SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended September 30, 1996
Commission file number 0-25492
IPC INFORMATION SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 58-1636502
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification
No.)
Wall Street Plaza
88 Pine Street
New York, New York 10005
(Address of Principal Executive Zip Code
Offices)
(212) 825-9060
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12 (b)
of the Act:None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class: Common Stock, $.01 Par Value
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 the 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.___
The aggregate market value of the voting stock held by non-
affiliates of the Registrant as of November 29, 1996, was
approximately $75.3 million based upon the last sale price
reported for such date on the Nasdaq Stock Market.
The number of shares of the Registrant's Common Stock
outstanding as of November 29, 1996 was 10,650,172.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual
Meeting of Stockholders of IPC Information Systems, Inc. (the
"Proxy Statement"), scheduled to be held on February 14, 1997,
are incorporated by reference in Part III of this Report on
Form 10-K.
<PAGE>
PART I
ITEM 1. BUSINESS
IPC Information Systems, Inc. (the "Company" or "IPC") is
a worldwide industry leader in providing globally integrated
telecommunications products and services to the financial
services industry. The financial services industry includes
securities and investment banking firms, merchant and
commercial banks, inter-dealer and foreign exchange brokers,
securities and commodities exchanges and insurance companies.
The Company focuses on serving the financial trading
environment: the provisioning of products and services that
facilitate the execution of purchase and sale transactions
involving equity and debt securities, commodities, currencies
and other financial instruments. The Company designs,
manufactures, installs and services trading room voice
communication workstations and installs and services
comprehensive LANs which provide the financial trader more
efficient access to data and industry specific value-added
features. In addition, recognizing that financial trading has
become a global industry, IPC, with its recently acquired
subsidiary, International Exchange Networks, Ltd. ("IXNET"),
has implemented a facilities-based global network designed for
the specialized international telecommunications requirements
of the financial services industry.
IPC's goal is to be the preferred single source provider
of integrated voice, data and video communications solutions
and services to the financial trading industry on a worldwide
basis. IPC has developed strong customer relationships over
the past two decades by providing and servicing the specialized
telecommunications products which are utilized to support
trading operations. An increasing number of financial services
institutions in the United States and abroad operate globally,
trading in the major financial markets around the world
regardless of time zones or national boundaries. The Company
believes that the global telecommunications requirements
specific to the financial services industry are not being
addressed. Such requirements include: maximum reliability,
consistently high quality transmission, bandwidth on demand,
capacity for high speed data transmission, rapid service
provisioning, dedicated customer service, continuous attention
to service enhancement and new services development.
Presently, a large portion of international communications are
conducted through a mesh of disparate public networks that do
not offer similar quality, services, reliability or timeliness
of delivery as would be available through a dedicated private
network. In addition, the Company believes that internal
dedicated private networks do not address the significant
international telecommunications traffic that occurs among
financial trading firms. The Company intends to leverage its
existing extensive customer relationships to provide a
continually growing portion of their customers' global
telecommunications requirements through a combination of
products and services developed by IPC and IXNET and, in
particular, through the continued deployment of a facilities-
based global network and the integration of the network with
IPC's product offerings.
The Company's highly reliable, customized
telecommunications systems are used on financial trading floors
where they are known as "turrets" or "dealerboards." IPC, with
a presence in over 30 countries, has the world's largest
installed base of turrets. IPC's turret systems are capable of
providing high speed access to as many as 23,000 telephone
lines and incorporate many features designed to increase the
trader's productivity, speed and quality of communication. In
1993, leveraging its existing customer relationships, the
Company launched its Information Transport Systems ("I.T.S.")
business to provide and support the design and implementation
of cabling infrastructures and an expanded product offering
including local and wide area network hubs and routers. IPC
also provides its customers with network planning and design,
project management, asset management, and on-going facilities
service and support.
IXNET has implemented a facilities-based global network
that comprises a uniform technology platform, switching hubs
located in New York and London, network access nodes and
customer premise nodes in other financial centers, dedicated
circuits connecting customers to the network and software
applications specifically designed for the financial trading
industry. The design of the network enables the Company to
expand capacity (in response to, as opposed to in advance of)
increased customer traffic. The IXNET Network offers desktop-
to-desktop connectivity within and among different firms
connected to the IXNET Network
<PAGE>
anywhere in the world with the same high performance
characteristics presently available only on expensive
dedicated private networks. Currently, the IXNET Network has
network nodes in New York, London, Paris, Chicago and Frankfurt
servicing customer access nodes in 17 countries.
