March 31,
2002

2C)

Condensed Consolidated Statements of Cash Flows for the Six Months endedMarch 31, 2001, the period from October 1, 2001 to December 20, 2001 and the period from November 15, 2001 to March 31, 2002

3D)

Notes to Condensed Consolidated Financial Statements

4Item 2.

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

19Item 3.

Quantitative and Qualitative Disclosure About Market Risk

26Part II. Other Information:Item 1.

Legal Proceedings

27Item 2.

Changes in Securities and Use of Proceeds

27Item 3.

Defaults Upon Senior Securities

27Item 4.

Submission of Matters to a Vote of Security Holders

27Item 5.

Other Information

27Item 6.

Exhibits and Reports on Form 8-K

27Signatures



28






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##### Table of Contents

ITEM 1.    Financial Statements





IPC ACQUISITION CORP.


CONDENSED CONSOLIDATED BALANCE SHEETS


(Unaudited)


(In Thousands)





PredecessorSeptember 30,
2001


December 31,
2001


March 31,
2002AssetsAssets:Cash

$
4,536


$
25,046


$
39,581Restricted cash






20,800



8,514Accounts receivable, net of allowance of $2,648,$125 and $292, respectively


77,496



66,804



63,883Inventories, net


45,258



67,810



48,080Prepaid and other current assets


2,919



2,832



3,280Total current assets


130,209



183,292



163,338Property, plant and equipment, net


20,368



21,203



18,205Goodwill


185,033



77,310



72,833Intangible assets, net


152,630



215,601



213,088Deferred financing costs, net






19,712



18,974Other assets


871



552



592Total assets

$
489,111


$
517,670


$
487,030Liabilities and Stockholders EquityLiabilities:Current portion of long term debt

$



$
5,250


$
5,250Accounts payable


9,254



6,597



6,668Accrued expenses


15,029



27,209



28,088Current portion of deferred compensation


471



471



471Income taxes payable


1,934



2,736



4,215Customer advances on installation contracts


41,388



43,327



29,331Deferred revenue on maintenance contracts


10,204



8,633



12,335Due to affiliates


104,106







Deferred purchase price obligation






20,800



8,514Total current liabilities


182,386



115,023



94,872Term loan






99,750



99,750Senior subordinated notes






150,000



150,000Deferred taxes, net


56,679



10,940



7,106Deferred compensation


3,377



3,354



3,328Other long term liabilities


2,623







Total liabilities


245,065



379,067



355,056Commitments 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 March 31, 2002






140



140Paid in capital


278,048



139,560



139,560Accumulated deficit


(32,710
)


(1,382
)


(6,692
)Accumulated other comprehensive income (loss)


(1,292
)


285



(1,034
)Total stockholders equity


244,046



138,603



131,974Total liabilities and stockholders equity

$
489,111


$
517,670


$
487,030





See the accompanying notes.




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##### Table of Contents

IPC ACQUISITION CORP.


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)


(In Thousands)





Predecessor





PredecessorThree Months Ended March
31, 2001


Three Months Ended March
31, 2002


Six Months Ended March 31, 2001


Period from October 1, 2001 to December 20, 2001


Period from November 15, 2001 to March 31, 2002Revenue:Product sales and installations

$
48,184


$
54,854


$
82,868


$
35,691


$
67,329Service


24,594



23,351



50,855



23,089



25,20572,778



78,205



133,723



58,780



92,534Cost of goods sold:Product sales and installations


26,226



46,779



55,748



18,869



59,452Service


14,911



13,791



29,690



13,953



15,05841,137



60,570



85,438



32,822



74,510Gross profit


31,641



17,635



48,285



25,958



18,024Research and development


3,624



3,809



8,216



3,519



4,115Selling, general and administrative expense


8,122



9,836



19,213



17,110



10,895Depreciation and amortization


11,947



4,611



24,179



10,737



5,166Income (loss) from operations


7,948



(621
)


(3,323
)


(5,408
)


(2,152
)Other income (expense):Interest expense, net


(6,745
)


(6,935
)


(13,130
)


(5,987
)


(7,784
)Other income, net


(45
)


(1
)


2,179



49



28Income (loss) before income taxes


1,158



(7,557
)


(14,274
)


(11,346
)


(9,908
)Income tax expense (benefit)


(602
)


(2,247
)


7,423



(318
)


(3,216
)Net income (loss)

$
1,760


$
(5,310
)

$
(21,697
)

$
(11,028
)

$
(6,692
)











See the accompanying notes.




