IPC ACQUISITION CORP - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


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

For the Quarterly Period Ended March 31, 2003


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

For the Transition Period From to

Commission File Number 333-82540

IPC ACQUISITION CORP.

(Exact name of registrant as specified in its charter)


Delaware		74-3022102

(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)


88 Pine Street, Wall Street Plaza, New York, NY		10005

(Address of principal executive offices)		(Zip Code)

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

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

Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

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


Class		Outstanding at April 30, 2003

Common Stock, par value $0.01		14,724,380 shares

TABLE OF CONTENTS


CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3. Quantitative and Qualitative Disclosure About Market Risk
	Item 4. Controls and Procedures
Part II – Other Information:
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Securities Holders
	Item 5. Other Informations
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
Certifications
EX-99.1: CERTIFICATION OF CHIEF EXECUTIVE OFFICER
EX-99.2: CERTIFICATION OF CHIEF FINANCIAL OFFICER

IPC ACQUISITION CORP.

INDEX


				Page

*Part I. Financial Information:*
	Item 1.	Financial Statements
		A)	Condensed Consolidated Balance Sheets as of September 30, 2002 and March 31, 2003	1
		B)	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2002 and 2003, the period from October 1, 2001 to December 20, 2001, the period from November 15, 2001 (date of initial capitalization) to March 31, 2002, and the Six Months ended March 31, 2003	2
		C)	Condensed Consolidated Statements of Cash Flows for the period from October 1, 2001 to December 20, 2001, the period from November 15, 2001 (date of initial capitalization) to March 31, 2002, and the Six Months ended March 31, 2003	3
		D)	Notes to Condensed Consolidated Financial Statements	4
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
	Item 3.	Quantitative and Qualitative Disclosure About Market Risk		37
	Item 4.	Controls and Procedures		37
*Part II. Other Information:*
	Item 1.	Legal Proceedings		38
	Item 2.	Changes in Securities and Use of Proceeds		38
	Item 3.	Defaults Upon Senior Securities		38
	Item 4.	Submission of Matters to a Vote of Security Holders		38
	Item 5.	Other Information		38
	Item 6.	Exhibits and Reports on Form 8-K		38
		Signature		39
		Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002		40

Part I – Financial Information:

Item 1. Financial Statements

IPC ACQUISITION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Amounts)
(Unaudited)


			September 30,			March 31,
			2002			2003

Assets
Assets:
	Cash		$	25,294		$	22,409
	Restricted cash			7,272			–
	Accounts receivable, net of allowance of $1,245 and $1,072, respectively			52,468			47,598
	Inventories, net			22,218			35,844
	Prepaid and other current assets			4,614			5,198

		Total current assets		111,866			111,049
	Property, plant and equipment, net			21,004			20,313
	Goodwill			72,279			70,213
	Intangible assets, net			209,132			202,503
	Deferred financing costs, net			15,116			13,963
	Other assets			835			834

		Total assets	$	430,232		$	418,875

Liabilities and Stockholders’ Equity
Liabilities:
	Current portion of long term debt		$	6,460		$	5,827
	Accounts payable			4,530			5,420
	Accrued expenses and other current liabilities			23,562			16,196
	Current portion of deferred compensation			633			633
	Income taxes payable			2,373			3,535
	Customer advances on installation contracts			11,232			25,249
	Deferred revenue on maintenance contracts			12,261			15,440
	Current portion of guarantees on former parent obligations			–			1,353
	Deferred purchase price obligation			7,272			–

		Total current liabilities		68,323			73,653
	Term loan			64,602			48,075
	Senior subordinated notes			150,000			150,000
	Deferred taxes, net			7,190			5,743
	Deferred compensation			3,119			3,073
	Guarantees on former parent obligations			–			1,899

		Total liabilities		293,234			282,443

Commitments and Contingencies
Stockholders’ equity:
	Common stock, $0.01 par value, authorized 25,000,000 shares; 14,060,000 shares issued and outstanding at September 30, 2002 and March 31, 2003			141			141
	Paid in capital			140,159			140,159
	Notes receivable for purchases of common stock			(383	)		(383	)
	Accumulated deficit			(9,200	)		(10,013	)
	Accumulated other comprehensive income			6,281			6,528

		Total stockholders’ equity		136,998			136,432

		Total liabilities and stockholders’ equity	$	430,232		$	418,875

The accompanying notes are an integral part of the condensed consolidated financial statements.