The Company was established in 1973 as Interconnect
Planning Corporation to provide telephone equipment
specifically designed to perform in the demanding environment
of the financial trading community. In 1986, the Company, then
owned by Contel Corporation and known as Contel IPC, opened its
current manufacturing facility in the United States and
commenced operations in the United Kingdom. In October 1991,
the Company was acquired by Richard and Peter Kleinknecht (the
"Principal Stockholders") and certain others and renamed IPC
Information Systems, Inc. On October 3, 1994 the Company
completed its initial public offering of 3,250,000 shares of
common stock at $15.00 per share.
The Industry
Turrets
The turret industry is characterized by a small number of
manufacturers of highly specialized telecommunications systems
sold primarily to companies in the financial services industry.
Turret systems must be exceptionally reliable because of the
time sensitive nature of trading activity. Trading floors may
contain in excess of 1,000 turrets, each with access to
hundreds of telephone lines. Although turrets are installed in
addition to, and communicate with, the internal corporate
telephone system (the "PBX"), turrets have a multiplicity of
enhanced features when compared to the PBX, including, (i)
superior speed and reliability, (ii) non-blocking capabilities
even under the busiest trading conditions; (iii) log-on/log-off
features to allow for trader mobility; (iv) line assignability
to access additional direct telephone lines as needed, and (v)
multiple programmable speakers.
International Telecommunications
The international telecommunications marketplace has
experienced a significant transformation over the last decade.
Improved technology and increased competition due in part to
regulatory reform in numerous international markets and
privatization of state owned communications monopolies have
contributed to the rapid expansion of international
telecommunications usage. The financial services industry has
grown significantly, while at the same time individual firms
have expanded operations internationally to compete more
efficiently in the global marketplace. While these firms are
investing heavily in communications network technology and
infrastructure to remain competitive in this networked
environment, readily available alternatives do not address the
specific needs for globally supported high performance
international communications between the various trading
partners.
To date, financial trading firms have had two alternatives
for addressing these exacting telecommunications demands: (i)
building private networks, incurring both substantial
development and ongoing costs (these private networks
historically have been created for intra-company
communications); or (ii) utilizing the broad based common
carriers' public switched networks, which consist of numerous
non-homogeneous systems and services offered in each market by
a multiplicity of local providers. Presently, a large portion
of international communications is conducted through a mesh of
disparate public networks that do not offer comparable quality,
services, reliability or timeliness of delivery as would be
available through a dedicated private network. However, the
Company believes that internal dedicated private networks do
not address the significant international telecommunications
traffic that occurs among financial trading firms.
<PAGE>
Information Transport Systems
Integrated high speed internal data communications
networks have become critical to financial services companies.
Companies are installing increasingly complex computing
environments that consist of networked desktop personal
computers and workstations, printers, file servers, facsimile
machines and LAN and WAN connections. The increased need for
information distribution and the advances in network design
require companies to develop and maintain internal expertise or
to outsource their needs to independent specialists. In
response to its awareness of this increasing demand, the
Company implemented its I.T.S. business to provide voice, data
and video networking infrastructures and connectivity to all of
the customer owned devices which require it.
Products and Services
Turrets
A turret is a sophisticated telephone system consisting of
desktop consoles and backroom switching equipment for personnel
involved in activities that require rapid access to telephone
lines, and a high degree of reliability, such as the trading
activity of a financial services company. A turret is
installed in addition to, and communicates with, the PBX, but
has enhanced features and reliability compared to a PBX.
Turrets are used by organizations that have critical
communications needs, in which personnel must have rapid access
to a large number of lines to deliver or receive essential
information. For example, on a trading floor, a lost connection
could result in a lost transaction. A turret system must be
completely "non-blocking" and allow all users to be on the
telephone at the same time even under the busiest conditions.
In sharp contrast, a typical PBX configuration accommodates
only approximately 20% of users speaking at the same time.
A turret system installation involves extensive planning
to ensure that all materials and labor are coordinated to
achieve an on-time, within-budget completion. Detailed analysis
is performed, defining all required features and lines. The
cabling infrastructure is installed and tested prior to
delivery of backroom switching equipment, usually a month
before "cut-over" (the time when the system use begins). About
two weeks prior to cut-over, the desktop consoles are installed
and the complete system is rigorously tested. Currently, the
largest trading floors have in excess of 1,200 turret positions
with access to 8,000-10,000 telephone lines and can take up to
a year to complete.