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IPC ACQUISITION CORP.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


(In Thousands)





PredecessorSix Months Ended March 31, 2001


Period from October 1, 2001 to December 20, 2001


Period from November 15, 2001 to March 31, 2002Cash flows from operating activities:Net loss

$
(21,697
)

$
(11,028
)

$
(6,692
)Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation and amortization


3,325



1,393



1,225Amortization of intangibles


20,854



9,344



3,941Amortization of deferred financing costs










826Provision for doubtful accounts


222



1,018



303Deferred income taxes


(13,148
)


(4,761
)


(5,324
)Employee deferred compensation charge


(19
)


(19
)


(30
)Changes in operating assets and liabilities:Accounts receivables


(1,433
)


4,702



6,945Inventories


2,701



1,823



33,695Prepaids and other current assets


408



(281
)


(80
)Other assets


(493
)


322



89Accounts payable and accrued expenses


(14,845
)


7,019



(4,307
)Income taxes payable


(1,024
)


(988
)


2,001Customer advances and deferred revenue


17,166



9,326



(19,454
)Other liabilities






(2,623
)


Net cash (used in) provided by operating activities


(7,983
)


15,247



13,138Cash flows from investing activities:Capital expenditures


(4,153
)


(1,902
)


(982
)Payment for acquisitions, net of cash acquired (includes restricted cash of $8.5 million)










(346,441
)Net cash used in investing activities


(4,153
)


(1,902
)


(347,423
)Cash flows from financing activities:Proceeds from (repayments of) intercompany borrowings


25,716



(15,134
)


Principal payments on capital leases


(106
)






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


25,610



(15,134
)


374,900Effect of exchange rate changes on cash


662



(1,996
)


(1,034
)Net increase (decrease) in cash


14,136



(3,785
)


39,581Cash, beginning of period


3,152



4,536



Cash, end of period

$
17,288


$
751


$
39,581Supplemental disclosures of cash flow information:Cash paid during the periods for:Income taxes

$
1,616


$
1,338


$
108Interest

$
206


$
66


$
2,096Dividend to parent

$
62,570


$



$






See the accompanying notes.




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IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


March 31, 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 Amendment No. 1 to the 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 December 31, 2001 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 March 31, 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 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
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 $4.7 million.





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 was no amortization of goodwill and intangible assets that have indefinite useful lives for the period from November 15, 2001 to March 31, 2002. However, such assets will
be tested for impairment at least annually using the two-step process specifically provided in the statement. The Company plans to perform the first of the required impairment tests of goodwill and indefinite lived intangible assets in the third
quarter ending June 30, 2002. The




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IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


March 31, 2002




Company believes the recorded values of goodwill and trade name in the amount of $72.8 million and $18.0 million, respectively at March 31, 2002 are fully recoverable.





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.





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 and has not yet determined the effect, if any, the adoption of SFAS 143 will have 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.





Foreign Currency Translation Adjustment





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.





Predecessor





Predecessor


PredecessorThree Months Ended March 31,


Six Months Ended March 31, 2001


October 1, 2001 to December 20, 2001


November 15, 2001 to March 31, 2002(in thousands)

2001


2002Reported net (loss) income

$
1,760


$
(5,310
)

$
(21,697
)

$
(11,028
)

$
(6,692
)Translation adjustment


(2,089
)


(1,319
)


770



(1,965
)


(1,034
)Total comprehensive (loss) income

$
(329
)

$
(6,629
)

$
(20,927
)

$
(12,993
)

$
(7,726
)




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IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


March 31, 2002




|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 us $3.0 million based upon a revised estimate of the working capital and
customer advances adjustments. On January 31, 2002, we delivered to Global Crossing and its affiliates our determination of the amount of working capital and customer advances as of the closing. Based on our determination of these amounts, Global
Crossing or various of its affiliates are obligated to pay us an additional amount of $4.8 million. We have not been paid this additional amount.





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 $72.8 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 three months ended March 31, 2002 are not comparable to any period prior to December 21, 2001. In connection with
the IPC Acquisition, the Company recorded the following amounts to reflect the purchase price allocation described above (in thousands):





Goodwill

$
72,833Fair 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

$
310,703





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. An amount equal to the deferred payment was deposited into a bank account in the Companys
name and will be paid to Global Crossing 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 March 31, 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.




