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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 Form 10-K x
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended September 30, 2004 or o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period From  to 
  IPC ACQUISITION CORP.  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 Securities registered pursuant to Section 12(b) of the Act:  Securities registered pursuant to Section 12(g) of the Act:  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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.  ̈ Indicate by check mark
whether the registrant is an accelerated filer (as defined in Rule 12b-2
of the Act) Yes  ̈ No x The common stock of the registrant is not publicly traded. Therefore, the aggregate market value of
the common stock is not readily determinable. As of November 30, 2004, 14,718,592 shares of common stock, par value $0.01 per share, were
outstanding. DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits are incorporated by reference in Item 15 of this report.




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IPC ACQUISITION CORP.
FORM 10-K
For the Fiscal Year Ended September 30, 2004
INDEX  
 PagePart I.Item 1. Business
    
    
    1Item 2. Properties
    
    
    11Item 3. Legal Proceedings
    
    
    11Item 4. Submission of Matters to a Vote of Security Holders
    
    
    12Part II.Item 5. Market for
Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    13Item 6. Selected Financial Data
    
    
    13Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 8. Financial Statements and Supplementary Data
    
    
    31Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    68Item 9A. Controls and Procedures
    
    
    68Item 9B. Other Information
    
    
    68Part III.Item 10. Directors and Executive Officers of the Registrant
    
    
    69Item 11. Executive Compensation
    
    
    72Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    74Item 13. Certain Relationships and Related Transactions
    
    
    75Item 14. Principal Accountant Fees and Services
    
    
    76Part IV.Item 15. Exhibits and Financial Statement Schedules
    
    
    77Signatures
    
    
    81EX-10.17: JOINDER AGREEMENTEX-10.19: FORMS OF NON-QUALIFIED STOCK OPTION AGREEMENTEX-12.1: RATIO OF EARNINGS TO FIXED CHARGESEX-21.1: LIST OF SUBSIDIARIESEX-23.1: CONSENT OF ERNST & YOUNG LLPEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION




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PART I 
 Item 1. Business Overview Unless
otherwise indicated, all references to years refer to our fiscal year
which ends on September 30. Our business is to provide mission-critical voice communications solutions to enterprises
globally, primarily in the financial services industry. Since 1973, we have designed, manufactured,
installed and serviced specialized telephony systems, also referred to as turrets, which are
utilized on trading floors across the world. We are a leader within the financial trading community
based on the number of turret positions and related equipment installed worldwide. We built
additional lines of business upon that core offering, expanding our product and service portfolio
to address other communications needs of the financial services industry. Additionally, we recently
increased our efforts to address the needs of customers involved in command and control operations
within select industries. We believe that command and control operations represent a large and
growing market opportunity for us. The industries we target are public safety; government and
military; power, energy, and utility companies, or PE&U; and transportation. The solutions we provide are composed of both products and services. Products include the
design, manufacture, and installation of turret systems and associated hardware, voice recording
equipment, intercoms and microphones. Within our product offerings we also provide software
applications. Some of these software applications reside on equipment designed by us and others
reside on the customers network infrastructure. Services include equipment maintenance, network
voice and data services, management of relocations and day-to-day moves, as well as enhanced
services like remote monitoring and proactively servicing elements of a customers communications
infrastructure. Our business serves a broad range of the financial trading community. We have offices
worldwide serving customers in 40 countries in all major trading centers globally as well as in
developing markets. The financial trading community is composed of various types of firms,
including investment banks, institutional investors, hedge funds, interdealer brokers and
exchanges. Some of our major customers include Bank of America, Barclays Capital, Citigroup,
Deutsche Bank, Goldman Sachs, JPMorgan Chase, Lehman Brothers, Morgan Stanley, Tullet and Tokyo,
and Wachovia. As illustrated by our average 16 year
relationship with the above customers, we believe a strategy that
focuses on long-term customer relationship allows us to better
understand and meet our customers needs. Our belief is that our customers consider us a
mission-critical provider of their information technology infrastructure. Our
communications solutions are essential to their trading operations, highly specialized, and
centrally located on a traders desktop. We are a leader both in terms of our overall market
presence as well as our technology innovations, particularly in the area of Voice-over Internet
Protocol, or VoIP, communications solutions. We intend to grow our business primarily by building
upon our leadership position, capitalizing on industry demand trends, and expanding into new
markets like the command and control operations of selected industries. We manage our business through two major operating segments called Financial Services and
Command and Control. The Financial Services segment is our core business and represents our sales
of products and services to the financial trading community. The Command and Control segment was
formed in October 2004 to focus on a new and growing opportunity
apart from our traditional customer
base. In 2004, our
Financial Services segment accounted for approximately 99% of our revenues and approximately 98% of
our segment profit. Our Command and Control segment accounted for approximately 1% of our revenues
and approximately 2% of our segment profit in 2004. For information regarding our business segment
and domestic and international operations, please see Note 16 in the notes to our financial
statements. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
registration statements and amendments to those filings are filed with the Securities and Exchange
Commission and are available free of charge on our website at www.ipc.com under the Media caption
as soon as reasonably practicable after we electronically file these materials with or furnish it
to the Securities and Exchange Commission. Our filings are also available to the public at the
website maintained by the Securities and Exchange Commission at www.sec.gov. History Our business was established in 1973 as Interconnect Planning Corporation. In 1983 our
predecessor completed an initial public offering and was subsequently acquired in 1986 by Contel
Corporation taking the name Contel IPC. Shortly thereafter, Contel IPC opened our current
manufacturing facility in the United States and commenced operations in the United Kingdom. In
1990, Contel was acquired by GTE, and in October 1991, GTE sold the business to Richard and Peter
Kleinknecht and others who renamed the business IPC Information Systems, Inc. or, IPC. In October
1994, IPC completed an initial public offering, and was again acquired in April 1998, this time by
Citicorp Venture Capital Ltd. In December 1998, our predecessor expanded its franchise through the
purchase of the assets of Reuters Voice Systems, a business unit of Reuters Group PLC. In June
1999, we acquired V-Band Corporation. In June 2000, Global Crossing Ltd. acquired IPC. In December 2001, Global Crossing and its
affiliates sold IPC to a group of investors led by GS Capital Partners 2000, L.P. through a wholly
owned corporation IPC Acquisition Corp. In March 2002, we purchased the customer base and related
assets outside of Japan of the turret business of Hitachi, Ltd. In April 2003, we entered the
network services business through the acquisition of Gains International (US) Inc., or Gains US,
and Gains International (Europe) 1




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Limited, or Gains UK. In
August 2003, we invested in and gained voting control of Purple Voice, one of our software
application products, and subsequently acquired 99% of this entity in September 2004. In January
2004, we purchased Gains International Asia Holdings Limited from GSCP 2000 and other private
equity funds affiliated with Goldman, Sachs & Co. Most recently, in November 2004, we acquired
Orbacom Systems, Inc., or Orbacom, which provides specialized radio consoles and computer aided
dispatch software for use in command and control operations. Industry Background Financial Services Financial Services broadly refers to the various types of firms including those who
participate in trading activities in stocks, bonds, commodities and similar instruments. These
firms include financial institutions that represent the sell-side of the business, buy-side firms
like investment management and insurance companies, interdealer brokers, commodity trading firms
and exchanges. Players in the trading community utilize unique and highly specialized
communications solutions called turret systems, other associated equipment, voice network services,
voice recording and playback and dedicated private networks that
allow multiple users to access a continuously open line for 24x7
conferencing, commonly referred to as hoot and holler networks. Hoot and holler networks are a dedicated
private network that allows multiple users to access a continuously open line for 24x7
conferencing. Our customers have specific requirements including a host of functions that allow the
users to operate in a community mode. Products that support those community requirements include
intercoms, open microphones, and dynamic conferencing. Our customers also require exceptionally
high levels of reliability, 24x7 support and immediate field response times. Additionally, we
believe customers value highly the ability to provide a
standardized global technology platform with a product evolution roadmap to address both their current and
anticipated future needs. We believe our leadership position is based on our success in meeting
those customer requirements, our global capabilities and service excellence as well as our ability
to offer a vision and roadmap of a solution which meets current and future needs. The financial services industry experienced a market downturn in recent years, resulting in
reductions in capital expenditures for trading floor communications equipment purchases. Our
shipments of turret positions reached what we believe are cyclical lows with shipments of 13,882
positions in 2002, 10,275 in 2003, and 12,641 in 2004 compared to 17,007 positions shipped in 2001. In
2004, we observed in our customer base a renewed interest in investing in infrastructure for their
trading business. Based on our sales momentum, bookings, backlog, and technology planning with
customers, we expect a substantial increase in capital purchases of trading systems over the next
several years. We believe there are a number of industry trends which are driving the return of
stronger demand for our solutions, including:  
    
    Aging of Technology and Installed Systems: In recent years a substantial part of our
installed equipment base has aged as customers deferred capital expenditures during the
financial markets downturn. Approximately 50% of our installed equipment base is currently
operating on technology that is over 10 years old. In addition, technology end-of-life
considerations for certain voice recording products are resulting in upgrade demand for our trading
floor equipment and services.
    
    Demand for Disaster Recovery and Security Solutions: Business risk is one of the highest
priority issues with both internal corporate mandates and regulatory pressure leading to
accelerated investment in solutions which address these needs.
    
    Focus on Compliance Solutions: Heightened awareness of financial liability risks have
caused firms to focus on and invest in compliance solutions. On the trading floor, this
focus on compliance is reflected in the need for solutions that address voice recording,
retrieval, analysis and storage.
    
    VoIP on the Trading Floor: We introduced VoIP to the trading floor in 2001. This
technology is bringing new benefits to our customer base as enterprise-wide deployment
allows for more advanced solutions like the ability for the trader to work from trading
floor locations other than the traders desk. The availability of this new technology and
its associated benefits may cause customers to reexamine their current trading floor
solutions.
    
    Robust Global Trading Markets: Many trends like the globalization of financial markets,
 development of new financial instruments and growth of hedge funds are influencing the
demand for trading infrastructure worldwide. Command and Control Command and control operations generally share the need for instantaneous, real-time
communications with expansive functionality and resilience. Our Command and Control segment
addresses the needs of control rooms and operation centers, from which vital activities are planned
and coordinated. We address the control rooms and operation centers in four primary sectors:  
    
    Public safety: Includes the dispatch of police, fire, and medical apparatus and
personnel. This sector can be separated into municipal, county, and state police and other
groups responsible for protecting individuals and property, like colleges and universities. 2




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
    
    Government: Includes domestic and foreign governments and their various military and
civilian departments and agencies which in the United States include the five branches of
the military, the national guard and homeland security organizations.
    
    Power, energy and utilities: Includes companies which manage and control the flow of
electricity, water, gas and other natural resources.
    
    Transportation: Includes organizations and companies involved in transportation
management and control like airports and airlines, railways, and trucking. Despite
the fact that we have not specifically targeted these industries in the past, we generated sales
based on unsolicited customer demand for our products and services. We believe that we can utilize
our current infrastructure and product lines to effectively meet the needs of this market space. There are a number of industry trends which are driving demand for increasingly-sophisticated
communications solutions:  
    
    Heightened infrastructure and public security concerns: Recent global and national
events like September 11 and the extensive blackout in the US
during the summer of 2003, have
re-prioritized the need to upgrade command and control systems and have resulted in
significant increases in public and private sector spending to
accomplish these upgrades.
    
    Interoperability: The requirement to upgrade command and control solutions is driven not
just at the single site level but across associated organizations due to the need for
coordination among organizations, and therefore interoperable technology platforms that
integrate various radio and telephony standards.
    
    Standardization on VoIP platforms: The availability of IP solutions with real benefits
of shared resources and resilient disaster recovery and business continuity planning
solutions is increasing the need and desire for new command and control solutions based on
IP technology. Our Products and Services Our solutions are comprised
of products and services. Products and services can be purchased
individually to address specific needs of a single location or
packaged together as part of an integrated and enterprise wide
solution. The following is an example of the products and services
that go into a typical installation:  
    
    Desktop turrets, either VoIP or time-division multiplexing,
or TDM, telephony based systems that sit on the desktop in front of
the user and are their primary device for voice telecommunications;
    
    adjacent to and interconnected with the desktop turret, we
also sell the applications module and the related software that
enables live streaming video, dynamic and visual call management
tools as well as other standard and custom-developed applications;
    
    intercoms, speakers and microphones are sold as part of the
desktop turret configuration;
    
    the desktop turrets are linked to our backroom switching
platform, which provides the advanced functionality to direct calls to
internal and external destinations via both VoIP and TDM networks;
    
    a voice recording platform, manufactured by a third party
partner, integrated with our backroom switch which provides recording
and retrieval capability of all calls on the turrets;
    
    network services through multiple dedicated and secure
circuits that connect our customers desktop turrets to other
parties worldwide; and
    
    contracts to monitor, maintain and support the
infrastructure, network and other services, either remotely and/or
via on-site resources. Products: Some of our products include:  
    
    Alliance Backroom Switching Platform. Our most advanced backroom
switching platform is the Alliance. Introduced in 1997, the
Alliance is a fully digital proprietary system, fault tolerant
switch and is not vulnerable to isolated component failure. The
Alliance switch supports both our VoIP and TDM desktop turrets.
    
    Desktop Turrets.Our turrets, both the VoIP turret, named
IQmx, and the TDM turret, named Slimline, provide
advanced voice communication functionality in an easy to use and
fully tested user interface. Our turrets simplify and expand a
users
ability to access and integrate information from all sources on
one platform.
    
    Applications Module.The applications module is a touch screen
device that sits adjacent to and interconnected with our turret and is used as an input
and display unit for either basic or custom applications
developed and sold by us. Generally these applications
enhance the effectiveness of the user and the call itself by
offering visual call management and productivity tools. Examples
include streaming video, a custom directory of trading partners as
well as specific caller information such as prior trading history. 3




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
    
    Alliance Integrated Recorder.An integral part of our complete
solution is call recording. By incorporating the recording
function into the Alliance system, we offer increased recording
capacity, plus advanced features like user-initiated recording,
call marking for quick retrieval, selective recording and
user-controlled playback with quick access.
    
    Enterprise Hoot & Intercom, or EHI.EHI provides non-turret users
with seamless access to audio broadcasts, intercom calls, group
calls and hoot and holler broadcasts regardless of the users
location. EHI software operates on standard personal computers
over existing corporate data networks and integrates with our
turret systems via the Alliance switch. Services: Our service offerings include network services focused on the physical telecommunications
connection between counterparties and enhanced services that provide for a variety of client
support, maintenance and other needs. The major network services include:  
    
    Manual or Automatic Ring Down Circuits.These voice circuits, also referred to as
private lines, provide an instantaneous, dedicated connection between two counter
parties.
    
    Hoot and Holler Networks.These services provide a dedicated private network that allows
multiple users to access a continuously open line which provides for 24x7 conferencing.
    
    High-Speed Connectivity.We provide digital high-speed connections, including T1/E1s
and DS3s, to connect customer locations to each other or to other associated parties. The high performance demands our customers and the complex nature of the technology we deliver
to them provides us with the opportunity to offer enhanced services to our customers. Some of the
enhanced services we provide include:  
    
    Turret System, Maintenance and Service.We provide contractual maintenance services as
well as person-on-site to our customers on a 24x7x365 basis. We also provide ongoing
support for moves, adds and changes, or MACs, which is critical in the dynamic business
environment we serve.
    
    Advanced Fault Management.Proactive remote monitoring of customers communications
infrastructure including the turret system and network services and voice recording
equipment which we provide or are provided by third parties.
    
    Total Circuit Management.Consultation, audit administration and cost management of
voice communications network infrastructure to assist our customers with implementation of
best practices and achievement of operational efficiencies. Orbacom Acquisition On November 30, 2004, we acquired Orbacom Systems, Inc. Orbacom is a leading manufacturer of
radio consoles and computer-aided dispatch, or CAD, software. This acquisition enables us to
expand our range of products and services available to address the mission-critical command and
control operations in the public safety, government and military agencies, PE&U, and transportation
industries. Examples of some Orbacom products include:  
    
    Radio Switching Platforms. Systems serving small to large locations that facilitate
radio communications between parties.
    
    The Resource: Dispatch Operating Software.
Software residing on the users personal
computer that interfaces and works in conjunction with the radio switching platforms.
    
    Genisis: Computer Aided Dispatch (CAD) Console.The business applications software
designed specifically for the various users. Examples include Airport CAD, Casino CAD,
Gen911 (enhanced 911 application) and Gen Data (a mobile applications designed for use
within police cars). Our Business Strategy We believe that we are well positioned to take advantage of the growth opportunities available
in our target markets. The key elements of our business strategy are:  
    
    Grow our market share and profitability by capitalizing on our
strong position within the financial services industry and the
favorable trends in that industry.In the last 30 years, we have
grown to be one of the leading providers of turret systems and
associated services. Through our extensive interaction and
long-term relationships with customers we have developed a
thorough 4




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understanding of their trading floor communications requirements. This understanding and
continued interaction helps us to anticipate our customers needs and tailor our offerings
accordingly. We expect an increase in customer spending as the business environment continues to
improve and customers look to replace aging systems and upgrade their technology. As an industry
leader, we believe we are advantaged in bidding for many projects from the incumbent position.
Additionally, we expect to win new projects and expand into new geographic and developing
financial markets.
    
    Continue to drive additional revenue growth within the financial
services industry by expanding the suite of product and services
we offer our customers.We have expanded from our core equipment
base into the services business by leveraging our understanding of
our customers business environment, our reputation for high
quality products, our long-term customer relationships and our
well positioned sales and service resources. Our success in
offering network and enhanced services to our customers grew out
of this approach. In this same manner we intend to expand our
solution set to include VoIP-based business
continuity and compliance solutions, software applications and
additional enhanced services to our customer base that dont
currently use these products and services.
    
    Expand the addressable market by capitalizing on new trends and
technologies.There are numerous trends in the market that will
increase the number of opportunities for our solutions. The
growing importance to the financial community of disaster
recovery, or DR, and business continuity plans, or BCP, has
increased interest in our approach to these issues. The migration
of communications technology towards internet protocol, or IP, has
allowed us to implement increased flexibility into our solutions
that specifically address DR and BCP concerns. Additionally
customers are focused on compliance as a corporate imperative and
our voice recording and storage solutions help address our
customers needs and concerns.
    
    Extend our technology and service assets into growth markets with
comparable demand profiles.We intend to capitalize on our
expertise with complex mission-critical voice communication
systems by expanding the offering to command and control
operations in public safety organizations, government and military
agencies, PE&U companies and transportation companies. We believe
that there has been positive receptivity in these industries to
the type of solutions we provide. Additionally we intend to use
our relationships with the trading side of our customers
businesses to assist us in selling certain applications like our
EHI product to the retail side of their businesses.
    
    Continue to grow and complement our business through acquisitions.
As we have done in the recent past through our acquisitions of
Gains, Purple Voice and Orbacom, it is our intent to continue to
look for opportunities to acquire other companies to complement
our portfolio solutions, obtain incremental growth and take
advantage of significant synergies. We believe we have a proven
history of successfully integrating and executing on acquisitions.
Additionally we believe that acquisitions will be a way for us to
expand our presence into the command and control operations of
non-financial service industries. Customers Our Financial Services segment serves customers in the financial industry, specifically the
trading community. Our Command and Control segment serves the command and control operations in
public safety organizations, government and military agencies, PE&U and transportation companies.
Historically, the majority of our consolidated revenues have been derived from sales to customers
in the financial trading community. Our Financial Services customers include Bank of America,
Barclays, Citigroup, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Lehman Brothers, Morgan
Stanley, Tullet and Tokyo, and Wachovia. These customers accounted for approximately 40% of our
total consolidated revenues in 2004. There were no customers in 2004 that accounted for more than
10% of our total consolidated revenues. Sales and Marketing Our sales efforts are organized on a global basis to promote relationships with, and to
provide enhanced services to customers that have significant global operations. The sales
organization is managed through three regions and is composed of
approximately 111 sales and sales
management personnel. The key regions and associated direct offices are:  
    
    The Americas, with offices in Atlanta, Boston, Chicago, Cincinnati,
Connecticut, Dallas, Houston, Los Angeles, New Jersey, New York, Philadelphia, San
Francisco and Toronto;
    
    Europe, the Middle East and Africa, or EMEA, with offices in London, Frankfurt, Paris and Milan; and
    
    Asia Pacific, with offices in Hong Kong, Singapore, Sydney, Melbourne and Tokyo. Distributors are used in emerging markets, in territories where the installed base does not
support a direct presence and where language and cultural differences require a local presence. Key
areas covered by distributors include:  
    
    EMEA, with distributors in Austria, Bahrain, Czech Republic, Denmark, Finland,
Hungary, Ireland, Israel, Kuwait, Netherlands, Norway, Portugal, Russia, Saudi Arabia,
South Africa, Spain, Sweden, Switzerland, Turkey and the United Arab Emirates;
    
    Asia, with distributors in China, India, Indonesia, Japan, Korea, Malaysia, New
Zealand, Philippines, Taiwan and Thailand; and
    
    Latin and South America, with distributors in Argentina, Brazil, the Caribbean,
Chile, Mexico and Venezuela. 5




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We have a select number of worldwide accounts which we classify as strategic accounts. They
are assigned a global account director to manage and coordinate account activity on a global basis.
This approach allows the sales management team to coordinate account strategies globally in order
to provide a seamless support infrastructure for these global institutions. Competition In the markets in which we operate, there are few companies that offer an end-to-end mission
critical communications solution. Our principal competitor is an affiliate of British Telecom.
While we and British Telecom are the two largest providers of turret equipment and service
worldwide, there are smaller competitors that have historically achieved considerable market shares
in their respective domestic markets. These competitors include Etrali S.A., an affiliate of France
Telecom, within France, Siemens A.G. within Germany and Hitachi within Japan. In the future, there
may be additional competition from other entities that may develop either equipment, software based
products, service offerings or a combination of these. We believe we are able to compete effectively due to the high
quality of our products, our experience and reputation for providing outstanding service, our
ability to provide a standardized technology platform on a global scale and our investment in
research and development that focuses on new products and technologies. Within the voice network services business there are numerous small, regional and global
competitors. Some of the more well known providers include Westcom, Global Crossing Financial
Markets (formerly known as IXnet) and Sector. We have recently seen some consolidation in the
market with the purchase of RVS (Reuters Voice Services) by Westcom. Some of the largest providers
like AT&T and MCI have reduced or eliminated services into this niche area as they do not see it as
core to their business operations. We believe our success in this area is due to our global
capabilities, our commitment to timely delivery and service excellence as well as our ability to
offer an end-to-end solution in conjunction with our products. Command and control operations within the industries we target are public safety
organizations, government and military agencies, PE&U, and transportation companies is served by
several large radio manufacturers like Motorola and M/A-Com (a Tyco company), and major systems
integrators, like Lockheed Martin and Northrop Grumman, as well as by many numerous small, regional
technology vendors and resellers that are focused on certain geographies. Generally, our larger
competitors focus on communications projects in major population centers. The small distributors
and systems integrators are effective at capturing local opportunities that cannot be cost
effectively addressed by the more significant companies. We believe we are well positioned to offer
a full end-to-end solution on a worldwide basis. Research and Development Our research and development efforts are driven by our sales and product management teams.
Interoperability and integration of trading positions is a strategic focus. We utilize our core
competencies in voice communications systems, application services and rich media delivery to
provide solutions that meet the evolving needs of our customers. We work closely with our customers
to understand their future requirements and invest in research and development to ensure that our
products address customer needs. The research and development budget is determined annually through the evaluation of each
product category and its expected impact on revenue over the succeeding 24 months. We incurred
research and development expenses of $15.0 million for 2004, $11.7 million for 2003, $11.6 million
for the period from November 15, 2001 (date of initial capitalization) to September 30, 2002 and
$3.5 million for the period from October 1, 2001 to December 20, 2001. As of September 30, 2004, we
employed approximately 76 people in the area of research, development and product engineering. Backlog Our estimated consolidated order backlog increased by 91% to $70.8 million at September 30,
2004 from $37.0 million at September 30, 2003. Included in
the backlog is one job for approximately $12 million which is
being re-evaluated by the customer for changes to configuration and
timing. This job may decrease in size and may not complete until
fiscal year 2006. Intellectual Property We rely on a combination of patents, trade secrets, trademarks, copyrights and other
intellectual property rights, nondisclosure agreements and other protective measures to protect our
proprietary rights. We currently have 15 United States patents, including design patents. We also
rely on unpatented know-how and trade secrets and employ various methods, including confidentiality
agreements with employees and consultants, to protect our trade secrets and know-how. Environmental Matters We are subject to various federal, state and local environmental laws and regulations,
including those governing the use, discharge and disposal of hazardous substances in the ordinary
course of our manufacturing process. Although we believe that our current manufacturing operations
comply in all material respects with applicable environmental laws and regulations, there is no
assurance that environmental legislation may not in the future be enacted or interpreted to create
environmental liability with respect to our facilities or operations. 6




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Employees As of September 30, 2004, we had 765 full-time employees worldwide, of which 723 were
full-time non-union employees. On a geographic basis there are 503 employees in North America, 187
in EMEA, and 75 in Asia. Of these, 133 were engaged in marketing and sales, 76 in research and
development, 112 in manufacturing and 444 in branch operations, finance and corporate
administration. As a result of the Orbacom acquisition in November 2004, an additional
85 employees joined us all of which are non-union. Prior to the
Orbacom acquisition, substantially all of our employees were
associated with the Financial Services segment. As of September 30, 2004, we also had 42 union employees in the United States who are
represented by collective bargaining units and approximately 100 additional workers who are
retained under labor pooling agreements that IPC Information Systems entered into with Kleinknecht
Electric Company, a New York corporation, or KEC-NY, and Kleinknecht Electric Company, a New Jersey
corporation, or KEC-NJ, each a former affiliate of ours and companies owned by one of our minority
stockholders. Under these agreements, KEC-NY and KEC-NJ are signatories to collective bargaining
agreements with the union locals that represent these employees. In addition, pursuant to these
agreements, KEC-NY and KEC-NJ are responsible for paying our employees, remitting payroll taxes and
making any required contributions to any union benefit plans covering the employees. We reimburse
KEC-NJ and KEC-NY for these expenses, pay them a total fee of $20,000 per month and have agreed to
indemnify them for liabilities related to our employees. IPC Information Systems, LLC, has a
standby letter of credit in place in favor of KEC-NY and KEC-NJ in an amount of $1.5 million for
labor compensation and benefits related to these employees. As a result of recent amendments to
those agreements, we are no longer obligated to indemnify the shareholders of KEC-NY and KEC-NJ for
losses relating to the union pension plans in which our employees covered by these agreements
participate. Management believes that current relations with labor are good. RISK FACTORS Because the majority of our customers are concentrated in the financial services industry, our
revenues may decline during periods of economic downturn that impact these sectors. Historically, almost all of our revenues have been derived from sales to customers in the
financial services industry. When this industry suffers economic downturns, it is likely that we
will experience a decline in revenues which could have a material adverse effect on our financial
condition and results of operations. In times of economic downturn, including the recent period of
economic downturn, our customers may defer purchasing and installing our products. Reductions in
the number of our customers employees could reduce the demand for new or replacement turret
systems. New or enhanced products or services that we may develop or offer may not achieve market acceptance
and we may not be able to develop new or enhanced products or services in anticipation of or in
response to ongoing technological changes or customer needs. We undertake significant research and development expense prior to marketing any new product
or service. If new products or services that we introduce do not gain acceptance, not only will we
lose sales as a result of not having developed a product or service that the market accepts, but we
will have used our resources ineffectively. In addition, the failure to develop or offer new and
innovative products or services that meet or anticipate ongoing technological changes, including
rapid and significant changes in the telecommunications industry, and customer needs on a timely
and cost-competitive basis could have a material adverse effect on our financial condition and
results of operations. Our revenues and operating results may fluctuate significantly from period to period. 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 principally
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. Our business could be adversely affected by competition. The markets in which we operate are comprised of a number of global and regional competitors,
including global and national alliances. In addition, the continuing trend toward business
combinations and strategic alliances in the telecommunications industry may create significant new
competitors for us. Some of our current and potential competitors have greater financial,
engineering, manufacturing and other resources than we do. Competing with these companies will
require continued investment by us in engineering, research and development, marketing and customer
service and support. There can be no assurance that we will successfully make these investments. In
addition, we face competition from dominant local providers that have long-standing relationships
with our target
customers. Due to some competitors relationships with our target customers, it may be
difficult for us to significantly increase our penetration in some markets. 7




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Because our intellectual property is critical to our success, our revenue and earnings growth would
suffer if we were unable to adequately protect our intellectual property. Because our products rely on proprietary technology and will likely continue to rely on
technological advancements for market acceptance, we believe that the protection of our
intellectual property rights is important to the success of our business. To protect these rights,
we rely on a combination of patent, copyright, trademark and trade secret laws. We also enter into
confidentiality or license agreements with our employees, consultants and business partners, and
control access to and distribution of our software documentation and other proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may copy or
otherwise obtain and use our products or technology. It is difficult for us to monitor unauthorized
uses of our products. The steps we have taken may not prevent unauthorized use of technology,
particularly in foreign countries where the laws may not protect our proprietary rights as fully as
in the United States. If we are unable to protect our intellectual property from infringement,
other companies may be able to use our intellectual property to offer competitive products at lower
prices. We may not be able to effectively compete against these companies. We rely on unpatented proprietary know-how and trade secrets. We rely on unpatented proprietary know-how and trade secrets, and employ various methods,
including confidentiality agreements with employees and consultants, to protect our know-how and
trade secrets. However, these methods may not afford complete protection and there can be no
assurance that others will not independently develop the know-how and trade secrets. Furthermore,
no assurance can be given that claims or litigation asserting infringement of intellectual property
rights will not be initiated in the future seeking damages or an injunction against the sale of our
products or that we would prevail in any litigation. This litigation could be protracted and costly
and could have a material adverse effect on our business and results of operations regardless of
its outcome. Our business could be adversely affected by labor disputes. In
the United States, as of September 30, 2004, 42 of our employees
were
represented by collective bargaining units. Also, we have approximately 100 workers as of September
30, 2004 who are retained under labor pooling agreements that we entered into with KEC-NY and
KEC-NJ, each a former affiliate of ours and companies owned by one of our current minority
stockholders. Although we consider our relations with our employees and workers to be generally
good, we cannot assure you that we will not experience work stoppages, strikes or slowdowns in the
future. A prolonged work stoppage, strike or slowdown could have a material adverse effect on our
business, financial condition and results of operations. In addition, we cannot assure you that,
upon expiration of any of our existing collective bargaining agreements, new agreements will be
reached without union action or that any new agreement will be on terms satisfactory to us.
Moreover, we cannot assure you that our non-union facilities will not become subject to labor union
organizing efforts. If any of our current non-union facilities were to unionize, we would incur
increased risk of work stoppages and possibly higher labor costs. Loss of key executive officers could weaken our business expertise and other business plans. Our success depends to a significant degree upon the continued contributions of our senior
management team and technical, marketing and sales personnel. Our employees may voluntarily
terminate their employment with us at any time. There is competition for qualified employees and
personnel and there is a limited number of persons with relevant knowledge and experience. The loss
of any of our key executive officers in the future could significantly impede our ability to
successfully implement our business strategy, financial plans, expansion of services, marketing and
other objectives. We believe that the growth and future success of our business will depend in
large part on our continued ability to attract, motivate and retain highly-skilled qualified
personnel. We rely on single source suppliers for some key components of our products. Any disruption in our
relationship with these sources could increase our product costs and reduce our ability to supply
our products on a timely basis. We currently rely on single source suppliers of selected hardware, software and network
connectivity components used by us to provide our products and services. We have from time to time
experienced delays in the receipt of these components. Our remedies against suppliers who fail to
deliver products on a timely basis are limited by contractual liability limitations contained in
supply agreements and purchase orders and, more importantly, by practical considerations. A failure
by a supplier to deliver quality products or network connectivity on a timely basis, or the
inability to develop alternative sources if and as required, could result in delays or cause us to
incur unanticipated expenses, which could materially adversely affect our business and results of
operations. 8




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In addition, we purchase selected custom product components for our manufacturing operation
primarily from single source suppliers. The disruption of the current flow of supplies could impair
our ability to manufacture products or cause us to incur costs, including payment of engineering
expenses to prospective vendors, associated with the development of alternative sources. A
disruption also could result in delays in product shipments or cause us to incur unanticipated
expenses, which could have a material adverse effect on our financial condition and results of
operations. Our plans to significantly expand our range of command and control communications products and
services may not be successful. We may not be able to deploy our new Command and Control segment as planned. If we are
unsuccessful in executing our strategy, our revenue and operating results may be adversely
affected. There are a number of factors that could impact our ability to execute this strategy
successfully, including:  
    
    competition from other manufacturers with longer operating histories and customer
relationships; greater financial, technical and marketing resources; larger customer
bases; and greater brand or name recognition;
    
    our ability to successfully procure government contracts, including necessary
government certifications; a reduction in the overall level of government spending;
changes in government spending priorities; and changes in the timing of government
approvals for appropriated funds;
    
    our ability to successfully integrate the operations, products and customers of
business we may acquire, including Orbacom Systems, Inc., into our business;
    
    the extent to which our product and service offerings will achieve market acceptance;
    
    our lack of an operating history in particular segments of this business on which to
evaluate this business and its prospects;
    
    our ability to achieve favorable operating results or profitability and to generate
revenues sufficient to cover our capital and operating costs;
    
    diversion of management attention from running other segments of our business; and
    
    the risks, uncertainties, expenses, delays and difficulties associated with starting a new business. Moreover, even if we do successfully address these challenges, our operating results may still
be adversely affected if the market opportunity for command and control communications products and
services does not develop in the ways we anticipate. Our business strategy includes acquiring other businesses, but we may not be able to identify and
properly integrate acquisitions of other companies. As a part of our business strategy, we intend to acquire other businesses. We expect to face
competition from acquisition candidates, which may limit the number of acquisition opportunities
and may lead to higher acquisition prices. Also, we may not be able to identify, acquire or manage
additional businesses profitably or to successfully integrate any acquired business with our
existing business. Businesses that we acquire may have liabilities that we underestimate or do not
discover during our pre-acquisition investigations. Certain liabilities, even if we do not
expressly assume them, may be imposed on us as successor to the business. Further, each
acquisition involves special risks that could cause the acquired business to fail to meet our
expectations. In addition, we cannot predict the timing, size or success of any future
acquisitions or the associated capital requirements and we may not be able to obtain acceptable
acquisition financing when required. If we are unable to fund our acquisition plans, our growth
could be limited. In the event of a catastrophic loss of our manufacturing facility, our business would be adversely
affected. Our sole manufacturing facility is in Westbrook, Connecticut. While we maintain insurance
covering the facility, including business interruption insurance, a catastrophic loss of all or a
portion of the facility could have a material adverse effect on us. Our substantial indebtedness could affect our ability to meet our obligations under our notes and
may otherwise restrict our activities. We have substantial indebtedness with significant debt service requirements. As of September
30, 2004, we had total indebtedness of approximately
$199.5 million outstanding and $30.7 million available for
future borrowings and letters of credit after taking into account $4.3 million of outstanding
letters of credit under the revolving credit facility of our amended and restated senior secured
credit facilities. 9




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Our substantial indebtedness could:  
    
    make it more difficult for us to satisfy our obligations under the notes;
    
    require us to dedicate a substantial portion of our cash flow to payments on our
indebtedness, which would reduce the amount of cash flow available to fund working capital,
capital expenditures and other corporate requirements;
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    limit our ability to respond to business opportunities;
    
    limit our ability to borrow additional funds, which may be necessary; and
    
    subject us to financial and other restrictive covenants, which, if we fail to comply with
these covenants and our failure is not waived or cured, could result in an event of default. Despite current indebtedness levels, we may still be able to incur substantially more debt. This
could further exacerbate the risks associated with our substantial indebtedness. We may be able to incur substantial additional indebtedness in the future. The terms of this
indenture under which our 11.5% senior subordinated notes were issued permits us to incur
additional indebtedness if specified leverage ratios are not met or under specified circumstances.
Our amended and restated senior secured credit facilities also permit additional borrowings and
issuance of letters of credit of up to $35.0 million under a revolving credit facility, of which
$30.7 million was available as of September 30, 2004, after
taking into account $4.3 million of
outstanding letters of credit. In addition, under our amended and restated senior secured credit
facilities, we can increase the committed amount under those facilities by up to an additional
$15.0 million so long as one or more lenders agrees to provide this incremental loan amount and
other customary conditions are satisfied. If new debt is added to our current debt levels, the
related risks that we now face could intensify. The agreements governing our debt impose restrictions on our business. The indenture governing our 11.5% senior subordinated notes and the agreements governing our
amended and restated senior secured credit facilities contain a number of covenants imposing
significant restrictions on our business. These restrictions include covenants that
restrict our ability to operate our business and may limit our ability to take advantage of
potential business opportunities as they arise. In addition, these restrictions include covenants
that limit our ability and the ability of our restricted subsidiaries to:  
    
    incur indebtedness or issue preferred shares;
    
    pay dividends or make distributions in respect of our capital stock or to make certain
other restricted payments;
    
    create liens;
    
    agree to payment restrictions affecting our restricted subsidiaries;
    
    consolidate, merge, sell or lease all or substantially all of our assets;
    
    enter into transactions with our affiliates; and
    
    designate our subsidiaries as unrestricted subsidiaries. Our amended and restated senior secured credit facilities also require us to satisfy a number
of financial ratio tests. Our ability to comply with the agreements governing our indebtedness may be affected by events
beyond our control, including prevailing economic, financial and industry conditions. The breach of
any of these covenants or restrictions could result in a default under the indenture governing the
11.5% senior subordinated notes or our amended and restated senior secured credit facilities. An
event of default under our debt agreements would permit some of our lenders to declare all amounts
borrowed from them to be immediately due and payable. If we were unable to repay debt to our
lenders, these lenders could proceed against the collateral securing that debt, if any. In
addition, acceleration of our other indebtedness may cause us to be unable to make interest
payments on the 11.5% senior subordinated notes and repay the principal amount of the 11.5% senior
subordinated notes. 10