System architecture is a major advantage of IPC's turret
products. IPC's current turret systems have a distributed
architecture with microprocessor units distributed throughout
the circuitry, such that no single fault in the current systems
can cause a failure of the entire system.
TRADENET MX(R). TRADENET MX(R), a fully digital, distributed
architecture product, was designed on a patented mesh-switching
fault tolerant network, which is not vulnerable to isolated
component failure. Its totally distributed design avoids the
disadvantages of centralized processing by equipping each
circuit card with two SPARC microprocessors, providing a
combined 25 MIPS of processing power per circuit board.
TRADENET MX(R)is designed as a platform combining hardware and
software upon which new features and applications can be added
to enhance the product. Because they are mainly software based,
these enhancements can be made quickly to enable the Company to
respond rapidly to developments in the market or to a
customer's specific requests. The customer can have a
continually up-to-date system by gradual upgrading of software.
The TRADENET MX(R)platform is designed with the capability to
switch data and video as well as voice. The current list price
range for the TRADENET MX(R) is $8,500 to $15,000 depending on
the configuration and features required.
<PAGE>
MX Compact. During 1994, the Company determined that a
less costly version of TRADENET MX(R)was required for smaller
sized locations. In June 1994, the Company introduced the MX
Compact, designed with a capacity of 40 turrets with comparable
features of TRADENET MX(R). The MX Compact is packaged in a
single cabinet and competitively priced for branch offices in
smaller markets. The current list price range for the MX
Compact is $5,000 to $7,000.
Exchangefone. Exchangefone(R)is an extremely ruggedized key
telephone specifically designed for use on exchange floors.
Exchangefone(R)uses distributed microprocessor technology to
provide ease of feature customization and a significant
reduction in the cable between the trading floor and the
backroom switching equipment. The current list price range for
Exchangefone(R) is $5,000 to $7,000.
Open Line Speaker Systems. The Company manufactures open
line, digital, turnkey speaker systems for the financial
services industry. These speaker systems provide full-duplex
communications over two-wire or four-wire circuits that enable
brokers to react instantaneously when trading. From a single
microphone, brokers can broadcast simultaneously to numerous
customers. Additionally, these speaker systems contain digital
signal processor software which enables the speaker systems to
be utilized at increased volumes with minimal distortion, echo,
feedback and sidetone. The current list price range for such
systems is $5,000 to $9,000.
During April 1995, the Company acquired the assets of
Bridge Electronics Inc. ("IPC Bridge"), a recognized leader in
the design, manufacture and marketing of specialized open-line
speaker systems used by the foreign exchange community and
other traders in the financial services industry and the
industry's only provider of digital speaker systems.
The Company also manufactures multi-button key telephone
sets and intercom systems sold in conjunction with turret
positions. Additionally, IPC remarkets various other related
products including, among others, PBX systems, video
conferencing equipment and voice logging and recorder devices.
Turret Service. Following a standard one year warranty
period after installation of a turret system, a customer
generally enters into an annual or multi-year service contract,
paid either monthly or quarterly in advance. In addition,
turret services include moves, additions and changes to system
configurations.
The IXNET Network
IXNET was formed in 1993 and during the first 18 months,
its current senior management team focused on researching the
international telecommunications requirements of the financial
trading industry and related regulatory trends. This research
led to IXNET's plans for a value-added network serving the
international financial trading industry. Key findings which
highlighted the opportunity included: rapid changes in
technology requiring constant reevaluation of previous
technology decisions and new investments to remain competitive;
internal telecommunications departments focused on intra-firm
communications via private networks rather than on
communications with trading counterparts; an unsatisfied demand
for high performance communications between firms; difficulties
in dealing with multiple vendors, particularly in international
markets; significant disparity between the pricing and
underlying costs of international communications traffic; and
no uniform global technology platform for international
communications.
<PAGE>
IXNET has implemented a facilities based global network
specifically designed for the financial services industry.
Significant features of the IXNET Network include the
following:
Uniform Equipment Platforms: IXNET has selected Northern
Telecom Ltd.'s digital carrier platform for all switching
nodes in the international network. This will provide for
all services to be available universally, call-set-up time
to be minimized and one network management and control
system to optimize network performance. In addition,
IXNET has selected Newbridge Networks Corporation to
supply nodal bandwidth management and customer site
equipment throughout the worldwide network. The uniform
platform will provide high performance, advanced features
and global network management which allows for rapid
provisioning and end-to-end network diagnostics. The
Company will continue to investigate additional
manufacturers and to test, evaluate and deploy open
standard products to optimize the IXNET Network.