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IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


March 31, 2002




Set forth below is the unaudited pro forma results of operations of the Company for the Three Months ended
March 31, 2001 and 2002, the Six Months ended March 31, 2001, the period from October 1, 2001 through December 20, 2001 and the period from November 15, 2001 through March 31, 2002 had 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 has 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 March 31,


Six Months Ended March 31, 2001


October 1, 2001 to December 20, 2001


November 15, 2001 to March 31, 2002(in thousands)

2001

2002Revenue

$
72,778

$
78,205


$
133,723


$
58,780


$
92,534Net income (loss)

$
4,948

$
(5,310
)

$
(651
)

$
(3,870
)

$
(6,692
)





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




PredecessorSeptember 30, 2001

December 31, 2001

March31, 2002Components and manufacturing work in process

$
9,720

$
7,114

$
7,605Inventory on customer sites awaiting installation


25,775


51,536


31,185Parts and maintenance supplies


9,763


9,160


9,290$
45,258

$
67,810

$
48,080





|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 but reviewed for impairment annually or more frequently if certain indicators arise. Had the Company been accounting for its goodwill under SFAS No. 142 for all periods presented, the Companys net income (loss) would have been as
follows:




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IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


March 31, 2002





Predecessor




PredecessorThree Months Ended March 31,


Six Months Ended March 31, 2001


October 1, 2001 to December 20, 2001


November 15, 2001 to March 31, 2002(in thousands)

2001

2002Reported net income (loss)

$
1,760

$
(5,310
)

$
(21,697
)

$
(11,028
)

$
(6,692
)Add back goodwill amortization, net of tax


2,534






5,068



4,837



Adjusted net income (loss)

$
4,294

$
(5,310
)

$
(16,629
)

$
(6,191
)

$
(6,692
)





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


March31, 2002Intangible assets:Amortized intangible assets:Technology

$
35,940


$
45,000


$
45,000Customer list


108,904



153,000



154,029Accumulated amortization


(20,698
)


(399
)


(3,941
)Net carrying amount

$
124,146


$
197,601


$
195,088Non-amortized intangible assets:Goodwill, net

$
185,033


$
77,310


$
72,833Trade name


15,867



18,000



18,000Assembled workforce


12,617







Net carrying amount

$
213,517


$
95,310


$
90,833





Amortization expense for those intangible assets required to be
amortized under SFAS No. 142 was $3.9 million for the period from November 15, 2001 to March 31, 2002. Amortization expense prior to the adoption of SFAS No. 142 was $9.3 million and $20.9 million for the period from October 1, 2001 to December 20,
2001 and the six months ended March 31, 2001 respectively.





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




PredecessorSeptember 30, 2001

December 31, 2001

March31, 2002Accrued compensation and benefits

$
6,273

$
6,874

$
9,076Warranty reserves


2,373


2,430


3,236Sales taxes payable


792


1,033


573Job accruals


4,010


2,530


2,290Accrued transaction costs





7,900


3,988Accrued interest





757


5,048Other accruals


1,581


5,685


3,877$
15,029

$
27,209

$
28,088




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##### Table of Contents



IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


March 31, 2002




|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 and (ii) a $15 million revolving credit facility. The maturity date of the loans is December 31, 2006.





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 (because the senior subordinated notes are at a fixed interest rate, the Company was not required to enter into hedging agreements on the closing date of the
senior secured credit facilities) and include 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.





As of March 31, 2002, annual principal payments required under the $105 million term loan are as follows (in thousands):





2002

$
5,2502003


10,5002004


10,5002005


10,5002006


68,250$
105,000





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.





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. The Company has agreed to exchange the senior subordinated notes for publicly registered senior subordinated notes containing essentially
identical terms. A registration statement relating to this exchange became effective on May 14, 2002. The exchange offer expired on June 21, 2002. The Company will make each interest payment immediately preceding June 15 and December 15 to the
Holders of record on June 1 and December 1.





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 indebtness 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.