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We are controlled by a group of stockholders, and there may be conflicts of interest between our
stockholders and the holders of the notes that impair our ability to achieve our business plan. Private equity funds affiliated with Goldman, Sachs & Co., including GSCP 2000, own
substantially all of our common stock. Goldman, Sachs & Co. may be deemed to be able to exercise
control over some of our activities. These stockholders have other business activities in addition
to their ownership position in us. It is possible that these stockholders may exercise their
control in ways that serve their individual interests but do not serve the best interests of the
other holders of our securities, including holders of our notes. Changes in federal, state or international telecommunications regulations or delays in completing
agreements with incumbent local exchange carriers could adversely affect a portion of our Services
business. We provide certain telecommunications network services that are subject to extensive federal,
state and international regulations. The interpretation and enforcement of laws and regulations by
the regulatory authorities that administer them vary and could limit our ability to provide
telecommunications network services. In addition, the Federal Communications Commission and
relevant state public utility commissions exercise extensive authority to regulate ownership of
transmission facilities, provision or connection of services, and the terms and conditions under
which our telecommunications network services are provided. Delays in receiving required regulatory
approvals, or the enactment of new and adverse regulations or regulatory requirements, as well as
any future legislative, judicial and regulatory agency actions, may have a material adverse effect
on our ability to perform our obligations under the contracts to which we are a party. We also rely
on incumbent local exchange carriers to provide telecommunications network services. Delays in
completing agreements with the incumbent local exchange carriers may have a material adverse effect
on our ability to perform our obligations under the network service contracts to which we are a
party. 
 Item 2. Properties We have two product development facilities that are located in Fairfield, Connecticut and
Westbrook, Connecticut. Additionally, we lease our executive offices in New York City and our
branch offices and sales offices in the United States, United Kingdom, Australia, Canada, France,
Germany, Hong Kong, Italy, Japan, and Singapore. The 32,000 square foot Fairfield facility is
leased and houses the engineering organization. The 85,000 square foot Westbrook facility owned by
us is used for production, with 30,000 square feet designated for assembly and testing, 30,000
square feet designated for warehousing and 25,000 square feet designated for administrative
purposes. The production facility is scaleable and has sufficient capacity to meet our anticipated
needs. We also lease facilities in New York City and London which occupy our network operations
centers, where the management of our network is performed. Our leased facilities in London include six floors at 67-73 Worship Street, London, England.
In connection with the purchase agreement relating to our acquisition of IPC Information Systems,
Global Crossing subleased from us five of the six floors at this location for its
telecommunications and networking equipment and personnel. In August 2004, we renegotiated the
Worship Street facility lease with the landlord. Simultaneously, we entered into an agreement with
Global Crossing that released them of their sublease obligations. As consideration for permitting
early termination of its sublease, Global Crossing consented to a distribution to us of
approximately $1.5 million from an escrow account established pursuant to a prior settlement
agreement. We anticipate consolidating our activities in London into our Worship street facility. As a result of the Orbacom acquisition, we lease space in Cinnaminson, New Jersey which
contains offices and a manufacturing facility. 
 Item 3. Legal Proceedings Except
for the four lawsuits described below, of which two that involves our former I.T.S.
segment, we are not a party to any pending legal proceedings other than claims and lawsuits arising
in the normal course of business. Under the terms of the sale agreement, we remain liable for all
pre-closing liabilities relating to the I.T.S. segment, including the two lawsuits described below.
Management believes the 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 our subsidiary,
IPC Communications, Inc., in the United States District Court for the Southern District of New York
by two telecommunications cabling contractors alleging that IPC Communications, Inc. 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. Subsequently, the complaint was amended to add an additional plaintiff and an
additional defendant contractor. 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, jointly and severally, in excess of an aggregate
of $75.0 million. 11




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##### Table of Contents



On September 8, 2003, an action was brought against several defendants, including our
subsidiary, IPC Information Systems, Inc. and its President, in the United States District Court
for the Eastern District of New York by Advance Relocation & Storage Co., Inc., a moving company.
The complaint alleges that IPC Information Systems, Inc. and 23 other defendants violated the
Racketeer Influenced and Corrupt Organizations Act and engaged in tortious interference with
prospective business advantage by preventing the plaintiff from obtaining work as a mover in jobs
performed in large commercial buildings in New York City. We believe the suit is without merit and
intends to vigorously defend against all claims alleged against it in the complaint. Plaintiffs are
seeking injunctive relief and damages from the defendants, jointly and severally, in an aggregate
amount of approximately $7.0 million. On December 15, 2004, IPC Information Systems, LLC commenced two lawsuits arising out of the
unauthorized copying of our proprietary software. The first action was filed in the Southern
District of New York against The Odyssey Group, Inc. doing business as The O&R Group, Inc. The complaint
alleges that the Odyssey Group infringed our copyrights by soliciting and obtaining an
unauthorized copy of our proprietary software from Advanced Business Communications Ltd. a
Canadian company which we refer to as ABC. Our complaint seeks recovery of the software, injunctive relief and unspecified
damages from the defendants. The second action was filed in the Alberta Court of Queens Bench
against ABC and its two principals. The statement of claim against ABC alleges misappropriation of
our software, breach of contract, breach of fiduciary and common law duties and conversion and
seeks injunctive relief and monetary damages. 
 Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders during the fourth quarter of 2004. 12




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##### Table of Contents



PART II 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. There is no public trading market for our common stock. As of September 30, 2004, there were
26 shareholders of record of our common stock. In December 2003, we made a special cash dividend
payment of $1.22 per share, or approximately $18.0 million. 
 Item 6. Selected
Financial Data (dollars in millions) Predecessors (2)Period
    
    Period
    
    
    
    
    
    Period
    
    Periodfrom
    
    from
    
    
    
    
    
    from
    
    fromFiscal Year Ended
    
    November
    
    October 1,
    
    Fiscal Year
    
    June 15,
    
    October 1,September 30,
    
    15, 2001 to
    
    2001 to
    
    Ended
    
    2000 to
    
    1999 toSeptember
    
    December
    
    September
    
    September
    
    June2004
    
    2003
    
    30, 2002
    
    20, 2001
    
    30, 2001
    
    30, 2000
    
    14, 2000Statement of Operations Data(1):Total revenue
    
    $
    263.3
    
    
    $
    212.0
    
    
    $
    194.2
    
    
    $
    46.2
    
    
    $
    221.0
    
    
    $
    84.2
    
    
    $
    137.6Cost of goods sold (depreciation shown
separately) (3)
    
    
    125.5
    
    
    
    99.6
    
    
    
    125.6
    
    
    
    22.1
    
    
    
    114.6
    
    
    
    62.4
    
    
    
    70.1Depreciation and amortization (4)
    
    
    3.8
    
    
    
    1.9
    
    
    
    0.8
    
    
    
    0.2
    
    
    
    0.8
    
    
    
    0.2
    
    
    
    0.5Gross profit
    
    
    134.0
    
    
    
    110.5
    
    
    
    67.8
    
    
    
    23.9
    
    
    
    105.6
    
    
    
    21.6
    
    
    
    67.0Research and development
    
    
    15.0
    
    
    
    11.7
    
    
    
    11.6
    
    
    
    3.5
    
    
    
    15.5
    
    
    
    4.0
    
    
    
    8.9Selling, general and administrative
    
    
    59.0
    
    
    
    45.2
    
    
    
    31.7
    
    
    
    16.4
    
    
    
    29.8
    
    
    
    10.3
    
    
    
    26.7Depreciation and amortization
    
    
    5.6
    
    
    
    4.7
    
    
    
    2.9
    
    
    
    1.2
    
    
    
    5.9
    
    
    
    1.5
    
    
    
    3.0Amortization
of intangibles
    
    
    15.8
    
    
    
    14.5
    
    
    
    11.1
    
    
    
    9.3
    
    
    
    41.6
    
    
    
    12.2
    
    
    
    3.3Income (loss) from operations
    
    
    38.6
    
    
    
    34.4
    
    
    
    10.5
    
    
    
    (6.5
    )
    
    
    12.8
    
    
    
    (6.4
    )
    
    
    25.1Interest expense, net
    
    
    (22.5
    )
    
    
    (25.2
    )
    
    
    (21.5
    )
    
    
    (6.0
    )
    
    
    (27.9
    )
    
    
    (5.7
    )
    
    
    (16.1
    )Other income (expense), net (5)
    
    
    3.9
    
    
    
    2.1
    
    
    
    (0.4
    )
    
    
    0.1
    
    
    
    2.0
    
    
    
    (17.8
    )
    
    
    Income (loss) from continuing operations before
income taxes
    
    
    20.0
    
    
    
    11.3
    
    
    
    (11.4
    )
    
    
    (12.4
    )
    
    
    (13.1
    )
    
    
    (29.9
    )
    
    
    9.0Income tax expense (benefit)
    
    
    9.5
    
    
    
    7.6
    
    
    
    (2.3
    )
    
    
    (0.8
    )
    
    
    2.4
    
    
    
    (9.9
    )
    
    
    3.5Income (loss) from continuing operations
    
    
    10.5
    
    
    
    3.7
    
    
    
    (9.1
    )
    
    
    (11.6
    )
    
    
    (15.5
    )
    
    
    (20.0
    )
    
    
    5.5Discontinued operationsIncome (loss) from operations of I.T.S.
segment (including loss on disposal of $4,110
in 2004)
    
    
    (6.2
    )
    
    
    0.6
    
    
    
    (0.1
    )
    
    
    1.0
    
    
    
    4.7
    
    
    
    0.1
    
    
    
    1.4Income tax expense (benefit)
    
    
    (2.7
    )
    
    
    0.3
    
    
    
    
    
    
    
    0.4
    
    
    
    2.0
    
    
    
    
    
    
    
    0.6Income (loss) on discontinued operations
    
    
    (3.5
    )
    
    
    0.3
    
    
    
    (0.1
    )
    
    
    0.6
    
    
    
    2.7
    
    
    
    0.1
    
    
    
    0.8Net income (loss)
    
    $
    7.0
    
    
    $
    4.0
    
    
    $
    (9.2
    )
    
    $
    (11.0
    )
    
    $
    (12.8
    )
    
    $
    (19.9
    )
    
    $
    6.3Statement of Cash Flow Data:Cash provided by operating activities from continuing operations
    
    $
    35.5
    
    
    $
    35.0
    
    
    $
    25.4
    
    
    $
    12.2
    
    
    $
    33.3
    
    
    $
    18.9
    
    
    $
    51.1Cash
used in investing activities from continuing operations
    
    
    (26.2
    )
    
    
    (0.4
    )
    
    
    (352.2
    )
    
    
    (1.9
    )
    
    
    (9.4
    )
    
    
    (1.1
    )
    
    
    (2.8
    )Cash provided by (used in) financing activities
    
    
    (29.3
    )
    
    
    (17.8
    )
    
    
    343.5
    
    
    
    (15.2
    )
    
    
    (23.4
    )
    
    
    (16.3
    )
    
    
    (47.0
    )Other Data:EBITDA (6)
    
    $
    61.7
    
    
    $
    58.3
    
    
    $
    25.1
    
    
    $
    5.4
    
    
    $
    68.1
    
    
    $
    7.7
    
    
    $
    33.6Ratio of earnings to fixed charges (7)
    
    
    1.8x
    
    
    
    1.4x
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.5xDeficiency of earnings to cover fixed charges
(7)
    
    
    
    
    
    
    
    
    
    
    (11.4
    )
    
    
    (12.4
    )
    
    
    (13.1
    )
    
    
    (29.9
    )
    
    
    
 Predecessors (2)September 30,2004
    
    2003
    
    2002
    
    2001
    
    2000Balance Sheet Data (at period end):Cash
    
    $
    27.3
    
    
    $
    25.8
    
    
    $
    25.3
    
    
    $
    4.5
    
    
    $
    3.2Net working capital
    
    
    43.9
    
    
    
    53.5
    
    
    
    43.5
    
    
    
    (52.2
    )
    
    
    (6.3
    )Total assets
    
    
    455.3
    
    
    
    459.5
    
    
    
    430.2
    
    
    
    489.1
    
    
    
    531.4Long-term debt
    
    
    197.3
    
    
    
    204.5
    
    
    
    214.6
    
    
    
    
    
    
    
    Total debt
    
    
    199.5
    
    
    
    205.0
    
    
    
    221.1
    
    
    
    
    
    
    
    Stockholders equity
    
    
    133.2
    
    
    
    147.2
    
    
    
    137.0
    
    
    
    244.0
    
    
    
    318.6
 13




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(1)
    
    In April 2003, we acquired Gains International US and Gains International UK. In August
2003, we acquired Purple Voice and in January 2004, we acquired Gains International Asia.
These acquisitions may affect the comparability of periods. For more information about these
acquisitions, see Note 3 to the financial statements in Item 8.(2)
    
    Predecessors refers to the company as it operated (a) on a stand-alone basis through June 14,
2000 as IPC Information Systems, Inc. and (b) through December 20, 2001 following the
acquisition of IPC Information Systems, Inc. by Global Crossing. Accordingly, the financial
statements from June 15, 2000 through December 20, 2001 reflect the changes and adjustments
for purchase accounting as well as changes as a result of ownership under Global Crossing.
Accordingly, the financial statement periods are presented in the following manner:(a)
    
    2000  for the period from October 1, 1999 to June 14, 2000, IPC Information Systems,
Inc. operated as an independent company. On June 15, 2000, IPC Information Systems, Inc.
was acquired by Global Crossing. The period from June 15, 2000 to September 30, 2000 is
shown as a separate column as a result of the change in ownership.(b)
    
    2001  for the period from October 1, 2000 through September 30, 2001, IPC Information
Systems, Inc. operated under Global Crossings ownership.(c)
    
    2002  for the period from October 1, 2001 to December 20, 2001, IPC Information
Systems, Inc. operated under Global Crossings ownership. IPC Acquisition Corp. was formed
and initially capitalized on November 15, 2001 and had no assets or operations until it
acquired IPC Information Systems on December 20, 2001. The period from October 1, 2001
through December 20, 2001 and the period from November 15, 2001 (date of initial
capitalization) through September 30, 2002 are shown as separate columns as a result of the
change in ownership.(d)
    
    For 2003 and 2004, we operated as an independent company.(3)
    
    For the period from June 15, 2000 through September 30, 2000, cost of goods sold reflects
fair value inventory adjustments of $22.3 million associated with the purchase accounting
treatment of the acquisition of IPC Information Systems, Inc. by Global Crossing in June 2000.
2001 cost of goods sold reflects fair value inventory adjustments of $9.7 million associated
with the purchase accounting treatment of the acquisition of IPC Information Systems, Inc. by
Global Crossing in June 2000. We had no operations prior to our acquisition of IPC Information
Systems from Global Crossing on December 20, 2001. For the period from November 15, 2001 (date
of initial capitalization) through September 30, 2002, costs of goods sold reflects fair value
inventory adjustments of $33.0 million associated with the purchase accounting treatment of
the acquisition of IPC Information Systems in December 2001.(4)
    
    The depreciation and amortization expense in our cost of goods sold refers to depreciation
and amortization expense on property, plant and equipment at our manufacturing facility in
Westbrook, Connecticut.(5)
    
    In accordance with Statement of Financial Accounting Standards No. 145, Rescission of FASB
Statements No. 4, 44 and 64, Amendment to FASB Statement No. 13, and Technical Corrections,
effective for years beginning after May 15, 2002, any gain or loss on extinguishment of debt
that was classified as an extraordinary loss in prior periods shall be reclassified.
Accordingly, the $10.6 million extraordinary loss on retirement of debt in the period June 15,
2000 to September 30, 2000 has been reclassified to Other income (expense), net
(approximately $17.8 million expense) and Provision (benefit) for income taxes (tax benefit
of approximately $7.3 million).(6)
    
    EBITDA represents earnings before interest, taxes, depreciation and amortization. We believe
that EBITDA helps investors more meaningfully evaluate and compare the results of our
operations from period to period. We believe that our investors, as debt investors and not
equity investors, are primarily focused on EBITDA rather than net income, as it is a useful
indicator of operating performance and cash generated from operations exclusive of working
capital changes.Our management uses EBITDA as a measurement of operating performance because it assists us in
comparing performance on a consistent basis as it removes the impact of our recent changes in
ownership, including different capital structures and asset bases, from our operating results.
Management also uses EBITDA as one of its core measures for planning and forecasting overall
consolidated company and individual business division expectations and for evaluating actual
results against such expectations. We have consistently included EBITDA in presentations to our
board of directors and investors to enable them to have the same consistent measurement basis of
operating performance used by management. We also use EBITDA as a valuation methodology in
assessing the fair value of our reporting divisions for required impairment testing. Further, we
use EBITDA measurements for our compensation plans and overall strategy. The most significant
component of the financial targets of our management incentive plan are measured and bonuses are
paid based on achievement of such EBITDA targets and our overall strategy is directed towards
pursuing development opportunities intended to increase EBITDA and/or the valuation multiple of
EBITDA our businesses would command on a fair value basis.However, EBITDA is not a measurement prepared in accordance with generally accepted accounting
principles. In addition, other companies in our industry may calculate EBITDA differently than we
do. Significant factors not captured by EBITDA include trends in our period over period revenue,
profitability measured by gross margin and effective tax rate. The following table sets forth a
reconciliation of EBITDA to net income for the periods indicated (in millions): Predecessors (1)Period
    
    Period
    
    
    
    
    
    Period
    
    Periodfrom
    
    from
    
    
    
    
    
    from
    
    fromFiscal Year Ended
    
    November
    
    October 1,
    
    Fiscal Year
    
    June 15,
    
    October 1,September 30,
    
    15, 2001 to
    
    2001 to
    
    Ended
    
    2000 to
    
    1999 toSeptember
    
    December
    
    September
    
    September
    
    June 14,2004
    
    2003
    
    30, 2002
    
    20, 2001
    
    30, 2001
    
    30, 2000
    
    2000Statement of Operations Data:Net income (loss)
    
    $
    7.0
    
    
    $
    4.0
    
    
    $
    (9.2
    )
    
    $
    (11.0
    )
    
    $
    (12.8
    )
    
    $
    (19.9
    )
    
    $
    6.3Depreciation and amortization
    
    
    25.4
    
    
    
    21.3
    
    
    
    15.1
    
    
    
    10.7
    
    
    
    48.6
    
    
    
    14.0
    
    
    
    7.1Interest expense, net
    
    
    22.5
    
    
    
    25.1
    
    
    
    21.5
    
    
    
    6.0
    
    
    
    27.9
    
    
    
    5.7
    
    
    
    16.1Loss on retirement of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17.8
    
    
    
    Income tax expense (benefit)
    
    
    6.8
    
    
    
    7.9
    
    
    
    (2.3
    )
    
    
    (0.3
    )
    
    
    4.4
    
    
    
    (9.9
    )
    
    
    4.1EBITDA
    
    $
    61.7
    
    
    $
    58.3
    
    
    $
    25.1
    
    
    $
    5.4
    
    
    $
    68.1
    
    
    $
    7.7
    
    
    $
    33.6
  (7)
    
    The ratio of earnings to fixed charges is computed by dividing earnings by fixed
charges. For this purpose, earnings include net income (loss) before taxes and fixed charges
(adjusted for interest capitalized during the period). Fixed charges include interest,
whether expensed or capitalized, amortization of deferred financing fees and the portion of
rental expense that is representative of the interest factor in these rentals. For the period
from June 15, 2000 to September 30, 2000, earnings were insufficient to cover fixed charges by
$29.9 million because of the inclusion of the inventory fair value step-up in cost of sales of
$22.3 million and the amortization of the goodwill of $6.2 million from the acquisition of IPC
Information Systems, Inc. by Global Crossing in June 2000. For the year ended September 30,
2001, earnings were insufficient to cover fixed charges by $12.4 million because of the
inclusion of the inventory fair value step-up in cost of sales of $9.7 million and the
amortization of goodwill of $21.1 million from the acquisition of IPC Information Systems,
Inc. by Global Crossing in June 2000. For the period from October 1, 2001 to December 20,
2001, earnings were insufficient to cover fixed charges by $12.4 million because of the year
end intercompany charge of $6.9 million, the 14




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inclusion of $2.5 million of other bonus amounts and goodwill amortization of $4.7
million resulting from the ownership of IPC Information Systems by Global Crossing.
For the period from November 15, 2001 (date of initial capitalization) to September 30, 2002,
earnings were insufficient to cover fixed charges by $11.4 million because of the inclusion of the fair value
step-up of inventory in cost of sales of $33.0 million resulting from the acquisition of IPC
Information Systems in December 2001. 
 Item 7. 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 consolidated financial statements and related notes included elsewhere in this filing. 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 like 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:  
    
    risks associated with substantial indebtedness, leverage and debt service;
    
    performance of our business and future operating results;
    
    risks of competition in our existing and future markets;
    
    loss or retirement of any key executives;
    
    general business and economic conditions;
    
    market acceptance issues, including the failure of products or services to generate anticipated sales levels; and
    
    risks described Risk Factors beginning on page 7 of this document. Our actual results and performance may 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. Business Overview Our business is to provide mission-critical voice communications solutions to enterprises
globally, primarily in the financial services industry. Since 1973, we designed, manufactured,
installed and serviced specialized telephony systems, also referred to as turrets, which are
utilized on trading floors across the world. We are a leader within the financial trading community
based on the number of turret positions and related equipment installed worldwide. We built
additional lines of business from that core offering, expanding our product and service portfolio
to address other communications needs of the financial services industry. Additionally, we recently
increased our efforts to address the needs of customers involved in the command and control
operations of the following industries: public safety organizations, government and military
agencies, PE&U companies, and transportation companies. We manage our business through two major operating segments called Financial Services and
Command and Control. In October 2004 we formed the Command and Control segment in connection with a
substantial increase in our efforts to address what we identified as growth opportunities in that
market. We plan to expand the offerings and operations of our Command and Control segment both
through internal investments in our product offerings and professional staff, as well as through
acquisitions that we believe will supplement our portfolio of offerings and our distribution
channels. In November 2004, we completed our first such acquisition in the Command and Control
segment with the acquisition of Orbacom Systems, Inc. Revenue from product sales and installations is
recognized upon completion of the installation or, for contracts that are completed in
stages and include contract specified milestones, upon achieving such contract milestones,
and delivery and customer acceptance of a fully functional system. Revenue from sales to
distributors is recognized upon shipment. Revenue from MACs to turret systems is recognized
upon completion, which generally occurs in the same month or the month following the order
for services. Revenue from network services is generally billed in the beginning of the
month and recognized in the same month. Large installation projects are not numerous; however, their occurrence causes
fluctuations when comparing periods, as revenue is not recognized until completion of the
installation or achievement of contract milestones. We believe the demand for new turret
systems is primarily event driven, the result of physical facility moves of trading
positions, the addition of new trading positions due to customer growth and the need
to upgrade older technology. Large facility moves and mergers can also result in large
installation projects, which cause uneven revenue streams period over period. Operating Focus since December 2001 In December 2001, Global Crossing and its affiliates sold IPC Information Systems to a group
of investors led by GS Capital Partners 2000, L.P. Since that time, we operated as an independent
company and focused our efforts on five key initiatives to improve our operating performance.
These initiatives included:  
    
    Upgrade our portfolio of businesses and quality of
financial results.
We made changes to our portfolio of business in order to focus on businesses we believe have the
most attractive operating margins and growth profiles, to add complementary products or
distribution channels, and to increase the percentage of recurring services revenues
relative to the more cyclical equipment sales revenues. In March 2002, in order to expand our
geographic presence in the Asia Pacific region, we purchased the customer base and related
assets outside of Japan of the turret business of Hitachi, Ltd. In April 2003, in order to
supplement our equipment business with complementary offerings of specialized network services,
we purchased Gains International (US) Inc, and Gains International (Europe) Limited. In August
2003, in order to expand 15




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our product offering to include a software-based VoIP hoot and intercom
product, we invested in and gained control of Purple Voice, and subsequently completed the acquisition in September
2004. In January 2004, we purchased Gains International Asia Holdings to extend our
network services presence in the Asia Pacific region. In July 2004, we divested the operations
and assets of our I.T.S. segment in order to exit a construction-related cabling business we
viewed as highly cyclical and moderately profitable. In November 2004, to expand the product
offerings and distribution channels of our newly formed Command and Control segment, we acquired
Orbacom Systems Inc. Since 2001 our recurring services revenues have increased from $85.7
million in 2002 to $148.7 million in 2004, representing 36% of total revenues in 2002, and 56%
of total revenues in 2004. We believe our recurring services businesses are less subject to
industry capital spending cycles than our equipment sales businesses.
    
    Increase our geographic reach and penetration in
selected countries.
Since 2001 we opened direct offices in Japan, Germany, Italy, and
France. We also
acquired operations and offices in the Asia Pacific and EMEA regions through our acquisitions of
Hitachis turret business and the three Gains International entities. Our penetration in the
EMEA and Asia Pacific regions has increased as a result of these activities, as measured by
number of turrets installed and circuits of network services.
    
    Expand our portfolio of product and service offerings.
Since 2001 we expanded our offerings through investment in internal research and development as
well as through acquisitions of products, services and technologies. Through the acquisitions of
the three Gains International entities, we acquired a base of customers, a global network,
operations centers, personnel and expertise to enable us to offer specialized network services
to the same client base served by our communications equipment business. Since that acquisition
we increased the revenues and operating profits of the acquired entities by adding those
services to the portfolio of offerings sold by our account representatives. We also added other
related services, including offerings to audit and groom our customers networks, and continuity
services designed to monitor both equipment and network resources and proactively address
potential disruptions to service. Leveraging the potential of VoIP technology, we internally
developed technologies that enhance the capabilities of our equipment offerings with new
solutions for business continuity, compliance, user productivity, converged voice, video and
data, and system administration on an enterprise level. Additionally, through the acquisition of
Purple Voice, we added to our portfolio a set of software-based, VoIP offerings that extend core
trading room functionality to off-floor individuals and offices, including retail brokerage.
With the acquisition of Orbacom, and through internal development efforts, we added proprietary
radio integration, computer aided dispatch, and console offerings, as well as integrated
third-party offerings for records management and other functions required in command and control
applications.
    
    Establish technical leadership and market penetration
of our VoIP platform.
In 2001, we introduced the first VoIP trading floor communications systems to the market. We
succeeded in building market adoption of our technologies and have added to the platforms
capabilities through continuous research and development efforts. As of September 30, 2004, we
had shipped approximately 20,000 positions of our VoIP platform, and have gradually increased
the percentage of positions shipped that are VoIP to 70% of shipments in the fourth quarter of
2004. In 2005 we expect more than 75% of our positions shipped will be VoIP solutions.
    
    Extend our offerings into new markets with similar
demand characteristics.
We believe that the market for command and control communications solutions shares many common
demand characteristics with those of the financial services industry. Our experience has shown
us that they share similar communications needs, including intercom, broadcast intercom, private
lines, integration of various communications sources and media in common consoles. We also
observed that the mission-critical nature of communications in each setting drive other business
similarities, resulting in what we concluded are favorable industry dynamics that are well
suited to our product offerings, expertise, and corporate resources. Current market environment The financial services industry experienced a market downturn in recent years, resulting in
substantial reductions in capital expenditures for trading floor communications equipment
purchases. Our shipments of turret positions reached what we believe are cyclical lows with
shipments of 13,882 positions in 2002, 10,275 in 2003, and 12,641 in
2004 compared to 17,007 positions
shipped in 2001. Based on our experience and historical data, we believe that the normalized level
of turret shipments, adjusted to exclude the effects of the cycle, would have been approximately
15,000 positions per year during an average replacement cycle of our installed base of turrets. We
believe that as a result of the recent lag in purchasing our installed base of equipment has aged
beyond cyclical norms and that this lag is one of several factors that we expect will impact the
volume of equipment purchased in the next several years. We believe our 2004 bookings and the
year-over-year increase in our backlog of equipment orders is consistent with our expectation. Our
bookings for the first two quarters of 2004 was $40 million,
compared to $110 million for the second two
quarters of 2004. Our backlog at September 30, 2004 was $70.8 million, a 91% increase over our
backlog of $37.0 million at September 30, 2003. Included in
the backlog is one job for approximately $12 million which is
being re-evaluated by the customer for changes to configuration and
timing. This job may decrease in size and may not complete until
fiscal year 2006. 16




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Recent Events On November 30, 2004, IPC Information Systems Holdings, Inc, a subsidiary of ours, acquired
Orbacom Systems, Inc. for $18 million in cash, including up to $7 million in earnout commitments. Orbacom provides specialized radio consoles and computer aided dispatch
software for use in command and control communications and serves the
mission-critical
communications needs of government agencies and corporations responsible for public safety
dispatch, management of natural gas and energy infrastructures, air, freight and rail
transportation, government command applications including homeland security, and critical
industrial communications. We will consolidate our existing command and control operations with
those of Orbacom. In conjunction with the closing of this acquisition, we also amended our senior secured credit
facility. Under this amendment, we obtained consent for the Orbacom acquisition and reset our
ability to make acquisitions for up to $25 million, without
taking into account the Orbacom
acquisition. Summary of Critical Accounting Policies The discussion and analysis of our financial condition and results of operations are based
upon our consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On
an ongoing basis, we periodically evaluate our estimates. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates. We believe the following critical accounting policies affect our more significant judgments
and estimates used in the preparation of our consolidated financial statements. Revenue
Recognition Revenue from product sales and installations is recognized upon completion of the installation
or, for contracts that are completed in stages and include contract specified milestones, upon
achieving such contract milestones, and delivery and customer acceptance of a fully functional
system. Revenue from sales to distributors is recognized upon shipment. Customers are generally
progress-billed prior to the completion of the installations. The revenue related to these advance
payments is deferred until the system installations are completed or specified milestones are
attained. Costs incurred on uncompleted contracts and stages are accumulated and recorded as
inventory awaiting installation. The cost of providing a one year warranty are estimated and
accrued at the time the equipment is sold. In addition, contracts for annual recurring 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
generally occurs in the same month or the month following the order for services. Revenue from
network services is generally billed in the beginning of the month and recognized in the same
month. Revenue from software licenses is recognized in
accordance with SOP No. 97-2, Software Revenue
Recognition, as amended by SOP 98-9,
Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions.
Software revenue is recognized when a customer enters into a non-cancelable contract or
license agreement, the software product has been delivered, there are no uncertainties
surrounding product acceptance, there are no significant future performance obligations,
the contract or license fees are fixed or determinable and collection is considered probable.
Amounts received in advance of meeting these criteria are
deferred. Revenue from support and maintenance contracts is recognized
ratably over the contract period. Allowance
for Doubtful Accounts We evaluate the collectibility of our accounts receivable based on a combination of factors.
Where we are aware of circumstances that may impair a specific customers ability to meet its
financial obligations to us, we record a specific allowance against amounts due to us and thereby
reduce the net receivable to the amount we reasonably believe is likely to be collected. For all
other customers, we recognize allowances for doubtful accounts based on the length of time the
receivables are outstanding, industry and geographic concentrations, the current business
environment and our historical experience. If the financial condition of our customers deteriorates
or if economic conditions worsen, additional allowances may be required. 17




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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 definite lived
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 to date. 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. We adopted SFAS No. 142 effective upon the acquisition of IPC Information Systems 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 (date of initial capitalization) to
September 30, 2002 and 2003 and 2004. However, such assets are tested for impairment annually using
the two-step process specifically provided in SFAS No. 142. Other intangible assets are carried at
cost. Technology assets are amortized over estimated useful lives of between 3 to 7 years, customer
relationships are amortized over estimated useful lives of 8 to 20 years, and proprietary software
is amortized over its estimated useful life of 7 years. Trade name has been deemed to have an
indefinite life and will not be subject to amortization, but instead will be subject to
annual impairment tests in accordance with the provisions of SFAS No. 142. In determining that the
trade name has an indefinite life, we considered the following factors: the ongoing active use of
our trade name, which is directly associated with our market leading position in the turret
business, the lack of any legal, regulatory or contractual provisions that may limit the useful
life of the trade name, the lack of any substantial costs to maintain the asset, the positive
impact on our trade name generated by our other ongoing business activities (including marketing
and development of new technology and new products) and our commitment to products branded with our
trade name over our 30 year history. We completed the required annual fair value test as of July 1, 2004 (the first day of the
fourth quarter of 2004), and concluded that there was no impairment to our recorded goodwill or
trade name. We believe the recorded values of goodwill of $82.6 million and trade name of $16.3
million at September 30, 2004 are fully recoverable. In
June 2004, we wrote off $3.1 million of
goodwill and other intangible assets related to the sale of our I.T.S. segment which was recorded
as a discontinued operation in
the consolidated financial statements. The write-off was the result of the disposition of the
segment and was not a result of any impairment. Stock-Based Compensation As permitted by SFAS 123, we elected to follow APB Opinion No. 25, Accounting for Stock
Issued to Employees and related interpretations in accounting for our employee option plans. Under
APB 25, no compensation expense is recognized at the time of an option grant if the exercise price
of the employee stock option is fixed and equals or exceeds the fair market value of the underlying
common stock on the date of the grant and the number of shares to be issued pursuant to the
exercise of such options are fixed on the date of the grant. Due
to the fact that our common stock is not publicly traded, determining the fair
value of our common stock involves significant estimates and judgments. In
considering the fair value of the underlying stock when we grant options, we consider
several factors like third party valuations, the fair value of the common stock
of other companies comparable to ours, and fair values established by market
transactions. Income Taxes In accordance with SFAS No. 109, Accounting for Income Taxes, or SFAS 109, 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. Although realization is not assured, management believes it is more likely than not
that the recorded deferred tax assets will be realized. Additionally, deferred tax liabilities are
regularly reviewed to confirm that the amounts recorded are appropriately stated. All such
evaluations require significant management judgments. 18




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In determining
whether it is more likely than not that we will realize the benefits of the net deferred
tax assets from US operations, we consider all available evidence,
both positive and negative, including that:  
    
    US result of operations for subsequent fiscal years are expected to
generate sufficient taxable income to fully utilize tax loss carryforwards; and
    
    our conclusion that the net US deferred tax assets were
generated by an event (our purchase of the Company), rather than a continuing condition. For periods prior to our acquisition of IPC Information Systems, our predecessor had filed a
consolidated federal tax return and separate and combined state tax returns 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 109 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. We are now required to file
separate tax returns. Business Combinations Estimates and judgments related to the fair value of assets acquired and liabilities
assumed are required in connection with our acquisitions. Some of the liabilities are subjective
in nature. These liabilities are reflected in purchase accounting based upon the most recent
information available, and principally related to federal, foreign, state and local taxes
based on income and other measures as well as estimates of costs to restructure the operations of
acquired companies. The ultimate settlement of such liabilities may be for amounts that are
different from the amounts presently recorded. Recent Accounting Pronouncements On December 16, 2004,
the Financial Accounting Standards Board (FASB) issued Statement No. 123 (revised 2004),
Share-Based payment, which is a revision of FASB Statement No.
123, Accounting for Stock-Based Compensation. Statement 123(R) supercedes APB Opinion No. 25, Accounting for Stock Issued to
Employees. Generally, the approach to accounting for share-based payments in Statement 123(R)
is similar to the approach described in Statement 123. However,
Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be
recognized as compensation expense in the financial statements based on their fair values
(i.e., pro forma disclosure is no longer an alternative to financial statement recognition).
Statement 123(R) is effective for us in the quarter that begins July 1, 2005. The adoption of
Statement 123(R) could materially impact our consolidated financial statements. Comparison of the Year Ended September 30, 2004 to the Year Ended September 30, 2003 and the Year
Ended September 30, 2003 to the Year Ended September 30, 2002. The following table sets forth, as a percentage of consolidated revenue, our consolidated
statements of operations for the periods indicated. The following table also presents, as a
percentage of segment revenue, our statements of operations for our two operating segments for the
periods indicated. The amounts presented for 2002 represent the sum of the amounts separately
reported for the pre-IPC Information Systems acquisition period from October 1, 2001 to December
20, 2001 and the post-IPC Information Systems acquisition period from December 21, 2001 to
September 30, 2002. All expenses below the gross profit line have been recorded to our Financial
Services segment through September 30, 2004. See footnote 16 of the
notes to the consolidated financial statements for a discussion of
our business segments and the change we made to our segment reporting. 19




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##### Table of Contents



2004
    
    2003
    
    2002Command
    
    
    
    
    
    
    
    
    
    Command
    
    
    
    
    
    
    
    
    
    CommandConsol-
    
    Financial
    
    and
    
    Consol-
    
    Financial
    
    and
    
    Consol-
    
    Financial
    
    andidated
    
    Services
    
    Control
    
    Idated
    
    Services
    
    Control
    
    idated
    
    Services
    
    ControlRevenue:Product sales and installations
    
    
    44
    %
    
    
    43
    %
    
    
    56
    %
    
    
    53
    %
    
    
    53
    %
    
    
    67
    %
    
    
    64
    %
    
    
    65
    %
    
    
    21
    %Service
    
    
    56
    %
    
    
    57
    %
    
    
    44
    %
    
    
    47
    %
    
    
    47
    %
    
    
    33
    %
    
    
    36
    %
    
    
    35
    %
    
    
    79
    %100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Cost of goods sold (depreciation shown
separately):Product sales and installations
    
    
    20
    %
    
    
    20
    %
    
    
    21
    %
    
    
    25
    %
    
    
    25
    %
    
    
    32
    %
    
    
    43
    %
    
    
    43
    %
    
    
    6
    %Service
    
    
    28
    %
    
    
    28
    %
    
    
    15
    %
    
    
    22
    %
    
    
    22
    %
    
    
    11
    %
    
    
    18
    %
    
    
    18
    %
    
    
    24
    %Depreciation and amortization
    
    
    1
    %
    
    
    1
    %
    
    
    0
    %
    
    
    1
    %
    
    
    1
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %49
    %
    
    
    49
    %
    
    
    36
    %
    
    
    48
    %
    
    
    48
    %
    
    
    43
    %
    
    
    62
    %
    
    
    62
    %
    
    
    30
    %Gross profit
    
    
    51
    %
    
    
    51
    %
    
    
    64
    %
    
    
    52
    %
    
    
    52
    %
    
    
    57
    %
    
    
    38
    %
    
    
    38
    %
    
    
    70
    %Research and development
    
    
    6
    %
    
    
    