Transport: IXNET utilizes multiple carriers to provide
access facilities from customer premises to the IXNET
facility. Such carriers include local exchange carriers,
competitive access providers and competitive local
exchange carriers. In all cases, access from the customer
sites is via a digital facility. In addition, the Company
leases and acquires bandwidth from regional and
international common carriers to link its network
locations. Diverse multiple routing is utilized to
increase reliability beyond the service level of any
individual facility provider.
Network Operation Centers ("NOCs"): The Company currently
has fully operational NOCs in New York City and London,
which house the specialized equipment necessary for
managing the network. The NOCs contain workstation based
software systems allowing for the display of alarms for
all equipment conditions, testing of all adverse
conditions, re-routing of traffic to other equipment or
networks, management notification of critical conditions
and provisioning of customer bandwidth. While the New
York City NOC will act as the overall operations control
center for the entire IXNET Network, each NOC can
independently support the IXNET Network. Additional NOCs
will be deployed to major financial centers based on
customer demand.
IXNET Services
IXNET services include the following:
IXGlobal. IXGlobal provides a seamless global private
network to the financial services community over a single
common global platform offering calling among all IXNET member
firms worldwide with the same high performance characteristics
presently available only on expensive dedicated private
networks. Features of IXGlobal include: (i) on-net calling
privileges to all network participants; (ii) fast call setup
and enhanced features; (iii) "virtual" automatic ring down
service which eliminates the need for costly private lines;
(iv) flexible network design and configuration; (v) rapid end-
to-end provisioning of circuits and network architecture; and
(vi) global network control and account management.
IXLink. IXLink is IXNET's dedicated private line service.
The service features include: (i) high quality digital
connectivity worldwide; (ii) end-to-end circuits which
eliminate the need to deal with multiple vendors; and (iii)
circuits available from "voice grade" to "T1/E1" capacity.
<PAGE>
MXConnect. MXConnect provides seamless integration
between the IXNET Network and the IPC TRADENET MX(R) digital
turret. This digital private line service is being developed
to enhance the functionality and performance of both the turret
and the IXNET Network when interconnected. Current service
offerings include specialized digital open conferencing
capabilities for trading positions at multiple sites, commonly
referred to as "Hoot `n Holler." Additional feature
enhancements are currently under development.
IXPrime. IXPrime is iXnet's off-network long distance
telephone service. Features of IXPrime include switched or
dedicated access and simplified pricing for calls, eliminating
confusing multiple calling plans.
All IXNET services provide flexible billing format and
media, including clear and concise calendar month invoicing
which allows the user to see actual costs, without confusing
discount plans. IXNET also offers optional local currency
billing.
Information Transport Systems
The Company markets the design, implementation and
maintenance of high speed data networks as I.T.S. This
business line includes four major product and service areas:
network implementation and support, value-added services,
networking products and cabling infrastructure. Customers
purchase these products and services on a stand alone basis or
in bundled combinations.
Network Implementation and Support. The Company offers a
full line of technical and network implementation and support
services to customers on a project basis or as part of a
long-term technical services contract. The purpose of the long-
term contract is to allow the customer to have continuous
access to high quality technical expertise. Such customers will
have access to a wide range of IPC technical and operational
resources, including network engineering analysis, help desk
support, user training and cabling and reconfiguration.
Value-Added Services. The Company provides a wide range of
value-added services including coordination of trading room
design, consulting, engineering implementation, project
management, the staging and burn-in of workstations, technology
and operational outsourcing.
Networking Products. The Company markets and services a
full line of third party manufactured networking system
products including local area network hubs, adapters, bridges,
routers, network management software and protocol converters.
The Company sells these products on a stand alone basis or
fully installed, configured and integrated with customer
systems.
Cabling Infrastructure. Cabling infrastructure provides
physical connectivity among all communications devices, such as
telephone switching equipment (turret or PBX), facsimile
machines, computer networks and video conference facilities.
Providing a customer with cabling infrastructure includes
several distinct phases: network design, documentation,
installation, certification and ongoing service and
maintenance. The Company offers its cabling infrastructure
customers design input on various system elements, including
diversity of cable routing, uninterruptable power systems,
security safeguards and cable management systems. The Company
places special emphasis on the testing and certification phases
of the project since today's high speed networks demand that
products be installed in accordance with strict manufacturer
specifications. Upon certification, the Company guarantees
cabling infrastructure installations as to transmission
characteristics against defects for a period of five years. The
Company also offers extensive documentation of the network
infrastructure, cable layouts and all device connections.
