UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended June 30, 2003
or
| 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 July 31, 2003 | |
| Common Stock, par value $0.01 | 14,724,380 shares |
IPC ACQUISITION CORP.
INDEX
| Page | ||||||||
Part I. Financial Information: |
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Item 1. Financial Statements |
||||||||
A) |
Condensed Consolidated Balance Sheets as of September 30, 2002 and June 30, 2003 | 1 | ||||||
| B) | Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2002 and 2003, the period from October 1, 2001 to December 20, 2001, the period from November 15, 2001 (date of initial capitalization) to June 30, 2002, and the Nine Months ended June 30, 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 June 30, 2002, and the Nine Months ended June 30, 2003 | 3 | ||||||
| D) | Notes to Condensed Consolidated Financial Statements | 4 | ||||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24 | |||||||
Item 3. Quantitative and Qualitative Disclosure About Market Risk |
40 | |||||||
Item 4. Controls and Procedures |
40 | |||||||
Part II. Other Information: |
||||||||
Item 1. Legal Proceedings |
41 | |||||||
Item 2. Changes in Securities and Use of Proceeds |
41 | |||||||
Item 3. Defaults Upon Senior Securities |
41 | |||||||
Item 4. Submission of Matters to a Vote of Security Holders |
41 | |||||||
Item 5. Other Information |
41 | |||||||
Item 6. Exhibits and Reports on Form 8-K |
41 | |||||||
Signature |
43 | |||||||
Part I — Financial Information:
Item 1. Financial Statements
IPC ACQUISITION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Amounts)
(Unaudited)
| September 30, | June 30, | |||||||||
| 2002 | 2003 | |||||||||
Assets |
||||||||||
Assets: |
||||||||||
Cash |
$ | 25,294 | $ | 21,016 | ||||||
Restricted cash |
7,272 | — | ||||||||
Accounts receivable, net of allowance of $1,245 and $1,201, respectively |
52,468 | 52,548 | ||||||||
Inventories, net |
22,218 | 43,367 | ||||||||
Prepaid and other current assets |
4,614 | 5,583 | ||||||||
Total current assets |
111,866 | 122,514 | ||||||||
Property, plant and equipment, net |
21,004 | 22,817 | ||||||||
Goodwill |
72,279 | 80,192 | ||||||||
Intangible assets, net |
209,132 | 200,800 | ||||||||
Deferred financing costs, net |
15,116 | 13,410 | ||||||||
Other assets |
835 | 811 | ||||||||
Total assets |
$ | 430,232 | $ | 440,544 | ||||||
Liabilities and Stockholders’ Equity |
||||||||||
Liabilities: |
||||||||||
Current portion of long term debt |
$ | 6,460 | $ | 5,827 | ||||||
Accounts payable |
4,530 | 4,953 | ||||||||
Accrued expenses and other current liabilities |
23,562 | 21,359 | ||||||||
Current portion of deferred compensation |
633 | 633 | ||||||||
Income taxes payable |
2,373 | 3,758 | ||||||||
Customer advances on installation contracts |
11,232 | 36,856 | ||||||||
Deferred revenue on maintenance contracts |
12,261 | 12,694 | ||||||||
Current portion of guarantees on former parent obligations |
— | 1,353 | ||||||||
Deferred purchase consideration |
— | 3,128 | ||||||||
Deferred purchase price obligation |
7,272 | — | ||||||||
Total current liabilities |
68,323 | 90,561 | ||||||||
Term loan |
64,602 | 46,619 | ||||||||
Senior subordinated notes |
150,000 | 150,000 | ||||||||
Deferred taxes, net |
7,190 | 4,657 | ||||||||
Deferred compensation |
3,119 | 3,049 | ||||||||
Guarantees on former parent obligations |
— | 1,561 | ||||||||
Total liabilities |
293,234 | 296,447 | ||||||||
Commitments and Contingencies |
||||||||||
Stockholders’ equity: |
||||||||||
Common stock, $0.01 par value, 25,000,000 shares authorized; 14,060,000
and 14,724,380 shares issued and outstanding at September 30, 2002 and
June 30, 2003, respectively |
141 | 147 | ||||||||
Paid in capital |
140,159 | 145,846 | ||||||||
Notes receivable for purchases of common stock |
(383 | ) | (392 | ) | ||||||
Accumulated deficit |
(9,200 | ) | (10,980 | ) | ||||||
Accumulated other comprehensive income |
6,281 | 9,476 | ||||||||
Total stockholders’ equity |
136,998 | 144,097 | ||||||||
Total liabilities and stockholders’ equity |
$ | 430,232 | $ | 440,544 | ||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
1
IPC ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
(Unaudited)
| Predecessor | ||||||||||||||||||||||
| Period from | Period from | |||||||||||||||||||||
| Three Months | Three Months | October 1, | November 15, | Nine Months | ||||||||||||||||||