    
    
    
    
    
    
    
    6
    %
    
    
    
    
    
    
    
    
    
    
    6
    %Selling, general and administrative expense
    
    
    22
    %
    
    
    
    
    
    
    
    
    
    
    21
    %
    
    
    
    
    
    
    
    
    
    
    20
    %Depreciation and amortization
    
    
    8
    %
    
    
    
    
    
    
    
    
    
    
    9
    %
    
    
    
    
    
    
    
    
    
    
    10
    %Income (loss) from operations
    
    
    15
    %
    
    
    
    
    
    
    
    
    
    
    16
    %
    
    
    
    
    
    
    
    
    
    
    2
    %Other income (expense):Interest expense, net
    
    
    (9
    %)
    
    
    
    
    
    
    
    
    
    
    (12
    %)
    
    
    
    
    
    
    
    
    
    
    (11
    %)Other income (expense), net
    
    
    2
    %
    
    
    
    
    
    
    
    
    
    
    1
    %
    
    
    
    
    
    
    
    
    
    
    0
    %Income (loss) from continuing operations
before income taxes
    
    
    8
    %
    
    
    
    
    
    
    
    
    
    
    5
    %
    
    
    
    
    
    
    
    
    
    
    (10
    %)Income tax expense (benefit)
    
    
    4
    %
    
    
    
    
    
    
    
    
    
    
    3
    %
    
    
    
    
    
    
    
    
    
    
    (1
    %)Income (loss) from continuing operations
    
    
    4
    %
    
    
    
    
    
    
    
    
    
    
    2
    %
    
    
    
    
    
    
    
    
    
    
    (9
    %)Income (loss) from discontinued operations
    
    
    (1
    %)
    
    
    
    
    
    
    
    
    
    
    0
    %
    
    
    
    
    
    
    
    
    
    
    0
    %Net income (loss)
    
    
    3
    %
    
    
    
    
    
    
    
    
    
    
    2
    %
    
    
    
    
    
    
    
    
    
    
    (9
    %)
 Comparison of 2004 to 2003 We omitted a discussion of revenues and cost of goods sold on a consolidated basis because the
discussion would be substantially the same as and duplicative of the discussion of these items for
the Financial Services segment. All expenses below the gross profit
line have been recorded to our Financial Services segment. We believe
our customers are beginning to plan and implement changes,
expansions, and re-configurations to their current trading floors. We
expect this activity to continue during 2005; however, there can be
no certainty as to the degree or duration that this will continue. Revenue. The following table sets forth our revenue as reported for our two operating segments. Financial Services(dollars in thousands)
    
    FY 2004
    
    FY 2003
    
    $ Change
    
    % ChangeProduct sales and installations
    
    $
    112,977
    
    
    $
    110,808
    
    
    $
    2,169
    
    
    
    2
    %Service
    
    
    147,489
    
    
    
    97,781
    
    
    
    49,708
    
    
    
    51
    %Total
    
    $
    260,466
    
    
    $
    208,589
    
    
    $
    51,877
    
    
    
    25
    %
 Command and Control(dollars in thousands)
    
    FY 2004
    
    FY 2003
    
    $ Change
    
    % ChangeProduct sales and installations
    
    $
    1,567
    
    
    $
    2,249
    
    
    $
    (682
    )
    
    
    (30
    %)Service
    
    
    1,239
    
    
    
    1,123
    
    
    
    116
    
    
    
    10
    %Total
    
    $
    2,806
    
    
    $
    3,372
    
    
    $
    (566
    )
    
    
    (17
    %)
 20




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##### Table of Contents



For 2004, no single customer accounted for 10% or more of our consolidated revenues. For 2003,
one customer accounted for approximately 13% of our consolidated revenues. There were no other
customers in 2003 that accounted for more than 10% of consolidated revenues. Financial Services Product sales and installations.Year over year, our product sales and installation revenue
increased by $2.2 million, primarily related to an increase in small projects. We believe that
the increase in small projects may indicate an overall expansion of our customer trading
operations which appear initially in small projects due to their short installation periods. The
increase in product sales and installation revenue of $2.2 million in 2004 was primarily due to
a higher volume of small installation projects offset by a lower volume of large and medium
installation projects in 2004 compared to 2003. The number of installations and related value
changed is shown in the table below. We installed the same number of large projects; however,
the difference in the total revenues for these large projects is primarily due to one large
installation project completed in 2003 and we did not have a comparable project of that size
completed in 2004. Medium size installation project shortfall occurred primarily in the last
half of 2004. Large and medium projects are primarily configuration based on the number of
positions and telephone lines per position and sales can occur resulting from real estate
planning, merger and acquisition activity in our customer base, changes in our customers
headcount or their technology needs. We believe the decrease in large and medium size projects
in 2004 was a continuation of the economic softness in 2003 and effect on 2004 planning.
Conversely, we saw a significant increase in small installation projects in the second half of
our 2004 which we believe coincided with the improvement in the global economic outlook. We
believe that this increase was enabled by the short lead times necessary to negotiate and
execute the size of these installation projects as well as expansion in the area of trading. In
contrast, the increase in smaller installation projects in 2004 compared to 2003 was primarily
in our EMEA and Asia Pacific regions. Typically, these regions expand and upgrade faster than
their North American counterparts. Number of
    
    Total amountinstallations
    
    (in millions)Product installation size:
    
    2004
    
    2003
    
    2004
    
    2003
    
    $ ChangeLarge (greater than $2.0 million)
    
    
    9
    
    
    
    9
    
    
    $
    31.2
    
    
    $
    39.4
    
    
    $
    (8.2
    )Medium (between $1.0 million and $2.0 million)
    
    
    5
    
    
    
    10
    
    
    
    6.9
    
    
    
    13.8
    
    
    
    (6.9
    )Small (less than $1.0 million)
    
    
    *
    
    
    
    *
    
    
    
    74.9
    
    
    
    57.6
    
    
    
    17.3$
    113.0
    
    
    $
    110.8
    
    
    $
    2.2
 * Due to the
variance in deal size of small installations this number is not a
useful statistic. Service.The increase in service revenue of $49.7 million in 2004 from 2003 was primarily due to
the increase of $35.8 million from reporting the full year in 2004 of network services in North
America and Europe compared to reporting only five months in 2003 and the inclusion of nine
months of network services in Asia in 2004 due to the acquisition of Gains Asia in January 2004.
In addition, we also experienced growth in the customer base and recurring circuit business. Also, there was
a higher volume of contract maintenance revenue totaling $8.6 million and non-contract MAC
revenue totaling $5.3 million in 2004. The increase in contract maintenance revenue in 2004 was
primarily due to the expiration of warranties for product sales and installation contracts
performed in 2002 and for a portion of 2003. The increase in non-contract MAC revenue was
primarily due to increased demand for trading floor re-configurations and additional trading
positions globally. Command and Control Product sales and installations.The decrease in product sales and installation revenue of $0.7
million in 2004 from 2003 was primarily due to a lower volume of small installation projects in
2004 compared to 2003. The decrease is due to higher product sales and demand for our product in
the electric utility market in 2003 when compared to 2004. We believe that the decrease is
associated with the need for radio technology in our product offering as well as an absence of
dedicated sales and marketing professionals. The revenue recognized for product sales and
installation is primarily associated with electric utility operations and does not relate to
opportunities in the transportation, government and public safety industries. To date, command
and control installations have been small in dollar value. Number of
    
    Total amountinstallations
    
    (in millions)Product installation size:
    
    2004
    
    2003
    
    2004
    
    2003
    
    $ ChangeSmall (less than $1.0 million)
    
    
    *
    
    
    
    *
    
    
    $
    1.6
    
    
    $
    2.3
    
    
    $
    (0.7
    )
 * Due to the
variance in deal size of small installations this number is not a
useful statistic. Service. The increase in service revenue of $0.1 million in 2004 from 2003 was primarily due to
a higher volume of contract maintenance revenue totaling $0.1 million in 2004. The increase in
contract maintenance revenue in 2004 was primarily due to the expiration of warranties for
installation contracts. 21




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##### Table of Contents



Cost of Goods Sold. The following table sets forth our cost of goods sold as reported for our two operating
segments. Cost of goods sold for our Financial Services segment includes the costs of equipment
sold, the costs of parts used for service of the equipment, labor to install the equipment sold,
labor to provide service, warehouse and project management costs, the costs to lease local and long
distance circuits, the cost of our network provisioning and operations organizations and
depreciation of our network equipment as well as equipment in our manufacturing and assembly
facility. Cost of goods sold for our Command and Control segment includes the costs of equipment
sold, the costs of parts used for service of the equipment, labor to install the equipment sold and
labor to provide service, Financial Services% of
    
    
    
    
    
    % of
    
    %(dollars in thousands)
    
    2004
    
    Rev.
    
    2003
    
    Rev.
    
    ChangeProduct sales and installations
    
    $
    51,956
    
    
    
    46
    %
    
    $
    52,581
    
    
    
    47
    %
    
    
    (1
    %)Service
    
    
    72,496
    
    
    
    49
    %
    
    
    45,583
    
    
    
    47
    %
    
    
    2
    %Depreciation and amortization
    
    
    3,822
    
    
    
    1
    %
    
    
    1,876
    
    
    
    1
    %
    
    
    0
    %Total
    
    $
    128,274
    
    
    
    49
    %
    
    $
    100,040
    
    
    
    48
    %
    
    
    1
    %
 Command and Control% of
    
    
    
    
    
    % of
    
    %(dollars in thousands)
    
    2004
    
    Rev.
    
    2003
    
    Rev.
    
    ChangeProduct sales and installations
    
    $
    596
    
    
    
    38
    %
    
    $
    1,076
    
    
    
    48
    %
    
    
    (10
    %)Service
    
    
    428
    
    
    
    35
    %
    
    
    385
    
    
    
    34
    %
    
    
    1
    %Depreciation and amortization
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %
    
    
    Total
    
    $
    1,024
    
    
    
    36
    %
    
    $
    1,461
    
    
    
    43
    %
    
    
    (7
    %)
 Financial Services Product sales and installations.The decrease in product sales and installations cost of goods
sold of 1% as a percentage of product sales and installation revenues in 2004 from 2003
was primarily due to lower cost of sales realized on small sales and installation projects
offset by an increase in cost of sales for a higher volume of third party products sold. Third
party manufactured products have a higher cost of goods sold than our manufactured products and
large and medium sales and installation projects completed in 2004 as compared to 2003. Small
product sale and installation projects generally result in lower costs of sales primarily due to
lower discounting and a less competitive buying process than on large and medium product sales
and installation projects. Service.The increase in service cost of goods sold of 2% as a percentage of service
revenue in 2004 from 2003 represents an increase in headcount and discretionary spending to
support the full network services integration, the build-out and expansion of services and the
creation of three global solutions operating centers in New York, London and Sydney. These
increases to support the growth of the business were offset by the decrease in the cost of
bandwidth expenses as a percentage of revenue from better management and utilization and an
increase in contract maintenance service revenue. Command and Control Product sales and installations.The decrease in product sales and installations cost of goods
sold of 10% as a percentage of product sales and installation revenues in 2004 from 2003
was primarily due to a higher volume of our manufactured products sold and higher margins
achieved in 2004 when compared to 2003. Products that we manufacture generally have a lower cost
of goods sold than products manufactured by third party manufacturers. Service. Service cost of goods sold remained consistent in 2004 to 2003. We incurred no network
services cost of goods sold in the Command and Control segment for 2004 and 2003. Research and Development Expense. Consolidated(dollars in thousands)
    
    2004
    
    2003
    
    $ Change
    
    % ChangeResearch and development
    
    $
    15,046
    
    
    $
    11,713
    
    
    $
    3,333
    
    
    
    28
    %
 Research and development efforts for Financial Services are focused on the next
generation of Financial Services turret products, applications software, and enhancements to our
current product lines. Command and Control research and developments efforts are focused on the
next generation of radio technology, radio telephony integration, and computer aided dispatch
software. 22




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##### Table of Contents



Research and development expenses increased by $3.3 million in 2004 from 2003 primarily due to
additional resources added to our product development group and development and integration of the
Purple Voice product line. Selling, General and Administrative Expense. Consolidated(dollars in thousands)
    
    2004
    
    2003
    
    $ Change
    
    % ChangeSelling, general and administrative
    
    $
    59,041
    
    
    $
    45,233
    
    
    $
    13,808
    
    
    
    30
    %
 Selling, general and administrative expenses increased by $13.8 million in 2004 from 2003
primarily due to the inclusion of network services for the full year compared to 5 months in 2003
from the acquisition of Gains US and Gains UK in April 2003, additional headcount in strategic
areas and incentive compensation. Depreciation and Amortization. Consolidated(dollars in thousands)
    
    2004
    
    2003
    
    $ Change
    
    % ChangeDepreciation and amortization
    
    $
    21,416
    
    
    $
    19,136
    
    
    $
    2,280
    
    
    
    12
    %
 The increase in depreciation and amortization of $2.3 million in 2004 from 2003 was
primarily due to increased capital expenditures as well as the addition of depreciable fixed assets
and intangible assets due to the acquisition of Gains US, Gains UK and Gains Asia. Interest Expense, net. Consolidated(dollars in thousands)
    
    2004
    
    2003
    
    $ Change
    
    % ChangeInterest expense, net.
    
    $
    22,462
    
    
    $
    25,146
    
    
    $
    (2,684
    )
    
    
    (11
    %)
 Interest expense, net decreased by $2.7 million in 2004 as compared to 2003 due to the
reduction of principal on our outstanding senior secured credit facilities and a reduction in the
interest rate from 7.5% to 5.1% when our senior secured credit facilities were amended and restated
in September 2003. Other Income (Expense), net Consolidated(dollars in thousands)
    
    2004
    
    2003
    
    $ Change
    
    % ChangeOther income (expense), net
    
    $
    3,986
    
    
    $
    2,078
    
    
    $
    1,908
    
    
    
    92
    %
 Other income increased by $1.9 million in 2004 from 2003 primarily due to the collection
of an early termination fee of $1.0 million for the cancellation of a sublease agreement by Global
Crossing, a $0.3 million increase associated with the amortization of a liability for lease
guarantees by us for Global Crossing and other miscellaneous income of $0.6 million for grants,
refunds, and foreign currency fluctuations. Provision for Income Taxes. Our effective tax rate on income from continuing operations was 47.5% for 2004 and 67.2% for
2003. The comparability of these periods is significantly impacted by our foreign, federal and state taxes, the
non-deductibility of foreign losses for federal tax purposes and the non-deductibility of certain
expenses for 2004. For 2003, taxable income at several of our foreign subsidiaries, which, combined with
the lower amount of pre-tax income for the 2003 period as compared to the 2004 period, generates a more significant impact on our effective tax
rate. We recognized deferred tax assets of $6.8 million at September 30, 2004 and $10.4 million at
September 30, 2003 related to our US federal and state net operating loss carryforwards. In
determining whether it is more likely than not that we will realize the benefits of the net
deferred tax assets from US operations, we considered all available evidence, both positive and
negative. The principal factors that led us to recognize these benefits were: (1) US results of
operations for the period ended September 30, 2002, reported a loss before income taxes of $22.1
million, after reflecting charges of $34.3 million resulting from the fair-value inventory
adjustments under the purchase price allocation (which, as a result of the Internal Revenue Code
Section 338(h)(10) tax election, jointly made by us and Global Crossing, also generates deductions
for income tax purposes); (2) US results of operations for 2005 and subsequent years are expected
to generate sufficient taxable income to fully utilize these tax loss carryforwards; and (3) our
conclusion that the net US deferred tax assets 23




---



##### Table of Contents



were generated by an event (our purchase of IPC
Information Systems in December 2001), rather than a continuing condition. As of September 30,
2004, no circumstances have arisen that would require us to change such conclusion. Net Income (Loss) Consolidated(dollars in thousands)
    
    2004
    
    2003
    
    $ Change
    
    % ChangeNet income (loss)
    
    $
    6,963
    
    
    $
    4,039
    
    
    $
    2,924
    
    
    
    72
    %
 We had net income of $7.0 million in 2004 when compared to $4.0 million in 2003. The $2.9
million increase was primarily due to a $23.5 million increase in our gross profit, a $1.9 million
increase in other income, and a reduction in interest expense of $2.7 million offset by increases
in research and development expenses of $3.3 million, an increase in selling, general and
administrative expenses of $13.8 million, an increase in depreciation and amortization of $2.3
million and an increase in income taxes of $1.9 million. Also, the sale of our I.T.S. segment
contributed a loss of $3.5 million in 2004 compared to 2003 and was recorded as discontinued
operations in our financial statements. Comparison of 2003 to 2002 We omitted a detailed discussion of revenues and cost of goods sold on a consolidated basis
because the discussion would be substantially the same as and duplicative of the discussion of
these items for the financial services segment. All expenses below
the gross profit line have been recorded to our Financial Services
segment. Revenue The following table sets forth our revenue as reported for our two operating segments. Financial Services(dollars in thousands)
    
    FY 2003
    
    FY 2002
    
    $ Change
    
    % ChangeProduct sales and installations
    
    $
    110,808
    
    
    $
    154,365
    
    
    $
    (43,557
    )
    
    
    (28
    %)Service
    
    
    97,781
    
    
    
    84,498
    
    
    
    13,283
    
    
    
    16
    %Total
    
    $
    208,589
    
    
    $
    238,863
    
    
    $
    (30,274
    )
    
    
    (13
    %)
 Command and Control(dollars in thousands)
    
    FY 2003
    
    FY 2002
    
    $ Change
    
    % ChangeProduct sales and installations
    
    $
    2,249
    
    
    $
    325
    
    
    $
    1,924
    
    
    
    592
    %Service
    
    
    1,123
    
    
    
    1,206
    
    
    
    (83
    )
    
    
    (7
    %)Total
    
    $
    3,372
    
    
    $
    1,531
    
    
    $
    1,841
    
    
    
    120
    %
 Financial Services Product sales and installations.Year over year, our installation revenue decreased by $43.6
million which we believe was a direct result of the economic softness in the financial services
industry. The decrease in product sales and installations revenue of $43.6 million in 2003 from
2002 was primarily due to a higher volume of small, medium, and large installation projects
completed in 2002 compared to 2003. Recovery services in the first quarter of 2002 occurred due
to the events of September 11,2001 from the destruction of several trading floors
located in the World Trade Center and the surrounding areas. In addition, we had three large
projects occurring from real estate moves totaling $32.3 million. We did not have that
concentration of large moves occur in 2003. Number of
    
    Total amountinstallations
    
    (in millions)Product installation size:
    
    2003
    
    2002
    
    2003
    
    2002
    
    $ ChangeLarge (greater than $2.0 million)
    
    
    9
    
    
    
    10
    
    
    $
    39.4
    
    
    $
    53.3
    
    
    $
    (13.9
    )Medium (between $1.0 million and $2.0 million)
    
    
    10
    
    
    
    14
    
    
    
    13.8
    
    
    
    20.0
    
    
    
    (6.2
    )Small (less than $1.0 million)
    
    
    *
    
    
    
    *
    
    
    
    57.6
    
    
    
    81.1
    
    
    
    (23.5
    )$
    110.8
    
    
    $
    154.4
    
    
    $
    (43.6
    )
 * Due to the
variance in deal size of small installations this number is not a
useful statistic. The change in our product sales and installations revenue in 2003 from 2002 was not
significantly affected by a change in the price of our products; instead we believe it was
affected by the number and size of turret systems purchased by our customers. Service.The increase in service revenue of $13.3 million in 2003 from 2002 was due to an
increase in network service revenue of $10.4 million in 2003 from 2002. This was primarily due
to the acquisition of Gains US and Gains UK in April 2003. Also, there was a higher volume of
contract maintenance revenue totaling $7.9 million offset by a decrease in non-contract MAC
revenue 24




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##### Table of Contents



totaling $5.0 million in 2003 when compared to 2002. The increase in contract
maintenance revenue in 2003 was primarily due to the expiration of warranties for installation
contracts. The decrease in non-contract MAC revenue was primarily due to lower requests for
trading floor re-configurations and trading positions that we believe are due to economic
conditions. Command and Control  Product sales and installations. The increase in product sales and installation revenue of $1.9
million in 2003 from 2002 was primarily due to a higher volume of small (less than $1.0 million)
installation projects completed in 2003 compared to 2002. The number of installations and
related value changed as shown in the table below. Number of
    
    Total amountinstallations
    
    (in millions)Product installation size:
    
    2003
    
    2002
    
    2003
    
    2002
    
    $ ChangeSmall (less than $1.0 million)
    
    
    *
    
    
    
    *
    
    
    $
    2.2
    
    
    $
    0.3
    
    
    $
    1.9
  * Due to the variance in deal
size of small installations this number is not a useful statistic. Service.The decrease in service revenue of $0.1 million in 2003 from 2002 was primarily due to
a lower volume of contract maintenance revenue totaling $0.1 million in 2003. Cost of Goods Sold. The following table sets forth our cost of goods sold as reported for our two operating
segments. Cost of goods sold for 2002 includes a charge resulting from the sale of inventory reflecting
a step-up in carrying value of $33.0 million (relating to purchase accounting fair value
adjustments from the acquisition of IPC Information Systems). This purchase accounting inventory
fair value step-up is a GAAP adjustment that is recorded when a company is acquired as we were in
December 2001. Since the adjustment has been fully recognized in income as of September 30, 2002,
it will not impact any subsequent year. Financial Services% of
    
    
    
    
    
    % of(dollars in thousands)
    
    2003
    
    Rev.
    
    2002
    
    Rev.
    
    % ChangeProduct sales and installations
    
    $
    52,581
    
    
    
    47
    %
    
    $
    104,354
    
    
    
    68
    %
    
    
    (21
    %)Service
    
    
    45,583
    
    
    
    47
    %
    
    
    42,823
    
    
    
    51
    %
    
    
    (4
    %)Depreciation and amortization
    
    
    1,876
    
    
    
    1
    %
    
    
    1,031
    
    
    
    1
    %
    
    
    0
    %Total
    
    $
    100,040
    
    
    
    48
    %
    
    $
    148,208
    
    
    
    62
    %
    
    
    (14
    %)
 Command and Control% of
    
    
    
    
    
    % of(dollars in thousands)
    
    2003
    
    Rev.
    
    2002
    
    Rev.
    
    % ChangeProduct sales and installations
    
    $
    1,076
    
    
    
    48
    %
    
    $
    98
    
    
    
    30
    %
    
    
    18
    %Service
    
    
    385
    
    
    
    34
    %
    
    
    370
    
    
    
    31
    %
    
    
    3
    %Depreciation and amortization
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %
    
    
    Total
    
    $
    1,461
    
    
    
    43
    %
    
    $
    468
    
    
    
    31
    %
    
    
    12
    %
 Financial Services Product sales and installations.The decrease in product sales and installations cost of goods
sold of 21% as a percentage of product sales and installation revenues in 2003 from 2002
was primarily due to the inclusion of $32.3 million of inventory fair value adjustment in 2002,
while there was no inventory fair value adjustment in 2003. This overall decrease in product
sales and installations cost of goods sold was partially offset by a higher percentage of third
party products sold compared to products manufactured by us sold in 2003. Third party
manufactured products have a higher cost of goods sold than products manufactured by us. Service.The decrease in service cost of goods sold of 4% as a percentage of service revenue in
2003 from 2002 was primarily due to an increase in contract maintenance services in 2003, which
have a lower cost of goods sold than non-contract MAC services, as well as the inclusion of $0.7
million of inventory fair value step-up in 2002. There was no inventory fair value adjustment in
2003. This was offset by us incurring additional costs of $5.7 million due to the inclusion of
network services, which was a service we began offering in April 2003 as a result of our
acquisition of Gains US and Gains UK. 25




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##### Table of Contents



Command and Control Product sales and installations.The increase in product sales and installations cost of goods
sold of 18% as a percentage of product sales and installation revenues in 2003 from 2002
was primarily due to a higher volume of third party manufactured
products sold in 2003 when compared to 2002. Third party manufactured products have a higher
cost of goods sold than products manufactured by us. Service.The increase in service cost of goods sold of 3% as a percentage of service revenue in
2003 from 2002 was primarily due to an increase in labor costs associated with one maintenance
contract. We incurred no network services cost of goods sold in the Command and Control segment
for 2003 and 2002. Research and Development Expense. Consolidated(dollars in thousands)
    
    2003
    
    2002
    
    $ Change
    
    % ChangeResearch and development
    
    $
    11,713
    
    
    $
    15,136
    
    
    $
    (3,423
    )
    
    
    (23
    %)
 Research and development expenses decreased by $3.4 million in 2003 from 2002 primarily
due to planned reductions in headcount that occurred in 2002 as well as a reduction in
discretionary spending in 2003. Selling, General and Administrative Expense. Consolidated(dollars in thousands)
    
    2003
    
    2002
    
    $ Change
    
    % ChangeSelling, general and administrative
    
    $
    45,233
    
    
    $
    48,147
    
    
    $
    (2,914
    )
    
    
    (6
    %)
 Selling, general and administrative expenses decreased by $2.9 million in 2003 from 2002
primarily due to a reduction in discretionary spending in 2003, as well as the inclusion of a $6.9
million charge in 2002 for corporate related services from Global Crossing. These corporate related
service charges represented a calculation of the allocation to IPC Information Systems of services
like treasury, payroll, tax compliance, legal and other professional fees. This decrease in
selling, general and administrative expenses was partially offset by the addition of expenses from
the acquisition of Gains US and Gains UK in April 2003. Depreciation and Amortization. Consolidated(dollars in thousands)
    
    2003
    
    2002
    
    $ Change
    
    % ChangeDepreciation and amortization
    
    $
    19,136
    
    
    $
    24,458
    
    
    $
    (5,322
    )
    
    
    (22
    %)
 The decrease in depreciation and amortization of $5.3 million in 2003 from 2002 was
primarily due to the adoption in 2002 of SFAS No. 142 Goodwill and Other Intangible Assets, in
which goodwill and indefinite lived intangible assets are no longer subject to periodic
amortization. This decrease was partially offset by the addition of amortizable intangible assets
from the Gains US and Gains UK acquisition in April 2003. Interest Expense, net. Consolidated(dollars in thousands)
    
    2003
    
    2002
    
    $ Change
    
    % ChangeInterest expense, net.
    
    $
    25,146
    
    
    $
    27,520
    
    
    $
    (2,374
    )
    
    
    (9
    %)
 Interest expense, net decreased by $2.4 million in 2003 as compared to 2002 primarily due
to the reduction of principal on our outstanding senior secured credit facilities, including a
$14.0 million prepayment made in March 2003. Other Income (Expense), net Consolidated(dollars in thousands)
    
    2003
    
    2002
    
    $ Change
    
    % ChangeOther income (expense), net
    
    $
    2,078
    
    
    $
    (297
    )
    
    $
    2,375
    
    
    
    800
    %
 Other
income increased by $2.4 million in 2003 from 2002 primarily due
to gains from fluctuation in
foreign exchange rates of $1.7 million and $0.7 million associated with the amortization of a
liability for lease guarantees by us for Global Crossing. 26




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##### Table of Contents



Provision for Income Taxes. Our effective tax rate from continuing operations was 67.2% for 2003 and 12.8% for 2002. The
comparability of these periods is significantly impacted by the acquisition of IPC Information
Systems in 2002 and reflects the tax impact of purchase accounting as well as the jurisdictions in
which our income is generated. We recognized deferred tax assets related to our US federal and state net operating loss
carryforwards of approximately $10.4 million at September 30, 2003 and $8.9 million at September
30, 2002. In determining whether it is more likely than not that we will realize the benefits of
the net deferred tax assets from US operations, we considered all available evidence, both positive
and negative. The principal factors that led us to recognize these benefits were: (1) US results of
operations for the period ended September 30, 2002, reported a loss before income taxes of $22.1
million, after reflecting charges of $34.3 million resulting from the fair-value inventory
adjustments under the purchase price allocation (which, as a result of the Internal Revenue Code
Section 338(h)(10) tax election, jointly made by us and Global Crossing, also generates deductions
for income tax purposes); (2) US results of operations for fiscal 2004, 2005 and subsequent years
are expected to generate sufficient taxable income to fully utilize these tax loss carryforwards;
and (3) our conclusion that the net US deferred tax assets were generated by an event (our purchase
of IPC Information Systems in December 2001), rather than a continuing condition. As of September
30, 2004, no circumstances have arisen that would require us to change such conclusion. Net Income (Loss) Consolidated(dollars in thousands)
    
    2003
    
    2002
    
    $ Change
    
    % ChangeNet income (loss)
    
    $
    4,039
    
    
    $
    (20,228
    )
    
    $
    24,267
    
    
    
    120
    %
 We had net income of $4.0 million in 2003 when compared to $20.2 million of net loss in
2002. The $24.3 million increase was primarily due to the inclusion of the inventory fair value
step-up of $33.0 million in cost of goods sold and $1.3 in discontinued operations in 2002, offset
by $0.2 million in net loss in 2003 from the inclusion of Purple Voice in our consolidated
financial statements. We also incurred income taxes of $7.9 million in 2003 compared to a tax
benefit of $2.6 million in 2002. Liquidity and Capital Resources Historically, we satisfied our operating cash requirements through cash provided by
operations, capital loans, financing and bank lines of credit. Our principal uses of cash were to
fund working capital requirements, operating losses, capital expenditures and repayment of
borrowings. During 2004, we utilized our cash flow from operations of $57.4 million primarily for
the following items; $22.0 million of payments related to the Gains Acquisition, $18.0 million for
a special cash dividend to all shareholders of record, $9.2 million for capital expenditures and
$5.6 million of debt repayment. The Senior Secured Credit Facilities On December 20, 2001, we entered into the senior secured credit facilities comprised of a
$105.0 million term loan and a $15.0 million revolving credit facility. On September 2, 2003, we
amended and restated our senior secured credit facilities. The amended and restated senior secured
credit facilities consisted of a $25.0 million revolving credit facility and a $55.0 million term
loan. The term loan was borrowed in full at closing. On April 20, 2004, we completed an agreement
to increase the availability under our revolving credit facility by $10.0 million. As of September 30, 2004 the total amount available for borrowing and
letters of credit under the revolving credit facility is $35.0 million, of which $30.7 million was
available as of September 30, 2004, after taking into account $4.3 million of outstanding letters of
credit.. We can, however, increase the committed amount under these facilities by up to $15.0
million so long as one or more lenders agrees to provide this incremental commitment and other
customary conditions are satisfied. Our senior secured credit
facilities mature on August 29, 2008. The term loan facility is
required to be repaid by us in consecutive quarterly installments of
$137,500 through September 30, 2007 and $13.2 million on each
quarterly installment thereafter and on the term loan maturity date. The weighted average interest rate for borrowings
outstanding
under the senior secured credit facilities for 2004 was 4.93%, 2003
was 7.5% and 2002 was 7.5%. We are also required to pay a commitment
fee equal to 0.50% per annum of the average daily unused amount of the
committed amount of the revolving credit facility, a fronting fee in
an amount not to exceed 0.50% per annum of the average aggregate
daily amount available to be drawn under all letters of credit issued
under our senior secured credit facilities and customary
administrative agent and letter of credit charges. Borrowings under our senior
secured credit facilities bear interest, at our election, either
based on a prime rate index plus the applicable margin or a LIBOR
rate index plus the applicable margin. The applicable margin is: if
our senior secured leverage ratio, as defined in the senior secured
credit facilities, is greater than 1.00:1.00, with respect to LIBOR
rate loans, 4.00% per annum and with respect to prime rate loans,
3.00% per annum, and if our senior secured leverage ratio is less
than 1.00:1.00, with respect to LIBOR rate loans, 3.50% per annum and with respect to prime rate loans,
2.50% per annum. Mandatory prepayments of the senior secured credit facilities are required upon the occurrence
of certain events, including certain asset sales, equity issuances and debt issuances, as well as
50% of excess cash flow, as defined in our senior secured credit
facilities in 2004 and thereafter. Excess cash flow is defined in our credit
facilities agreement, as: (1) the sum of net income, interest expense, provisions for taxes,
depreciation expense, amortization expense, other non-cash items affecting net income and to the
extent included in calculating net income, expenses incurred by us in connection with an amendment
of the then existing credit agreement, certain restructuring expenses and prepayment premiums in
connection with prepayment of loans under the then existing credit agreement, plus (2) a working
capital adjustment less (3) scheduled repayments of debt,
capital expenditures, cash acquisitions and certain investments, cash interest
expense and provisions for taxes based on income. As required under the terms of our senior secured credit facilities, our mandatory excess cash
flow repayment based upon 50% of our excess cash flow for the period ended September 30, 2004,
which must be paid within 90 days of our fiscal year end, is $6.6 million, of which $5.0 million
was paid on September 30, 2004. The remainder will be paid prior to the deadline on December 29,
2004. We were not required to make a mandatory excess cash flow repayment for the year ended
September 30, 2003, however, on March 3, 2003, we
voluntarily prepaid $14.0 million in term debt on our
then existing senior secured credit facilities. For 2002, we made mandatory excess
cash flow repayments of $30.0 million on September 30, 2002 and $0.8 million on December 29,
2002 based upon 75% of our excess cash flow for the period ended September 30, 2002. 27




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Obligations under the senior secured credit facilities are secured by a first priority
security interest in substantially all of our assets and the assets of our domestic subsidiaries
and by a pledge of 100% of the shares of domestic subsidiaries and 65% of the shares of direct
foreign subsidiaries. Our domestic subsidiaries have unconditionally guaranteed our obligations
under the senior secured credit facilities. The senior secured credit facilities contain customary affirmative covenants as well as
negative covenants that, among other things, restrict our and our subsidiaries ability to: incur
additional indebtedness (including guarantees of certain obligations); create liens; 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; enter into transactions with affiliates; make payments with respect to or
modify subordinated debt instruments; enter into sale and leaseback transactions; change the fiscal
year or lines of business; 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 as well as a restriction on
the amount of capital expenditures we can incur in a fiscal year. The Senior Subordinated Notes On December 20, 2001 we issued $150.0 million in aggregate principal amount of 11.50% senior
subordinated notes to fund a portion of the consideration for the acquisition of IPC Information
Systems. Under the terms of the indenture governing the notes, we may, subject to certain
restrictions, issue additional notes up to a maximum aggregate principal amount of $250.0 million.
The notes mature on December 15, 2009. The notes are general unsecured obligations, are
subordinated in right of payment to all existing and future senior debt, including the amended and
restated senior secured credit facilities, are pari passu in right of payment with any future
senior subordinated indebtedness, and are unconditionally guaranteed by certain of our domestic
restricted subsidiaries. Interest on the notes accrues 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 indenture governing the notes contains covenants that impose significant restrictions on
us. These restrictions include limitations on our ability 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 our assets; enter into
transactions with affiliates; and designate subsidiaries as unrestricted subsidiaries. Settlement and Rejection Agreement On March 13, 2003, we entered into a settlement and rejection agreement with Global Crossing.
Pursuant to the settlement and rejection agreement, all of the remaining obligations under the
purchase agreement relating to the acquisition of IPC Information Systems were terminated. In
addition, we and Global Crossing mutually released each other for all prior claims. The bankruptcy court entered an order on March 14, 2003 approving the settlement and rejection
agreement. Under the terms of the settlement and rejection agreement, we deposited $5.2 million in
an escrow account. Global Crossing received $3.2 million from the escrow account upon the filing of
certain tax returns for periods prior to and including the date of the acquisition of IPC
Information Systems. Global Crossing will receive the remaining $2.0 million from the escrow
account after a $2.0 million irrevocable letter of credit is issued on behalf of us. We will have
the right to draw on that letter of credit in the event Global Crossings affiliate fails to make
any payments due to us pursuant to a sublease for office space at 67-73 Worship Street in London,
England. In August 2004, we entered into a series of agreements with Global Crossing relating to the
sublease at 67-73 Worship Street in London, England. Under the terms of those agreements, the
existing sublease was replaced with a new sublease which reduces the space sublet to Global
Crossing to a portion of the basement and first floor. The new sublease expires in December 2005.
As a result of the early termination of the old sublease, the escrow account was terminated and we
received a distribution of approximately $1.5 million from such account. We believe that all tax returns required to be filed in respect of IPC Information Systems,
Inc. and its subsidiaries for periods prior to and including the date of the acquisition of IPC
Information Systems have now been filed. These returns consist of consolidated tax returns with
Global Crossing, and, where required by law, separate tax returns for IPC Information Systems, Inc.
and/or its subsidiaries. The
aggregate amount of taxes for which we received notices of
taxes due and estimated amounts for probable assessments from various jurisdictions and recognized as tax liabilities under purchase accounting is
approximately $6.5 million and, as of September 30, 2004, we made settlement payments aggregating
$1.9 million, including a $1.1 million payment made to one jurisdiction in May 2004. We estimate
that our exposure for additional tax liabilities relating to periods
prior to the acquisition in excess of amounts accrued is zero, which has been reduced from an
original range of zero to $36.0 million
as a result of our settlement negotiations. In computing our estimated range of potential tax
liabilities, we took into account tax returns in certain jurisdictions where the statutes of
limitations have not yet expired. Under those tax returns as filed, the remaining liability is
zero. Although we believe that all those tax returns have been filed
correctly, such returns may be audited and additional taxes may be
assessed (or refunds may be granted). Payment by us of a significant
amount of these potential tax liabilities should not have a material
adverse effect on our financial condition and results of operations.
In that event, we cannot make assurances that we will be able to
obtain additional financing on commercially reasonable terms, or at
all. 28