<PAGE>
Marketing
The Company presently markets its turret and I.T.S.
products and services domestically and in key international
financial centers. This is accomplished through a combination
of distribution channels including both direct and distributor
sales. The Company presently has direct sales and service
locations in New York, London, Atlanta, Boston, Chicago,
Cincinnati, Dallas, Houston, Los Angeles, New Jersey,
Philadelphia, Pittsburgh, San Francisco, Stamford, St. Louis,
and Toronto, Canada. The Company also has an extensive network
of established distribution partners in Argentina, Australia,
Austria, Belgium, Brazil, Canada, China, France, Germany,
Greece, Hong Kong, Indonesia, Ireland, Italy, Japan, Kuwait,
Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand,
Peru, the Philippines, South Africa, Singapore, Switzerland,
Taiwan, Thailand and Turkey. The IPC distributor network was
established to enable IPC to sell and service systems globally.
The distributors have expertise in turret sales and LAN design
and installation, and provide resident qualified systems
engineers to support customers.
IXNET services are presently marketed and sold by a team
of experienced network sales professionals dedicated to the
IXNET service offering. IXNET currently has networkk sales
professionals in New York and London and will add sales people
in other key locations globally as its expansion continues.
Team Approach
IPC and IXNET use a team approach in their sales and
account management. Each customer is assigned a team
consisting of individuals with responsibility for sales, client
services and project management, with a team leader responsible
for overall coordination. IXNET account managers are being
integrated into each team in order to leverage existing IPC
customer relationships, present a unified Company approach, and
coordinate service offerings.
Global Services
IPC recently structured sales and operations globally
under seperate functional organizations. In addition to
facilitating the "team approach" to sales and account
management this alignment promotes relationships with customers
who have significant global operations and complex telecommunication
needs. This represents a departure from the historical
location-by-location and project-by-project approach taken by
turret vendors and reflects the trend toward a consolidation of
trading firms and a growing preference by the firms to utilize
common technology standards throughout the organization.
Objectives of the global account program are to improve
customer service levels and response time, increase customer
efficiency and productivity, standardize service deliverables
across all locations, improve customer business processes and
improve the customer's overall communications and control
of its communications infrastructure. Each Global Services team
will include individuals dedicated to account management,
operations and implementation, business/finance and professional
services.
Marketing
IPC maintains a high profile in the financial services
market by publicizing contracts won, utilizing placement of
advertising in industry publications and participation in
relevant industry trade shows. The Company also actively
participates in industry seminars to communicate IPC's
capabilities to prospective customers and maintains a staff of
experienced marketing professionals who generate promotional
brochures and training materials.
<PAGE>
Customers
The principal industries served by IPC include: financial
services, banking and stock/commodity exchanges and insurance.
The financial services industry includes securities and
investment banking firms, merchant and commercial banks, inter-
dealer and foreign exchange brokers, securities and commodities
exchanges and insurance companies. Historically, almost all of
the Company's revenues have been derived from sales to
customers in the financial services industry. In fiscal 1996,
approximately 13% of total revenues were from one customer.
Backlog
As of September 30, 1996, the Company had a backlog of
purchase contracts representing approximately $77.9 million of
future revenues, as compared with approximately $72.5 million
as of September 30, 1995. Due to the size and lead time of
orders, which can vary substantially, and because the Company
generally recognizes revenue upon the completion of an
installation, the amount of backlog at any date may not be
indicative of actual sales for any subsequent period. The
Company's backlog includes only orders for new installations
and does not reflect annual or multi-year service contracts or
orders for the reconfiguration, alteration or expansion of
existing systems, as such orders are normally completed within
one month.
Research and Development
IPC continues to be a market leader with the TRADENET MX(R)
product family which sets a high standard for reliability,
performance, and functionality. IPC works closely with its
customers to understand their future requirements and to ensure
its products address their needs. During 1997, IPC intends to
continue to invest in the TRADENET MX(R)family as well as its
next generation of products to sustain the Company's leadership
position in voice-based trading system products. Recent
additions to the TRADENET MX(R) product line include the
TradePhone MX, enhanced Integrated Services Digital Network
("ISDN") connectivity and call processing, and digital voice
recording support.
In addition to developing new TRADENET MX(R) features and
functionality, IPC intends to strongly emphasize product
integration with IXNET's global network. This integration
removes the traditional facilities based trading floor
boundaries and enables customers to build virtual trading
environments that are geographically distributed. These
solutions are anticipated to include functionality such as line
networking, global hoot and holler, and global intercom. Market
requirements such as improved disaster recovery and shared
tenant or Centrex turret services will also be targeted.