9




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##### Table of Contents



IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


March 31, 2002




|7. |  | 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 installation. 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 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

ConsolidatedPeriod from October 1, 2000 to March 31, 2001

(in thousands)Revenue:Product sales and installations

$
63,252


$
19,616

$
82,868Service


42,493



8,362


50,855Total revenue

$
105,745


$
27,978

$
133,723Direct margin


57,056



6,000


63,056Income (loss) from operations


(5,407
)


2,084


(3,323
)Depreciation and amortization


24,046



133


24,179Interest expense, net


(13,130
)





(13,130
)Income tax provision


7,423






7,423Total assets

$
496,674


$
27,499

$
524,173Capital expenditures

$
3,918


$
235

$
4,153PredecessorTrading Systems


ITS

ConsolidatedPeriod from October 1, 2001 to December 20, 2001

(in thousands)Revenue: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




10




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##### Table of Contents



IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


March 31, 2002


Trading Systems


ITS

ConsolidatedPeriod from November 15, 2001 to March 31, 2002

(in thousands)Revenue:Product sales and installations

$
56,857


$
10,472

$
67,329Service


21,998



3,207


25,205Total revenue

$
78,855


$
13,679

$
92,534Direct margin


23,382



2,213


25,595Income (loss) from operations


(2,428
)


276


(2,152
)Depreciation and amortization


5,019



147


5,166Interest expense, net


(7,784
)





(7,784
)Income tax (benefit)


(3,216
)





(3,216
)Total assets

$
443,401


$
43,629

$
487,030Capital expenditures

$
974


$
8

$
982








|8. |  | 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 March 31, 2001





PredecessorGuarantor Subsidiaries


Non-Guarantor Subsidiaries


Eliminations


ConsolidatedRevenue

$
121,249


$
24,865


$
(12,391
)

$
133,723Cost of goods sold


74,836



21,383



(10,781
)


85,438Gross profit


46,413



3,482



(1,610
)


48,285Other operating expenses


44,094



7,514







51,608Income (loss) from operations


2,319



(4,032
)


(1,610
)


(3,323
)Interest expense and other, net


(10,964
)


13







(10,951
)Income tax provision (benefit)


5,703



1,720







7,423Net income (loss)

$
(14,348
)

$
(5,739
)

$
(1,610
)

$
(21,697
)




11




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##### Table of Contents



IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


March 31, 2002







Condensed Combining Statement of Cash Flows


For the Period October 1, 2000 to March 31, 2001





PredecessorGuarantor Subsidiaries


Non-Guarantor Subsidiaries


Eliminations

ConsolidatedNet cash (used in) provided by operating activities

$
(10,237
)

$
2,254


$


$
(7,983
)Capital expenditures


(3,961
)


(192
)





(4,153
)Net cash (used in) investing activities


(3,961
)


(192
)





(4,153
)Repayment of intercompany borrowings


24,357



1,359






25,716Principal payments on capital leases


(106
)









(106
)Net cash provided by financing activities


24,251



1,359






25,610Effect of exchange rate changes on cash






662






662Net increase in cash


10,053



4,083






14,136Cash at beginning of period


393



2,759






3,152Cash at end of period

$
10,446


$
6,842


$


$
17,288





Condensed Combining Balance Sheet at September 30, 2001





PredecessorGuarantor Subsidiaries


Non-Guarantor Subsidiaries

Eliminations


ConsolidatedAssets: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
)

$
489,111




12




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##### Table of Contents



IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


March 31, 2002







Condensed Combining Statement of Operations


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





PredecessorGuarantor Subsidiaries


Non-Guarantor Subsidiaries


Eliminations


ConsolidatedRevenue

$
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
)





Condensed Combining Statement of Cash Flows


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





PredecessorGuarantor Subsidiaries


Non-Guarantor Subsidiaries


Eliminations

ConsolidatedNet 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
)Repayment 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




13




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##### Table of Contents



IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


March 31, 2002




Condensed Consolidated 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




14




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##### Table of Contents



IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


March 31, 2002







Condensed Consolidated Balance Sheet at March 31, 2002





IPC Acquisition

Guarantor Subsidiaries

Non-Guarantor Subsidiaries


Eliminations


ConsolidatedAssets:Cash

$
17,950

$
9,966

$
11,665


$



$
39,581Restricted cash


8,514













8,514Accounts receivable, net





39,631


24,252







63,883Inventories, net





41,559


12,992



(6,471
)


48,080Prepaid and other current assets





930


2,350







3,280Due from affiliate





44,981


(45,442
)