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##### Table of Contents



Pursuant to the settlement and rejection agreement, Global Crossing has also paid to us
approximately $2.2 million for payroll and federal tax refunds received by it for periods prior to
and including the date of the acquisition of IPC Information Systems. Global Crossing is also
required to pay us any future tax refunds or credits it receives applicable to IPC Information
Systems, Inc. and its subsidiaries for these periods. In addition to the refunds that Global
Crossing has received and paid to us, the Company has received an additional $3.0 million in
miscellaneous refunds and credits relating to periods prior to the IPC Information Systems
acquisition. Comparison of 2004 to 2003 Cash provided by operating activities from continuing operations was $35.4 million for 2004 as
compared to $35.0 million for 2003. The increase of $0.4 million was primarily due to cash inflows
from higher profitability during 2004 reduced by uses of cash for working capital, specifically
accounts receivable and inventory offset by accounts payable and accrued expenses. The uses of cash
for working capital were a direct result of a higher number of larger jobs in our backlog at the
end of 2004 than at the end of 2003. Cash used in investing activities from continuing operations was $26.2 million for 2004
as compared to $0.5 million for 2003. Cash used in investing activities for 2004 was primarily
comprised of $9.2 million of capital expenditures, $0.5 million for the acquisition of Purple Voice
and $16.4 million of payments made in relation to the Gains acquisition. The Gains acquisition
payments consisted of $6.8 million of deferred purchase price and earnout consideration related to
the US and UK portions of Gains that was acquired on April 30, 2003 while $9.7 million related to
the purchase price of Gains Asia. Cash used in investing activities for 2003 related to $7.5
million of capital expenditures, $4.2 million of cash generated from the Global Crossing settlement
combined with the cash provided by our acquisition of Gains US and Gains UK in April 2003 totaling
$4.1 million. The acquisition of the Gains entities provided
cash to us because the consideration for the
transaction was non-cash and paid in our common stock. Upon acquisition of the Gains entities, the
existing cash on their balance sheet resulted in a cash inflow to us. This was partially offset by our
investment in Purple Voice of $1.3 million in 2003. We have a commitment to acquire the remaining 1% of Purple Voice for
approximately $55,000 in January 2005. Cash used in financing activities was $29.3 million for 2004 as compared to $17.8 million for
2003. Cash used in financing activities in 2004 represented a special cash dividend to equity
holders of $18.0 million, a distribution to our parent of $5.5 million and repayment of bank debt
of $5.6 million. Cash provided by financing activities in 2003 was almost entirely comprised of
debt repayments net of term loan issuance costs. The effect of exchange rate changes on cash represents increases and decreases in various
currencies when translated into US dollars. As an international company, we are subjected to
currency fluctuation risk, which resulted in a net decrease of cash of approximately $0.5 million
in 2004 as compared to a decrease of $0.7 million in 2003. Currently our largest currency exposure
is to the British Pound and the Canadian Dollar, although we have additional exposure, to a lesser
extent, to the Euro, Australian Dollar, Japanese Yen, Hong Kong Dollar and Singapore Dollar. Comparison of 2003 to 2002 Cash provided by operating activities from continuing operations was $35.0 million for 2003 as
compared to $37.5 million for 2002. The decrease of $2.5 million was primarily due to income from
continuing operations in 2003 compared to a loss from continuing operations in 2002 offset by
improvements in accounts receivable in 2002. The improvements in accounts receivable since our
separation from Global Crossing was a direct result of improved collections in the United States
and internationally. The progress in this area during 2002 plateaued during 2003 and accounts
receivable balances are being maintained at a more sustainable level. Cash used in investing activities from continuing operations was $0.5 million for 2003 as
compared to cash used of $354.1 million for 2002. Cash used in investing activities for 2003
related to the net cash received of $4.2 million resulting from the settlement and rejection
agreement with Global Crossing, combined with the cash provided by our acquisition of Gains US and
Gains UK in April 2003 totaling $4.1 million relating to the prior existing cash on hand of the
Gains entities at the date of acquisition. The acquisition of the Gains entities provided cash to
us as the consideration for the transaction was non-cash and paid in our common stock. Upon
acquisition of the Gains entities, the existing cash on their balance sheet results in a cash
inflow. This was partially offset by capital expenditures of $7.5 million and our investment in
Purple Voice of $1.3 million in 2003. Cash used in investing activities for 2002 related
exclusively to cash used to fund the acquisition of IPC Information Systems of $345.7 million and
capital expenditures of $8.4 million. Cash used in financing activities was $17.8 million for 2003 as compared to cash provided by
financing activities of $328.4 million for 2002. Cash used in financing activities in 2003
represented costs related to the amendment and restatement of our senior secured credit facilities
of $0.3 million, the voluntary prepayment of $14.0 million of principal on our senior secured
credit facilities and the scheduled principal repayments as required under the terms of our senior
secured credit facilities. Cash provided by financing activities in 2002 included $140.0 million of
common equity contribution from a group led by GSCP 2000 and other private equity funds affiliated
with Goldman, Sachs & Co., the proceeds from the sale of $150.0 million of senior subordinated
notes, and the borrowing of $105.0 million under our senior secured credit facilities. These
inflows were partially offset by outflows of $15.1 million of intercompany activity that occurred
prior to the acquisition of IPC Information Systems, issuance costs for the financing of the
acquisition of IPC Information Systems, and principal repayments under our senior secured credit
facilities of $33.9 million, mainly due to the mandatory excess
cash flow repayments of $30.0
million. 29




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##### Table of Contents



The effect of exchange rate changes on cash represents increases and decreases in various
currencies when translated into US dollars. As an international company, we are subjected to
currency fluctuation risk, which resulted in a net decrease of cash of approximately $0.7 million
in 2003 as compared to a decrease of $0.5 million in 2002. Currently our largest currency exposure
is to the British Pound and the Canadian Dollar, although we have additional exposure, to a lesser
extent, to the Euro, Australian Dollar, Japanese Yen, Hong Kong Dollar and Singapore Dollar. Capital Resources and Expenditures We expect that our capital expenditures for 2005 will be approximately $11 million; however,
actual capital expenditures for 2005 may be greater. We are limited in our capital expenditures in
any fiscal year by the capital expenditure covenant in our credit agreement. The limits imposed by
our credit agreement are $12.0 million per fiscal year plus 50% of the unused portion of the prior
years availability under the covenant. We have no off balance sheet arrangements or other relationships with unconsolidated
affiliates. Our primary future uses of cash will be to fund interest expense and principal
repayments on our debt, capital expenditures, research and development efforts, payment of
dividends to our shareholders and working capital as needed for potential strategic acquisitions
and/or alliances. Our primary future sources of cash will be cash flows from operations, and, if
necessary, borrowings under the revolving credit facility. Our ability to make payments on our indebtedness, including the senior subordinated notes, and
to fund planned capital expenditures, research and development efforts and payment of dividends to
our shareholders 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. During the course of the year, our short-term liquidity is impacted by our mandatory payment
obligations of principal and interest under our senior secured credit facilities and interest
payments on our senior subordinated notes. The mandatory interest and
principal payments under our
senior secured credit facilities are due at the end of each quarter. The interest payments required
by the senior subordinated notes of $8.6 million due in June and December of each year negatively
impact our liquidity during those particular months. Additionally, in any year that we generate
excess cash flow, the mandatory prepayment required under our senior secured credit facilities must
be made within 90 days of our fiscal year end. For 2004, we are required to make a mandatory excess
cash flow payment of $6.6 million by December 29, 2004, of
which $5.0 million was paid at
September 30, 2004. The remainder will be paid prior to the December 29, 2004 deadline. We did not
make a mandatory excess cash flow payment for 2003 due to our voluntary prepayment of $14.0 million
in March 2003. Since the acquisition of IPC Information Systems, our cash generated from the operations of
the business has been sufficient to meet our cash needs. Based on our forecasts, we believe that
this trend will continue and our cash flow from operations, available cash and available borrowings
under our revolving credit facility will be adequate to meet our current and long-term liquidity
needs for at least the next few years. We cannot assure you, however, that our business will
generate sufficient cash flow from operations or that future borrowings will be available to us
under the revolving credit facility in an amount sufficient to enable us to pay our indebtedness,
including the notes, or to fund our other liquidity needs. We may need to refinance all or a
portion of our indebtedness, including the notes, on or before maturity. We cannot assure you that
we will be able to refinance any of our indebtedness, including the notes, on commercially
reasonable terms, or at all. Contractual Obligations and Other Commercial Commitments The following summarizes our contractual obligations at September 30, 2004, and the
effect such obligations are expected to have on our liquidity and cash flow in future periods (in
millions). Payments Due by PeriodLess than
    
    1-3
    
    4-5
    
    After 5Contractual Obligations:
    
    Total
    
    1 year
    
    years
    
    years
    
    yearsDeferred Compensation Agreements
    
    $
    4.9
    
    
    $
    0.9
    
    
    $
    1.0
    
    
    $
    0.9
    
    
    $
    2.1Network Carrier Commitments
    
    
    10.4
    
    
    
    10.4
    
    
    
    
    
    
    
    
    
    
    
    Long-Term Debt
    
    
    199.5
    
    
    
    2.2
    
    
    
    1.1
    
    
    
    46.2
    
    
    
    150.0Operating Leases
    
    
    28.5
    
    
    
    5.3
    
    
    
    9.7
    
    
    
    7.9
    
    
    
    5.6Total Contractual Cash Obligations.
    
    $
    243.3
    
    
    $
    18.8
    
    
    $
    11.8
    
    
    $
    55.0
    
    
    $
    157.7
 Amount of Commitment Expiration Per PeriodTotalAmounts
    
    Less than
    
    1-3
    
    4-5
    
    Over 5Other Commercial Commitments:
    
    Committed
    
    1 year
    
    years
    
    years
    
    yearsLine of Credit
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Standby Letters of Credit
    
    
    4.3
    
    
    
    4.3
    
    
    
    
    
    
    
    
    
    
    
    Guarantees for Global Crossing Affiliates
    
    
    0.4
    
    
    
    0.1
    
    
    
    0.3
    
    
    
    
    
    
    
    Total Commercial Commitments
    
    $
    4.7
    
    
    $
    4.4
    
    
    $
    0.3
    
    
    $
    
    
    
    $
    
 30




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk We do not have any off balance sheet financial arrangements. 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, we are exposed to foreign currency risk. In the past, we entered
into foreign currency hedging contracts, commonly known as collars. For 2004 and 2003, we did not
enter into any foreign currency hedging instruments or other derivatives. 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 at September 30, 2004 is shown in the table below (in millions). Fair Value on
    
    Future Principal PaymentsSeptember 30, 2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    Thereafter
    
    TotalLong-Term Debt:Fixed Rate
Senior
Subordinated
Notes,
interest
payable at
11.50%,
maturing 2009
    
    $
    165.7
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    150.0
    
    
    $
    
    
    
    $
    150.0Variable Rate
Senior
Secured
Credit
Facilities 
Term Loan
(interest
payable at
5.14% at
September 30,
2004)
    
    $
    49.9
    
    
    $
    2.2
    
    
    $
    0.6
    
    
    $
    0.6
    
    
    $
    46.1
    
    
    $
    
    
    
    $
    
    
    
    $
    49.5
 
 Item 8. Financial Statements and Supplementary Data The following consolidated financial statements and the related notes thereto of IPC
Acquisition Corp.and Predecessors and Report of Independent Registered Public Accounting Firm are
filed as a part of this Form 10-K. PageReport of Independent Registered Public Accounting Firm
    
    
    32Consolidated Balance Sheets as of September 30, 2004 and September 30, 2003
    
    
    33Consolidated Statements of Operations for the fiscal years ended September
30, 2004, September 30, 2003, the period from November 15, 2001 (date of
initial capitalization) to September 30, 2002 and the period from October
1, 2001 to December 20, 2001 (Predecessor)
    
    
    34Consolidated Statements of Cash Flows for the fiscal years ended September
30, 2004, September 30, 2003, the period from November 15, 2001 (date of
initial capitalization) to September 30, 2002 and the period from October
1, 2001 to December 20, 2001 (Predecessor)
    
    
    35Consolidated Statements of Stockholders Equity for the fiscal years ended
September 30, 2004, September 30, 2003, the period from November 15, 2001
(date of initial capitalization) to September 30, 2002 and the period from
October 1, 2001 to December 20, 2001 (Predecessor)
    
    
    36Notes to Consolidated Financial Statements
    
    
    37
 31




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##### Table of Contents



IPC ACQUISITION CORP. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders
IPC Acquisition Corp. We
have audited the accompanying consolidated balance sheets of IPC Acquisition Corp. as of
September 30, 2004 and September 30, 2003, and the related consolidated statements of operations,
stockholders equity and cash flows for the fiscal years ended September 30, 2004 and 2003, and the
period from November 15, 2001 (date of initial capitalization) to September 30, 2002 and the combined statements of operations, cash
flows and stockholders equity of IPC Information Systems, including the Trading Systems division
and the Information Transport Systems division, operating divisions of a wholly owned subsidiary of
Global Crossing Ltd., and Asia Global Crossing IPC Trading Systems Australia Pty. Ltd. (the
Predecessor), for the period from October 1, 2001 to December 20, 2001 (the Predecessor
Period). Our audits also included the financial statement schedule listed in the Index at Item
15(a) for the periods October 1, 2001 through September 30, 2004. These financial statements and
schedules are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of IPC Acquisition Corp. at September 30, 2004 and
2003 and the consolidated results of its operations and its cash flows for the fiscal years ended
September 30, 2004 and 2003, and the period from
November 15, 2001 (date of initial capitalization) to September 30, 2002 and the
combined results of operations and cash flows of the Predecessor for the period from October 1,
2001 to December 20, 2001, in conformity with U.S. generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule for the periods October 1, 2001 through
September 30, 2004, when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP MetroPark, New Jersey
November 29, 2004 32




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##### Table of Contents



IPC ACQUISITION CORP.
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Amounts) September 30,2004
    
    2003AssetsAssets:Cash
    
    $
    27,270
    
    
    $
    25,800Accounts receivable, net of allowance of $1,264 and $732, respectively.
    
    
    57,259
    
    
    
    40,409Inventories, net
    
    
    31,176
    
    
    
    22,728Due from former affiliate
    
    
    7,117
    
    
    
    Prepaid and other current assets
    
    
    4,041
    
    
    
    5,427Deferred taxes
    
    
    13,132
    
    
    
    14,618Current assets of discontinued operations
    
    
    2,548
    
    
    
    27,556Total current assets
    
    
    142,543
    
    
    
    136,538Property, plant and equipment, net
    
    
    24,846
    
    
    
    23,851Customer relationships, net
    
    
    147,939
    
    
    
    145,909Technology, net
    
    
    27,692
    
    
    
    34,829Trade name
    
    
    16,300
    
    
    
    17,192Goodwill
    
    
    82,621
    
    
    
    82,108Deferred financing costs, net
    
    
    12,283
    
    
    
    14,146Other assets
    
    
    1,035
    
    
    
    1,221Non-current assets of discontinued operations
    
    
    40
    
    
    
    3,734Total assets
    
    $
    455,299
    
    
    $
    459,528Liabilities and Stockholders EquityLiabilities:Current portion of long term debt
    
    $
    2,157
    
    
    $
    550Accounts payable
    
    
    14,594
    
    
    
    2,753Accrued expenses and other current liabilities
    
    
    35,984
    
    
    
    27,023Income taxes payable
    
    
    9.147
    
    
    
    10,988Customer advances on installation contracts
    
    
    21,984
    
    
    
    16,754Deferred revenue on maintenance contracts
    
    
    14,007
    
    
    
    13,095Current portion of guarantees on former parent obligations
    
    
    155
    
    
    
    1,353Deferred purchase consideration
    
    
    
    
    
    
    6,722Current liabilities of discontinued operations
    
    
    639
    
    
    
    3,820Total current liabilities
    
    
    98,667
    
    
    
    83,058Term loan
    
    
    47,293
    
    
    
    54,450Senior subordinated notes
    
    
    150,000
    
    
    
    150,000Deferred taxes
    
    
    23,150
    
    
    
    20,020Deferred compensation
    
    
    2,686
    
    
    
    2,936Guarantees on former parent obligations and other long-term liabilities
    
    
    260
    
    
    
    1,885Total liabilities
    
    
    322,056
    
    
    
    312,349Commitments and ContingenciesStockholders equity:Common stock, $0.01 par value, (25,000,000 shares authorized;
14,718,592 shares issued and outstanding at September 30, 2004;
14,724,380 shares issued and outstanding at September 30, 2003)
    
    
    147
    
    
    
    147Paid in capital
    
    
    146,479
    
    
    
    145,846Notes receivable for purchases of common stock
    
    
    (276
    )
    
    
    (393
    )Deferred stock compensation
    
    
    (645
    )
    
    
    Accumulated deficit
    
    
    (21,672
    )
    
    
    (5,161
    )Accumulated other comprehensive income
    
    
    9,210
    
    
    
    6,740Total stockholders equity
    
    
    133,243
    
    
    
    147,179Total liabilities and stockholders equity
    
    $
    455,299
    
    
    $
    459,528
 The accompanying notes are an integral part of the consolidated financial statements. 33




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##### Table of Contents



IPC ACQUISITION CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands) PredecessorFiscal Years Ended
    
    Period from
    
    Period fromSeptember 30,
    
    November 15, 2001
    
    October 1, 2001to
    
    to2004
    
    2003
    
    September 30, 2002
    
    December 20, 2001Revenue:Product sales and installations
    
    $
    114,544
    
    
    $
    113,057
    
    
    $
    127,246
    
    
    $
    27,444Service
    
    
    148,728
    
    
    
    98,904
    
    
    
    66,909
    
    
    
    18,795263,272
    
    
    
    211,961
    
    
    
    194,155
    
    
    
    46,239Costs of goods sold (depreciation shown separately):Product sales and installations
    
    
    52,552
    
    
    
    53,657
    
    
    
    92,534
    
    
    
    11,918Service
    
    
    72,924
    
    
    
    45,968
    
    
    
    33,024
    
    
    
    10,169Depreciation and amortization
    
    
    3,822
    
    
    
    1,876
    
    
    
    815
    
    
    
    216129,298
    
    
    
    101,501
    
    
    
    126,373
    
    
    
    22,303Gross profit
    
    
    133,974
    
    
    
    110,460
    
    
    
    67,782
    
    
    
    23,936Research and development
    
    
    15,046
    
    
    
    11,713
    
    
    
    11,617
    
    
    
    3,519Selling, general and administrative
    
    
    59,041
    
    
    
    45,233
    
    
    
    31,745
    
    
    
    16,402Depreciation and amortization
    
    
    5,618
    
    
    
    4,679
    
    
    
    2,851
    
    
    
    1,170Amortization of intangibles
    
    
    15,798
    
    
    
    14,457
    
    
    
    11,094
    
    
    
    9,343Income (loss) from operations
    
    
    38,471
    
    
    
    34,378
    
    
    
    10,475
    
    
    
    (6,498
    )Other income (expense):Interest expense, net
    
    
    (22,462
    )
    
    
    (25,146
    )
    
    
    (21,533
    )
    
    
    (5,987
    )Other income (expense), net
    
    
    3,986
    
    
    
    2,078
    
    
    
    (346
    )
    
    
    49Income (loss) from continuing operations before income taxes
    
    
    19,995
    
    
    
    11,310
    
    
    
    (11,404
    )
    
    
    (12,436
    )Income tax expense (benefit)
    
    
    9,507
    
    
    
    7,598
    
    
    
    (2,250
    )
    
    
    (790
    )Income (loss) from continuing operations
    
    
    10,488
    
    
    
    3,712
    
    
    
    (9,154
    )
    
    
    (11,646
    )Discontinued operations (Note 4):Income (loss) from operations of I.T.S. segment
(including loss on disposal of $4,110 for the 2004
period)
    
    
    (6,216
    )
    
    
    577
    
    
    
    (82
    )
    
    
    1,090Income tax expense (benefit)
    
    
    (2,691
    )
    
    
    250
    
    
    
    (36
    )
    
    
    472Income (loss) from discontinued operations
    
    
    (3,525
    )
    
    
    327
    
    
    
    (46
    )
    
    
    618Net income (loss)
    
    $
    6,963
    
    
    $
    4,039
    
    
    $
    (9,200
    )
    
    $
    (11,028
    )
 The accompanying notes are an integral part of the consolidated financial statements. 34




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IPC ACQUISITION CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands) PredecessorPeriod from
    
    Period fromFiscal Years Ended
September 30,
    
    November 15, 2001
    
    October 1, 2001to
    
    to2004
    
    2003
    
    September 30, 2002
    
    December 20, 2001Cash flows from operating activities:Net income (loss)
    
    $
    6,963
    
    
    $
    4,039
    
    
    $
    (9,200
    )
    
    $
    (11,028
    )Income (loss) from discontinued operations
    
    
    (3,525
    )
    
    
    327
    
    
    
    (46
    )
    
    
    618Income (loss) from continuing operations
    
    
    10,488
    
    
    
    3,712
    
    
    
    (9,154
    )
    
    
    (11,646
    )Adjustments to reconcile income (loss) from continuing operations to net
cash provided by operating activities:Depreciation and amortization
    
    
    9,440
    
    
    
    6,555
    
    
    
    3,666
    
    
    
    1,386Amortization of intangibles
    
    
    15,798
    
    
    
    14,457
    
    
    
    11,094
    
    
    
    9,343Amortization of deferred financing costs
    
    
    2,088
    
    
    
    2,555
    
    
    
    2,304
    
    
    
    Provision for (reversal of) doubtful accounts
    
    
    (177
    )
    
    
    158
    
    
    
    582
    
    
    
    893Deferred income taxes
    
    
    3,301
    
    
    
    1,453
    
    
    
    (7,170
    )
    
    
    (4,761
    )Amortization of guarantees on former parent obligations
    
    
    (953
    )
    
    
    (678
    )
    
    
    
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (13,065
    )
    
    
    4,623
    
    
    
    13,859
    
    
    
    2,653Due from former affiliate
    
    
    (7,117
    )
    
    
    
    
    
    
    
    
    
    
    Inventories
    
    
    (8,113
    )
    
    
    (1,703
    )
    
    
    54,536
    
    
    
    (233
    )Prepaids and other current assets
    
    
    1,813
    
    
    
    (1,505
    )
    
    
    (1,167
    )
    
    
    (498
    )Other assets
    
    
    218
    
    
    
    20
    
    
    
    (154
    )
    
    
    323Accounts payable, accrued expenses and other liabilities
    
    
    18,827
    
    
    
    (3,885
    )
    
    
    (10,102
    )
    
    
    5,056Income taxes payable
    
    
    (2,691
    )
    
    
    1,767
    
    
    
    2,948
    
    
    
    (988
    )Customer advances and deferred revenue
    
    
    5,594
    
    
    
    7,433
    
    
    
    (35,865
    )
    
    
    10,622Net cash provided by continuing operations
    
    
    35,451
    
    
    
    34,962
    
    
    
    25,377
    
    
    
    12,150Net cash provided by (used in) discontinued operations
    
    
    21,996
    
    
    
    (15,480
    )
    
    
    7,205
    
    
    
    3,116Net cash provided by operating activities
    
    
    57,447
    
    
    
    19,482
    
    
    
    32,582
    
    
    
    15,266Cash flows from investing activities:Capital expenditures
    
    
    (9,213
    )
    
    
    (7,467
    )
    
    
    (6,480
    )
    
    
    (1,897
    )Global Crossing Settlement:Proceeds from restricted cash account and other amounts
    
    
    
    
    
    
    9,419
    
    
    
    
    
    
    
    Cash payments
    
    
    
    
    
    
    (5,200
    )
    
    
    
    
    
    
    Payment of Gains US and UK earn-out consideration and deferred purchase price
    
    
    (6,756
    )
    
    
    
    
    
    
    
    
    
    
    Payment for acquisitions, net of cash acquired
    
    
    (10,204
    )
    
    
    2,799
    
    
    
    (345,746
    )
    
    
    Net cash used in continuing operations
    
    
    (26,173
    )
    
    
    (449
    )
    
    
    (352,226
    )
    
    
    (1,897
    )Net cash used in discontinued operations
    
    
    
    
    
    
    (60
    )
    
    
    (26
    )
    
    
    (5
    )Net cash used in investing activities
    
    
    (26,173
    )
    
    
    (509
    )
    
    
    (352,252
    )
    
    
    (1,902
    )Cash flows from financing activities:Principal payments on term loan
    
    
    (5,550
    )
    
    
    (18,616
    )
    
    
    (33,938
    )
    
    
    Proceeds from term loan, net of issuance costs
    
    
    
    
    
    
    1,279
    
    
    
    98,600
    
    
    
    Proceeds from equity issuances, net
    
    
    
    
    
    
    
    
    
    
    139,917
    
    
    
    Proceeds from senior notes, net of issuance costs
    
    
    
    
    
    
    
    
    
    
    138,980
    
    
    
    Repayments of intercompany borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,134
    )Distribution to parent in connection with acquisition
    
    
    (5,510
    )
    
    
    
    
    
    
    
    
    
    
    Issuance cost for term loan amendment
    
    
    (225
    )
    
    
    (310
    )
    
    
    
    
    
    
    Deferred compensation payments
    
    
    (86
    )
    
    
    (124
    )
    
    
    (77
    )
    
    
    (19
    )Payment of
special cash dividend, net
    
    
    (17,893
    )
    
    
    
    
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    (29,264
    )
    
    
    (17,771
    )
    
    
    343,482
    
    
    
    (15,153
    )Effect of exchange rate changes on cash
    
    
    (540
    )
    
    
    (696
    )
    
    
    1,482
    
    
    
    (1,996
    )Net increase (decrease) in cash
    
    
    1,470
    
    
    
    506
    
    
    
    25,294
    
    
    
    (3,785
    )Cash, beginning of period
    
    
    25,800
    
    
    
    25,294
    
    
    
    
    
    
    
    4,536Cash, end of period
    
    $
    27,270
    
    
    $
    25,800
    
    
    $
    25,294
    
    
    $
    751Supplemental disclosures of cash flow information:Cash paid during the periods for:Income taxes
    
    $
    4,867
    
    
    $
    5,226
    
    
    $
    2,574
    
    
    $
    1,338Interest
    
    $
    20,882
    
    
    $
    22,808
    
    
    $
    15,005
    
    
    $
    66Supplemental disclosures of non-cash investing activities:Value of common stock issued for the acquisition of Gains US and UK
    
    
    
    
    
    $
    5,693
 The accompanying notes are an integral part of the consolidated financial statements. 35




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IPC ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(In Thousands) NotesReceivable
    
    Deferred
    
    Retained
    
    AccumulatedPaid
    
    
    
    
    
    For Purchases
    
    Stock
    
    Earnings
    
    OtherCommon
    
    In
    
    Subscription
    
    of Common
    
    Compen-
    
    (Accumulated
    
    ComprehensiveStock
    
    Capital
    
    Receivable
    
    Stock
    
    sation
    
    Deficit)
    
    (Loss) Income
    
    TotalPredecessorBalance at September 30, 2001
    
    $
    
    
    
    $
    278,048
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (32,710
    )
    
    $
    (1,292
    )
    
    $
    244,046Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,028
    )
    
    
    
    
    
    
    (11,028
    )Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,965
    )
    
    
    (1,965
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,993
    )Balance at December 20, 2001
    
    $
    
    
    
    $
    278,048
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (43,738
    )
    
    $
    (3,257
    )
    
    $
    231,053IPC Acquisition Corp.Initial equity subscription at
November 15, 2001
    
    $
    
    
    
    $
    10
    
    
    $
    (10
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Issuance of common stock
    
    
    141
    
    
    
    140,149
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    140,300Issuance of notes receivable for
purchases of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (383
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (383
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,200
    )
    
    
    
    
    
    
    (9,200
    )Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,281
    
    
    
    6,281Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,919
    )Balance at September 30, 2002
    
    
    141
    
    
    
    140,159
    
    
    
    
    
    
    
    (383
    )
    
    
    
    
    
    
    (9,200
    )
    
    
    6,281
    
    
    
    136,998Issuance of common stock
    
    
    6
    
    
    
    5,687
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,693Interest on notes receivable accrued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,039
    
    
    
    
    
    
    
    4,039Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    459
    
    
    
    459Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,498Balance at September 30, 2003
    
    
    147
    
    
    
    145,846
    
    
    
    
    
    
    
    (393
    )
    
    
    
    
    
    
    (5,161
    )
    
    
    6,740
    
    
    
    147,179Interest on notes receivable accrued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Distribution in connection with
acquisition of Gains Asia
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,510
    )
    
    
    
    
    
    
    (5,510
    )Special cash dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71
    
    
    
    
    
    
    
    (17,964
    )
    
    
    
    
    
    
    (17,893
    )Deferred stock option compensation
    
    
    
    
    
    
    683
    
    
    
    
    
    
    
    
    
    
    
    (683
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred stock
option compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38
    
    
    
    
    
    
    
    
    
    
    
    38Shares canceled from key employee
equity plan
    
    
    
    
    
    
    (50
    )
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,963
    
    
    
    
    
    
    
    6,963Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,470
    
    
    
    2,470Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,433Balance at September 30, 2004
    
    $
    147
    
    
    $
    146,479
    
    
    $
    
    
    
    $
    (276
    )
    
    $
    (645
    )
    
    $
    (21,672
    )
    
    $
    9,210
    
    
    $
    133,243
 The accompanying notes are an integral part of the consolidated financial statements. 36




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##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004 1.     Basis of Presentation IPC Acquisition Corp. (the Company) was incorporated in Delaware and initially capitalized
on November 15, 2001 for the purpose of entering into a purchase agreement to acquire: (1) 100% of
the shares of common stock of IPC Information Systems, Inc. and 100% of the ordinary shares of Asia
Global Crossing IPC Financial Services Australia Pty Ltd. from Global Crossing Ltd. (Global
Crossing) and its affiliates and (2) various assets owned by affiliates of Global Crossing related
to the operation of these businesses (collectively IPC Information Systems). The Company did not
have any assets or operations prior to its acquisition of IPC Information Systems. As used herein,
the Company refers to IPC Acquisition Corp. and its subsidiaries. Effective December 20, 2001, pursuant to a purchase agreement, as amended, between IPC
Acquisition Corp. and Global Crossing, IPC Acquisition Corp. completed the acquisition of IPC
Information Systems (the IPC Information Systems Acquisition). The Companys financial statements
for the periods from November 15, 2001 (date of initial capitalization) to September 30, 2004 are
substantially comprised of the funding and closing of the IPC Information Systems Acquisition on
December 20, 2001 and the results of operations of IPC Information Systems from the closing through
September 30, 2004. Under the purchase agreement, the total purchase price for the shares and
assets was $360.0 million, subject to various adjustments for working capital and customer
advances. The Company, headquartered in New York, provides mission-critical voice communications
solutions to enterprises globally, primarily in the financial services industry as well as the
command and control operations within the following industries: public safety organizations,
government and military agencies, power, energy and utility companies
(PE&U), and transportation companies. These solutions are composed
of both products and services.
Products include the
design, manufacture, and installation of turret systems and associated hardware, voice recording
equipment, intercoms and microphones. Within the Companys
product offerings it also provides software
applications. Some of these software applications reside on equipment
designed by the Companys and others
reside on the customers network infrastructure. Services include equipment maintenance, network
voice and data services, management of relocations and day-to-day moves, as well as enhanced
services like remote monitoring and proactively servicing elements of a customers communications
infrastructure. The Company markets its products and services worldwide in major financial centers, with the
majority of its revenues and employees located in the United States. Unless
otherwise indicated, all references to years are references to the
Companys fiscal year ended September 30. 2.     Summary of Significant Accounting Policies Principles of Consolidation and Combination The combined financial statements for the period from October 1, 2001 to December 20, 2001
include the accounts of IPC Information Systems (the Predecessor). Intercompany balances and
transactions have been eliminated. The consolidated financial statements for 2004 and 2003, and the period from November 15,
2001 (date of initial capitalization) to September 30, 2002 include the accounts of the Company and
its wholly owned subsidiaries. The principal activities of the Company consist of the acquisition
of IPC Information Systems, Inc. and the results of operations of the acquired business from
December 20, 2001 through September 30, 2004 as well as the results of operations of additional
acquired businesses during that same period. Intercompany balances and transactions have been
eliminated. Revenue Recognition Revenue from product sales and installation is recognized upon completion of the
installation or, for contracts that are completed in stages and include contract specified
milestones, upon achieving such contract milestones, and the delivery and customer acceptance of a
fully functional system. Revenue from sales to distributors is recognized upon shipment. Customers
are generally progress-billed prior to the completion of the installations. The revenue related to
these advance payments is deferred until the system installations are completed or specified
milestones are attained. Costs incurred on uncompleted contracts and stages are accumulated and
recorded as inventory awaiting installation. The cost of providing a
one year warranty on the Companys
equipment are estimated and accrued at the time the equipment is sold. In addition, contracts for
annual recurring 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 generally occurs in the same month or the month following the order for
services. Revenue from network services is generally billed at the beginning of the month and
recognized in the same month. Revenue from software licenses is
recognized in accordance with SOP No. 97-2, Software Revenue
Recognition, as amended by SOP 98-9, Modification of SOP
92-2, Software Revenue Recognition, With Respect to Certain
Transactions. Software revenue is recognized when a customer
enters into a non-cancelable contract or license agreement, the
software product has been delivered, there are no uncertainties
surrounding product acceptance, there are no significant future
performance obligations, the contract or license fees are fixed or
determinable and collection is considered probable. Amounts received
in advance of meeting these criteria are deferred. Revenue from support
and maintenance contracts is recognized ratably over the contract period. 37




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##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 Cash and Cash Equivalents The Company maintains cash with several high credit quality financial institutions. Temporary
cash investments with original maturities of three months or less are considered cash equivalents.
Temporary cash investments are stated at cost, which approximates fair value. These investments are
not subject to significant market risk. Trade Receivables Trade accounts receivable potentially expose the Company to concentrations of credit risk, as
a large volume of business is conducted with several major financial institutions, primarily
companies in the brokerage, banking and financial services industries. To help reduce this risk,
customers are progress-billed prior to the completion of the contract. Uncollected accounts
receivable recorded in customer advances amounted to $12.4 million at September 30, 2004 and $2.7
million at September 30, 2004. The Company performs periodic credit evaluations of its customers financial condition and
although the Company does not generally require collateral, it does require cash payments in
advance when the assessment of credit risk associated with a customer is substantially higher than
normal. Credit losses have consistently been within managements expectations and are provided for
in the consolidated financial statements. Allowance for Doubtful Accounts The Company evaluates the collectibility of its accounts receivable based on a combination of
factors. Where the Company is aware of circumstances that may impair a specific customers ability
to meet its financial obligations to the Company, the Company records a specific allowance against
amounts due to it and thereby reduces the net receivable to the amount the Company reasonably
believes is likely to be collected. For all other customers, the Company recognizes allowances for
doubtful accounts based on the length of time the receivables are outstanding, industry and
geographic concentrations, the current business environment and its historical experience. If the
financial condition of the Companys customers deteriorates or if economic conditions worsen,
additional allowances may be required. 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. Cost of goods sold for the period
ended September 30, 2002 reflects fair value inventory adjustments of $33.0 million associated with
the purchase accounting treatment of the IPC Acquisition on December 20, 2001. There were no fair
value inventory adjustments to cost of goods sold in 2004 and 2003. Property, Plant and Equipment Property, plant and equipment are stated at cost and depreciated on a straight-line basis over
the shorter of their estimated useful lives or related contract terms beginning in the year the
asset was placed into service. Normal repair and maintenance costs are expensed as incurred. The
useful lives by asset category are as follows: Buildings
    
    20 yearsFurniture, fixtures and equipment
    
    5 yearsNetwork equipment
    
    3 yearsComputer software
    
    3 years
 Leasehold improvements are amortized over the lesser of the lease term or the estimated useful
life of the improvements. Impairment of Long-Lived Assets The Company reviews long-lived assets, including property, plant and equipment and definite
lived 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 the aggregate of estimated undiscounted future cash flows expected to
result from the use of the assets and the eventual disposition is less than its carrying amount.
Impairment, if any, is assessed using discounted cash flows. No impairments have occurred to date. 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. 38




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##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 The Company adopted Statement of Financial Accounting Standards (SFAS) No. 142 Goodwill and
Other Intangible Assets (SFAS No. 142), effective upon the acquisition of IPC Information
Systems 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 (date of initial
capitalization) to September 30, 2002 and 2003 and 2004. However, such assets are tested for
impairment annually using the two-step process specifically provided in SFAS No. 142. Other
intangible assets are carried at cost. Technology is amortized over estimated useful lives of
between 3 to 7 years, customer relationships are amortized over estimated useful lives of 8 to 20
years, and proprietary software is amortized over its estimated useful life of 7 years. Trade name
has been deemed to have an indefinite life and will not be subject to amortization, but
instead will be subject to annual impairment tests in accordance with the provisions of SFAS No.
142. In determining that the trade name has an indefinite life, the Company considered the
following factors: the ongoing active use of its trade name, which is directly associated with its
market leading position in the turret business, the lack of any legal, regulatory or contractual
provisions that may limit the useful life of the trade name, the lack of any substantial costs to
maintain the asset, the positive impact on its trade name generated by its other ongoing business
activities (including marketing and development of new technology and new products) and its
commitment to products branded with its trade name over its 30 year history. The Companys acquired
trade name has significant market recognition and the Company expects to derive benefits from the
use of such assets beyond the foreseeable future. The Company completed the required annual fair value test as of July 1, 2004 (the first day of
the fourth quarter of 2004), and concluded that there was no impairment to its recorded goodwill or
trade name. The Company believes the recorded values of goodwill of $82.6 million and trade name of
$16.3 million at September 30, 2004 are fully recoverable. Deferred Financing Costs As part of the acquisition of IPC Information Systems in December 2001, the Company
capitalized certain debt issuance costs in the amount of $17.4 million relating to the
establishment of the senior secured credit facilities and the issuance of the senior subordinated
notes. These costs are being amortized over the respective lives of the debt using the effective
interest method. On September 2, 2003, the Company amended and restated its senior secured credit
facilities to more favorable terms. Additional debt issuance costs of $1.6 million were incurred
and are also being amortized using the effective interest method according to EITF Issue No. 96-19
Debtors Accounting for a Modification or Exchange of Debt Instruments. Amortization expense
related to deferred financing costs is included in interest expense in the accompanying
consolidated statement of operations and aggregated approximately $2.1 million for 2004, $2.6
million for 2003 and $2.3 million for the period from November 15, 2001 (date of initial
capitalization) to September 30, 2002. Research and Development Research and development expenditures are charged to expense as incurred. Income Taxes In accordance with SFAS No. 109, Accounting for Income Taxes (SFAS No. 109), 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. For the period October 1, 2001 to December 20, 2001, the Predecessor had filed a consolidated
Federal income tax return with its parent. The income tax provision
for this period has been prepared in
accordance with SFAS No. 109 and SEC Staff Accounting Bulletin Topic 1B, utilizing the separate
return method. Resulting payables for taxes have been recorded as adjustments to the intercompany
accounts. The Company is now required to file separate tax returns. Effective as of the date of the acquisition of IPC Information Systems, the Company provides
deferred income taxes on the unremitted earnings of its foreign subsidiaries. Use of Estimates The preparation of financial statements in conformity with United States generally accepted
accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. 39