Interoperability and integration of the traders' desktop
systems will remain a strategic focus. IPC
intends utilize its core competencies in call processing,
Application Programming Interface development, Computer
Telephony Integration, and fault tolerant switching to provide
solutions to improve trader productivity. Tighter coupling and
integration between desktop systems, front office systems and
back office systems will be pursued utilizing key
relationships with partners in the video, trader workstation
and market data delivery arenas.
Manufacturing
The Company manufactures its products at a leased 85,000
square foot building in Westbrook, Connecticut. The facility
houses production lines, a repair department, inventory, a
training center and various support functions, including
production scheduling, purchasing and quality assurance
personnel and production lines for circuit board assembly.
<PAGE>
Management believes that the manufacturing facility and
its resources are capable of handling expected demand for the
foreseeable future. The Company believes that there are
adequate supplies of labor in the immediate area of the
Westbrook facility.
Most turret components have a relatively short lead time
of approximately 30 days. However, there are a few long lead
time items, specifically displays and buttons, that need up to
24 weeks order time. The Company purchases certain key product
components that are made to order from single source suppliers.
Materials are ordered to a production forecast that is derived
by constantly monitoring sales activity. Furthermore, IPC has
developed an extensive "point-of-use" program whereby its
suppliers pre-position their inventory in IPC's warehouse and
IPC does not take ownership until the components are needed.
The Company believes that its relationships with its suppliers
are good and it has not experienced supply difficulties.
Competition
The markets for sophisticated communications equipment and
I.T.S. are highly competitive. Although some of the Company's
competitors are substantially larger and have greater
resources, management believes that IPC's strong market
position is the result of its consistent ability to produce
high quality products, its established reputation for the
highest quality service, strong relationships with customers,
and experienced management and sales and technical staffs.
In the worldwide market for trading turrets, IPC's main
competitors are V Band Corporation and British
Telecommunications plc ("BT"). The Company also competes with
Hitachi Ltd., Telaid Industries Inc., Etrali S.A., Telenorma
GmbH (a division of Robert Bosch GmbH) and LM Ericsson Ltd.
Management believes it has significant advantages over its
competitors by providing superior quality products and
outstanding customer service on a global basis.
Direct competition to IPC in the I.T.S. business is
difficult to identify due to the level of fragmentation.
Although a number of companies compete for parts of what
the Company includes in its customer solutions (for example,
cable installation), management believes that its expertise and
capability to support the full range of I.T.S. requirements
of large national and international customers provide it with
significant competitive advantages.
International Telecommunications Competition
The institutional structure of international
telecommunications is changing dramatically. These changes may
have significant implications for how telecommunications
providers will operate in international markets in the future
and may create new regulatory issues. Three major interrelated
trends are apparent.
The first is a trend toward market liberalization and the
introduction of facilities-based competition. This trend is
accelerating a shift from single national carriers, whether
government or privately owned, to multiple carriers and more
competitive markets. To further this trend, a working group
within the new World Trade Organization, which replaced the
General Agreement on Tariffs and Trade, has been negotiating
market-opening measures concerning trade in basic and value-
added telecommunications services and networks. The
negotiations recently have been extended until February 1997,
to reach agreement on measures to open national
telecommunications markets to international competition.
The second trend is increased private sector ownership of
telecommunications providers, manifested most notably in the
privatization of national carriers. This trend is spurred by
(i) the growing recognition that investment requirements for
expansion of telecommunications infrastructures will require
access to private sector capital and (ii) concerns that
government controlled carriers cannot keep pace with rapidly
changing technology and market demands.
<PAGE>
The third trend is the increasing participation among
major international carriers in global alliances. Such
alliances, which may be based on either equity or non-equity
relations, are attempting to provision global products
through single points of contact to global
markets. The trend toward alliances has been further spurred
by the carriers' desire to protect and enhance the
profitability of international traffic, the pricing of which
reflects a system of settlement rates among international
telecommunications carriers.
Most global alliances are still new and not fully
developed, either in terms of corporate form or market
strategy. To date, revenues to the alliances from target
markets, which include the global provision of enhanced
services to multinational corporations, are small relative to
traditional international voice traffic revenue. Nonetheless,
such alliances are of significance because they represent
individual national carriers attempting to learn how to work
together in non-traditional ways and on a much greater
geographic scale.