461



Total current assets


26,464


137,067


5,817



(6,010
)


163,338Investment in subsidiaries


362,204









(362,204
)


Property, plant and equipment, net





16,860


1,345







18,205Goodwill and intangibles, net





217,282


68,639







285,921Deferred financing costs, net


18,974













18,974Other assets





687


(95
)






592Total assets

$
407,642

$
371,896

$
75,706


$
(368,214
)

$
487,030Liabilities and stockholders equity:Current portion of long-term debt

$
5,250

$


$



$



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


5,048


25,926


8,468







39,442Customer advances and deferred revenue





27,593


14,073







41,666Deferred purchase price obligation


8,514













8,514Total current liabilities


18,812


53,519


22,541







94,872Long-term debt


249,750













249,750Other long-term liabilities


7,106


3,328










10,434Total liabilities


275,668


56,847


22,541







355,056Total stockholders equity


131,974


315,049


53,165



(368,214
)


131,974Total liabilities and stockholders equity

$
407,642

$
371,896

$
75,706


$
(368,214
)

$
487,030




15




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##### Table of Contents



IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


March 31, 2002




Condensed Consolidated Statement of Operations


For the Period November 15, 2001 to March 31, 2002





IPC Acquisition


Guarantor Subsidiaries


Non-Guarantor Subsidiaries

Eliminations


ConsolidatedRevenue

$



$
83,221


$
17,474

$
(8,161
)

$
92,534Cost of goods sold






70,779



10,570


(6,839
)


74,510Gross profit






12,442



6,904


(1,322
)


18,024Other operating expenses






16,857



3,319






20,176Income (loss) from operations






(4,415
)


3,585


(1,322
)


(2,152
)Interest expense and other, net


(7,717
)


(59
)


20






(7,756
)Income tax provision (benefit)






(4,024
)


808






(3,216
)Net income (loss)

$
(7,717
)

$
(450
)

$
2,797

$
(1,322
)

$
(6,692
)





Condensed Consolidated Statement of Cash Flows


For the Period November 15, 2001 to March 31, 2002





IPC Acquisition


Guarantor Subsidiaries


Non-Guarantor Subsidiaries


Eliminations


ConsolidatedNet cash (used in) provided by operating activities

$
(6,704
)

$
7,859


$
11,983


$



$
13,138Capital expenditures






(567
)


(415
)






(982
)Payment for acquisitions, net of cash acquired and working capital adjustments.


(350,246
)


3,054







751



(346,441
)Net cash (used in) provided by investing activities


(350,246
)


2,487



(415
)


751



(347,423
)Proceeds from debt, net of issuance costs


235,200















235,200Proceeds from equity issuances, net


139,700















139,700Net cash provided by financing activities


374,900















374,900Effect of exchange rate changes on cash










(1,034
)






(1,034
)Net increase in cash


17,950



10,346



10,534



751



39,581Cash at beginning of period






(380
)


1,131



(751
)


Cash at end of period

$
17,950


$
9,966


$
11,665


$



$
39,581




16




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##### Table of Contents



IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


March 31, 2002







|9. |  | 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.





|10. |  | 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.





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 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.





|11. |  | 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. Participants will be permitted to pay for up to two-thirds of the purchase price with a promissory note that
will be secured by the purchased shares. The shares will be subject to certain transfer restrictions.




17




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##### Table of Contents



IPC ACQUISITION CORP.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)


March 31, 2002







|12. |  | Commitments and Contingencies
|--- |  | -----------------------------




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.




18




---

##### 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 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 our Company. 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 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.





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




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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 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 three months ended December 31, 2001
represent the sum of the amounts separately reported for the pre-acquisition period ended December 20, 2001 and the post-acquisition period ended December 31, 2001. The amounts presented below for the six months ended March 31, 2002 represent the
sum of the amounts separately reported for the pre-acquisition period ended December 20, 2001 and the post-acquisition period ended March 31, 2002.





Comparison of the Three Months (Q2 2002) and Six Months (YTD 2002) Ended March 31, 2002 to the Three Months (Q2 2001) and Six Months (YTD 2001) Ended March 31, 2001.