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##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 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 except for its subsidiary in Singapore
whose functional currency is the U.S. dollar . Assets and liabilities of these foreign operations
are translated at the year-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. Taxes related to
translation adjustments were $1.3 million in 2004 and
$3.6 million in 2003. Gains and losses resulting from foreign currency transactions are recognized in other income
(expense), including gains and losses of approximately $1.3 million in 2004, $1.4 million in 2003,
($0.3) million for the period November 15, 2001 to September 30, 2002 and $0.1 million for the
period October 1, 2001 to December 20, 2001. Fair Value of Financial Instruments The Companys financial instruments at September 30, 2004 consist of accounts receivable,
accounts payable and debt. As of September 30, 2004, the Company did not have any derivative
financial instruments. The Company believes the reported carrying amounts of its accounts
receivable and accounts payable approximates fair value, based upon the short term nature of these
accounts. The fair value of borrowings under the senior secured credit facilities was $49.9 million
at September 30, 2004 as it bears interest at a floating rate. The fair value of the senior
subordinated notes was $165.7 million at September 30, 2004, based upon quoted trading prices at
such date. StockBased Compensation As permitted by Financial Accounting Standards Board (FASB) Statement No. 123, Accounting
for Stock-Based Compensation (SFAS 123), the Company has elected to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related
interpretations in accounting for its employee option plans. Under APB 25, no compensation expense
is recognized at the time of an option grant if the exercise price of the employee stock option is
fixed and equals or exceeds the fair market value of the underlying common stock on the date of the
grant and the number of shares to be issued pursuant to the exercise of such options are fixed on
the date of the grant. Pro forma information regarding net income (loss) and earnings (loss) per share is required by
SFAS 123, and has been determined as if the Company had been accounting for its employee stock
options under the fair value method of that Statement. The fair value of each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used for grants in the
following periods: Fiscal Years
    
    Period fromEnded
    
    November 15, 2001September 30,
    
    to2004
    
    2003
    
    September 30, 2002Risk free interest rate
    
    2.39%
    
    2.1%
    
    3.5%Expected life
    
    4 years
    
    4 years
    
    5 yearsExpected volatility
    
    64.9%
    
    90.0%
    
    74.2%
 The Black-Scholes option valuation model was developed for use in estimating the fair value of
traded options that have no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions including the expected stock
price volatility. Because the Companys employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective input assumptions can
materially affect the fair value estimate, in managements opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of options granted is
amortized to expense over their vesting periods. The weighted-average grant date fair value of
options granted was $5.76 for 2004, $5.30 for 2003 and $6.28 for the period from November 15, 2001
(date of initial capitalization) to September 30, 2002. The Companys pro forma net income (loss)
for all periods presented is shown below. These amounts may not necessarily be indicative of the
pro forma effect of SFAS 123 for future periods in which options may be granted. As
a result of the dividend paid in December 2003, the fair value of the
Companys common stock was reduced by the amount of the
dividend, or $1.22 per share. The exercise price of certain stock option grants was modified to reflect the revised fair value. Additional compensation expense has been included in the pro forma disclosure in fiscal year 2004 to account for the incremental fair value of the modified options that have vested. The effect of the modification relating to unvested options will be recognized over the vesting period. 40




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##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 If the Company elected to recognize compensation expense based on the fair value of the
options granted at grant date, as prescribed by SFAS 123, net income (loss) would have been
adjusted to the pro forma amounts indicated in the table below (in thousands): PredecessorFiscal Years
    
    Period from
    
    Period fromEnded
    
    November 15, 2001
    
    October 1, 2001September 30,
    
    to
    
    to2004
    
    2003
    
    September 30, 2002
    
    December 20, 2001Reported net income (loss)
    
    $
    6,963
    
    
    $
    4,039
    
    
    $
    (9,200
    )
    
    $
    (11,028
    )Add back total stock-based
employee compensation
determined under APB 25
intrinsic value method, net
of tax
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    Deduct total stock-based
employee compensation
expense determined under
fair value based method for
all awards, net of tax
effect
    
    
    (1,655
    )
    
    
    (825
    )
    
    
    (326
    )
    
    
    Pro forma net income (loss)
    
    $
    5,327
    
    
    $
    3,214
    
    
    $
    (9,526
    )
    
    $
    (11,028
    )
 Reclassifications Certain items in the September 30, 2003 and 2002 financial statements have been reclassified
from amounts previously reported to conform to the presentation of the September 30, 2004
consolidated financial statements. Guarantees FASB Interpretation No. 45 (FIN 45) requires that upon issuance of a guarantee, the
guarantor must disclose and recognize a liability for the fair value of the obligation it assumes
under that guarantee. The requirements of FIN 45 are applicable to the Companys guarantee of a
real estate lease for a former affiliate. The Companys guarantees subject to the recognition and
disclosure requirements of FIN 45 were not material as of September 30, 2004 and September 30,
2003. The Company provides certain indemnification provisions within its product sales agreements,
to protect its customers from any liabilities or damages resulting from a claim of misappropriation
or infringement by third parties relating to its software. The Company has never incurred a
liability relating to one of these indemnification provisions in the past and management believes
that the likelihood of any future payout relating to these provisions is unlikely. Therefore, the
Company has not recorded a liability during any period for these indemnification provisions. Recent Accounting Pronouncements On December 16, 2004, the
FASB issued Statement No. 123
(revised 2004), Share-Based Payment, which is a revision of
FASB Statement No. 123, Accounting for Stock-Based
Compensation. Statement 123(R) supercedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. Generally, the
approach to accounting for share-based payments in Statement 123(R)
is similar to the approach described in Statement 123. However,
Statement 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be
recognized as compensation expense in the financial statements based
on their fair values (i.e., pro forma disclosure is no longer an
alternative to financial statement recognition). Statement 123(R) is
effective for the Company in the quarter that begins July 1, 2005.
The adoption of Statement 123(R) could materially impact the
Companys consolidated financial statements. 41




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##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 3. Acquisitions Acquisition of IPC Information Systems The Company was formed in November 2001 by a group led by GS Capital Partners 2000, L.P.
(GSCP 2000), and other private equity funds affiliated with Goldman, Sachs & Co., to acquire IPC
Information Systems. The Company did not have any assets or operations prior to its acquisition of
IPC Information Systems. On December 20, 2001, the Company purchased IPC Information Systems from
Global Crossing and Asia Global Crossing, Ltd. and various of their affiliates. The Company and
various of its subsidiaries also entered into a network services, channel sales and transition
services agreement with Global Crossing and various other parties that obligated the Company to
market or resell Global Crossings channel network services to its customers and restricted its
ability to supply telecommunications services to any third party or to own a network capable of
providing these services to any third party. Under the purchase agreement, the total purchase price
for the shares and assets was $360.0 million, subject to various adjustments for working capital
and customer advances. On January 28, 2002, Global Crossing and 54 of its subsidiaries filed petitions for
relief under Chapter 11 of Title 11 of the United States Bankruptcy Code. On March 13, 2003, the
Company entered into a settlement and rejection agreement with Global Crossing. Pursuant to the
settlement and rejection agreement, all of the remaining obligations under the purchase agreement
relating to the IPC Information Systems Acquisition were terminated, including Global Crossings
obligation to pay any portion of the deferred purchase price and Global Crossings obligation to
indemnify the Company for specific tax liabilities. In addition, the Company and Global Crossing
mutually released each other for all prior claims. The bankruptcy court entered an order on March
14, 2003 approving the settlement and rejection agreement. The Company believes that all tax returns required to be filed in respect of IPC Information
Systems, Inc. and its subsidiaries for periods prior to and including the date of the IPC
Information Systems Acquisition have been filed. These returns consist of consolidated tax returns
with Global Crossing, and, where required by law, separate tax returns for IPC Information Systems,
Inc. and/or its subsidiaries. The aggregate amount of taxes for which the Company has
received notices of taxes due and estimated amounts for probable
assessments from various jurisdictions and recognized as tax liabilities under
purchase accounting is approximately $6.5 million and, as of September 30, 2004, the Company has
made settlement payments aggregating $1.9 million, including a $1.1 million payment made to one
jurisdiction in May 2004. The Company estimates that its exposure for additional tax liabilities relating to periods prior to
the acquisition in excess of amounts accrued is zero, which has been reduced from an original range of zero to $36.0 million as a result of the Companys settlement
negotiations. In computing its estimated potential tax liabilities, the Company took into account
tax returns in certain jurisdictions where the statutes of limitations have not yet expired. Under
those tax returns as filed, the remaining liability is zero. Although
the Company believes that all those tax returns have been filed
correctly, such returns may be audited and additional taxes may be
assessed (or refunds may be granted). Payment by the Company of a
significant amount of theses potential tax liabilities should not
have a material adverse effect on the Companys financial
condition and results of operations. In that event, the Company
cannot make assurances that it will be able to obtain additional
financing on commercially reasonable terms, or at all. Pursuant to the settlement and rejection agreement, Global Crossing has also paid over to the
Company approximately $2.2 million for payroll and federal tax refunds received for periods prior
to and including the date of the IPC Information Systems Acquisition. Global Crossing is also
required to pay the Company any future tax refunds or credits it receives that are applicable to
IPC Information Systems, Inc. and its subsidiaries for these periods. As part of the settlement and rejection agreement, the Company also entered into an amendment
to the network services, channel sales and transition services agreement. Under the amendment, the
Company no longer has any obligation to market or resell Global Crossings channel network services
to its customers. Additionally, pursuant to the amendment, the Company is permitted to use any
other provider of network services for its own internal purposes so long as the Companys aggregate
annual payments to Global Crossing and its subsidiaries are at least $48,000. The Company leases six floors at 67-73 Worship Street, London, England. In connection with the
purchase agreement relating to the Companys acquisition of IPC Information Systems, Global
Crossing subleased from the Company five of the six floors at this location for its
telecommunications and networking equipment and personnel. In August 2004, the Company renegotiated
the Worship Street facility lease with the landlord. Simultaneously, the Company entered into an
agreement with Global Crossing which released them of their sublease obligations. As consideration
for permitting early termination of its sublease, Global Crossing consented to a distribution to
the Company of approximately $1.5 million from an escrow account established pursuant to a prior
settlement agreement. Set forth below are the unaudited pro forma results of operations of the Company for the
period October 1, 2001 to December 20, 2001, as if the acquisition of IPC Information Systems and
the related financings had occurred as of the beginning of the 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 acquisition of IPC Information Systems and the related financings occurred
as of the beginning of the period, or to project the results for any future period. 42




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IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 The unaudited pro forma financial information gives effect to (a) the acquisition of IPC
Information Systems (b) the offering of the outstanding senior subordinated notes, (c) term loan
borrowings under the Companys previously existing senior secured credit facilities, (d) the
purchase accounting adjustments associated with the acquisition of IPC Information Systems, (e) the
common equity contribution and (f) the related fees and expenses. 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 but does include the restructuring
charge of $0.8 million. PredecessorsPeriod fromOctober 1, 2001to(dollars in thousands)
    
    December 20, 2001Revenue
    
    $
    46,239Loss from continuing operations
    
    $
    (4,488
    )Net loss
    
    $
    (3,870
    )
 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 approximately $2.5
million. This transaction was completed on March 29, 2002, and was accounted for under the purchase
method of accounting in accordance with SFAS No. 141. On a proforma basis, this acquisition did not
have a material impact on the Companys results of operations for the period October 1, 2001 to
December 20, 2001, and the period November 15, 2001 (date of initial capitalization) to September
30, 2002. Gains US and UK Acquisition On April 30, 2003, the Company exercised its option to purchase Gains International (US) Inc.
and Gains International (Europe) Limited (collectively Gains US and UK) from GSCP 2000 and other
private equity funds affiliated with Goldman, Sachs & Co., who own substantially all of the
Companys common stock, for 664,380 shares of common stock valued at approximately $5.7 million,
deferred purchase consideration of $3.1 million and earn-out consideration of approximately $3.6
million. There is no further contingent consideration in connection with this acquisition. This
transaction followed the completion of a transaction involving the sale of Gains International (US)
Inc., Gains International (Europe) Limited and Gains International Asia Holdings Limited to
entities formed by GSCP 2000 and other private equity funds affiliated with Goldman, Sachs & Co. In
connection with the acquisition of the Gains US and UK entities, the Company established a
restructuring reserve in purchase accounting for the abandonment of the Gains UK office located in
London totaling $1.9 million. The reserve includes the remainder of the required rental lease
payments of $1.5 million as well as relocation costs for staff and equipment of $0.4 million. The
Company expects the relocation to occur in its fiscal 2005 second quarter. As of September 30, 2004
no charges have been recorded against the reserve. The following table summarizes the fair value of the assets acquired and the liabilities
assumed at the date of the acquisition. The purchase price on the date of the acquisition exceeded
the fair market value of the net assets acquired by approximately $11.3 million and was recorded as
goodwill on the consolidated balance sheet and is recorded in our Financial Services segment. The
primary factor that contributed to a purchase price that resulted in the recognition of goodwill is
the potential ability of network services to generate income from operations and cash flows from
operating activities in the future. The goodwill and intangible assets are not amortizable for
income tax purposes. Condensed Balance Sheet (dollars in thousands)Current assets
    
    $
    6,115Property, plant and equipment, net
    
    
    2,645Goodwill
    
    
    11,324Intangible assets
    
    
    1,664Other long-term assets
    
    
    12Total assets acquired
    
    
    21,760Current liabilities
    
    
    9,345Deferred purchase consideration
    
    
    3,128Earn-out consideration
    
    
    3,594Total liabilities assumed
    
    
    16,067Acquisition consideration at closing
    
    $
    5,693
 43




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IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 The acquisition of Gains US and UK was accounted for using the purchase method of accounting
in accordance with FASB Statement No. 141, Business Combinations (SFAS 141) and accordingly,
the Companys consolidated results of operations for 2004 include the operating results of Gains US
and UK from the date of purchase. The following table represents the allocation of the excess of
the purchase price over the historical cost of the net tangible assets acquired (in thousands): Common stock issued at closing
    
    
    
    
    
    $
    5,693Deferred purchase price payment
    
    
    
    
    
    
    3,128Earn-out consideration
    
    
    
    
    
    
    3,594Transaction costs
    
    
    
    
    
    
    1,703Total consideration
    
    
    
    
    
    
    14,118Historical cost of net tangible assets acquired
    
    
    
    
    
    
    (1,130
    )Excess of purchase price over net tangible assets acquired
    
    
    
    
    
    $
    12,988Allocation of excess purchase price:Residual goodwill (indefinite life)
    
    
    
    
    
    $
    11,324Identified intangibles:Customer relationships (8 year life)
    
    $
    1,200Proprietary software (7 year life)
    
    
    464Total identified intangibles
    
    
    
    
    
    
    1,664Total allocation of excess purchase price
    
    
    
    
    
    $
    12,988
 Gains Asia Acquisition On January 6, 2004, the Company purchased Gains International Asia Holdings Limited (Gains
Asia) from GSCP 2000 and other private equity funds affiliated with Goldman, Sachs & Co. for
approximately $17.4 million in cash consideration, including an advance payment of $5.5 million
made in October 2003, an $11.7 million payment at closing, and a $0.2 million payment in April
2004. This transaction followed the acquisition of Gains US and UK in April 2003 and completes the
purchase of all the Gains related entities. With the acquisition of Gains Asia, the Company
expanded its private global voice and data network into the Asia Pacific region. The following table summarizes the carryover basis of the assets acquired and the liabilities
assumed at the date of the acquisition. The Company paid approximately $5.5 million in excess of
the carryover basis of the net assets acquired to GSCP 2000 and other private equity funds
affiliated with Goldman, Sachs & Co. This excess payment has been treated as a distribution and the
assets and liabilities have been recorded at carryover basis based on the amount GSCP 2000 paid for
them. The intangible assets are not amortizable for income tax purposes. Condensed Balance Sheet (dollars in thousands)Current assets
    
    $
    5,123Property, plant and equipment, net
    
    
    991Intangible assets
    
    
    8,393Total assets acquired
    
    
    14,507Current liabilities
    
    
    2,252Advance payment and other liabilities
    
    
    5,848Total liabilities assumed
    
    
    8,100Distribution to parent
    
    
    5,510Consideration at closing
    
    $
    11,917
 The Companys consolidated results of operations for 2004 include the operating results of
Gains Asia from the date of purchase. Proforma Financial Information for Gains US and UK and Gains Asia Acquisitions Set forth below is the unaudited pro forma consolidated results of operations of the Company
for 2004 and 2003, assuming the Gains US and UK and Gains Asia acquisitions occurred as of the
beginning of 2003. The unaudited pro forma condensed 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 Gains US and UK and Gains Asia acquisitions occurred as of the
beginning of each period, or to project the results for any future period. 44




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IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 Fiscal Years EndedSeptember 30,(dollars in thousands)
    
    2004
    
    2003Revenue
    
    $
    266,799
    
    
    $
    236,521Income from continuing operations
    
    $
    11,116
    
    
    $
    3,088Net income
    
    $
    7,591
    
    
    $
    3,415
 Investment in Purple Voice IPC UK Holdings Limited (IPC UK), a subsidiary of the Company, entered into a series of
transactions with Purple Voice, a business-to-business Internet Protocol (IP) software company
that provides Voice over IP (VoIP) solutions to the financial community. VoIP is the method by
which voice communication is delivered over an electronic network. As a result of these
transactions which closed on August 1, 2003:  
    
    IPC UK acquired approximately 40% of the outstanding common shares (calculated
on a non-diluted basis) and obtained voting control of Purple Voice together with a warrant
for additional shares from certain minority shareholders of Purple Voice for approximately
$120,000;
    
    IPC UK invested $1.0 million in a 7% secured convertible note, due September
2007, issued by Purple Voice, which is convertible into 49% of Purple Voices share capital
on a fully diluted basis;
    
    The remaining shareholders of Purple Voice granted a call option to IPC UK,
which permits IPC UK to acquire the remaining issued share capital of Purple Voice for an
aggregate amount of $0.8 million; and
    
    IPC Information Systems, Inc. and Purple Voice entered into an agreement under
which IPC Information Systems, Inc. has been appointed Purple Voices exclusive reseller
worldwide. On a pro forma basis, this acquisition did not have a material impact on the Companys results
of operations for 2003. During 2004, IPC UK acquired additional shares and share warrants in Purple Voice from Scipher
PLC and certain individual shareholders for a total consideration of approximately $512,000.
Following those acquisitions, IPC UK holds approximately 99% of the currently outstanding common
shares (calculated on a non-diluted basis) of Purple Voice and a commitment to acquire the
remaining shares for approximately $55,000 in January 2005. 4. Discontinued Operations In May 2004, the Board of Directors of the Company approved a formal plan to sell certain
assets related to its Information Transport Systems (I.T.S.) segment to a group of private
investors. The I.T.S. segment was a low margin business that no longer fit into the Companys
long-term growth plans. The sale closed in July 2004. For the year ended September 30, 2004, the
Company recorded a $3.5 million loss from discontinued operations, net of tax, which included a
cash requirement of $0.8 million, primarily for existing equipment and property leases and other
expenses and operating losses of $2.1 million, and non-cash charges of $3.3 million for the write
down of goodwill, other intangibles and owned equipment, partially offset by a tax benefit of $2.7
million. Under the terms of the sale agreement and the transition services agreement, the Company
agreed to continue funding payroll and material procurement through October 31, 2004. Such amounts
are due to the Company by the new company (Newco) and are secured by the billings on such work to
the customer as well as all the assets sold to Newco. The Company has agreed to provide billing and
collection services and the collection of amounts due to the Company by Newco is through the right
of offset of collections on Newco customer billings. The Company has also agreed to allow Newco to
obtain labor through the Companys labor pooling agreement with KEC-NY and KEC-NJ for one year and has
obtained consent from KEC-NY and KEC NJ for such use. As of September 30, 2004, the amounts outstanding due to the Company from Newco and collectible
by the right of offset through Newcos billings and collections is $7.1 million. In accordance with FASB Statement No. 144 Accounting for the Impairment or Disposal of
Long-Lived Assets, the Company has reported the results of operations of this business as income
(loss) from discontinued operations. All prior periods have been restated to conform to this
presentation. As a result, the assets and liabilities of this discontinued operation have been
reclassified on the balance sheet from the historical classifications and presented under the
captions assets of discontinued operations and liabilities of discontinued operations,
respectively. 45




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IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 The assets and liabilities of discontinued operations as of September 30, 2004 and September 30, 2003 are as follows (in thousands): September 30,2004
    
    2003Assets of discontinued operations:Accounts receivable, net
    
    $
    2,518
    
    
    $
    19,792Inventories, net
    
    
    
    
    
    
    7,668Intangibles and other assets
    
    
    70
    
    
    
    3,830$
    2,588
    
    
    $
    31,290Liabilities of discontinued operations:Accounts payable and accrued expenses
    
    $
    639
    
    
    $
    1,552Customer advances
    
    
    
    
    
    
    2,235Other liabilities
    
    
    
    
    
    
    33$
    639
    
    
    $
    3,820
 The
results of operations related to discontinued operations for 2004 (through the July 2004 disposal date) and 2003, the period
from November 15, 2001 (date of initial capitalization) to September 30, 2002 and the period from
October 1, 2001 to December 20, 2001 are as follows (in thousands): PredecessorFiscal Years
    
    Period from
    
    Period fromEnded
    
    November 15, 2001
    
    October 1, 2001September 30,
    
    to
    
    to2004
    
    2003
    
    September 30, 2002
    
    December 20, 2001Revenue
    
    $
    21,480
    
    
    $
    52,795
    
    
    $
    38,629
    
    
    $
    12,541Cost of goods sold
    
    
    22,419
    
    
    
    49,898
    
    
    
    35,575
    
    
    
    10,735Gross profit
    
    
    (939
    )
    
    
    2,897
    
    
    
    3,054
    
    
    
    1,806Operating expenses
    
    
    1,167
    
    
    
    2,320
    
    
    
    3,136
    
    
    
    716Operating income (loss) from discontinued operations before income taxes
    
    
    (2,106
    )
    
    
    577
    
    
    
    (82
    )
    
    
    1,090Loss on disposal of operations
    
    
    (4,110
    )
    
    
    
    
    
    
    
    
    
    
    Income tax expense (benefit)
    
    
    (2,691
    )
    
    
    250
    
    
    
    (36
    )
    
    
    472Income (loss) from discontinued operations
    
    $
    (3,525
    )
    
    $
    327
    
    
    $
    (46
    )
    
    $
    618
 5. Inventories (in thousands) September 30,2004
    
    2003Components and manufacturing work in process
    
    $
    13,450
    
    
    $
    5,980Inventory on customer sites awaiting installation
    
    
    15,401
    
    
    
    10,196Parts and maintenance supplies
    
    
    2,325
    
    
    
    6,552$
    31,176
    
    
    $
    22,728
 6. Property, Plant and Equipment (in thousands) September 30,2004
    
    2003Building
    
    $
    1,893
    
    
    $
    1,893Furniture and fixtures, machinery and equipment
    
    
    28,864
    
    
    
    25,082Network equipment
    
    
    8,180
    
    
    
    3,464Leasehold improvements
    
    
    4,436
    
    
    
    2,567Land
    
    
    1,349
    
    
    
    1,34944,722
    
    
    
    34,355Less: accumulated depreciation
    
    
    (19,876
    )
    
    
    (10,504
    )$
    24,846
    
    
    $
    23,851
 Depreciation and amortization expense was $9.4 million for 2004, $6.6 million for 2003, $3.7
million for the period from November 15, 2001 (date of initial capitalization) to September 30,
2002 and $1.4 million for the period from October 1, 2001 to December 20, 2001. 46




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IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 7. Goodwill and Intangible Assets (in thousands) The Company adopted SFAS No. 142, effective December 20, 2001 (the date of the
acquisition of IPC Information Systems). 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 Predecessor been accounting for
its goodwill and indefinite lived intangible assets (trade name)
under SFAS No. 142, the
Predecessors net income (loss) as compared to the Companys historical net income (loss) would
have been as follows: PredecessorFiscal Years
    
    Period from
    
    Period fromEnded
    
    November 15, 2001
    
    October 1, 2001September 30,
    
    to
    
    to2004
    
    2003
    
    September 30, 2002
    
    December 20, 2001Reported net income (loss)
    
    $
    6,963
    
    
    $
    4,039
    
    
    $
    (9,200
    )
    
    $
    (11,028
    )Add back goodwill amortization, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,978Add back amortization of indefinite lived intangible assets, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    950Adjusted net income (loss)
    
    $
    6,963
    
    
    $
    4,039
    
    
    $
    (9,200
    )
    
    $
    (7,100
    )
 The following table reflects the changes in goodwill for each of the Companys segments for
2004 and 2003: Trading
    
    NetworkSystems
    
    Services
    
    ConsolidatedBalance at October 1, 2003
    
    $
    71,308
    
    
    $
    
    
    
    $
    71,308Additions (primarily related to the acquisition of Gains US and Gains UK)
    
    
    
    
    
    
    11,324
    
    
    
    11,324Effect of currency translation adjustments
    
    
    1,730
    
    
    
    189
    
    
    
    1,919Reductions (primarily related to the settlement and rejection agreement
with Global Crossing)
    
    
    (2,443
    )
    
    
    
    
    
    
    (2,443
    )Balance at September 30, 2003
    
    
    70,595
    
    
    
    11,513
    
    
    
    82,108Effect of currency translation adjustments
    
    
    1,750
    
    
    
    505
    
    
    
    2,255Reductions (primarily related to the Worship street lease in 2004)
    
    
    (1,742
    )
    
    
    
    
    
    
    (1,742
    )Balance at September 30, 2004
    
    $
    70,603
    
    
    $
    12,018
    
    
    $
    82,621
 The following table reflects the gross carrying amount and accumulated amortization of the
Companys goodwill and intangible assets included in the consolidated balance sheets and recorded
in the Financial Services segment as of the dates indicated: September 30,2004
    
    2003Intangible assets:Amortized intangible assets:Technology
    
    $
    46,044
    
    
    $
    46,346Customer relationships
    
    
    163,123
    
    
    
    154,730Effect of currency translation adjustments
    
    
    7,721
    
    
    
    6,081Accumulated amortization-technology
    
    
    (18,352
    )
    
    
    (11,517
    )Accumulated amortization-customer relationships
    
    
    (22,905
    )
    
    
    (14,010
    )Net carrying amount
    
    $
    175,631
    
    
    $
    181,630Non-amortized intangible assets:Trade name
    
    
    16,300
    
    
    
    16,300Net carrying amount
    
    $
    191,931
    
    
    $
    197,930
 Amortization expense for those intangible assets still required to be amortized under SFAS No.
142 was $15.8 million for 2004, $14.5 million for 2003 and $11.1 million for the period from
November 15, 2001 (date of initial capitalization) to September 30, 2002. Amortization expense for
goodwill and intangible assets prior to the adoption of SFAS No. 142 was $9.3 million for the
period from October 1, 2001 to December 20, 2001. Estimated annual amortization expense for 2005 and each of the four succeeding years for
intangible assets required to be amortized under SFAS 142 are as follows: (dollars in thousands)
    
    2005
    
    2006
    
    2007
    
    2008
    
    2009Estimated annual amortization expense
    
    $
    16,052
    
    
    $
    16,052
    
    
    $
    15,645
    
    
    $
    15,645
    
    
    $
    10,920
 47




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IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 8. Accrued Expenses and Other Current Liabilities (in thousands) September 30,2004
    
    2003Accrued compensation and benefits
    
    $
    12,851
    
    
    $
    7,469Warranty reserves
    
    
    1,577
    
    
    
    1,889Sales taxes payable
    
    
    2,698
    
    
    
    137Job accruals
    
    
    1,093
    
    
    
    1,758Accrued transaction costs
    
    
    1,885
    
    
    
    2,124Accrued carrier costs
    
    
    5,621
    
    
    
    3,650Current portion of deferred compensation
    
    
    856
    
    
    
    692Accrued interest
    
    
    5,232
    
    
    
    5,299Other accruals
    
    
    4,171
    
    
    
    4,005$
    35,984
    
    
    $
    27,023
 9. Long Term Debt Senior Secured Credit Facilities On December 20, 2001, the Company entered into the senior secured credit facilities comprised
of a $105.0 million term loan and a $15.0 million revolving credit facility. On September 2, 2003,
the Company amended and restated its senior secured credit facilities. The amended and restated
senior secured credit facilities consisted of a $25.0 million revolving credit facility and a $55.0
million term loan. The term loan was borrowed in full at closing. On April 20, 2004, the Company
completed an agreement to increase the availability under the revolving credit facility by $10.0
million. As of September 30, 2004 the total amount available for borrowing and letters of credit
under the revolving credit facility is $35.0 million, of which $30.7 million was available as of
September 30, 2004, after taking into account $4.3 million of outstanding letters of credit,
provided, however, that the Company can increase the committed amount under these facilities by up
to $15.0 million so long as one or more lenders agrees to provide this incremental commitment and
other customary conditions are satisfied. The Companys senior
secured credit facilities mature on August 29, 2008. The term loan
facility is required to be repaid by the Company in consecutive
quarterly installments of $137,500 through September 30, 2007 and
$13.2 million on each quarterly installment thereafter and on the term
loan maturity date. For 2004, the weighted average interest rate for
borrowings outstanding under the amended and restated senior secured credit facilities was 4.93%.
The senior secured credit facilities and related interest expense is recorded on the Companys
Financial Services segment with no allocation of interest expense made to the Command and Control
segment. The Companys is also required to pay a commitment fee
equal to 0.50% per annum of the average daily unused amount of the
committed amount of the revolving credit facility, a fronting fee in
an amount not to exceed 0.50% per annum of the average aggregate
daily amount available to be drawn under all letters of credit issued
under the Companys senior secured credit facilities and
customary administrative agent and letter of credit charges. Borrowings
under the Companys senior secured credit facilities bear
interest, at the Companys election,
either based on a prime rate index plus the applicable margin or a
LIBOR rate index plus the applicable margin. The applicable margin
is: if the Companys senior secured leverage ratio, as defined
in the senior secured credit facilities, is greater than 1.00:1.00,
with respect to LIBOR rate loans, 4.00% per annum and with respect to
prime rate loans, 3.00% per annum, and if the Companys senior
secured leverage ratio is less than 1.00:1.00, with respect to LIBOR
rate loans, 3.50% per annum and with respect to prime rate loans,
2.50% per annum. Mandatory prepayments of the senior secured credit facilities are required upon the occurrence
of certain events, including certain asset sales, equity issuances and debt issuances, as well as
from 50% of the Companys excess cash flow, as defined in the
senior secured credit facilities, in 2004 and thereafter. Excess cash flow is defined in
the Companys credit agreement as: (1) the sum of net income, interest expense, provisions for
taxes, depreciation expense, amortization expense, other non-cash items affecting net income and to
the extent included in calculating net income, expenses incurred by the Company in connection with
an amendment of the then existing credit agreement, certain restructuring expenses and prepayment
premiums in connection with prepayment of loans under the then existing credit agreement, plus (2)
a working capital adjustment less (3) scheduled repayments of
debt, capital expenditures, cash acquisitions and certain investments, cash
interest expense and provisions for taxes based on income. Within 90 days of our fiscal year end, under the terms of the senior secured credit
facilities, the Company is required to make a mandatory excess cash flow payment of $6.6 million,
of which $5.0 million was paid at September 30, 2004. The Company was not required to make a
mandatory excess cash flow repayment for the year ended September 30, 2003, however, on March 3,
2003, the Company voluntarily prepaid $14.0 million in term debt on its then existing senior secured
credit facilities. Obligations under the senior secured credit facilities are secured by a first priority
security interest in substantially all of the Companys assets and the assets of its domestic
subsidiaries and by a pledge of 100% of the shares of its domestic subsidiaries and 65% of the
shares of direct foreign subsidiaries. The Companys domestic subsidiaries have unconditionally
guaranteed its obligations under the senior secured credit facilities. The senior secured credit facilities contain customary affirmative covenants as well as
negative covenants that, among other things, restrict the Companys and its subsidiaries ability
to: incur additional indebtedness (including guarantees of certain obligations); create liens;
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; enter into transactions with affiliates; make payments with
respect to or modify subordinated debt instruments; enter into sale and leaseback transactions;
change the fiscal year or lines of business; and enter into agreements with negative pledge clauses
or clauses restricting subsidiary distributions. 48




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IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 The senior secured credit facilities also contain minimum interest coverage and fixed charge
coverage ratios and maximum senior secured and total leverage ratios as well as a restriction on
the amount of capital expenditures the Company can incur in a fiscal year. At September 30, 2004,
the Company was in compliance with all requirements of the senior secured credit facilities. As of September 30, 2004, remaining annual principal repayments required under the $55.0
million term loan, (including $1.6 million due on December 29, 2004 of excess cash flow amounts as
defined in our credit facilities), are as follows (in thousands): 2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    Total$2,157
    
    $
    550
    
    
    $
    550
    
    
    $
    46,193
    
    
    
    
    
    
    $
    49,450
 Senior Subordinated Notes The Company issued $150.0 million in aggregate principal amount of 11.50% senior
subordinated notes on December 20, 2001 to fund a portion of the consideration for the acquisition
of IPC Information Systems. 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 $250.0 million. The senior subordinated notes mature on December 15,
2009 and are callable, at the Companys option, beginning in December 2005. The senior subordinated
notes are general unsecured obligations of the Company, are subordinated in right of payment to all
existing and future senior debt, including the senior secured credit facilities, are pari passu in
right of payment with any future senior subordinated indebtedness of the Company, and are
unconditionally guaranteed by certain of the Companys domestic restricted subsidiaries. The senior
subordinated notes and related interest expense is recorded on the Companys Financial Services
segment with no allocation of interest expense made to the Command and Control segment. Interest on the senior subordinated notes accrues 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, on June 21, 2002 the Company completed an exchange offer registered under the Securities
Act of 1933, as amended, in which 100% of the outstanding senior subordinated notes were exchanged
for a different series of 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. 10. Deferred Compensation and Other Benefit Plans Deferred Compensation The Company has deferred compensation agreements with certain past key officers and employees.
Amounts to be paid range from $3,330 to $350,000 per individual per annum and are
non-interest-bearing, with the payments commencing on specified dates. Payments began in 1992 and
continue through 2019. The gross and discounted present value (using an interest rate of 7.5%), net
of cash payments, of the amounts to be paid under these agreements aggregated $4.9 million and $3.5
million, respectively, at September 30, 2004. Approximate payments for subsequent fiscal periods related to the deferred compensation
agreements at September 30, 2004, are as follows (in thousands): September 30,:2005
    
    $
    8562006
    
    
    5212007
    
    
    4902008
    
    
    4652009
    
    
    423Thereafter
    
    
    2,129Total minimum payments
    
    
    4,884Less amount representing interest
    
    
    (1,342
    )Present value of minimum payments
    
    $
    3,542
 49




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IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 Pension Plans The Company offers its qualified U.S. employees the opportunity to participate in a defined
contribution employee retirement plan in accordance with section 401(k) of the Internal Revenue
Code. Eligible employees are entitled to contribute up to 100% of their annual compensation,
subject to certain limitations ($13,000 for the year ended December 31, 2004). The Companys
matching contributions are subject to the discretion of the board of directors. IPC UK, IPC
Singapore, IPC Hong Kong and IPC Australia have defined contribution plans covering their
employees. Employee contributions are limited by statute, generally not to exceed 17.5% (UK), 13.0%
(Singapore), 10.0% (Hong Kong) and 9.0% (Australia) of base salary. The Companys contributions to
these plans, net of forfeitures, was $1.9 million for 2004, $1.6 million for 2003, $0.5 million for
the period from November 15, 2001 (date of initial capitalization) to September 30, 2002 and $0.1
million for the period from October 1, 2001 to December 20, 2001. The Company paid to Kleinknecht Electric CompanyNew York (KEC-NY) and Kleinknecht Electric
CompanyNew Jersey (KEC-NJ), both former affiliated companies owned by one of the Companys
minority stockholders, in accordance with labor pooling agreements, approximately $3.8 million for
2004, $5.0 million for 2003, $5.6 million for the period from November 15, 2001 (date of initial
capitalization) to September 30, 2002 and $1.9 million for the period from October 1, 2001 to
December 20, 2001. These payments represented pass-through contributions to various union sponsored
pension plans. 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 1,950,000 shares; the Company has reserved such amount of shares of common
stock for issuance upon the exercise of its outstanding stock options. The Company accounts for
stock options pursuant to APB Opinion No. 25 Accounting for Stock Options Issued to Employees.
Accordingly, no compensation expense was 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 or the consummation of a merger, consolidation, or reorganization which results in certain of
the Companys current stockholders no longer owning any interests in the Company or any successor
corporation will be set forth in the option agreement. Under the form option agreements that have
been approved by the Companys compensation committee for current use under the plan, upon a change
in control, 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 or disability within one year following the change in control, the option will
immediately become fully vested and exercisable and remain exercisable for 180 days. The form
agreements also provide that in the event of a sale or the consummation of a merger, consolidation
or reorganization which results in certain of the Companys stockholders no longer having any
ownership interest in the Company or any successor corporation, the option will become fully vested
and exercisable. 50