IPC ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
(Unaudited)


									Predecessor

									Period from			Period from
			Three Months			Three Months			October 1,			November 15,			Six Months
			Ended			Ended			2001 to			2001 to			Ended
			March 31,			March 31,			December 20,			March 31,			March 31,
			2002			2003			2001			2002			2003

Revenue:
	Product sales and installations		$	54,854		$	32,819		$	35,691		$	67,329		$	56,570
	Service			23,351			23,486			23,089			25,205			48,118

				78,205			56,305			58,780			92,534			104,688

Cost of goods sold (depreciation shown separately):
	Product sales and installations			46,779			19,680			18,869			59,452			31,934
	Service			13,791			11,894			13,953			15,058			24,929
	Depreciation and amortization			260			299			216			287			596

				60,830			31,873			33,038			74,797			57,459

		Gross profit		17,375			24,432			25,742			17,737			47,229

Research and development				3,809			2,928			3,519			4,115			5,663
Selling, general and administrative expense				9,836			10,742			17,110			10,895			19,472
Depreciation and amortization				4,351			4,798			10,521			4,879			9,529

		Income (loss) from operations		(621	)		5,964			(5,408	)		(2,152	)		12,565
Other income (expense):
	Interest expense, net			(6,935	)		(6,477	)		(5,987	)		(7,784	)		(12,682	)
	Other income (expense), net			(1	)		802			49			28			1,327

		Income (loss) before income taxes		(7,557	)		289			(11,346	)		(9,908	)		1,210
Income tax expense (benefit)				(2,247	)		900			(318	)		(3,216	)		2,023

Net loss			$	(5,310	)	$	(611	)	$	(11,028	)	$	(6,692	)	$	(813	)

The accompanying notes are an integral part of the condensed consolidated financial statements.

IPC ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)


				Predecessor

				Period from			Period from
				October 1,			November 15,			Six Months
				2001 to			2001 to			Ended
				December 20,			March 31,			March 31,
				2001			2002			2003

Cash flows from operating activities:
Net loss				$	(11,028	)	$	(6,692	)	$	(813	)
	Adjustments to reconcile net loss to net cash provided by operating activities:
		Depreciation and amortization			1,393			1,225			2,975
		Amortization of intangibles			9,344			3,941			7,150
		Amortization of deferred financing costs			—			826			1,463
		Provision for doubtful accounts			1,018			303			(54	)
		Deferred income taxes			(4,761	)		(5,324	)		(1,447	)
		Employee deferred compensation charge			(19	)		(30	)		(46	)
	Changes in operating assets and liabilities:
		Accounts receivables			4,702			6,945			5,292
		Inventories			1,823			33,695			(13,626	)
		Prepaids and other current assets			(281	)		(80	)		(1,296	)
		Other assets			322			89			1
		Accounts payable and accrued expenses			7,019			(4,307	)		(4,656	)
		Income taxes payable			(988	)		2,001			1,162
		Customer advances and deferred revenue			9,326			(19,454	)		17,196
		Other liabilities			(2,623	)		—			—

			Net cash provided by operating activities		15,247			13,138			13,301

Cash flows from investing activities:
		Capital expenditures			(1,902	)		(982	)		(2,284	)
		Proceeds from restricted cash account and other amounts in connection with Global Crossing settlement			—			—			9,419
		Cash payments in connection with Global Crossing settlement			—			—			(5,200	)
		Payment for acquisitions, net of cash acquired (net of restricted cash)			—			(346,441	)		—

			Net cash provided by (used in) investing activities		(1,902	)		(347,423	)		1,935

Cash flows from financing activities:
		Repayments of intercompany borrowings			(15,134	)		—			—
		Principal payments on term loan			—			—			(17,160	)
		Debt issue costs for term loan amendment			—			—			(310	)
		Proceeds from term loan, net of issuance costs			—			98,600			—
		Proceeds from senior subordinated notes, net of issuance costs			—			136,600			—
		Proceeds from equity issuance, net			—			139,700			—

			Net cash provided by (used in) financing activities		(15,134	)		374,900			(17,470	)

Effect of exchange rate changes on cash					(1,996	)		(1,034	)		(651	)

			Net increase (decrease) in cash		(3,785	)		39,581			(2,885	)
Cash, beginning of period					4,536			—			25,294

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