Revenue. Total revenue increased by $5.4 million, or 7.4%, to $78.2 million in Q2 2002 from $72.8
million in Q2 2001. YTD 2002 total revenue increased by $17.6 million, or 13.2%, to $151.3 million from $133.7 million in YTD 2001. We expect consolidated revenues for the second half of the 2002 fiscal year to be lower as compared to the first half
of the 2002 fiscal year. This expected decrease in consolidated revenues is 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.





Trading Systems installation and related service revenue increased by $12.6 million, or 23.0%, to $67.5 million
in Q2 2002 from $54.9 million in Q2 2001. YTD 2002 Trading Systems installation and related service revenue increased by $19.3 million, or 18.3%, to $125.1 million from $105.7 million in YTD 2001.





Revenue from new Trading Systems installation projects increased by $12.9 million, or 37.5%, to $47.2 million in Q2 2002 from $34.3
million in Q2 2001. YTD 2002 revenue from new Trading Systems installation projects increased by $21.0 million, or 33.3%, to $84.3 million from $63.3 million in YTD 2001. The increase is primarily due to the completion of one large installation
project for $14.3 million during Q2 2002, while there were no installations completed of comparable size in Q2 2001. The increase in YTD 2002 is primarily due to the $14.3 million installation project completed in Q2 2002 and a higher volume of
large installation projects completed during the three months ended December 31, 2001 compared to the three months ended December 31, 2000. As a result of the events of September 11 th , we experienced no significant loss of installation project revenue.





Trading Systems service revenue decreased by $0.3 million, or 1.2%, to $20.3 million in Q2 2002 from $20.6 million in Q2 2001. YTD 2002 Trading Systems service revenue
decreased by $1.7 million, or 4.0%, to $40.8 million from $42.5 million in YTD 2001. The decrease in service revenue in Q2 2002 resulted from the loss of trading floors as a result of the events of September 11 th . Service revenues for the third and fourth quarters of the 2002 fiscal year are anticipated to be slightly higher due to the recent
purchase of the Hitachi, Ltd. trading system service base outside of Japan.





Revenue from ITS sales and related
service decreased by $7.2 million, or 40.3%, to $10.7 million in Q2 2002 from $17.9 million in Q2 2001. YTD 2002 revenue from ITS sales and related service decreased by $1.8 million, or 6.3%, to $26.2 million from $28.0 million in YTD 2001.




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Revenue from new ITS installation projects decreased by $6.2 million, or 44.9%, to $7.6 million in Q2 2002 from $13.8
million in Q2 2001. YTD 2002 revenue from new ITS installation projects decreased by $0.9 million, or 4.6%, to $18.7 million from $19.6 million in YTD 2001. The decrease in installation revenues is primarily due to the timing of completion of large
installation projects as compared to the same period a year ago.





ITS service-related revenue decreased by $1.0
million, or 24.5%, to $3.0 million in Q2 2002 from $4.0 million in Q2 2001. YTD 2002 ITS service-related revenue decreased by $0.9 million, or 10.3%, to $7.5 million from $8.4 million in YTD 2001. The decrease is mainly due to a large customer
merger in the financial industry, which resulted in continued but lower service requirements for that customer on a post merger basis.





Cost of Revenue (excluding depreciation and amortization). Cost of revenue excluding depreciation and amortization (as a percentage of revenue) of 77.5% in Q2 2002 increased by 21.0% as compared to 56.5% in Q2 2001.
YTD 2002 cost of revenue excluding depreciation and amortization (as a percentage of revenue) of 70.9% increased by 7.0% as compared to 63.9% in YTD 2001. Cost of revenue for each of these periods reflects a charge resulting from the amortization of
the step up in inventory of $16.9 million and $23.9 million (relating to the December 2001 IPC Acquisition) and $0.0 million and $10.7 million (relating to the June 2000 Global Crossing acquisition) for Q2 2002 and YTD 2002 and Q2 2001 and YTD 2001,
respectively. This purchase accounting inventory fairvalue step up is a GAAP adjustment that is recorded when a company is acquired as we have been in the two respective years. Cost of revenue excluding the amortization of the inventory
fairvalue step up in inventory was 55.9% in Q2 2002, a decrease of 0.7% compared to 56.5% in Q2 2001. YTD 2002 cost of revenue excluding the amortization of the inventory fair-value step up in inventory was 55.1%, a decrease of 0.8% compared
to 55.9% in YTD 2001.