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IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 Stock option transactions for the period from October 1, 2001 to September 30, 2004 are as
follows: Number of
    
    Weighted AverageShares
    
    Exercise PriceOutstanding at November 15, 2001 (date of initial capitalization)
    
    
    
    
    
    $
    8.78Granted
    
    
    769,550
    
    
    $
    8.78Exercised
    
    
    
    
    
    
    Cancelled
    
    
    (18,525
    )
    
    $
    8.78Outstanding at September 30, 2002
    
    
    751,025
    
    
    $
    8.78Granted
    
    
    1,029,650
    
    
    $
    8.78Exercised
    
    
    
    
    
    
    Cancelled
    
    
    (98,775
    )
    
    $
    8.78Outstanding at September 30, 2003
    
    
    1,681,900
    
    
    $
    8.78Granted
    
    
    336,975
    
    
    $
    8.78Exercised
    
    
    
    
    
    
    Cancelled
    
    
    (87,775
    )
    
    $
    8.78Outstanding at September 30, 2004
    
    
    1,931,100
    
    
    $
    8.78
 Of the total stock options outstanding, 588,906 were exercisable at September 30, 2004 and the
remaining weighted average contractual life is 8.4 years. The amount of additional stock options
available to be granted pursuant to the option plan was 18,900 at September 30, 2004. The Company has concluded
that fair value of the underlying shares of its common stock was in
excess of the exercise price of options granted in the third and fourth quarter of
2004. In connection with this determination, the Company recorded
$38,000 of stock compensation expense based on option vesting
schedules and $645,000 of deferred stock compensation related to
future vesting of these options. The special cash dividend that was declared by the Company on December 31, 2003 reduced the
market value per share of the Companys common stock. As a result, in order to provide equitable
treatment to holders of stock options to purchase the Companys common stock, the Company repriced
the exercise price of all of its outstanding stock options from $10.00 per share to $8.78 per share
on December 31, 2003. This repricing does not require variable accounting treatment for such
options (recording future compensation expense based upon changes in the fair value of the
options). The reduction in the exercise price of $1.22 per share is equivalent to the per share
amount of the special cash dividend to stockholders at that date and reflects the reduction in market value per share of the Companys common stock caused by the
special cash dividend. Key Employee Equity Investment Plan In February 2002, the Company adopted the Key Employee Equity Investment Plan. Under the plan,
certain key employees, officers and directors may 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
may participate in the plan, the number of shares 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. The
shares are subject to certain transfer restrictions. Prior to the adoption of the Sarbanes-Oxley
Act in July 2002, all participants were permitted to pay for up to two-thirds of the purchase price
with a promissory note that is secured by the purchased shares. Since the adoption of the
Sarbanes-Oxley Act, certain participants may no longer be permitted to purchase shares under the
plan with such promissory notes. Through September 30, 2004, 60,000 shares were purchased and 5,788
shares were returned under the plan by certain directors, officers and other key employees. During
2004 and 2003, no shares were purchased by such directors, officers and other key employees.
Promissory notes received by the Company for shares purchased by directors, officers and other key
employees of the Company, prior to the adoption of the Sarbanes-Oxley Act, totaled $0.4 million.
The interest rate for the promissory notes received is equal to the applicable federal rate which
is currently 1.49%. The promissory notes are due on the first of the three following events to
occur: (1) the later of the fifth anniversary of the date the promissory note was issued or the
180th day immediately following an initial public offering of the Companys stock, (2) the 30th day
following termination of employment, or (3) the 180th day following death. 51




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IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 11. Restructuring Charge In connection with the acquisition of the Gains US and UK entities in April 2003, the Company
established a restructuring reserve in purchase accounting for the abandonment of the Gains UK office
located in London totaling $1.9 million. The reserve includes the remainder of the required rental
lease payments of $1.5 million as well as relocation costs for staff and equipment of $0.4 million.
The Company expects the relocation to occur in its fiscal 2005 second quarter. As of September 30,
2004 no charges have been recorded against the reserve. In the fourth quarter of 2002, the Company reduced its work force by approximately 8%, or 75
employees, to reduce fixed costs in 2003. The reduction in work force included 21 employees from
the Companys engineering staff, 35 employees from the Companys operations staff and 19 employees
from the Companys corporate staff. The total amount of severance and other benefits charged to the
selling, general and administrative category of the Companys statement of operations in the fourth
quarter of 2002 was $0.6 million and was paid in full in 2003. There were no restructuring charges
incurred in 2004 and 2003. 12. Foreign Currency Instruments As an international company, the Company is exposed to foreign currency risk. For 2004 and
2003, the Company did not enter into any foreign currency hedging instruments or any
other derivatives transactions. In order to minimize the risk caused by currency fluctuations, the
Company entered into two foreign currency hedging contracts, commonly known as collars, in the
third quarter of 2002 and recognized a loss of $0.3 million as a component of other income and
expense in the consolidated statement of operations in connection with the settlement of these
collars. The Company used these collars to minimize exchange rate risk when repatriating funds from
its UK subsidiary. The Company repatriated these funds in September 2002 in connection with its
required bank debt repayments. The currency hedged was the British Pound. 13. Commitments and Contingencies Operating Leases The Company, through its subsidiaries, has entered into various operating leases for real
estate, equipment, automobiles and telecommunications lines and circuits. The Company also
subleases a portion of its space at its Worship Street office in London, England. Rental expenses under operating leases were $6.1 million for 2004, $6.4 million for 2003, $4.0
million for the period from November 15, 2001 (date of initial capitalization) to September 30,
2002 and $0.9 million for the period from October 1, 2001 to December 20, 2001. Sub-lease income
was $1.0 million for 2004, $1.0 million for 2003, $0.7 million for the period from November 15,
2001 (date of initial capitalization) to September 30, 2002 and $0.1 million for the period from
October 1, 2001 to December 20, 2001. Future minimum annual rental payments required under
noncancellable operating leases and future sublease income at September 30, 2004 is as follows (in
thousands): 2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    Thereafter
    
    TotalRental expense
    
    $
    5,304
    
    
    $
    4,633
    
    
    $
    5,042
    
    
    $
    3,995
    
    
    $
    3,858
    
    
    $
    5,559
    
    
    $
    28,391Sub-lease income
    
    $
    342
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    342
 Network Carrier Commitments A portion of the Companys cost of goods sold includes the cost to lease bandwidth from
certain telecommunications providers. The Companys larger commitments are through contracts with
MCI, Verizon, Broadwing, Level 3, and Sprint Canada. The largest commitments are with MCI for 24
months and Sprint Canada for 18 months. These contracts contain minimum usage requirements. The
Company expects to fulfill the minimum usage requirements of all
providers. Future minimum annual network carrier commitments at
September 30, 2004 are as follows (in thousands): 2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    Thereafter
    
    TotalNetwork
Carrier Commitments
    
    $
    10,350
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    10,350
 Warranties The Company records a reserve for future warranty costs based on current segment sales,
historical experience and managements judgment regarding anticipated rates of warranty claims and
cost per claim. The adequacy of the recorded warranty liability is assessed each quarter and
adjustments are made as necessary. The specific terms and conditions of the warranties vary
depending on the products
sold and the countries in which the Company does business. Changes in the warranty liability
for 2004 and 2003 are as follows (in thousands): 52




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IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 September 30,2004
    
    2003Balance at beginning of period
    
    $
    1,889
    
    
    $
    2,159Warranty accrual
    
    
    2,040
    
    
    
    2,136Material and labor usage
    
    
    (2,352
    )
    
    
    (2,406
    )Balance at end of period
    
    $
    1,577
    
    
    $
    1,889
 Legal Proceedings Except
for the four lawsuits described below, of which two involve the Companys former
I.T.S. segment, the Company and its subsidiaries are not a party to nor is the Company or its
subsidiaries property subject to, any pending legal proceedings other than claims and lawsuits
arising in the normal course of business. Under the terms of the sale agreement, the Company
remains liable for all pre-closing liabilities relating to the I.T.S. segment, including the two
lawsuits described below. Management believes the 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 the Companys
subsidiary, IPC Communications, Inc., in the United States District Court for the Southern District
of New York by two telecommunications cabling contractors alleging that IPC Communications, Inc.
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. Subsequently, the complaint was amended to add an additional plaintiff and an
additional defendant contractor. 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, jointly and severally, in excess of an
aggregate of $75.0 million. On September 8, 2003, an action was brought against several defendants, including the
Companys subsidiary, IPC Information Systems, Inc. and its President, in the United States
District Court for the Eastern District of New York by Advance Relocation & Storage Co., Inc., a
moving company. The complaint alleges that IPC Information Systems, Inc. and 23 other defendants
violated the Racketeer Influenced and Corrupt Organizations Act and engaged in tortious
interference with prospective business advantage by preventing the plaintiff from obtaining work as
a mover in jobs performed in large commercial buildings in New York City. The Company believes the
suit is without merit and intends to vigorously defend against all claims alleged against it in the
complaint. Plaintiffs are seeking injunctive relief and damages from the defendants, jointly and
severally, in an aggregate amount of approximately $7.0 million. On December 15, 2004, IPC Information Systems, LLC commenced two lawsuits arising out of the
unauthorized copying of the Companys proprietary software. The first action was filed in the
Southern District of New York against The Odyssey Group, Inc. doing business as The O&R Group, Inc. The complaint alleges that the Odyssey Group infringed the Companys copyrights by soliciting and obtaining an
unauthorized copy of the Companys proprietary software from Advanced Business Communications Ltd.
(ABC), a Canadian company. The Companys complaint seeks recovery of the software, injunctive
relief and unspecified damages from the defendants. The second action was filed in the Alberta
Court of Queens Bench against ABC and its two principals. The statement of claim against ABC
alleges misappropriation of the Companys software, breach of contract, breach of fiduciary and
common law duties and conversion and seeks injunctive relief and monetary damages. 14. Related Party Transactions Goldman, Sachs & Co. GSCP 2000 and other private equity funds affiliated with Goldman, Sachs & Co. own
substantially all of the Companys common stock. Goldman, Sachs & Co., an affiliate of GSCP 2000
and its related investment funds, provided advisory and other services to GSCP 2000 and the Company
in connection with sourcing, structuring and arranging the acquisition of IPC Information Systems
and received fees of $8.0 million for those services. Goldman, Sachs & Co. also acted as an initial
purchaser in the offering of the Companys notes and an affiliate of Goldman, Sachs & Co. acted as
the arranger and syndication agent under the Companys senior secured credit facilities. In
connection with these transactions, Goldman, Sachs & Co. and its affiliates received aggregate fees
of approximately $9.3 million. Goldman, Sachs & Co. and its affiliates may in the future provide
commercial banking, investment banking or other financial 53




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IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 advisory services to the Company and its affiliates. Goldman, Sachs & Co. and/or its
affiliates also purchase goods and services from the Company from time to time and may do so in the
future. The Company provides project sales and installation and maintenance services negotiated on an
arms-length basis to Goldman, Sachs & Co. Services provided by the Company are billed to Goldman,
Sachs & Co, and settled through the collection of trade receivables and are consistent with pricing
offered to comparable globally positioned customers. Revenue related to these services amounted to
$5.7 million for 2004, $9.1 million for 2003 and $4.5 million for the period from November 15, 2001
(date of initial capitalization) to September 30, 2002. For the periods ending September 30, 2004
and 2003, the Company has recorded on its balance sheet $2.1 million and $2.9 million of trade
receivables, respectively, and $1.0 and $0.9 million of customer advances, respectively, related to
maintenance services provided to Goldman, Sachs & Co. In connection with the amendment and restatement of the Companys senior secured credit
facilities in September 2003, Goldman Sachs Credit Partners L.P. acted as the sole lead arranger
and syndication agent. Goldman Sachs Credit Partners L.P. received $0.6 million in fees for this
service. GSCP 2000 and other private equity funds affiliated with Goldman, Sachs & Co. own
substantially all of the Companys common stock. On December 31, 2003, the Company declared a
special cash dividend of approximately $18.0 million, or $1.22 per share, to stockholders of record
on December 31, 2003, of which approximately $17.9 million was paid on December 31, 2003. The
remaining $0.1 million was paid in January 2004. Gains US and UK and Gains Asia Acquisitions In April 2003, the Company exercised its option to purchase Gains US and UK from GSCP 2000 and
other private equity funds affiliated with Goldman, Sachs & Co., who own substantially all of the
Companys common stock, for 664,380 shares of common stock valued at approximately $5.7 million
plus the assumption of deferred consideration of $3.1 million and earn-out consideration of
approximately $3.6 million. In January 2004, the Company purchased Gains Asia from GSCP 2000 and other private equity
funds affiliated with Goldman, Sachs & Co. for approximately $17.4 million in cash consideration,
including an advance payment of $5.5 million made in October 2003, an $11.7 payment million at
closing, and a $0.2 million payment in April 2004. Included in these payments was approximately
$5.5 million that the Company paid in excess over the carryover basis of the net assets acquired to
GSCP 2000 and other private equity funds affiliated with Goldman, Sachs & Co. This excess payment
has been treated as a distribution and the assets and liabilities have been recorded at carryover
basis based on the amount GSCP 2000 paid for them. Stockholders Agreement The Company has entered into a stockholders agreement with GSCP 2000 and the other private
equity funds affiliated with Goldman, Sachs & Co. who own substantially all of the Companys common
stock and Richard Kleinknecht, a minority holder of the Companys common stock. This agreement
provides GSCP 2000 and the other Goldman, Sachs & Co. funds with various management rights,
including the right to designate at least one member of our board of directors. The agreement also
provides specified restrictions on Kleinknechts ability to transfer shares of the Companys common
stock. Global Crossing Through December 20, 2001, Global Crossing and IPC performed various services and provided
certain equipment for each other. Services and/or equipment provided by Global Crossing were billed
to IPC and settled through a periodic cash transfer to Global Crossing. Revenue related to services
provided by IPC to Global Crossing amounted to $0.4 million for the period from October 1, 2001 to
December 20, 2001. Through December 20, 2001, Global Crossing allocated certain shared costs to IPC for items
like human resources, information technology, legal and communication that amounted to $0.5 million
for the period from October 1, 2001 to December 20, 2001. Additionally, Global Crossing allocated a
corporate charge to IPC of $6.9 million for the period from October 1, 2001 to December 20, 2001,
which represented the allocation for 2001 for services like treasury, payroll, tax compliance,
legal and other professional fees. IPC allocated charges to Global Crossing for shared real estate
locations that amounted to $1.0 million for the period October 1, 2001 to December 20, 2001.
Management believes that the costs allocated to IPC are reasonable. 54




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IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 15. Income Taxes Pretax income (loss) consisted of the following (in thousands): PredecessorFiscal Years
    
    Period from
    
    Period fromEnded
    
    November 15, 2001
    
    October 1, 2001September 30,
    
    to
    
    to2004
    
    2003
    
    September 30, 2002
    
    December 20, 2001United States
    
    $
    14,546
    
    
    $
    2,756
    
    
    $
    (21,998
    )
    
    $
    (17,320
    )Foreign
    
    
    5,449
    
    
    
    8,554
    
    
    
    10,594
    
    
    
    4,884Total pretax income (loss)
    
    $
    19,995
    
    
    $
    11,310
    
    
    $
    (11,404
    )
    
    $
    (12,436
    )
 The provision (benefit) for income taxes consisted of the following (in thousands): PredecessorFiscal Years
    
    Period from
    
    Period fromEnded
    
    November 15, 2001
    
    October 1, 2001September 30,
    
    to
    
    to2004
    
    2003
    
    September 30, 2002
    
    December 20, 2001Current:State and local
    
    $
    672
    
    
    $
    857
    
    
    $
    490
    
    
    $
    747Foreign
    
    
    2,255
    
    
    
    4,961
    
    
    
    4,394
    
    
    
    1,344Federal
    
    
    1,504
    
    
    
    810
    
    
    
    
    
    
    
    2,3524,431
    
    
    
    6,628
    
    
    
    4,884
    
    
    
    4,443Deferred:State
    
    
    391
    
    
    
    124
    
    
    
    (930
    )
    
    
    (1,050
    )Foreign
    
    
    (807
    )
    
    
    (635
    )
    
    
    (452
    )
    
    
    Federal
    
    
    5,492
    
    
    
    1,481
    
    
    
    (5,752
    )
    
    
    (4,183
    )5,076
    
    
    
    970
    
    
    
    (7,134
    )
    
    
    (5,233
    )Total tax provision (benefit)
    
    $
    9,507
    
    
    $
    7,598
    
    
    $
    (2,250
    )
    
    $
    (790
    )
 The components of net deferred tax assets (liabilities) are as follows (in thousands): September 30, 2004
    
    September 30, 2003US
    
    Foreign
    
    Total
    
    US
    
    Foreign
    
    TotalDeferred tax assets:Inventory and receivables
    
    $
    4,106
    
    
    $
    62
    
    
    $
    4,168
    
    
    $
    2,001
    
    
    $
    (5
    )
    
    $
    1,996Accrued expenses and deferred compensation
    
    
    2,020
    
    
    
    77
    
    
    
    2,097
    
    
    
    2,156
    
    
    
    77
    
    
    
    2,233Net operating loss carryforwards
    
    
    6,818
    
    
    
    49
    
    
    
    6,867
    
    
    
    10,389
    
    
    
    
    
    
    
    10,389Total current deferred tax assets
    
    $
    12,944
    
    
    $
    188
    
    
    $
    13,132
    
    
    $
    14,546
    
    
    $
    72
    
    
    $
    14,618Deferred tax liabilities:Intangible assets
    
    $
    (2,479
    )
    
    $
    
    
    
    $
    (2,479
    )
    
    $
    (1,599
    )
    
    $
    
    
    
    $
    (1,599
    )Cumulative translation adjustment
    
    
    
    
    
    
    (4,959
    )
    
    
    (4,959
    )
    
    
    
    
    
    
    (3,625
    )
    
    
    (3,625
    )Unremitted earnings of foreign entities
    
    
    (2,069
    )
    
    
    
    
    
    
    (2,069
    )
    
    
    (1,249
    )
    
    
    
    
    
    
    (1,249
    )Excess tax over book depreciation
    
    
    (2,283
    )
    
    
    
    
    
    
    (2,283
    )
    
    
    (1,380
    )
    
    
    
    
    
    
    (1,380
    )Excess book over tax basis in foreign
subsidiaries
    
    
    
    
    
    
    (11,360
    )
    
    
    (11,360
    )
    
    
    
    
    
    
    (12,167
    )
    
    
    (12,167
    )Total non-current deferred tax liabilities
    
    $
    (6,831
    )
    
    $
    (16,319
    )
    
    $
    (23,150
    )
    
    $
    (4,228
    )
    
    $
    (15,792
    )
    
    $
    (20,020
    )
 The current income tax
provision (benefit) and deferred tax asset (liability) for
the Predecessor period was computed using the separate return method. Foreign earnings are
assumed to be repatriated to the United
States. 55




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IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 IPC Information Systems was included in the Global Crossing consolidated return for federal
income tax purposes for the period ended December 20, 2001. Federal law provides that each member
of an affiliated group that files a consolidated return is liable for the groups entire tax
obligation. Thus, to the extent Global Crossing or other members of the group failed to make any
federal income tax payments required of them by law for 2001, the Company could be liable for the
shortfall. Similar principles may apply for state income tax purposes in many states. Global
Crossing has advised the Company that it does not believe that it had federal income tax liability
for 2001. The Company cannot independently verify this information and can give no assurance that
this information is correct. If Global Crossings federal income tax liabilities are significant
and are imposed on IPC Information Systems, these liabilities could have a material adverse effect
on the Companys financial condition and results of operations. Based on the separate return tax computation for IPC Information Systems, the current federal
tax liability for the period ended December 20, 2001 was treated as an intercompany liability to an
affiliate included in Global Crossings consolidated federal tax return. For tax years ending prior
to December 20, 2001, IPC Information Systems filed a separate federal tax return with its
affiliates and subsidiaries. A reconciliation between the statutory U.S. federal income tax rate and the effective tax rate
is as follows: PredecessorFiscal Years
    
    Period from
    
    Period fromEnded
    
    November 15, 2001
    
    October 1, 2001September 30,
    
    to
    
    to2004
    
    2003
    
    September 30, 2002
    
    December 20, 2001Statutory U.S. Federal tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    (35.0
    )%
    
    
    (35.0
    )%State and local income taxes, net of Federal benefit
    
    
    6.6
    %
    
    
    5.7
    %
    
    
    5.3
    %
    
    
    4.3
    %Incremental foreign tax effect
    
    
    3.9
    %
    
    
    17.2
    %
    
    
    9.3
    %
    
    
    5.7
    %Goodwill amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27.7
    %Other, net
    
    
    2.0
    %
    
    
    9.3
    %
    
    
    0.7
    %
    
    
    (9.1
    )%47.5
    %
    
    
    67.2
    %
    
    
    (19.7
    )%
    
    
    (6.4
    )%
 The Companys effective tax rate reflects the Companys foreign, federal and state taxes, the
non-deductibility of foreign losses for federal tax purposes, the non-deductibility of certain
expenses and, for 2003, taxable income at several of the Companys foreign subsidiaries, which,
combined with the lower absolute amount of pre-tax income for the 2003 periods as compared to the
absolute amount of pre-tax loss for the 2002 periods, generates a more significant impact on the
Companys effective tax rate. The Company has U.S. federal net operating loss carryforwards of approximately $16.9 million
at September 30, 2004, which expire through September 30, 2022. As of September 30,
2004 and 2003, the Company has recognized deferred tax assets related to its US federal and state
net operating loss carryforwards of approximately $6.8 million
and $10.4 million, respectively. In
determining whether it is more likely than not that the Company will realize the benefits of the
net deferred tax assets from US operations, the Company considered all available evidence, both
positive and negative. The principal factors that led the Company to recognize these benefits were:
(1) US results of operations for the period ended September 30, 2002 reported a loss before income
taxes of $22.1 million, after reflecting charges of $34.3 million resulting from the fair-value
inventory adjustments under the purchase price allocation (which, as a result of the Internal
Revenue Code Section 338(h)(10) tax election, jointly made by the Company and Global Crossing, also
generated deductions for income tax purposes); (2) US results of operations for subsequent fiscal
years are expected to generate sufficient taxable income to fully utilize these tax loss
carryforwards; and (3) the Companys conclusion that the net US deferred tax assets were generated
by an event (the Companys purchase of the business), rather than a continuing condition. As of
September 30, 2004, no circumstances have arisen that would require the Company to change such
conclusion. The aggregate amount of taxes for which the Company has
received notices of taxes due and estimated amounts for probable assessments from various jurisdictions and recognized as tax liabilities under
purchase accounting is approximately $6.5 million and, as of September 30, 2004, the Company has
made settlement payments aggregating $1.9 million, including a $1.1 million payment made to one
jurisdiction in May 2004. The Company estimates that its
exposure for additional tax liabilities relating to periods prior to
the acquisition in excess of amounts accrued is zero, which has been
reduced from an original range of zero to $36.0 million as a result of the Companys settlement
negotiations. In computing its estimated potential tax liabilities, the Company took into account
tax returns in certain jurisdictions where the statutes of limitations have not yet expired. Under
those tax returns as filed, the remaining liability is zero.
Although the Company believes that all those tax returns have been
filed correctly, such returns may be audited and additional taxes may
be assessed (or refunds may be granted). Payment by the Company of a
significant amount of these potential tax liabilities should not have
a material adverse effect on the Companys financial condition
and results of operations. In that event, the Company cannot make
assurances that it will be able to obtain additional financing on
commercially reasonable terms, or at all. Pursuant to the settlement and rejection agreement, Global Crossing has also paid over to the
Company approximately $2.2 million for payroll and federal tax refunds received by it for periods
prior to and including the date of the IPC Information Systems Acquisition. Global Crossing is also
required to pay the Company any future tax refunds or credits it receives that are applicable to
IPC Information Systems, Inc. and its subsidiaries for these periods. In addition to the refunds
that Global Crossing has received and paid to us, the 56




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##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 Company has received an additional $3.0 million in miscellaneous refunds and credits relating
to periods prior to the IPC Information Systems acquisition. The Company believes that all tax returns required to be filed in respect of IPC Information
Systems, Inc. and its subsidiaries for periods prior to and including the date of the IPC
Information Systems Acquisition have been filed. These returns consist of consolidated tax returns
with Global Crossing, and, where required by law, separate tax returns for IPC Information Systems,
Inc. and/or its subsidiaries. 16. Business Segment Information The Company, headquartered in New York, provides mission-critical voice communications
solutions to the financial services trading industry as well as the command and control operations
including power, energy, utility and transportation companies, public safety organizations and
government and military agencies. Previously, the Companys operations included three segments named Trading Systems, I.T.S. and
Network Services. The I.T.S. segment was sold in June 2004 and is reported as discontinued
operations for all periods presented. With the sale of I.T.S. and the
acquisition of Orbacom in November 2004, the
Company has now realigned its operations and has two segments named Financial Services and Command
and Control. Since the Company changed its segments in its fiscal year
ending 2005, it has presented segment data consistent with the prior
year as well as on a proforma basis. Both the Financial Services and Command and Control segments report sales of equipment
to distributors and direct sales and installations of turret systems as Product sales and
installations. The Financial Services and Command and Control segments report revenue from
equipment maintenance, including annual and multi-year service contracts, sales of network voice
and data services and from MACs to existing equipment installations as Service. The Companys primary measures to evaluate performance are direct margin (revenue less cost of
goods sold, excluding indirect costs and depreciation and
amortization) and income from operations. Business segment
information in the tables below represents the Companys previous
method of reporting segment information for 2004 and 2003, the period from November 15, 2001 (date
of initial capitalization) to September 30, 2002 and the period from October 1, 2001 to December
20, 2001 which is as follows (in thousands): Trading
    
    NetworkFor the Year Ended 2004
    
    Systems
    
    Services
    
    ConsolidatedRevenue:Product sales and installations
    
    $
    114,544
    
    
    $
    
    
    
    $
    114,544Service
    
    
    102,459
    
    
    
    46,269
    
    
    
    148,728Total revenue
    
    
    217,003
    
    
    
    46,269
    
    
    
    263,272Direct margin
    
    
    136,688
    
    
    
    23,633
    
    
    
    160,321Depreciation and amortization
    
    
    6,517
    
    
    
    2,923
    
    
    
    9,440Amortization
of intangibles
    
    
    14,897
    
    
    
    901
    
    
    
    15,798Income from operations
    
    
    34,246
    
    
    
    4,225
    
    
    
    38,471Interest income (expense), net
    
    
    (22,438
    )
    
    
    (24
    )
    
    
    (22,462
    )Other income (expense), net
    
    
    3,983
    
    
    
    3
    
    
    
    3,986Income (loss) before income taxes
    
    
    15,791
    
    
    
    4,204
    
    
    
    19,995Income tax expense
    
    
    8,301
    
    
    
    1,206
    
    
    
    9,507Goodwill as of September 30, 2004
    
    $
    70,603
    
    
    $
    12,018
    
    
    $
    82,621Total assets as of September 30, 2004 (1)
    
    $
    411,379
    
    
    $
    41,332
    
    
    $
    455,299Capital expenditures
    
    $
    4,750
    
    
    $
    4,463
    
    
    $
    9,213
 (1) Total consolidated assets includes the assets of discontinued operations of the I.T.S. segment of $2,588 57




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##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 Trading
    
    NetworkFor the Year Ended 2003
    
    Systems
    
    Services
    
    ConsolidatedRevenue:Product sales and installations
    
    $
    113,057
    
    
    $
    
    
    
    $
    113,057Service
    
    
    88,482
    
    
    
    10,422
    
    
    
    98,904Total revenue
    
    
    201,539
    
    
    
    10,422
    
    
    
    211,961Direct margin
    
    
    125,213
    
    
    
    4,722
    
    
    
    129,935Depreciation and amortization
    
    
    5,868
    
    
    
    687
    
    
    
    6,555Amortization of intangibles
    
    
    14,366
    
    
    
    91
    
    
    
    14,457Income (loss) from operations
    
    
    34,707
    
    
    
    (329
    )
    
    
    34,378Interest income (expense), net
    
    
    (25,151
    )
    
    
    5
    
    
    
    (25,146
    )Other income (expense), net
    
    
    2,116
    
    
    
    (38
    )
    
    
    2,078Income (loss) before income taxes
    
    
    11,672
    
    
    
    (362
    )
    
    
    11,310Income tax expense
    
    
    7,494
    
    
    
    104
    
    
    
    7,598Goodwill as of September 30, 2003
    
    $
    70,595
    
    
    $
    11,513
    
    
    $
    82,108Total assets as of September 30, 2003 (1)
    
    $
    405,906
    
    
    $
    22,332
    
    
    $
    459,528Capital expenditures
    
    $
    5,731
    
    
    $
    1,736
    
    
    $
    7,467
 (1) Total consolidated assets includes the assets of discontinued operations of the I.T.S. segment of $31,290 Trading
    
    NetworkFor the Period November 15, 2001 to September 30, 2002
    
    Systems
    
    Services
    
    ConsolidatedRevenue:Product sales and installations
    
    $
    127,246
    
    
    $
    
    
    
    $
    127,246Service
    
    
    66,909
    
    
    
    
    
    
    
    66,909Total revenue
    
    
    194,155
    
    
    
    
    
    
    
    194,155Direct margin
    
    
    84,215
    
    
    
    
    
    
    
    84,215Depreciation and amortization
    
    
    3,666
    
    
    
    
    
    
    
    3,666Amortization of intangibles
    
    
    11,094
    
    
    
    
    
    
    
    11,094Income from operations
    
    
    10,475
    
    
    
    
    
    
    
    10,475Interest income (expense), net
    
    
    (21,533
    )
    
    
    
    
    
    
    (21,533
    )Other income (expense), net
    
    
    (346
    )
    
    
    
    
    
    
    (346
    )Loss before income taxes
    
    
    (11,404
    )
    
    
    
    
    
    
    (11,404
    )Income tax benefit
    
    
    (2,250
    )
    
    
    
    
    
    
    (2,250
    )Goodwill as of September 30, 2002
    
    $
    71,308
    
    
    $
    
    
    
    $
    71,308Total assets as of September 30, 2002 (1)
    
    $
    415,395
    
    
    $
    
    
    
    $
    430,232Capital expenditures
    
    $
    6,480
    
    
    $
    
    
    
    $
    6,480
 (1) Total consolidated assets includes the assets of discontinued operations of the I.T.S. segment of $14,837 PredecessorTrading
    
    NetworkFor the Period October 1, 2001 to December 20, 2001
    
    Systems
    
    Services
    
    ConsolidatedRevenue:Product sales and installations
    
    $
    27,444
    
    
    $
    
    
    
    $
    27,444Service
    
    
    18,795
    
    
    
    
    
    
    
    18,795Total revenue
    
    
    46,239
    
    
    
    
    
    
    
    46,239Direct margin
    
    
    28,690
    
    
    
    
    
    
    
    28,690Depreciation and amortization
    
    
    1,386
    
    
    
    
    
    
    
    1,386Amortization of intangibles
    
    
    9,343
    
    
    
    
    
    
    
    9,343Loss from operations
    
    
    (6,498
    )
    
    
    
    
    
    
    (6,498
    )Interest income (expense), net
    
    
    (5,987
    )
    
    
    
    
    
    
    (5,987
    )Other income (expense), net
    
    
    49
    
    
    
    
    
    
    
    49Loss before income taxes
    
    
    (12,436
    )
    
    
    
    
    
    
    (12,436
    )Income tax benefit
    
    
    (790
    )
    
    
    
    
    
    
    (790
    )Goodwill as of December 20, 2001
    
    $
    180,328
    
    
    $
    
    
    
    $
    180,328Total assets as of December 20, 2001 (1)
    
    $
    350,787
    
    
    $
    
    
    
    $
    379,966Capital expenditures
    
    $
    1,897
    
    
    $
    
    
    
    $
    1,897
 (1) Total consolidated assets includes the assets of discontinued operations of the I.T.S. segment of $29,179 58




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##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 The
following tables represent unaudited proforma business segment
information restated for the Companys two operating segments, Financial Services and Command and Control, for 2004 and 2003,
the period from November 15, 2001 (date of initial capitalization) to September 30, 2002 and the
period from October 1, 2001 to December 20, 2001 which is as follows (in thousands): Financial
    
    Command andFor the Year Ended 2004
    
    Services
    
    Control
    
    ConsolidatedRevenue:Product sales and installations
    
    $
    112,977
    
    
    $
    1,567
    
    
    $
    114,544Service
    
    
    147,489
    
    
    
    1,239
    
    
    
    148,728Total revenue
    
    
    260,466
    
    
    
    2,806
    
    
    
    263,272Direct cost of goods sold
    
    
    101,927
    
    
    
    1,024
    
    
    
    102,951Direct margin
    
    
    158,539
    
    
    
    1,782
    
    
    
    160,321Research and development
    
    
    12,035
    
    
    
    
    
    
    
    12,035Selling, general and administrative
    
    
    33,459
    
    
    
    
    
    
    
    33,459Segment profit
    
    
    113,045
    
    
    
    1,782
    
    
    
    114,827Corporate
level expenses (income):Research and development
    
    
    3,011
    
    
    
    
    
    
    
    3,011Selling, general and administrative
    
    
    25,582
    
    
    
    
    
    
    
    25,582Depreciation and amortization
    
    
    9,440
    
    
    
    
    
    
    
    9,440Amortization of intangibles
    
    
    15,798
    
    
    
    
    
    
    
    15,798Indirect
cost of goods sold (fixed and variable)
    
    
    22,525
    
    
    
    
    
    
    
    22,525Interest expense, net
    
    
    22,462
    
    
    
    
    
    
    
    22,462Other income, net
    
    
    (3,986
    )
    
    
    
    
    
    
    (3,986
    )Income tax provision (benefit)
    
    
    9,507
    
    
    
    
    
    
    
    9,507Goodwill as of September 30, 2004
    
    $
    82,621
    
    
    $
    
    
    
    $
    82,621Total assets as of September 30, 2004 (1)
    
    $
    452,711
    
    
    $
    
    
    
    $
    455,299Capital expenditures
    
    $
    9,213
    
    
    $
    
    
    
    $
    9,213
 (1) Total consolidated assets includes the assets of discontinued operations of the I.T.S. segment of $2,588 Financial
    
    Command andFor the Year Ended 2003
    
    Services
    
    Control
    
    ConsolidatedRevenue:Product sales and installations
    
    $
    110,808
    
    
    $
    2,249
    
    
    $
    113,057Service
    
    
    97,781
    
    
    
    1,123
    
    
    
    98,904Total revenue
    
    
    208,589
    
    
    
    3,372
    
    
    
    211,961Direct cost of goods sold
    
    
    80,566
    
    
    
    1,460
    
    
    
    82,026Direct margin
    
    
    128,023
    
    
    
    1,912
    
    
    
    129,935Research and development
    
    
    10,063
    
    
    
    
    
    
    
    10,063Selling, general and administrative
    
    
    25,662
    
    
    
    
    
    
    
    25,662Segment profit
    
    
    92,298
    
    
    
    1,912
    
    
    
    94,210Corporate
level expenses (income):Research and development
    
    
    1,650
    
    
    
    
    
    
    
    1,650Selling, general and administrative
    
    
    19,571
    
    
    
    
    
    
    
    19,571Depreciation and amortization
    
    
    6,555
    
    
    
    
    
    
    
    6,555Amortization of intangibles
    
    
    14,457
    
    
    
    
    
    
    
    14,457Indirect
cost of goods sold (fixed and variable)
    
    
    17,599
    
    
    
    
    
    
    
    17,599Interest expense, net
    
    
    25,146
    
    
    
    
    
    
    
    25,146Other income (expense), net
    
    
    (2,078
    )
    
    
    
    
    
    
    (2,078
    )Income tax provision (benefit)
    
    
    7,598
    
    
    
    
    
    
    
    7,598Goodwill as of September 30, 2003
    
    $
    82,108
    
    
    $
    
    
    
    $
    82,108Total assets as of September 30, 2003 (1)
    
    $
    428,238
    
    
    $
    
    
    
    $
    459,528Capital expenditures
    
    $
    7,467
    
    
    $
    
    
    
    $
    7,467
 (1) Total consolidated assets includes the assets of discontinued operations of the I.T.S. segment of $31,290 59




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##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 Financial
    
    Command andFor the Period November 15, 2001 to September 30, 2002
    
    Services
    
    Control
    
    ConsolidatedRevenue:Product sales and installations
    
    $
    126,921
    
    
    $
    325
    
    
    $
    127,246Service
    
    
    65,979
    
    
    
    930
    
    
    
    66,909Total revenue
    
    
    192,900
    
    
    
    1,255
    
    
    
    194,155Direct cost of goods sold
    
    
    109,557
    
    
    
    383
    
    
    
    109,940Direct margin
    
    
    83,343
    
    
    
    872
    
    
    
    84,215Research and development
    
    
    10,199
    
    
    
    
    
    
    
    10,199Selling, general and administrative
    
    
    16,695
    
    
    
    
    
    
    
    16,695Segment profit
    
    
    56,449
    
    
    
    872
    
    
    
    57,321Corporate
level expenses (income):Research and development
    
    
    1,418
    
    
    
    
    
    
    
    1,418Selling, general and administrative
    
    
    15,050
    
    
    
    
    
    
    
    15,050Depreciation and amortization
    
    
    3,666
    
    
    
    
    
    
    
    3,666Amortization of intangibles
    
    
    11,094
    
    
    
    
    
    
    
    11,094Indirect costs of goods sold (fixed and variable)
    
    
    15,618
    
    
    
    
    
    
    
    15,618Interest expense, net
    
    
    21,533
    
    
    
    
    
    
    
    21,533Other expense, net
    
    
    346
    
    
    
    
    
    
    
    346Income tax provision (benefit)
    
    
    (2,250
    )
    
    
    
    
    
    
    (2,250
    )Goodwill as of September 30, 2002
    
    $
    71,308
    
    
    $
    
    
    
    $
    71,308Total assets as of September 30, 2002 (1)
    
    $
    415,395
    
    
    $
    
    
    
    $
    430,232Capital expenditures
    
    $
    6,480
    
    
    $
    
    
    