The Company believes that it has certain competitive
advantages over existing carriers and the developing alliances,
including its network design and its ability to execute its
business plan, for several reasons. The participants in the
alliances, as common carriers, have designed broad based
networks for providing service to the public at large. These
networks utilize a variety of hardware and software, making it
difficult to implement a uniform global telecommunications
system and offer a common set of services with features and
performance characteristics demanded by the financial services
industry. While the alliances are a response to customer
demand for a single point of contact, by their nature the
alliances have difficulty implementing projects and servicing
customers across corporate and national borders. The IXNET
Network is designed to meet the specific performance standards
demanded by the financial services industry. This single
market focus and the Company's ability to integrate its products
and services allow the Company to provide comprehensive single
source solutions for its customers, a competitive advantage
over global alliances.
The key global alliances include the following: Concert
Communications Company (MCI Communications Corp., BT), Global
One (Sprint Corp., France Telecom, Deutsche Telecom AG), World-
Partners (AT&T Corp., Singapore Telecom, KDD Corp. (Japan), and
Uniworld), Uniworld (AT&T Corp., Telia AB, Swiss Telecom PTT,
Koninkl_ke PTT Nederland, Telefonica de Espana, S.A.), and The
Cable and Wireless Federation.
Regulatory Environment
Government Regulation
Telecommunications services provided by the Company are
subject to regulation by international entities as well as by
United States federal, state and local government agencies.
The primary regulatory policy of the United States is to
promote effective competition in the United States
telecommunications service market, particularly the market for
international services. It is the view of the United States
government that competitive international markets will provide
incentives for further market entry both in the United States
and foreign markets. Competitive markets will also stimulate
technological innovation by United States suppliers of
information technology.
The existing international telecommunications service
regulatory environment is very different than that which exists
for United States domestic telecommunications services. For
domestic services, the FCC and State Public Utility Commissions
have direct jurisdiction, granted by statute, over all aspects
of the service. With international traffic, however, the
United States' regulatory structure is limited to the
origination or termination of service in the United States. As
a result, the United States and each foreign country share
jurisdiction over policies and regulations controlling
international telecommunications services between the
<PAGE>
two. Thus, the United States cannot unilaterally implement
a regulatory policy for international telecommunications,
thereby limiting the impact a domestic statute, such as the
Communications Act of 1934, as amended ("the Communications
Act")can have in developing a new structure for international
telecommunications.
Presently, the Company is required to file tariffs listing
the terms, conditions and rates for its services for both its
intrastate and international services. In addition, the
Company is required to obtain FCC authorization to provide
international telecommunications services. Under the
Communications Act, the FCC has the authority to forbear from
imposing any regulations it deems unnecessary, including
requiring non-dominant carriers to file tariffs.
IXNET currently holds an FCC authorization to resell
private lines that are not interconnected to the public
switched telephone network for communication services between
the United States and numerous international points. IXNET
also holds an FCC authorization to resell private lines
interconnected to the public switched telephone network for
communication services between the United States and the United
Kingdom, Canada and Sweden. IXNET has received a reciprocal
authorization from the United Kingdom to resell private lines
interconnected to the public switched network between the
United States and the United Kingdom.
State regulatory commissions exercise jurisdiction over
intrastate services. Intrastate services are communications
that originate and terminate in the same state. IXNET holds a
certificate of public convenience and necessity to resell forms
of telephone service within New York State. IXNET is in the
process of obtaining similar authorizations from other states.
As the regulatory regimes change in the United States and
elsewhere, the authorizations held by the Company also may need
to be adjusted.
International Regulatory Considerations
The regulation of IXNET services in foreign jurisdictions
will differ from country to country depending on the progress
each country has made in developing a competitive market for
telecommunications services. For instance, the United Kingdom
has established a market structure that encourages the
operation of new competitive telecommunication service
providers. IXNET has been granted a license by the U.K.
Department of Trade and Industry to offer international simple
resale and facility-based services. This allows IXNET to offer
such services from the United Kingdom. There are a number
of other countries that have liberalized or are in the
process of liberalizing their telecommunications environments.
IXNET is in the process of obtaining the appropriate
authorizations in a number of these jurisdictions.
Other foreign jurisdictions take the position that all
telecommunication services are under the exclusive jurisdiction
of the state-sanctioned monopoly. In these countries
competition is strictly prohibited. However, even in these
countries, iXnet may have a special status that would enable it
to provide service. A number of countries will allow so-called
"closed user groups" ("CUGs") to operate outside the state-
sanctioned monopoly. CUGs are communities of interest that are
common among a company and its subsidiaries or group of
companies. The European Union definition of CUGs looks to see
if the link between the members of the group is a "common
business activity." IXNET fits this definition of CUGs in
several countries. This is because IXNET is not like the
large, international telecommunications service providers that
market to the public at large. Rather, its marketing efforts
and network design are focused on the needs of institutions
within the financial community, with this focus narrowed even
further to trading room telecommunications services. The CUG
categorization would enable iXnet to provide service where it
would otherwise be prohibited.