Product sales and installation cost of revenue (excluding depreciation and amortization) of
85.3% in Q2 2002 increased by 30.9% as compared to 54.4% in Q2 2001. Product sales and installation cost of revenue (excluding depreciation and amortization) of 76.0% in YTD 2002 increased by 8.7% as compared to 67.3% in YTD 2001. Product sales and
installation cost of revenue excluding the amortization of the step up in inventory was 55.5% in Q2 2002, an increase of 1.1% compared to 54.4% in Q2 2001. YTD 2002 product sales and installation cost of revenue excluding the amortization of the
step up in inventory was 53.6%, a decrease of 0.8% compared to 54.4% in YTD 2001. The increase in Q2 2002 resulted from the completion of our first large installation of our new voice-over-IP trading system, the IQMX  , sold to a large global customer at a lower than average margin. This is typical with the introduction of a new
voice trading system. The decrease in YTD 2002 is primarily due to a higher volume of total product sales and installation revenue with no significant increase in fixed costs when compared to the same period a year ago.





Service cost of revenue (excluding depreciation and amortization) of 59.1% in Q2 2002 decreased by 1.5% as compared to 60.6% in Q2 2001.
YTD 2002 service cost of revenue (excluding depreciation and amortization) of 60.1% increased by 1.7% as compared to 58.4% in YTD 2001. The decrease in Q2 2002 is attributable to an increased mix of trading system service revenues included in the
total service revenue, which yields higher margins than the margins associated with ITS service revenues. The increase for the YTD 2002 is attributable to a higher volume of service revenue supported by subcontractors in the European and Asia
Pacific Regions. The cost of subcontractors is generally higher than the cost for labor supplied directly by the Company.





Research and Development Expense. Research and development expenses were $3.8 million in Q2 2002, an increase of $0.2 million compared to $3.6 million in Q2 2001. YTD 2002 research and development expenses were $7.6 million, a
decrease of $0.6 million compared to $8.2 million in YTD 2001. Research and development efforts are focused on the next generation of the Trading Systems products, applications, and enhancements to our current product lines.





Selling, General and Administrative Expense. Selling, general and administrative expenses increased by $1.7 million, or 21.0%, to
$9.8 million in Q2 2002 from $8.1 million in Q2 2001. YTD 2002 selling, general and administrative expenses increased by $8.8 million, or 45.8%, to $28.0 million from $19.2 million in YTD 2001. The increase for Q2 2002 and YTD 2002 is related, in
part, to expenses directly associated with the increase in installation and service revenues and the reduction of certain incentive based accruals affected by Global Crossing not achieving their financial targets in Q2 2001. In addition, the
inclusion of a $2.5 million employee bonus related to the IPC Acquisition and a charge back of corporate related services from Global Crossing of $6.9




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million are included in the YTD 2002 amounts, as compared to only a $1.9 million charge back of corporate related services from Global Crossing
in YTD 2001.





Depreciation and Amortization. Depreciation and amortization, including amortization of
goodwill from acquisitions for the 2001 periods only, was $4.6 million in Q2 2002 as compared to $11.9 million in Q2 2001. Depreciation and amortization, including amortization of goodwill from acquisitions, in YTD 2002 was $15.9 million as compared
to $24.2 million in YTD 2001. The decrease reflects the adoption of SFAS No.142 during this fiscal year where goodwill is no longer subject to periodic amortization.





Interest Expense, net. Interest expense, net increased by $0.2 million to $6.9 million in Q2 2002 compared to $6.7 million in Q2 2001. Interest expense, net
increased by $0.6 million to $13.8 million in YTD 2002 compared to $13.1 million in YTD 2001. The increase is primarily due to interest charged on the outstanding senior subordinated notes and indebtedness under our senior secured credit facilities
incurred in connection with the IPC Acquisition by the Company.





Provision for Income Taxes.Our effective
tax rate for the three and six months ended March 31, 2002 was 29.7% and 16.6%, 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 December 2001 IPC
Acquisition and reflects the tax impact of the purchase accounting.





Liquidity and Capital Resources





Cash provided by operating activities was $28.4 million for YTD 2002 as compared to a use of cash of $7.9 million for YTD 2001. This
increase of $36.3 million from the prior year period is comprised of decreases in inventory and accounts receivable balances reflecting the completion of several large projects in the 2002 fiscal year and increases in accounts payable and accrued
expenses reflecting the accrual of interest and compensation costs. These increases were partially offset by decreases in customer advances and deferred revenue from the prior period.