    $
    6,480
 (1) Total consolidated assets includes the assets of discontinued operations of the I.T.S. segment of $14,837 Financial
    
    Command andFor the Period October 1, 2001 to December 20, 2001
    
    Services
    
    Control
    
    ConsolidatedRevenue:Product sales and installations
    
    $
    27,444
    
    
    $
    
    
    
    $
    27,444Service
    
    
    18,519
    
    
    
    276
    
    
    
    18,795Total revenue
    
    
    45,963
    
    
    
    276
    
    
    
    46,239Direct cost of goods sold
    
    
    17,465
    
    
    
    84
    
    
    
    17,549Direct margin
    
    
    28,498
    
    
    
    192
    
    
    
    28,690Research and development
    
    
    3,187
    
    
    
    
    
    
    
    3,187Selling, general and administrative
    
    
    5,017
    
    
    
    
    
    
    
    5,017Segment profit
    
    
    20,294
    
    
    
    192
    
    
    
    20,486Corporate
level expenses (income):Research and development
    
    
    332
    
    
    
    
    
    
    
    332Selling, general and administrative
    
    
    11,385
    
    
    
    
    
    
    
    11,385Depreciation and amortization
    
    
    1,386
    
    
    
    
    
    
    
    1,386Amortization of intangibles
    
    
    9,343
    
    
    
    
    
    
    
    9,343Indirect
costs of goods sold (fixed and variable)
    
    
    4,538
    
    
    
    
    
    
    
    4,538Interest expense, net
    
    
    (5,987
    )
    
    
    
    
    
    
    (5,987
    )Other income (expense), net
    
    
    49
    
    
    
    
    
    
    
    49Income tax provision (benefit)
    
    
    (790
    )
    
    
    
    
    
    
    (790
    )Goodwill as of December 20, 2001
    
    $
    180,328
    
    
    $
    
    
    
    $
    180,328Total assets as of December 20, 2001 (1)
    
    $
    350,787
    
    
    $
    
    
    
    $
    379,966Capital expenditures
    
    $
    1,897
    
    
    $
    
    
    
    $
    1,897
 (1) Total consolidated assets includes the assets of discontinued operations of the I.T.S. segment of $29,179 60




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##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 Information about the Companys operations by geographic location is as follows: PredecessorFiscal Years
    
    Period from
    
    Period fromEnded
    
    November 15, 2001
    
    December 20, 2001September 30,
    
    to
    
    to(dollars in thousands)
    
    2004
    
    2003
    
    September 30, 2002
    
    October 1, 2001Revenues:Americas
    
    $
    159,239
    
    
    $
    145,843
    
    
    $
    130,440
    
    
    $
    32,398Europe
    
    
    72,748
    
    
    
    51,963
    
    
    
    48,928
    
    
    
    10,424Asia Pacific
    
    
    31,285
    
    
    
    14,155
    
    
    
    14,787
    
    
    
    3,417$
    263,272
    
    
    $
    211,961
    
    
    $
    194,155
    
    
    $
    46,239Long-lived assets:Americas
    
    $
    208,680
    
    
    $
    216,152
    
    
    $
    223,393
    
    
    $
    274,836Europe
    
    
    62,684
    
    
    
    66,628
    
    
    
    54,375
    
    
    
    57,197Asia Pacific
    
    
    28,430
    
    
    
    21,545
    
    
    
    20,775
    
    
    
    16,214$
    299,794
    
    
    $
    304,325
    
    
    $
    298,543
    
    
    $
    348,247
 Included in the Europe and Asia Pacific revenues are U.S. export sales to unaffiliated
customers of $2.6 million and $3.4 million for 2004, $2.0 million and $5.8 million for 2003, $1.1
million and $5.3 million, for the period November 15, 2001 (date of initial capitalization) to
September 30, 2002 and $1.1 million and $0.3 million for the period October 1, 2001 to December 20,
2001, respectively. Transfers from the United States to Europe and Asia Pacific, eliminated in consolidation, were
$21.1 million and $7.3 million for 2004, $12.0 million and $3.1 million for 2003, $14.1 million and
$5.4 million for the period November 15, 2001 (date of initial capitalization) to September 30,
2002 and $5.6 million and $1.1 million for the period October 1, 2001 to December 20, 2001,
respectively. For 2004, the period from November 15, 2001 (date of initial capitalization) to September 30,
2002 and the period from October 1, 2001 to December 20, 2001, no single customer accounted for 10%
or more of total consolidated revenues. For 2003, one customer
accounted for approximately $26.5 million, or approximately 13% of total consolidated revenue. There were no
other customers that accounted for more than 10% of total consolidated revenue in 2003. 17. Guarantor Subsidiaries Financial Information Certain of the Companys domestic restricted subsidiaries guarantee the senior secured credit
facilities and the senior subordinated notes. These subsidiary guarantees are both full and
unconditional, as well as joint and several. Information regarding the guarantors is as follows (in
thousands): 61




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##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 IPC
    
    Guarantor
    
    Non-GuarantorCondensed Consolidated Balance Sheet at September 30, 2004
    
    Acquisition
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedAssets:Cash
    
    $
    3,028
    
    
    $
    13,057
    
    
    $
    11,185
    
    
    $
    
    
    
    $
    27,270Accounts receivable, net
    
    
    
    
    
    
    23,054
    
    
    
    34,205
    
    
    
    
    
    
    
    57,259Inventories, net
    
    
    
    
    
    
    22,164
    
    
    
    17,388
    
    
    
    (8,376
    )
    
    
    31,176Prepaid and other current assets
    
    
    13,132
    
    
    
    9,863
    
    
    
    1,417
    
    
    
    (122
    )
    
    
    24,290Due from (to) affiliate
    
    
    181,288
    
    
    
    (156,593
    )
    
    
    (24,695
    )
    
    
    
    
    
    
    Current assets of discontinued operations
    
    
    
    
    
    
    2,548
    
    
    
    
    
    
    
    
    
    
    
    2,548Total current assets
    
    
    197,448
    
    
    
    (85,907
    )
    
    
    39,500
    
    
    
    (8,498
    )
    
    
    142,543Investment in subsidiaries
    
    
    146,692
    
    
    
    10,524
    
    
    
    12,632
    
    
    
    (169,848
    )
    
    
    Property, plant and equipment, net
    
    
    
    
    
    
    20,077
    
    
    
    4,769
    
    
    
    
    
    
    
    24,846Goodwill and intangibles, net
    
    
    
    
    
    
    185,341
    
    
    
    89,211
    
    
    
    
    
    
    
    274,552Deferred financing costs, net
    
    
    12,283
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,283Other assets
    
    
    
    
    
    
    335
    
    
    
    700
    
    
    
    
    
    
    
    1,035Non-current assets of discontinued operations
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    40Total assets
    
    $
    356,423
    
    
    $
    130,410
    
    
    $
    146,812
    
    
    $
    (178,346
    )
    
    $
    455,299Liabilities and stockholders equity:Current portion of long-term debt
    
    $
    2,157
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,157Accounts payable, accrued expenses and other current liabilities
    
    
    5,232
    
    
    
    32,408
    
    
    
    22,240
    
    
    
    
    
    
    
    59,880Customer advances and deferred revenue
    
    
    
    
    
    
    16,907
    
    
    
    19,084
    
    
    
    
    
    
    
    35,991Current liabilities of discontinued operations
    
    
    
    
    
    
    639
    
    
    
    
    
    
    
    
    
    
    
    639Total current liabilities
    
    
    7,389
    
    
    
    49,954
    
    
    
    41,324
    
    
    
    
    
    
    
    98,667Long-term debt
    
    
    197,293
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    197,293Other long-term liabilities
    
    
    18,498
    
    
    
    2,946
    
    
    
    4,652
    
    
    
    
    
    
    
    26,096Total liabilities
    
    
    223,180
    
    
    
    52,900
    
    
    
    45,976
    
    
    
    
    
    
    
    322,056Total stockholders equity
    
    
    133,243
    
    
    
    77,510
    
    
    
    100,836
    
    
    
    (178,346
    )
    
    
    133,243Total liabilities and stockholders equity
    
    $
    356,423
    
    
    $
    130,410
    
    
    $
    146,812
    
    
    $
    (178,346
    )
    
    $
    455,299
 62




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##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 IPC
    
    Guarantor
    
    Non-GuarantorCondensed Consolidating Balance Sheet at September 30, 2003
    
    Acquisition
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedAssets:Cash
    
    $
    9,088
    
    
    $
    3,135
    
    
    $
    13,577
    
    
    $
    
    
    
    $
    25,800Accounts receivable, net
    
    
    
    
    
    
    27,233
    
    
    
    13,176
    
    
    
    
    
    
    
    40,409Inventories, net
    
    
    
    
    
    
    20,916
    
    
    
    4,666
    
    
    
    (2,854
    )
    
    
    22,728Prepaid and other current assets
    
    
    14,618
    
    
    
    2,014
    
    
    
    3,413
    
    
    
    
    
    
    
    20,045Due from (to) affiliate
    
    
    206,820
    
    
    
    (183,737
    )
    
    
    (23,083
    )
    
    
    
    
    
    
    Current assets of discontinued operations
    
    
    
    
    
    
    27,556
    
    
    
    
    
    
    
    
    
    
    
    27,556Total current assets
    
    
    230,526
    
    
    
    (102,883
    )
    
    
    11,749
    
    
    
    (2,854
    )
    
    
    136,538Investment in subsidiaries
    
    
    129,364
    
    
    
    10,524
    
    
    
    
    
    
    
    (139,888
    )
    
    
    Property, plant and equipment, net
    
    
    
    
    
    
    19,865
    
    
    
    3,986
    
    
    
    
    
    
    
    23,851Goodwill and intangibles, net
    
    
    
    
    
    
    192,676
    
    
    
    87,362
    
    
    
    
    
    
    
    280,038Deferred financing costs, net
    
    
    14,146
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,146Other assets
    
    
    
    
    
    
    815
    
    
    
    406
    
    
    
    
    
    
    
    1,221Non-current assets of discontinued operations
    
    
    
    
    
    
    3,734
    
    
    
    
    
    
    
    
    
    
    
    3,734Total assets
    
    $
    374,036
    
    
    $
    124,731
    
    
    $
    103,503
    
    
    $
    (142,742
    )
    
    $
    459,528Liabilities and stockholders equity:Current portion of long-term debt
    
    $
    550
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    550Accounts payable, accrued expenses and other current liabilities
    
    
    5,299
    
    
    
    20,612
    
    
    
    16,206
    
    
    
    
    
    
    
    42,117Customer advances and deferred revenue
    
    
    
    
    
    
    23,775
    
    
    
    6,074
    
    
    
    
    
    
    
    29,849Deferred purchase price consideration
    
    
    
    
    
    
    6,722
    
    
    
    
    
    
    
    
    
    
    
    6,722Current liabilities of discontinued operations
    
    
    
    
    
    
    3,820
    
    
    
    
    
    
    
    
    
    
    
    3,820Total current liabilities
    
    
    5,849
    
    
    
    54,929
    
    
    
    22,280
    
    
    
    
    
    
    
    83,058Long-term debt
    
    
    204,450
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    204,450Other long-term liabilities
    
    
    16,558
    
    
    
    4,159
    
    
    
    4,124
    
    
    
    
    
    
    
    24,841Total liabilities
    
    
    226,857
    
    
    
    59,088
    
    
    
    26,404
    
    
    
    
    
    
    
    312,349Total stockholders equity
    
    
    147,179
    
    
    
    65,643
    
    
    
    77,099
    
    
    
    (142,742
    )
    
    
    147,179Total liabilities and stockholders equity
    
    $
    374,036
    
    
    $
    124,731
    
    
    $
    103,503
    
    
    $
    (142,742
    )
    
    $
    459,528
 Condensed Consolidated Statement of Operations
    
    IPC
    
    Guarantor
    
    Non-GuarantorFor the Fiscal Year Ended September 30, 2004
    
    Acquisition
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedRevenue
    
    $
    
    
    
    $
    185,826
    
    
    $
    106,907
    
    
    $
    (29,461
    )
    
    $
    263,272Cost of goods sold
    
    
    
    
    
    
    92,325
    
    
    
    60,790
    
    
    
    (23,817
    )
    
    
    129,298Gross profit
    
    
    
    
    
    
    93,501
    
    
    
    46,117
    
    
    
    (5,644
    )
    
    
    133,974Other operating expenses
    
    
    37
    
    
    
    68,370
    
    
    
    27,096
    
    
    
    
    
    
    
    95,503Income (loss) from operations
    
    
    (37
    )
    
    
    25,131
    
    
    
    19,021
    
    
    
    (5,644
    )
    
    
    38,471Interest income (expense) and other income (expense), net
    
    
    (22,409
    )
    
    
    1,485
    
    
    
    2,448
    
    
    
    
    
    
    
    (18,476
    )Income tax provision
    
    
    
    
    
    
    7,268
    
    
    
    2,239
    
    
    
    
    
    
    
    9,507Equity in earnings (losses) from investees
    
    
    29,409
    
    
    
    3,189
    
    
    
    
    
    
    
    (32,598
    )
    
    
    Income (loss) from continuing operations
    
    
    6,963
    
    
    
    22,537
    
    
    
    19,230
    
    
    
    (38,242
    )
    
    
    10,488Income (loss) from discontinued operations, net of tax
    
    
    
    
    
    
    (3,525
    )
    
    
    
    
    
    
    
    
    
    
    (3,525
    )Net income (loss)
    
    $
    6,963
    
    
    $
    19,012
    
    
    $
    19,230
    
    
    $
    (38,242
    )
    
    $
    6,963
 63




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##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 Condensed Consolidated Statement of Operations
    
    IPC
    
    Guarantor
    
    Non-GuarantorFor the Fiscal Year Ended September 30, 2003
    
    Acquisition
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedRevenue
    
    $
    
    
    
    $
    165,218
    
    
    $
    63,728
    
    
    $
    (16,985
    )
    
    $
    211,961Cost of goods sold
    
    
    
    
    
    
    79,846
    
    
    
    39,175
    
    
    
    (17,520
    )
    
    
    101,501Gross profit
    
    
    
    
    
    
    85,372
    
    
    
    24,553
    
    
    
    535
    
    
    
    110,460Other operating expenses
    
    
    
    
    
    
    57,881
    
    
    
    18,201
    
    
    
    
    
    
    
    76,082Income (loss) from operations
    
    
    
    
    
    
    27,491
    
    
    
    6,352
    
    
    
    535
    
    
    
    34,378Interest income (expense) and other income (expense), net
    
    
    (5,068
    )
    
    
    (19,667
    )
    
    
    1,667
    
    
    
    
    
    
    
    (23,068
    )Income tax provision
    
    
    
    
    
    
    2,713
    
    
    
    4,885
    
    
    
    
    
    
    
    7,598Equity in earnings (losses) of investees
    
    
    9,107
    
    
    
    (23
    )
    
    
    
    
    
    
    (9,084
    )
    
    
    Income (loss) from continuing operations
    
    
    4,039
    
    
    
    5,088
    
    
    
    3,134
    
    
    
    (8,549
    )
    
    
    3,712Income (loss) from discontinued operations, net of tax
    
    
    
    
    
    
    327
    
    
    
    
    
    
    
    
    
    
    
    327Net income (loss)
    
    $
    4,039
    
    
    $
    5,415
    
    
    $
    3,134
    
    
    $
    (8,549
    )
    
    $
    4,039
 Condensed Consolidated Statement of Operations
    
    IPC
    
    Guarantor
    
    Non-GuarantorFor the Period from November 15, 2001 to September 30, 2002
    
    Acquisition
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedRevenue
    
    $
    
    
    
    $
    154,736
    
    
    $
    59,907
    
    
    $
    (20,488
    )
    
    $
    194,155Cost of goods sold
    
    
    
    
    
    
    109,010
    
    
    
    39,611
    
    
    
    (22,248
    )
    
    
    126,373Gross profit
    
    
    
    
    
    
    45,726
    
    
    
    20,296
    
    
    
    1,760
    
    
    
    67,782Other operating expenses
    
    
    
    
    
    
    46,403
    
    
    
    10,904
    
    
    
    
    
    
    
    57,307Income (loss) from operations
    
    
    
    
    
    
    (677
    )
    
    
    9,392
    
    
    
    1,760
    
    
    
    10,475Interest income (expense) and other income (expense), net
    
    
    (21,725
    )
    
    
    157
    
    
    
    (311
    )
    
    
    
    
    
    
    (21,879
    )Income tax provision
    
    
    
    
    
    
    (6,644
    )
    
    
    4,394
    
    
    
    
    
    
    
    (2,250
    )Equity in earnings (losses) of investees
    
    
    12,525
    
    
    
    
    
    
    
    
    
    
    
    (12,525
    )
    
    
    Income (loss) from continuing operations
    
    
    (9,200
    )
    
    
    6,124
    
    
    
    4,687
    
    
    
    (10,765
    )
    
    
    (9,154
    )Income (loss) from discontinued operations, net of tax
    
    
    
    
    
    
    (46
    )
    
    
    
    
    
    
    
    
    
    
    (46
    )Net income (loss)
    
    $
    (9,200
    )
    
    $
    6,078
    
    
    $
    4,687
    
    
    $
    (10,765
    )
    
    $
    (9,200
    )
 Condensed Consolidated Statement of Operations
    
    IPC
    
    Guarantor
    
    Non-GuarantorFor the Period from October 1, 2001 to December 20, 2001
    
    Acquisition
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedRevenue
    
    $
    
    
    
    $
    39,557
    
    
    $
    13,777
    
    
    $
    (7,095
    )
    
    $
    46,239Cost of goods sold
    
    
    
    
    
    
    20,091
    
    
    
    9,226
    
    
    
    (7,014
    )
    
    
    22,303Gross profit
    
    
    
    
    
    
    19,466
    
    
    
    4,551
    
    
    
    (81
    )
    
    
    23,936Other operating expenses
    
    
    
    
    
    
    27,495
    
    
    
    2,939
    
    
    
    
    
    
    
    30,434Income (loss) from operations
    
    
    
    
    
    
    (8,029
    )
    
    
    1,612
    
    
    
    (81
    )
    
    
    (6,498
    )Interest income (expense) and other, net
    
    
    
    
    
    
    (6,218
    )
    
    
    280
    
    
    
    
    
    
    
    (5,938
    )Income tax provision
    
    
    
    
    
    
    167
    
    
    
    (957
    )
    
    
    
    
    
    
    (790
    )Income (loss) from continuing operations
    
    
    
    
    
    
    (14,414
    )
    
    
    2,849
    
    
    
    (81
    )
    
    
    (11,646
    )Income (loss) from discontinued operations, net of tax
    
    
    
    
    
    
    618
    
    
    
    
    
    
    
    
    
    
    
    618Net income (loss)
    
    $
    
    
    
    $
    (13,796
    )
    
    $
    2,849
    
    
    $
    (81
    )
    
    $
    (11,028
    )
 64




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##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 Condensed Consolidated Statement of Cash Flows
    
    IPC
    
    Guarantor
    
    Non-GuarantorFor the Fiscal Year Ended September 30, 2004
    
    Acquisition
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet cash provided by (used in) continuing operations
    
    $
    (17,089
    )
    
    $
    38,252
    
    
    $
    14,288
    
    
    $
    
    
    
    $
    35,451Net cash provided by discontinued operations
    
    
    
    
    
    
    21,996
    
    
    
    
    
    
    
    
    
    
    
    21,996Net cash provided by (used in) operating activities
    
    
    (17,089
    )
    
    
    60,248
    
    
    
    14,288
    
    
    
    
    
    
    
    57,447Capital expenditures
    
    
    
    
    
    
    (6,581
    )
    
    
    (2,632
    )
    
    
    
    
    
    
    (9,213
    )Payment of Gains US and UK earn-out and deferred purchase price.
    
    
    
    
    
    
    (6,756
    )
    
    
    
    
    
    
    
    
    
    
    (6,756
    )Intercompany borrowings
    
    
    46,490
    
    
    
    (31,375
    )
    
    
    (15,115
    )
    
    
    
    
    
    
    Acquisition of Gains Asia, net of cash acquired and Purple Voice
    
    
    (6,212
    )
    
    
    (5,528
    )
    
    
    1,536
    
    
    
    
    
    
    
    (10,204
    )Net cash provided by (used in) investing activities
    
    
    40,278
    
    
    
    (50,240
    )
    
    
    (16,211
    )
    
    
    
    
    
    
    (26,173
    )Principal payments on term loan
    
    
    (5,550
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,550
    )Deferred compensation payments
    
    
    
    
    
    
    (86
    )
    
    
    
    
    
    
    
    
    
    
    (86
    )Distribution to parent in connection with acquisition
    
    
    (5,510
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,510
    )Issuance costs for term loan amendment
    
    
    (225
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (225
    )Special cash dividend paid, net
    
    
    (17,893
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,893
    )Net cash used in financing activities
    
    
    (29,178
    )
    
    
    (86
    )
    
    
    
    
    
    
    
    
    
    
    (29,264
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    (540
    )
    
    
    
    
    
    
    (540
    )Net increase (decrease) in cash
    
    
    (5,989
    )
    
    
    9,922
    
    
    
    (2,463
    )
    
    
    
    
    
    
    1,470Cash at beginning of period
    
    
    9,088
    
    
    
    3,135
    
    
    
    13,577
    
    
    
    
    
    
    
    25,800Cash at end of period
    
    $
    3,099
    
    
    $
    13,057
    
    
    $
    11,114
    
    
    $
    
    
    
    $
    27,270
 Condensed Consolidated Statement of Cash Flows
    
    IPC
    
    Guarantor
    
    Non-GuarantorFor the Fiscal Year Ended September 30, 2003
    
    Acquisition
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet cash provided by (used in) continuing operations
    
    $
    (765
    )
    
    $
    16,501
    
    
    $
    19,226
    
    
    $
    
    
    
    $
    34,962Net cash provided by discontinued operations
    
    
    
    
    
    
    (15,480
    )
    
    
    
    
    
    
    
    
    
    
    (15,480
    )Net cash provided by (used in) operating activities
    
    
    (765
    )
    
    
    1,021
    
    
    
    19,226
    
    
    
    
    
    
    
    19,482Capital expenditures
    
    
    
    
    
    
    (5,569
    )
    
    
    (1,898
    )
    
    
    
    
    
    
    (7,467
    )Proceeds from restricted cash account and other amounts in
connection with Global Crossing settlement
    
    
    
    
    
    
    9,419
    
    
    
    
    
    
    
    
    
    
    
    9,419Cash payments in connection with Global Crossing settlement
    
    
    
    
    
    
    (5,200
    )
    
    
    
    
    
    
    
    
    
    
    (5,200
    )Intercompany borrowings
    
    
    21,377
    
    
    
    5,065
    
    
    
    (26,442
    )
    
    
    
    
    
    
    Acquisition, net of cash
    
    
    
    
    
    
    193
    
    
    
    2,606
    
    
    
    
    
    
    
    2,799Net cash provided by (used in) continuing operations
    
    
    21,377
    
    
    
    3,908
    
    
    
    (25,734
    )
    
    
    
    
    
    
    (449
    )Net cash provided by (used in) discontinued operations
    
    
    
    
    
    
    (60
    )
    
    
    
    
    
    
    
    
    
    
    (60
    )Net cash provided by (used in) investing activities
    
    
    21,377
    
    
    
    3,848
    
    
    
    (25,734
    )
    
    
    
    
    
    
    (509
    )Principal payments on term loan
    
    
    (18,616
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,616
    )Deferred compensation payments
    
    
    
    
    
    
    (124
    )
    
    
    
    
    
    
    
    
    
    
    (124
    )Issuance costs for term loan amendment
    
    
    (310
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (310
    )Proceeds from term loan, net of issuance costs
    
    
    1,279
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,279Net cash used in financing activities
    
    
    (17,647
    )
    
    
    (124
    )
    
    
    
    
    
    
    
    
    
    
    (17,771
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    
    
    
    
    (696
    )
    
    
    
    
    
    
    (696
    )Net increase (decrease) in cash
    
    
    2,965
    
    
    
    4,745
    
    
    
    (7, 204
    )
    
    
    
    
    
    
    506Cash at beginning of period
    
    
    6,123
    
    
    
    (1,610
    )
    
    
    20,781
    
    
    
    
    
    
    
    25,294Cash at end of period
    
    $
    9,088
    
    
    $
    3,135
    
    
    $
    13,577
    
    
    $
    
    
    
    $
    25,800
 65




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##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 Condensed Consolidated Statement of Cash Flows
    
    IPC
    
    Guarantor
    
    Non-GuarantorFor the Period from November 15,
2001 to September 30, 2002
    
    Acquisition
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet cash provided by (used in) continuing operations
    
    $
    (7,213
    )
    
    $
    24,586
    
    
    $
    8,004
    
    
    $
    
    
    
    $
    25,377Net cash provided by discontinued operations
    
    
    
    
    
    
    7,205
    
    
    
    
    
    
    
    
    
    
    
    7,205Net cash provided by (used in) operating activities
    
    
    (7,213
    )
    
    
    31,791
    
    
    
    8,004
    
    
    
    
    
    
    
    32,582Capital expenditures
    
    
    
    
    
    
    (5,017
    )
    
    
    (1,463
    )
    
    
    
    
    
    
    (6,480
    )Intercompany borrowings
    
    
    20,023
    
    
    
    (33,189
    )
    
    
    13,166
    
    
    
    
    
    
    
    Acquisitions, net of cash
    
    
    (350,246
    )
    
    
    3,806
    
    
    
    (57
    )
    
    
    751
    
    
    
    (345,746
    )Net cash provided by (used in) continuing operations
    
    
    (330,223
    )
    
    
    (34,400
    )
    
    
    11,646
    
    
    
    751
    
    
    
    (352,226
    )Net cash used in discontinued operations
    
    
    
    
    
    
    (26
    )
    
    
    
    
    
    
    
    
    
    
    (26
    )Net cash provided by (used in) investing activities
    
    
    (330,223
    )
    
    
    (34,426
    )
    
    
    11,646
    
    
    
    751
    
    
    
    (352,252
    )Principal payments on term loan
    
    
    (33,938
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,938
    )Deferred compensation payments
    
    
    
    
    
    
    (77
    )
    
    
    
    
    
    
    
    
    
    
    (77
    )Proceeds from debt, net of issuance costs
    
    
    237,580
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    237,580Proceeds from equity issuances, net
    
    
    139,917
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    139,917Net cash provided by (used in) financing activities
    
    
    343,559
    
    
    
    (77
    )
    
    
    
    
    
    
    
    
    
    
    343,482Effect of exchange rate changes on cash
    
    
    
    
    
    
    1,482
    
    
    
    
    
    
    
    
    
    
    
    1,482Net increase (decrease) in cash
    
    
    6,123
    
    
    
    (1,230
    )
    
    
    19,650
    
    
    
    751
    
    
    
    25,294Cash at beginning of period
    
    
    
    
    
    
    (380
    )
    
    
    1,131
    
    
    
    (751
    )
    
    
    Cash at end of period
    
    $
    6,123
    
    
    $
    (1,610
    )
    
    $
    20,781
    
    
    $
    
    
    
    $
    25,294
 Condensed Consolidated Statement of Cash Flows
    
    IPC
    
    Guarantor
    
    Non-GuarantorFor the Period from October 1, 2001 to December 20, 2001
    
    Acquisition
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet cash provided by (used in) continuing
operations
    
    $
    
    
    
    $
    16,605
    
    
    $
    (4,455
    )
    
    $
    
    
    
    $
    12,150Net cash provided by discontinued operations
    
    
    
    
    
    
    3,116
    
    
    
    
    
    
    
    
    
    
    
    3,116Net cash provided by (used in) operating
activities
    
    
    
    
    
    
    19,721
    
    
    
    (4,455
    )
    
    
    
    
    
    
    15,266Capital expenditures
    
    
    
    
    
    
    (1,870
    )
    
    
    (27
    )
    
    
    
    
    
    
    (1,897
    )Net cash used in continuing operations
    
    
    
    
    
    
    (1,870
    )
    
    
    (27
    )
    
    
    
    
    
    
    (1,897
    )Net cash used in discontinued operations
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )Net cash used in investing activities
    
    
    
    
    
    
    (1,875
    )
    
    
    (27
    )
    
    
    
    
    
    
    (1,902
    )Repayment of intercompany borrowings
    
    
    
    
    
    
    (16,428
    )
    
    
    1,294
    
    
    
    
    
    
    
    (15,134
    )Deferred compensation payments
    
    
    
    
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    (19
    )Net cash used in financing activities
    
    
    
    
    
    
    (16,447
    )
    
    
    1,294
    
    
    
    
    
    
    
    (15,153
    )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
 66




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##### Table of Contents



IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued
September 30, 2004 18. Quarterly Financial Information (Unaudited) (in thousands): The following table sets forth unaudited consolidated quarterly financial information for 2004
and 2003: Quarter Ended2004
    
    December 31,
    
    March 31,
    
    June 30,
    
    September 30,
    
    TotalRevenue
    
    $
    52,694
    
    
    $
    69,824
    
    
    $
    60,313
    
    
    $
    80,441
    
    
    $
    263,272Gross profit
    
    
    25,273
    
    
    
    36,382
    
    
    
    29,760
    
    
    
    42,559
    
    
    
    133,974Income
(loss) from continuing operations, net of tax
    
    
    (1,499
    )
    
    
    2,820
    
    
    
    2,060
    
    
    
    7,107
    
    
    
    10,488Income (loss) from discontinued operations, net of tax
    
    
    (265
    )
    
    
    (15
    )
    
    
    (3,334
    )
    
    
    89
    
    
    
    (3,525
    )Net income (loss)
    
    
    (1,764
    )
    
    
    2,805
    
    
    
    (1,274
    )
    
    
    7,196
    
    
    
    6,963
 Quarter Ended2003
    
    December 31,
    
    March 31,
    
    June 30,
    
    September 30,
    
    TotalRevenue
    
    $
    42,525
    
    
    $
    45,093
    
    
    $
    44,506
    
    
    $
    79,837
    
    
    $
    211,961Gross profit
    
    
    22,484
    
    
    
    24,241
    
    
    
    21,250
    
    
    
    42,485
    
    
    
    110,460Income
(loss) from continuing operations, net of tax
    
    
    98
    
    
    
    (165
    )
    
    
    (1,730
    )
    
    
    5,509
    
    
    
    3,712Income (loss) from discontinued operations, net of tax
    
    
    (300
    )
    
    
    (446
    )
    
    
    763
    
    
    
    310
    
    
    
    327Net income (loss)
    
    
    (202
    )
    
    
    (611
    )
    
    
    (967
    )
    
    
    5,819
    
    
    
    4,039
 19. Subsequent Events (Unaudited): On November 30, 2004, IPC Information Systems Holdings, Inc, a subsidiary of the Company,
acquired Orbacom Systems, Inc. for $18 million in cash, including up to $7 million in earnout commitments. Orbacom provides specialized radio consoles and computer
aided dispatch software for use in command and control communications and serves the
missioncritical communications needs of government agencies and corporations responsible for
public safety dispatch, management of natural gas and energy infrastructures, air, freight and rail
transportation, government command applications including homeland security, and critical
industrial communications. The Company will consolidate its existing command and control operations
with those of Orbacom. In conjunction with the closing of this acquisition, the Company also amended its senior
secured credit facility. Under this amendment, the Company obtained consent for the Orbacom
acquisition and reset its ability to make acquisitions for up to $25 million,
without taking into account the Orbacom acquisition. 67




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##### Table of Contents



Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. 
 Item 9A. Controls and Procedures The Company maintains disclosure controls and procedures designed to ensure that information
required to be disclosed in the Companys Exchange Act reports is recorded, processed, summarized
and reported within the time periods specified by the SEC and that such information is accumulated
and communicated to the Companys management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. As of the end of the period covered by this report, the Company performed an evaluation of the
effectiveness of the design and operation of its disclosure controls and procedures as defined in
Exchange Act Rule 13a-15(e) and 15d-15(e). The evaluation was performed under the supervision and
with the participation of the Companys management, including the Companys Chief Executive Officer
and Chief Financial Officer. Based upon the evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Companys disclosure controls and procedures were effective in
ensuring that material information relating to the Company (including its consolidated
subsidiaries) was made known to them by others within the Companys consolidated group during the
period in which this report was being prepared and that the information required to be included in
the report has been recorded, processed, summarized and reported on a timely basis. During the Companys most recent fiscal quarter, there have been no significant changes in the
Companys internal controls that have materially affected, or are reasonably likely to materially
affect, the Companys internal controls over financial reporting. 
 Item 9B. Other Information None 68




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##### Table of Contents



PART III 
 Item 10. Directors and Executive Officers of the Registrant Our directors and executive officers are as follows: Name
    
    Age
    
    Present PositionLance Boxer
    
    
    50
    
    
    Chief Executive Officer and DirectorGreg Kenepp
    
    
    43
    
    
    President, Chief Operating Officer and DirectorTimothy Whelan
    
    
    38
    
    
    Chief Financial OfficerDon Carlos Bell III
    
    
    35
    
    
    Senior Vice President, Marketing and Corporate DevelopmentMichael Sheehan
    
    
    52
    
    
    Managing Director, SalesColin Knight
    
    
    63
    
    
    President, EMEAJack Daly
    
    
    38
    
    
    DirectorRobert Gheewalla
    
    
    37
    
    
    DirectorJoseph Gleberman
    
    
    46
    
    
    Chairman of the BoardEric Schwartz
    
    
    42
    
    
    Director
 Lance Boxerhas been the Chief Executive Officer since July 2003 and a Director of our company
since February 2002. From July 2002 to July 2003, Mr. Boxer was the interim President and Chief
Executive Officer of Universal Access, a telecommunications service provider. From October 2001 to
July 2002, Mr. Boxer was the President and Chief Executive Officer of Sphera Optical Network, Inc.,
an optical metropolitan network infrastructure provider which filed a petition for relief under
Chapter 11 of Title 11 of the United States Code in February 2002. From July 2000 to June 2001, Mr.
Boxer was President and Chief Executive Officer of XOSoft, a content delivery solutions provider.
From October 1998 to June 2000, Mr. Boxer held a variety of positions at Lucent Technologies,
serving most recently as President of Lucents Communications Software Group. Prior to that, Mr.
Boxer held a variety of positions at MCI, serving most recently as Chief Information Officer from
September 1995 to October 1998. He received a BS and an MBA from New York University. Greg Kenepphas been the President, Chief Operating Officer and a Director of our company
since July 2003. From December 2001 to July 2003, Mr. Kenepp was the President and a Director of
our company. From September 2001 to December 2001, Mr. Kenepp was President of IPC Information
Systems, Inc. From July 2000 to September 2001, Mr. Kenepp was Senior Vice President of Global
Crossings Financial Markets unit, which included IPC Information Systems, Inc. and IXnet. From
June 1995 to June 2000, Mr. Kenepp held a variety of positions at IPC Information Systems, Inc.,
serving most recently as Senior Vice President of Product Development. Prior to that, Mr. Kenepp
held senior management positions at Integrated Network Corporation, a telecommunications company,
and AT&T Bell Laboratories. He received a BS from Clarkson University and an MS from Stanford
University. Timothy Whelanhas been our Chief Financial Officer since December 2001. From July 2000 to
December 2001, Mr. Whelan held various divisional finance positions within Global Crossing. From
December 1999 to June 2000, Mr. Whelan was Vice President, Finance and Chief Financial Officer of
IPC Information Systems, Inc. and its subsidiary, IXnet. Mr. Whelan was Vice President of IPC
Information Systems, Inc. and IXnet from May 1999 to December 1999. Mr. Whelan is a certified
public accountant and previously worked for Ernst &Young from 1992 to 1999. He previously spent
four years as a U.S. Naval Officer. Don Carlos Bell IIIhas been our Senior Vice President, Marketing and Corporate Development
since May 2003. From August 2001 to May 2003, Mr. Bell was Vice President at Clearwire
Technologies, a wireless broadband service provider. From July 1998 to August 2001, Mr. Bell was a
member of the Investment Banking Division of Goldman, Sachs & Co. Mr. Bell earned a BA from St.
Johns College and an MBA from the Wharton School of Business. Michael Sheehanhas been our Managing Director, Sales since August 2003. From December 2001 to
August 2003, Mr. Sheehan was Senior Vice President, Global Sales of our company. From December 2000
to December 2001, Mr. Sheehan was Senior Vice President, Global Sales of IPC Information Systems,
Inc. Since September 1987, Mr. Sheehan had held a variety of positions at IPC Information Systems,
Inc., serving most recently as Vice President of Sales, New York and Eastern Region. From September
1986 to September 1987, Mr. Sheehan was a Senior Director at Walsh Lowe, a financial industry
consulting firm. Prior to that, he held a variety of global account positions at AT&T. Colin Knighthas been our President, EMEA since October 2002. From August 2001 to October
2002, Mr. Knight was Vice President of Operations for mmO2 Ltd., a cellular and mobile data
operator. From October 1987 to August 2001, Mr. Knight held a variety of positions at Syntegra, an
affiliate of British Telecommunications that focuses on financial trading systems, serving most
recently as its deputy managing director. 69