| Ended | Ended | 2001 to | 2001 to | Ended | ||||||||||||||||||
| June 30, | June 30, | December 20, | June 30, | June 30, | ||||||||||||||||||
| 2002 | 2003 | 2001 | 2002 | 2003 | ||||||||||||||||||
Revenue: |
||||||||||||||||||||||
Product sales and installations |
$ | 37,087 | $ | 32,654 | $ | 35,691 | $ | 104,416 | $ | 89,224 | ||||||||||||
Service |
25,721 | 28,338 | 23,089 | 50,926 | 76,456 | |||||||||||||||||
| 62,808 | 60,992 | 58,780 | 155,342 | 165,680 | ||||||||||||||||||
Cost of goods sold (depreciation shown
separately): |
||||||||||||||||||||||
Product sales and installations |
30,322 | 23,374 | 18,869 | 89,774 | 55,308 | |||||||||||||||||
Service |
13,617 | 14,488 | 13,953 | 28,675 | 39,417 | |||||||||||||||||
Depreciation and amortization |
248 | 556 | 216 | 535 | 1,152 | |||||||||||||||||
| 44,187 | 38,418 | 33,038 | 118,984 | 95,877 | ||||||||||||||||||
Gross profit |
18,621 | 22,574 | 25,742 | 36,358 | 69,803 | |||||||||||||||||
Research and development |
3,847 | 2,784 | 3,519 | 7,962 | 8,447 | |||||||||||||||||
Selling, general and administrative expense |
10,352 | 11,384 | 17,110 | 21,247 | 30,856 | |||||||||||||||||
Depreciation and amortization |
4,535 | 4,738 | 10,521 | 9,414 | 14,267 | |||||||||||||||||
Income (loss) from operations |
(113 | ) | 3,668 | (5,408 | ) | (2,265 | ) | 16,233 | ||||||||||||||
Other income (expense): |
||||||||||||||||||||||
Interest expense, net |
(6,894 | ) | (6,008 | ) | (5,987 | ) | (14,678 | ) | (18,690 | ) | ||||||||||||
Other income (expense), net |
(92 | ) | 2,012 | 49 | (64 | ) | 3,339 | |||||||||||||||
Income (loss) before income taxes |
(7,099 | ) | (328 | ) | (11,346 | ) | (17,007 | ) | 882 | |||||||||||||
Income tax expense (benefit) |
(1,714 | ) | 639 | (318 | ) | (4,930 | ) | 2,662 | ||||||||||||||
Net loss |
$ | (5,385 | ) | $ | (967 | ) | $ | (11,028 | ) | $ | (12,077 | ) | $ | (1,780 | ) | |||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
2
IPC ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
| Predecessor | ||||||||||||||
| Period from | Period from | Nine Months | ||||||||||||
| October 1, 2001 to | November 15, 2001 | Ended | ||||||||||||
| December 20, 2001 | to June 30, 2002 | June 30, 2003 | ||||||||||||
Cash flows from operating activities: |
||||||||||||||
Net loss |
$ | (11,028 | ) | $ | (12,077 | ) | $ | (1,780 | ) | |||||
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||||||||
Depreciation and amortization |
1,393 | 2,474 | 4,683 | |||||||||||
Amortization of intangibles |
9,344 | 7,475 | 10,736 | |||||||||||
Amortization of deferred financing costs |
— | 1,564 | 2,016 | |||||||||||
Provision for doubtful accounts |
1,018 | 445 | 248 | |||||||||||
Deferred income taxes |
(4,761 | ) | (8,368 | ) | (2,533 | ) | ||||||||
Employee deferred compensation charge |
(19 | ) | (46 | ) | (70 | ) | ||||||||
Changes in operating assets and liabilities: |
||||||||||||||
Accounts receivables |
4,702 | 25,223 | 2,146 | |||||||||||
Inventories |
1,823 | 43,771 | (21,149 | ) | ||||||||||
Prepaids and other current assets |
(281 | ) | (545 | ) | (1,594 | ) | ||||||||
Other assets |
322 | (16 | ) | 36 | ||||||||||
Accounts payable and accrued expenses |
7,019 | (9,520 | ) | (9,049 | ) | |||||||||
Income taxes payable |
(988 | ) | 3,221 | 1,305 | ||||||||||
Customer advances and deferred revenue |
9,326 | (26,885 | ) | 26,057 | ||||||||||
Other liabilities |
(2,623 | ) | — | (9 | ) | |||||||||
Net cash provided by operating activities |
15,247 | 26,716 | 11,043 | |||||||||||
Cash flows from investing activities: |
||||||||||||||
Capital expenditures |
(1,902 | ) | (2,785 | ) | (3,851 | ) | ||||||||
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 | ) | ||||||||||
Cash
payments for acquisitions |
— | (345,746) | — | |||||||||||
Cash
acquired as a result of acquisitions |
— | — | 4,087 | |||||||||||
Net cash provided by (used in) investing activities |
(1,902 | ) | (348,531 | ) | 4,455 | |||||||||
Cash flows from financing activities: |
||||||||||||||
Repayments of intercompany borrowings |
(15,134 | ) | — | — | ||||||||||
Principal repayments on term loan |
— | (2,625 | ) | (18,616 | ) | |||||||||
Debt issuance 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 | ) | 372,275 | (18,926 | ) | |||||||||
Effect of exchange rate changes on cash |
(1,996 | ) | 1,180 | (850 | ) | |||||||||