Cash used in investing activities was $349.3 million for YTD 2002 as compared to $4.2 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 $359.8 million for YTD 2002 as compared to $25.6 million for the YTD 2001. This increase of $334.2 million related to the cash
flow activity resulting from our separation from Global Crossing. Cash inflows in YTD 2002 of $140 million from the common equity contribution of our equity sponsor, GSCP 2000 and its affiliates, in addition to 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 while IPC Information Systems was still under the control of
Global Crossing. 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 $3.0 million for YTD 2002 as compared to an increase of $0.7 million for YTD 2001.





Our primary 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 sources of cash will be cash flows from operations and, if necessary, borrowings under the revolving credit facility. At March 31, 2002, we had $39.6 million of unrestricted cash and $8.5 million of restricted cash.
The restricted cash balance relates to the deferred purchase obligation. Through March 31, 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 March 31, 2002. However, the amount available under our revolving credit facility is
reduced to $11.7 million by outstanding letters of credit of $3.3 million at March 31, 2002.




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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 March 31, 2002, and the effect such
obligations are expected to have on our liquidity and cash flow in future periods.





(in thousands)

Payments Due by PeriodContractual Obligations

Total

Less than 1
year

1-3 years

4-5 years

After 5 yearsDeferred Compensation Agreements

$
5,722

$
295

$
924

$
1,024

$
3,479Operating Leases


15,494


3,581


7,997


2,969


947Total Contractual Cash Obligations

$
21,216

$
3,876

$
8,921

$
3,993

$
4,426Amount of Commitment Expiration Per PeriodOther Commercial Commitments

Total Amounts Committed

Less than 1
year

1-3 years

4-5 years

Over 5 yearsLine of Credit

$


$


$


$


$
Standby Letters of Credit


3,250


3,250








Guaranties for Global Crossing Affiliates


9,057


9,057








Total Commercial Commitments

$
12,307

$
12,307

$


$


$






Euro





On January 1, 1999, several members of the European Union established fixed conversion rates between their existing sovereign currencies, and adopted the Euro as their new
legal currency. Since its adoption, the Euro has not had a material adverse effect on our business or financial condition.





Recent
Accounting Pronouncements





In July 2001, the Financial Accounting Standards Board issued SFAS No.141,
Business Combinations and SFAS No.142, Goodwill and Other Intangible Assets. SFAS No.141 requires all business combinations be accounted for by the purchase method and acquired intangible assets be recognized apart from
goodwill if they meet specific criteria. SFAS No.141 supersedes APB Opinion No.16 Business Combinations and is effective for all business combinations initiated after June 30, 2001. 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 two-step process specifically provided in the statement. SFAS No.142 supersedes APB Opinion
No.17 Intangible Assets and was adopted by us on December 21, 2001. The Company plans to perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of December 21, 2001 in the third quarter
ending June 30, 2002.




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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 and have not yet determined the effect, if any, the adoption of SFAS 143 will have on our 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 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 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.





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, the Company recognizes 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.




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For periods prior to the IPC Acquisition, the Predecessor has filed a
consolidated tax return with its 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 will be 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.





We have not entered into any foreign exchange contracts, but such contracts may be used in the future if we deem
them to be an appropriate resource to manage our exposure to movements in foreign currency exchange rates. We do not consider our current foreign exchange exposure, which is primarily related to changes between the U.S. dollar and the U.K. pound, to
be material. Although the impact of changes in foreign exchange rates may be significant to our subsidiaries revenue, cost of goods sold and operating expenses when considered individually, the net impact on our consolidated results of
operations has not been significant.





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 March 31, 2002, as there were no significant fluctuations in interest rates in the period from issuance on December 20, 2001 to March 31, 2002.





Fair Value on March 31, 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

$
150.0

$


$


$


$


$


$
150.0

$
150.0Variable RateSenior Secured Credit Facilities-Term Loan (7.50% at March 31, 2002)

$
105.0

$
5.3

$
10.5

$
10.5

$
10.5

$
68.2

$


$
105.0




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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)   EXHIBITSNone(B)   REPORTS ON FORM 8-KThe Company has filed no reports on Form 8-K during the quarter ended
March 31, 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: June 27, 2002

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




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