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Jack Dalyhas been a Director of our company since December 2001. Mr. Daly is a Vice President
in the Principal Investment Area of Goldman, Sachs & Co., where he has worked since 2000. From 1998
to 2000, he was a member of the Investment Banking Division of Goldman, Sachs & Co. From 1991 to
1997, Mr. Daly was a Senior Instructor of Mechanical & Aerospace Engineering at Case Western
Reserve University. He earned a BS and MS in Engineering from Case Western Reserve University and
an MBA from the Wharton School of Business. Mr. Daly serves as a director of Autocam Corporation
and Cooper Standard, Inc. Robert Gheewallahas been a Director of our company since December 2001. Mr. Gheewalla is a
Managing Director in the Principal Investment Area of Goldman, Sachs & Co., where he has worked
since 1994. He currently serves as a director for R.H. Donnelley and several private companies. He
received a B. A. from Tufts University, an MSc from The London School of Economics while on a
Fulbright Scholarship and an MBA from Harvard Business School. Joseph Glebermanhas been Chairman of the Board since December 2001. Mr. Gleberman has been a
Managing Director of Goldman, Sachs & Co. since 1996. From 1990 to 1996, Mr. Gleberman was a
Partner of Goldman, Sachs & Co. Mr. Gleberman serves as a director of aaiPharma, Inc., BPC
Holdings, Inc and MCG Capital Corporation. He earned a BA in Engineering and an MA in Economics
from Yale University and an MBA from Stanford University Graduate School of Business. Eric Schwartzhas been a Director of our company since December 2001. Mr. Schwartz has been a
Managing Director of Goldman, Sachs & Co. since 1996 and a Partner of Goldman, Sachs & Co. since
1994. Mr. Schwartz is currently co-head of the Investment Management Division of Goldman, Sachs &
Co., a position he has held since 2003. From 2000 to 2003, Mr. Schwartz was Co-Chief Operating
Officer of the Equities Division of Goldman, Sachs & Co. From 1998 to May 2000, he was responsible
for derivatives, convertibles, and Global Securities Services and, from 1991 to 1998, he worked in
Equity Capital Markets. Mr. Schwartz earned a B.S.E. from the University of Pennsylvania and an MBA
from the Wharton School of Business. Board of Directors Our board of directors currently consists of six directors. Committees of the Board of Directors Our board of directors has two committees: an audit committee and a compensation committee.
The audit committee recommends the annual appointment of auditors with whom the audit committee
reviews the scope of audit and non-audit assignments and related fees, accounting principles we use
in financial reporting, internal auditing procedures and the adequacy of our internal control
procedures. The current members of the audit committee are Jack Daly, Robert Gheewalla and Lance
Boxer. The compensation committee reviews and approves the compensation and benefits for our
employees, directors and consultants, administers our employee benefit plans, authorizes and
ratifies stock option grants and other incentive arrangements and authorizes employment and related
agreements. The current members of the compensation committee are Greg Kenepp, Joseph Gleberman and
Eric Schwartz. Audit Committee Financial Experts The company has determined that Robert Gheewalla, a member of the audit committee of the board
of directors, qualifies as an audit committee financial expert as defined in Item 401(h) of
Regulation S-K, and that he is  not independent as the term is used in Item 7(d)(3)(iv) of
Schedule 14A under the Securities Exchange Act. Code of Ethics The Company has adopted a code of ethics applicable to specific employees, including the
principal executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. A copy of the code of ethics is available on
the companys website at www.ipc.com and has also been filed as an exhibit to this annual report on
Form 10-K. The company intends to post on its website any amendments to, or waivers from, its code
of ethics applicable to such senior officers. Compensation of Directors Directors who are also our employees or employees of our principal stockholders will receive
no additional compensation for their services as directors. Indemnification of Directors and Officers As permitted by Delaware law, our certificate of incorporation provides that no director will
be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as
a director, except for liability: 70




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
    
    for any breach of duty of loyalty to us or to our stockholders;
    
    for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;
    
    for unlawful payment of dividends or unlawful stock repurchases or redemptions
under Section 174 of the Delaware General Corporation Law; or
    
    for any transaction from which the director derived an improper personal
benefit. Our certificate of incorporation also provides that if Delaware law is amended to permit further
elimination or limitation of the personal liability of directors, then the liability of a director
of our company will be eliminated or limited to the fullest extent permitted by Delaware law. Any
repeal or modification by our stockholders or otherwise of the charter provision relating to the
personal liability of directors will not adversely affect any right or protection of a director of
our company existing at the time of such repeal or modification. In addition, our amended and restated bylaws provide that:  
    
    we are required to indemnify our directors and officers to the fullest extent
permitted by Delaware law, subject to specified exceptions;
    
    we may indemnify our other employees and agents to the extent that we indemnify
our officers and directors, unless otherwise prohibited by law, our certificate of
incorporation, our bylaws or other agreements;
    
    we may be required to advance expenses to our directors and executive officers
as incurred in connection with legal proceedings against them for which they may be
indemnified; and
    
    the rights conferred in the bylaws are not exclusive. We purchased insurance on behalf of our directors and officers against various liabilities
that may be asserted against, or incurred by, such persons in their capacities as directors or
officers of our company, or that may arise out of their status as directors or officers of our
company. Employee Agreements Timothy Whelan entered into an employment agreement, dated as of July 15, 2004, whereby he is
to be employed as Chief Financial Officer, reporting to the Chief Executive Officer. The agreement
has a two-year term and provides for Mr. Whelan to receive a minimum annual base salary of $234,000
and a discretionary cash bonus of up to 50% of his base salary upon the attainment of performance
goals set in advance by the CEO and Board of Directors. Mr. Whelan also receives medical, dental
and other benefits that are commensurate with his position. The company has a right to terminate
Mr. Whelans employment with or without cause. If Mr. Whelans employment is terminated prior to
the expiration of the term by the company without cause, the company must pay 75% of Mr. Whelans
base salary and 75% of his target bonus payable in installments over a period of twelve months
following the termination date and will continue Mr. Whelans medical insurance coverage at our
expense during that twelve month period. During the term of his employment and for one year
thereafter, Mr. Whelan will be subject to restrictions on competition and the solicitation of
customers and employees, and for all periods during and after the term, he will be subject to
nondisclosure and confidentiality restrictions relating to the confidential information and trade
secrets of the company and its affiliates. Greg Kenepp entered into an employment agreement, dated as of September 18, 2003, whereby he
is to be employed as President and Chief Operating Officer, reporting to the Chief Executive
Officer. The agreement has a three-year term and provides for Mr. Kenepp to receive a minimum
annual base salary of $275,000 and a discretionary cash bonus of up to 50% of his base salary upon
the attainment of performance goals set in advance by the Chief Executive Officer and Board of
Directors. Mr. Kenepp also receives medical, dental and other benefits that are commensurate with
his position. The company has a right to terminate Mr. Kenepps employment with or without cause.
If Mr. Kenepps employment is terminated prior to the expiration of the term by the company without
cause, the company must pay 75% of Mr. Kenepps base salary and 75% of his target bonus payable in
installments over a period of nine months following the termination date. During the term of his
employment and for one year thereafter, Mr. Kenepp will be subject to restrictions on competition
and the solicitation of customers and employees, and for all periods during and after the term, he
will be subject to nondisclosure and confidentiality restrictions relating to the confidential
information and trade secrets of the company and its affiliates. Lance Boxer entered into an employment agreement, dated as of June 19, 2003, whereby he is to
be employed as Chief Executive Officer reporting to the board of directors and will serve as a
director of the company. The agreement has a three-year term and provides for Mr. Boxer to receive
a signing bonus of $50,000, a minimum annual base salary of $350,000 and a discretionary cash bonus
of up to 50% of his base salary upon the attainment of performance goals set in advance by the
Board of Directors and Mr. Boxer. Mr. Boxer also receives medical, dental and other benefits that
are commensurate with his position, including reimbursement for annual premiums on a $2 million
life term insurance policy. Under his employment agreement, Mr. Boxer was granted an option to
purchase 500,000 shares of our common stock pursuant to our 2002 Stock Option Plan. The company has
a right to terminate Mr. Boxers employment with or without cause. If Mr. Boxers employment is
terminated prior to the expiration of the term by the company without cause or by Mr. Boxer for
good reason, the company must pay Mr. Boxer severance equal to his annual base salary and full
target bonus payable in installments over a period of one year following the termination date.
During the term of his employment and for one year thereafter, 71




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Mr. Boxer will be subject to restrictions on competition and the solicitation of customers and
employees, and for all periods during and after the term, he will be subject to nondisclosure and
confidentiality restrictions relating to the confidential information and trade secrets of the
company and its affiliates. 
 Item 11. Executive Compensation The following table provides summary information concerning all compensation earned by our
Chief Executive Officer and each of our other four most highly compensated executive officers for
2004, 2003 and 2002: SUMMARY COMPENSATION TABLE Long-TermCompensationAwardsAnnual Compensation
    
    SecuritiesUnderlying
    
    All OtherName and Principal Position
    
    
    
    
    
    Salary
    
    Bonus (1)
    
    Options
    
    Compensation (2)Lance Boxer
    
    
    2004
    
    
    $
    350,000
    
    
    $
    
    
    
    
    
    
    
    $
    5,923Chief Executive Officer
    
    
    2003
    
    
    $
    71,400
    
    
    $
    50,000
    
    
    
    505,000
    
    
    $
    2002
    
    
    $
    
    
    
    $
    
    
    
    
    5,000
    
    
    $
    Greg Kenepp President
    
    
    2004
    
    
    $
    275,000
    
    
    $
    50,000
    
    
    
    
    
    
    $
    6,000President and Chief Operating Officer
    
    
    2003
    
    
    $
    275,000
    
    
    $
    127,900
    
    
    
    78,200
    
    
    $
    5,5002002
    
    
    $
    275,000
    
    
    $
    175,000
    
    
    
    105,000
    
    
    $
    Timothy Whelan
    
    
    2004
    
    
    $
    227,250
    
    
    $
    50,000
    
    
    
    12,000
    
    
    $
    6,000Chief Financial Officer
    
    
    2003
    
    
    $
    225,000
    
    
    $
    104,600
    
    
    
    31,800
    
    
    $
    5,5002002
    
    
    $
    225,000
    
    
    $
    140,000
    
    
    
    56,250
    
    
    $
    Michael Sheehan
    
    
    2004
    
    
    $
    210,000
    
    
    $
    26,520
    
    
    
    
    
    
    $
    180,054Managing Director, Sales
    
    
    2003
    
    
    $
    202,600
    
    
    $
    69,800
    
    
    
    3,000
    
    
    $
    45,1002002
    
    
    $
    180,000
    
    
    $
    170,000
    
    
    
    52,500
    
    
    $
    24,200Colin Knight
    
    
    2004
    
    
    $
    216,300
    
    
    $
    20,900
    
    
    
    
    
    
    $
    44,100President, EMEA
    
    
    2003
    
    
    $
    208,900
    
    
    $
    
    
    
    
    27,000
    
    
    $
    39,2002002
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    
   (1)
    
    Bonus amounts for all executive officers are for performance in the prior year. Mr. Boxers
2003 bonus was paid as a sign on bonus.(2)
    
    Includes commission payments to Mr. Sheehan of $173,053 in 2004, $39,600 in 2003 and
24,200 in 2002. Includes 401(k) matching contributions to Mr. Boxer of $5,923 in 2004, to Mr.
Kenepp of $6,000 in 2004 and $5,500 in 2003, to Mr. Whelan of $6,000 in 2004 and $5,500 in
2003 and to Mr. Sheehan $6,000 in 2004 and $5,500 in 2003. Includes pension contribution
payments of $18,900 in 2004 and $16,800 in 2003 to Mr. Knight. Includes car allowance payments
of $25,200 in 2004 and $22,400 in 2003 to Mr. Knight. OPTION GRANTS IN THE LAST COMPLETED FISCAL YEAR Individual GrantsNumber of
    
    
    
    
    
    
    
    
    
    Potential Realizable Value at AssumedSecurities
    
    
    
    
    
    
    
    Annual Rates of Stock PriceUnderlyingOptions
    
    ExercisePrice
    
    Expiration
    
    Appreciation for Option TermName
    
    Granted
    
    ($/Share)
    
    Date (1)
    
    Gain at 5% (2)
    
    Gain at 10% (2)Lance Boxer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Greg Kenepp
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Timothy Whelan
    
    
    12,000
    
    
    $
    8.78
    
    
    
    10/20/13
    
    
    $
    66,377
    
    
    $
    167,522Michael Sheehan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Colin Knight
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   (1)
    
    The expiration dates set forth in this column represent the latest dates on which the options
could be exercised by the option holder if such option holder remained employed by us.(2)
    
    The dollar amounts set forth in these columns are based on assumed annual rates of stock
appreciation from the market price at the date of grant of 5% and 10% (compounded annually)
over the full term of the grant. The 5% and 10% assumed rates of appreciation
are mandated by the rules of the SEC, and do not represent our estimates or projection of the
future appreciation of the value of our common stock. 72




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AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES For each named executive officer, as of September 30, 2004, the following table provides:  
    
    the total number of shares of our common stock received upon the exercise of options during 2004;
    
    the value realized upon such exercises; and
    
    the total number of shares of our common stock underlying stock options held by
the named executive officers (exercisable and unexercisable) as of September 30, 2004.


Number of Securities
    
    Value of UnexercisedUnderlying Unexercised
    
    In-the-Money Options atSharesAcquired on
    
    Value
    
    Options at Fiscal Year End
    
    Fiscal Year End(1)Name
    
    Exercise (#)
    
    Realized ($)
    
    Exercisable
    
    Unexercisable
    
    Exercisable
    
    UnexercisableLance Boxer
    
    
    
    
    
    
    128,750
    
    
    
    381,250
    
    
    $
    1,382,775
    
    
    $
    4,094,625Greg Kenepp
    
    
    
    
    
    
    72,050
    
    
    
    111,150
    
    
    $
    773,817
    
    
    $
    1,193,751Timothy Whelan
    
    
    
    
    
    
    36,075
    
    
    
    63,975
    
    
    $
    387,446
    
    
    $
    687,092Michael Sheehan
    
    
    
    
    
    
    27,000
    
    
    
    28,500
    
    
    $
    289,980
    
    
    $
    306,090Colin Knight
    
    
    
    
    
    
    6,750
    
    
    
    20,250
    
    
    $
    72,495
    
    
    $
    217,485




---

(1)
    
    There is no established public
trading market for our common stock. Accordingly, these values of
exercisable and un-exercisable in-the-money options are calculated
using our determination of the fair market value of our common stock
based on several factors like third party valuations, the fair value
of the common stock of other companies comparable to ours, and fair
values established by market transactions.
 Stock Option Plan In February 2002, we adopted the 2002 Stock Option Plan. The option plan provides for the
grant of options to purchase shares of our 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 our success. The
maximum number of shares that may be made the subject of options granted under the option plan is
1,950,000 shares; we have reserved that amount of shares of common stock for issuance upon the
exercise of outstanding stock options. We account for stock options pursuant to APB Opinion No.
25 Accounting for Stock Options Issued to Employees. Accordingly, no compensation expense was
recognized for these grants. The option plan is administered by the compensation committee of our 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, other than to specified
permitted transferees if it is provided by the committee, 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 of our voting securities or assets or the consummation of a merger, consolidation, or
reorganization which results in certain of our current stockholders no longer owning any interests
in us or any successor corporation will be set forth in the option agreement. Under the form option
agreements that have been approved by our compensation committee for current use under the plan,
upon a change in control, 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 us for any reason
other than cause or disability within one year following the change in control, the option will
immediately become fully vested and exercisable and remain exercisable for 180 days. The form
agreements also provide that in the event of a sale of our voting securities or assets or the
consummation of a merger, consolidation or reorganization which results in certain of our
stockholders no longer having any ownership interest in us or any successor corporation, the option
will become fully vested and exercisable. Key Employee Equity Investment Plan In February 2002, we adopted the Key Employee Equity Investment Plan. Under the plan, certain
key employees, officers and directors may be given the opportunity to purchase shares of our common
stock. The plan is administered by the compensation committee of our board of directors, which
determines the individuals who may participate in the plan, the number of shares offered to each
participant, the price at which the shares are offered, and the other terms and conditions of each
offer. Up to 100,000 shares in the aggregate may be sold under the plan. The shares are subject to
certain transfer restrictions. Prior to the adoption of the Sarbanes-Oxley Act in July 2002, all
participants were permitted to pay for up to two-thirds of the purchase price with a promissory
note that is secured by the purchased shares. Since the adoption of the Sarbanes-Oxley Act, certain
participants may no longer be permitted to purchase 73




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shares under the plan with such promissory notes. Through September 30, 2004,
60,000 shares were purchased and 5,788 shares were returned under the plan by
certain directors, officers and other key employees. During 2004 and 2003, no
shares were purchased by directors, officers and other key employees. Promissory
notes received by us for shares purchased by directors, officers and other key
employees of us, prior to the adoption of the Sarbanes-Oxley Act, totaled $0.4
million. The interest rate for the promissory notes received is equal to the
applicable federal rate which is currently 1.49%. The promissory notes are due
on the first of the three following events to occur: (1) the later of the fifth
anniversary of the date the promissory note was issued or the 180th day immediately
following an initial public offering of our stock, (2) the 30th day following
termination of employment, or (3) the 180th day following death. 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters PRINCIPAL STOCKHOLDERS The following table sets forth information regarding beneficial ownership of our common stock
as of September 30, 2004 by (1) each person who is the beneficial owner of more than five percent
of the outstanding shares of our common stock, (2) each of our directors, (3) each of our named
executive officers, and (4) all of our executive officers and directors as a group. Except as
otherwise indicated, the persons or entities listed below have sole voting and investment power
with respect to all shares of common stock beneficially owned by them. For the purposes of this
table, beneficial ownership is determined in accordance with Rule 13d-3 under the Exchange Act
pursuant to which a person or group of persons is deemed to have beneficial ownership of any
shares of common stock that such person has the right to acquire within 60 days after the date of
this report. Shares Beneficially OwnedName
    
    Number
    
    Percentage5% Stockholders:Entities affiliated with The Goldman Sachs Group, Inc. (a).
    
    
    14,564,380
    
    
    
    99.0
    %Directors and named executive officers:Lance
Boxer (b)
    
    
    129,750
    
    
    
    *Greg
Kenepp (c)
    
    
    123,150
    
    
    
    *Timothy
Whelan (d)
    
    
    72,975
    
    
    
    *Don Carlos
Bell III (e)
    
    
    6,750
    
    
    
    Michael
Sheehan (f)
    
    
    29,000
    
    
    
    *Colin
Knight (g)
    
    
    6,750
    
    
    
    Jack Daly (h)
    
    
    
    
    
    
    Robert
Gheewalla (i)
    
    
    
    
    
    
    Joseph
Gleberman (j)
    
    
    
    
    
    
    Eric
Schwartz (k)
    
    
    
    
    
    
    All
directors and executive officers as a group (10 people) (l)
    
    
    24,000
    
    
    
    *
   *
    
    Less than one percent.(a)
    
    Of these shares 8,279,500 shares are owned by GS Capital Partners 2000, L.P., 3,008,448
shares are owned by GS Capital Partners 2000 Offshore, L.P., 2,629,031 shares are owned by GS
Capital Partners 2000 Employee Fund, L.P., 346,064 shares are owned by GS Capital Partners
2000 GmbH & Co. Beteiligungs KG, 200,887 shares are owned by Stone Street Fund 2000, L.P., and
100,450 shares are owned by Bridge Street Special Opportunities Fund, L.P. Affiliates of The
Goldman Sachs Group, Inc. and Goldman, Sachs & Co. are the general or managing partners or
investment managers of these partnerships. The Goldman Sachs Group, Inc. and Goldman, Sachs &
Co. each disclaims beneficial ownership of the shares owned by these partnerships to the
extent that partnership or membership interests, as the case may be, in such partnerships are
held by persons other than The Goldman Sachs Group, Inc., Goldman, Sachs & Co. and its
affiliates. The address of each of these partnerships, Goldman, Sachs & Co. and The Goldman
Sachs Group, Inc. is 85 Broad Street, New York, New York 10004.(b)
    
    Includes 128,750 shares subject to options which
are exercisable for common stock currently or within 60 days of this
report.(c)
    
    Includes 72,050 shares subject to options which
are exercisable for common stock currently or within 60 days of this
report.(d)
    
    Includes 36,075 shares subject to options which
are exercisable for common stock currently or within 60 days of this
report.(e)
    
    Includes 6,750 shares subject to options which
are exercisable for common stock currently or within 60 days of this
report.(f)
    
    Includes 27,000 shares subject to options which
are exercisable for common stock currently or within 60 days of this
report.(g)
    
    Includes 6,750 shares subject to options which
are exercisable for common stock currently or within 60 days of this
report.(h)
    
    Mr. Daly, who is a Vice President in the Principal Investment Area of Goldman, Sachs & Co.,
disclaims beneficial ownership of the securities owned by The Goldman Sachs Group, Inc.,
Goldman, Sachs & Co., and its affiliates. The address for Mr. Daly is 85 Broad Street, New
York, New York 10004.(i)
    
    Mr. Gheewalla, who is a Managing Director in the Principal Investment Area of Goldman, Sachs
& Co., disclaims beneficial ownership of the securities owned by The Goldman Sachs Group,
Inc., Goldman, Sachs & Co. and its affiliates. The address for Mr. Gheewalla is 85 Broad
Street, New York, New York 10004.(j)
    
    Mr. Gleberman, who is a Managing Director of Goldman, Sachs & Co., disclaims beneficial
ownership of the securities owned by The Goldman Sachs Group, Inc., Goldman, Sachs & Co. and
its affiliates. The address for Mr. Gleberman is 85 Broad Street, New York, New York 10004. 74




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(k)
    
    Mr. Schwartz, who is a Managing Director of Goldman, Sachs & Co., disclaims beneficial
ownership of the securities owned by The Goldman Sachs Group, Inc., Goldman, Sachs & Co. and
its affiliates. The address for Mr. Schwartz is 85 Broad Street, New York, New York 10004.(l)
    
    Includes 277,375 shares subject to options which
are exercisable for common stock currently or within 60 days of this
report. Equity Compensation Plan Information The following table provides certain information with respect to all of our equity
compensation plans in effect as of September 30, 2004: Number of
    
    
    
    
    
    Number of securitiessecurities to be
    
    Weighted-
    
    remaining available forissued upon
    
    average exercise
    
    future issuance underexercise of
    
    price of
    
    the equityoutstanding
    
    outstanding
    
    compensation plansoptions, warrants
    
    options, warrants
    
    (excluding securitiesand rights
    
    and rights
    
    reflected in column (a))Plan Category
    
    (a)
    
    (b)
    
    (c)Equity compensation plans approved by security holders
    
    
    
    
    
    
    
    
    
    
    Equity compensation plans not approved by security holders (1)
    
    
    1,931,100
    
    
    $
    8.78
    
    
    
    64,688Total
    
    
    1,931,100
    
    
    $
    8.78
    
    
    
    64,688
  (1)
    
    For a description of the material features of our equity compensation plans not approved by
security holders, see the description of the Stock Option Plan and Key Employee Equity
Investment Plan in Item 11 of this report. 
 Item 13. Certain Relationships and Related Transactions Goldman, Sachs & Co. GSCP 2000 and other private equity funds affiliated with Goldman, Sachs & Co. own
substantially all of our common stock. Goldman, Sachs & Co., an affiliate of GSCP 2000 and its
related investment funds, provided advisory and other services to GSCP 2000 and us in connection
with sourcing, structuring and arranging the acquisition of IPC Information Systems and received
fees of $8.0 million for those services. Goldman, Sachs & Co. also acted as an initial purchaser in
the offering of our notes and an affiliate of Goldman, Sachs & Co. acted as the arranger and
syndication agent under our senior secured credit facilities. In connection with these
transactions, Goldman, Sachs & Co. and its affiliates received aggregate fees of approximately $9.3
million. Goldman, Sachs & Co. and its affiliates may in the future provide commercial banking,
investment banking or other financial advisory services to us and our affiliates. Goldman, Sachs &
Co. and/or its affiliates also purchase goods and services from us from time to time and may do so
in the future. We provide project sales and installation and maintenance services negotiated on an
arms-length basis to Goldman, Sachs & Co. Services provided by us are billed to Goldman, Sachs &
Co, and settled through the collection of trade receivables and are consistent with pricing offered
to comparable globally positioned customers. Revenue related to these services amounted to $5.7
million, $9.1 million and $4.5 million for 2004 and 2003 and the period from November 15 (date of
initial capitalization) to September 30, 2002, respectively. For the periods ending September 30,
2004 and 2003, we recorded on our balance sheet $2.1 million and $2.9 million of trade receivables,
respectively, and $1.0 and $0.9 million of customer advances, respectively, related to maintenance
services provided to Goldman, Sachs & Co. In connection with the amendment and restatement of our senior secured credit facilities in
September 2003, Goldman Sachs Credit Partners L.P. acted as the sole lead arranger and syndication
agent. Goldman Sachs Credit Partners L.P. received $0.6 million in fees for this service. GSCP 2000 and other private equity funds affiliated with Goldman, Sachs & Co. own
substantially all of our common stock. On December 31, 2003, we declared a special cash dividend of
approximately $18.0 million, or $1.22 per share, to stockholders of record on December 31, 2003, of
which approximately $17.9 million was paid on December 31, 2003. The remaining $0.1 million was
paid in January 2004. Gains US and UK and Gains Asia Acquisition In January 2004, we purchased Gains Asia from GSCP 2000 and other private equity funds
affiliated with Goldman, Sachs & Co. for approximately $17.4 million in cash consideration,
including an advance payment of $5.5 million made in October 2003, an $11.7 payment million at
closing, and a $0.2 million payment in April 2004. Included in these payments was approximately
$5.5 million that we paid in excess of the carryover basis of the net assets acquired to GSCP
2000 and other private equity funds affiliated with
Goldman, Sachs & Co. This excess payment has been treated as a
distribution for accounting purposes and the assets and
liabilities have been recorded at carryover basis based on the amount GSCP 2000 paid for them. 75




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Stockholders Agreement We entered into a stockholders agreement with GSCP 2000 and the other private equity funds
affiliated with Goldman, Sachs & Co. who substantially own all of our common stock and Richard
Kleinknecht, a minority holder of our common stock. This agreement provides GSCP 2000 and the other
Goldman, Sachs & Co. funds with various management rights, including the right to designate at
least one member of our board of directors. The agreement also provides specified restrictions on
Kleinknechts ability to transfer shares of our common stock. 
 Item 14. Principal Accountant Fees and Services Audit Committee Pre-Approval Policies and Procedures The Audit Committee has adopted policies and procedures for pre-approving all audit and
non-audit services provided by our independent auditors prior to the engagement of the independent
auditors with respect to these services. Under these policies, proposed services may be
pre-approved on a periodic basis or individual engagements may be separately approved by the Audit
Committee prior to the services being performed. In each case, the Audit Committee considers
whether the provision of these services would impair the independent auditors independence. All
audit services, audit-related services, tax services and other services provided by Ernst and
Young, LLP for 2004 and subsequent to May 6, 2003 were pre-approved by the Audit Committee. Fees for Independent Accountants Audit
Fees.We have been billed approximately $0.8 million for 2004 and $0.8 million for 2003
for professional services rendered by Ernst and Young LLP for the audit of our annual financial
statements and reviews of the quarterly financial statements included in our quarterly reports, as
well as for professional services rendered in connection with our filings with the Securities and
Exchange Commission. Audit
Related Fees.We have been billed approximately $0.1 million for 2004 and $0.4 million
for fiscal year 2003 for professional services rendered by Ernst and Young LLP for accounting
research, due diligence and audits related to acquisitions. Tax Fees.We have been billed approximately $0.6 million for 2004 and $0.1 million for 2003
for professional services rendered by Ernst and Young LLP for tax compliance, tax advisory and tax
planning services. All Other Fees.No other services were rendered by Ernst and Young LLP for 2004 and 2003. 76




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PART IV 
 Item 15. Exhibits and Financial Statement Schedules The following documents are filed as part of this report: (a) (1)
    
    Financial Statements See index to Financial Statements in Item 8 of this report.(a) (2)
    
    Financial Statement SchedulesSchedule II: Valuation and Qualifying Accounts
 Schedules not listed above have been omitted because the information required to be set forth
therein is not applicable or is included elsewhere in the financial statements or notes thereto. 77




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Schedule II IPC Acquisition Corp.
Schedule of Valuation and Qualifying Accounts Deductions-Write-offs,Balance at
    
    Additions-
    
    Payments and
    
    Balance atBeginning of
    
    Charged to
    
    Other
    
    End of(dollars in thousands)
    
    Period
    
    Expense
    
    Adjustments
    
    PeriodAllowance for doubtful accounts:IPC Acquisition Corp:Year ended September 30, 2004
    
    $
    732
    
    
    $
    (177
    )
    
    $
    709
    
    
    $
    1,264Year ended September 30, 2003
    
    $
    583
    
    
    $
    151
    
    
    $
    (2
    )
    
    $
    732Period from November 15, 2001 to September 30, 2002
    
    $
    
    
    
    $
    582
    
    
    $
    1
    
    
    $
    583PredecessorIPC Information Systems:Period from October 1, 2001 to December 20, 2001
    
    $
    1,600
    
    
    $
    893
    
    
    $
    847
    
    
    $
    3,340Inventory obsolescence:IPC Acquisition Corp:Year ended September 30, 2004
    
    $
    5,381
    
    
    $
    834
    
    
    $
    (970
    )
    
    $
    5,245Year ended September 30, 2003
    
    $
    5,159
    
    
    $
    1,041
    
    
    $
    (819
    )
    
    $
    5,381Period from November 15, 2001 to September 30, 2002
    
    $
    7,626
    
    
    $
    528
    
    
    $
    (2,995
    )
    
    $
    5,159PredecessorIPC Information Systems:Period from October 1, 2001 to December 20, 2001
    
    $
    6,767
    
    
    $
    471
    
    
    $
    388
    
    
    $
    7,626Warranty Claims:IPC Acquisition Corp:Year ended September 30, 2004
    
    $
    1,889
    
    
    $
    2,040
    
    
    $
    (2,352
    )
    
    $
    1,577Year ended September 30, 2003
    
    $
    2,159
    
    
    $
    2,136
    
    
    $
    (2,406
    )
    
    $
    1,889Period from November 15, 2001 to September 30, 2002
    
    $
    2,352
    
    
    $
    1,745
    
    
    $
    (1,938
    )
    
    $
    2,159PredecessorIPC Information Systems:Period from October 1, 2001 to December 20, 2001
    
    $
    2,373
    
    
    $
    314
    
    
    $
    (335
    )
    
    $
    2,352
 78




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(a) (3)
    
    ExhibitsThe following is a list of exhibits filed as part of this report.
 Exhibit Index ExhibitNumber
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to
exhibit 3.1 to the companys Registration Statement on Form S4 (No. 33382540)).3.2
    
    Amended and Restated Bylaws of the Company (incorporated by reference to exhibit 3.2 to the
companys Registration Statement on Form S4 (No. 33382540)).4.1
    
    Indenture, dated as of December 20, 2001, among the company, the subsidiary guarantors listed on
schedule I thereto and The Bank of New York as trustee relating to the 11.50% senior
subordinated notes due 2009 (incorporated by reference to exhibit 4.1 to the companys
Registration Statement on Form S4 (No. 33382540)).4.2
    
    The Exchange and Registration Rights Agreement, dated December 20, 2001, among the company, the
guarantors listed on schedule I thereto, Goldman, Sachs & Co. and Scotia Capital (USA) Inc.
relating to the 11.50% senior subordinated notes due 2009 (incorporated by reference to exhibit
4.2 to the companys Registration Statement on Form S4 (No. 33382540)).4.3
    
    Supplemental Indenture, dated February 28, 2003, among the company, the subsidiary guarantors
parties thereto and The Bank of New York, as trustee. (incorporated by reference to exhibit 4.3
to the companys Registration Statement on Form S1 (No. 333103264)).4.4
    
    Supplemental Indenture, dated May 13, 2003, among the company, the subsidiary guarantors parties
thereto and The Bank of New York, as trustee. (incorporated by reference to exhibit 4.4 to the
companys Registration Statement on Form S1 (No. 333103264)).10.1
    
    Amended and Restated Stockholders Agreement dated as of December 19, 2001, among GS Capital
Partners 2000, L.P., GS Capital Partners 2000 Offshore, L.P., GS Capital Partners 2000 GMBH &
Co. Beteiligungs, GS Capital Partners 2000 Employee Fund, L.P., Stone Street Fund 2000, L.P.,
Bridge Street Special Opportunities Fund 2000, L.P., Richard Kleinknecht and IPC Acquisition
Corp. (incorporated by reference to exhibit 10.1 to the companys Registration Statement on Form
S4 (No. 33382540)).10.2
    
    Amended and Restated Credit and Guaranty Agreement dated August 29, 2003 among the company,
certain subsidiaries of the company, various lenders, Goldman Sachs Credit Partners L.P., as
sole lead arranger and syndication agent, General Electric Capital Corporation as administrative
agent and collateral agent, and CIT Lending Services Corporation, as documentation agent
(incorporated by reference to exhibit 99.2 to the companys Form 8-K filed on September 8,
2003).10.3
    
    Amended and Restated Labor Pooling Agreement, dated as of December 18, 1997, by and between
Kleinknecht Electric Company, Inc. (NY) and IPC Information Systems, Inc. (incorporated by
reference to exhibit 10.3 to the companys Registration Statement on Form S4 (No.
33382540)).10.4
    
    Amended and Restated Labor Pooling Agreement, dated as of December 18, 1997, by and between
Kleinknecht Electric Company, Inc. (NJ) and IPC Information Systems, Inc. (incorporated by
reference to exhibit 10.4 to the companys Registration Statement on Form S4 (No.
33382540)).10.5
    
    2002 Stock Option Plan, dated February 15, 2002 (incorporated by reference to exhibit 10.7 to
the companys Registration Statement on Form S4 (No. 33382540)).10.6
    
    Key Employee Equity Investment Plan, dated February 15, 2002 (incorporated by reference to
exhibit 10.8 to the companys Registration Statement on Form S4 (No. 33382540)).
 79




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##### Table of Contents



ExhibitNumber
    
    Description10.7
    
    Settlement and Rejection Agreement, dated March 13, 2003, among IPC Acquisition Corp., Global
Crossing Ltd., and Global Crossing North America Holdings Inc. (incorporated by reference to
exhibit 10.11 to the companys annual report for the year ended September 30, 2002).10.8
    
    Employment Agreement between the company and Lance Boxer, dated June 19, 2003 (incorporated by
reference to exhibit 10.1 to the companys quarterly report for the quarterly period ended June
30, 2003).10.9
    
    Employment Agreement between the company and Greg Kenepp, dated September 18, 2003 (incorporated
by reference to exhibit 10.14 to the companys Registration Statement on Form S1 (No.
333103264)).10.10
    
    Share Purchase Agreement, dated January 22, 2003, between Gains Acquisition Corp., Gains Asia
Acquisition Corp. and Gains International Infocom Holdings BV (incorporated by reference to
exhibit 10.2 to the companys quarterly report for the quarterly period ended June 30, 2003)10.11
    
    Call Option Deed, dated January 22, 2003, between Gains International Infocom Holdings BV, IPC
Acquisition Corp. and IPC Information Systems, Inc (incorporated by reference to exhibit 10.3 to
the companys quarterly report for the quarterly period ended June 30, 2003).10.12
    
    Amended and Restated Labor Pooling Agreement, dated as of June 15, 2004, by and between
Kleinknecht Electric Company, Inc. (NY) and IPC Information Systems, LLC. (incorporated by
reference to exhibit 10.18 to the companys quarterly report for the quarterly period ended June
30, 2004).10.13
    
    Amended and Restated Labor Pooling Agreement, dated as of June 15, 2004, by and between
Kleinknecht Electric Company, Inc. (NJ) and IPC Information Systems, LLC. (incorporated by
reference to exhibit 10.18 to the companys quarterly report for the quarterly period ended June
30, 2004).10.14
    
    Employment Agreement between the company and Timothy Whelan, dated July 15, 2004 (incorporated
by reference to exhibit 10.20 to the companys quarterly report for the quarterly period ended
June 30, 2004).10.15
    
    First Amendment dated December
12, 2003 to Amended and Restated Credit and Guaranty agreement dated
August 29, 2003 (incorporated by reference to exhibit 10.1 to the
Companys quarterly report for the quarterly period ended December
31, 2004).10.16
    
    Second Amendment and Consent dated November 30, 2004 to the Amended and Restated Credit and
Guaranty Agreement dated August 29, 2003 (incorporated by reference to exhibit 10.21 to the
companys Form 8-K filed on December 6, 2003).*10.17
    
    Joinder Agreement dated as of
April 20, 2004 to Amended and Restated Credit Agreement dated August
29, 2003.10.18
    
    Consent dated October 22, 2004, related to the Amended and Restated Credit and Guaranty
Agreement dated August 29, 2003 (incorporated by reference to exhibit 10.22 to the companys
Form 8-K filed on December 6, 2003).*10.19
    
    Form of IPC Acquisition Corp.
Non-qualified Stock Option Agreement*12.1
    
    Ratio of Earnings to Fixed Charges.14.1
    
    IPC Acquisition Corp. Code of
Ethics (incorporated by reference to exhibit 14.1 to the Companys
annual report for the year ended September 30, 2003).*21.1
    
    List of Subsidiaries.*23.1
    
    Consent of Ernst and Young LLP,
Independent Registered Public Accounting Firm.*31.1
    
    Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
    
    Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32.1
    
    Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*32.2
    
    Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   *
    
    Filed herewith 80




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, in the City of New York, State of New York, on the
23rd day of December 2004. IPC Acquisition Corp.By:  /s/
Lance BoxerLance BoxerChief Executive Officer and Director
 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated. Signature
    
    Title
    
    DateBy:  /s/ LANCE
BOXER

Lance Boxer
    
    Chief Executive Officer and Director(Principal Executive Officer)
    
    December 23, 2004By:  /s/ GREG
KENEPP

Greg Kenepp
    
    Chief Operating Officer and Director
    
    December 23, 2004By:  /s/ TIMOTHY WHELAN

Timothy Whelan
    
    Chief Financial Officer(Principal Financial and Accounting
Officer)
    
    December 23, 2004By:  /s/ JOSEPH GLEBERMAN

Joseph Gleberman
    
    Chairman of the Board
    
    December 23, 2004By:  /s/ JACK DALY

Jack Daly
    
    Director
    
    December 23, 2004By:  /s/ ROBERT GHEEWALLA

Robert Gheewalla
    
    Director
    
    December 23, 2004By:  /s/ ERIC
SCHWARTZ

Eric Schwartz
    
    Director
    
    December 23, 2004
 81




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##### Table of Contents



Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by
Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act. The registrant has not sent an annual report or proxy materials to its security holders during
the last fiscal year. The registrant does not currently intend to send an annual report or proxy
materials to security holders subsequent to this filing. 82