In those countries where IXNET is strictly prohibited from
offering service, IXNET may enter into a relationship with the
state sanctioned telecommunications monopoly so that its
services can be offered in that jurisdiction. In these
situations, the local telecommunications service provider would
provide the facilities and offer local services to IXNET
customers. It is likely that services would be of higher cost
in these situations. There are, however, certain countries
which do not require licensing for the provision of
telecommunications
<PAGE>
network services.
IXNET is in the process of obtaining the necessary
authorizations to provide service in a number of European and
Asian countries and is exploring the regulatory environment in
additional countries targeted for service. It intends to
establish its services either through licensing as a
telecommunications service provider, CUG or through bilateral
agreements with a telecommunications monopoly. As the
regulatory regimes change, IXNET will adjust its regulatory
strategy.
Intellectual Property
The Company relies on a combination of patents, trade
secrets, trademarks, copyrights and other intellectual property
law, nondisclosure agreements and other protective measures to
protect its proprietary rights. The Company currently has 13
United States patents, including design patents, and five more
pending patent applications for its technologies. The Company
also relies on unpatented know-how and trade secrets and
employs various methods, including confidentiality agreements
with employees and consultants, to protect its trade secrets
and know-how. The Company also may desire to develop, produce
and market commercially viable new products, such as personal
communications systems, that may require new or renewed
licenses from others.
Employees
As of September 30, 1996, the Company had 741 full-time,
non-union employees worldwide, including 615 in the United
States and 126 in the United Kingdom. Of these, 69 were engaged
in marketing and sales, 90 in research, development and product
engineering, 131 in finance, branch and corporate
administration, 221 in manufacturing and 230 in operations.
An additional 465 United States workers are represented by
collective bargaining units, including 413 within the New York
metropolitan area provided under labor pooling agreements
between the Company and two of its affiliates. Contracts with
unions are negotiated every three years. Current agreements
expiring through June 11, 1998 provide benefits, wage rates,
wage increases and grievance and termination procedures. The
Company has never experienced a work stoppage. Management
believes that current relations with labor are good and that
existing union contracts will be renewed.
Environmental Matters
The Company is 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 its manufacturing process. Although
management believes that its 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 the Company's
facilities or operations.
ITEM 2. PROPERTIES
The Company leases its manufacturing facility in
Westbrook, Connecticut, its executive offices and network
switching facility in New York City, its research and
development facility in Stamford, Connecticut and its branch
offices and sales offices in the United States, Canada and in
the United Kingdom. The Company believes that its current
facilities are adequate for its near-term requirements and does
not anticipate the need for significant expansion in the
foreseeable future.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal
proceedings except for claims and lawsuits arising in the
normal course of business. The Company does not believe that
these claims or lawsuits will have a material adverse effect on
the Company's financial condition or results of operations.
See Note 9 to "Notes to the Consolidated Financial Statements".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's common stock is listed on the Nasdaq
Stock Market (Nasdaq - IPCI). The following table sets forth
the high and low sales prices reported by the Nasdaq. The
common stock began trading on September 27, 1994.
<TABLE>
<CAPTION>
For the year ended September 30,
1996 1995
High Low High Low
<S> <C> <C> <C> <C>
First Quarter 19 1/4 13 1/2 15 1/4 11
Second Quarter 26 1/4 16 1/2 14 11 1/4
Third Quarter 25 17 1/16 15 1/2 11 1/2
Fourth Quarter 21 13 1/2 18 3/4
</TABLE>
As of November 30, 1996 there were 92 holders of record of the
Company's stock.
To date, the Company has not paid any cash dividends to its
stockholders. Any future payment of cash dividends will depend
upon the Company's earnings and financial condition, capital
requirements and other relevant factors. The Company does not
intend to pay cash dividends in the foreseeable future
but intends to retain its earnings for use in its business.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (unaudited)
(amounts in thousands, except per share amounts
<TABLE>
<CAPTION>
For the eleven
months ended
For the year ended September 30, September 30,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Revenues $249,508 $206,254 $163,671 $112,714 $68,687
Gross Profit 76,818 63,173 48,043 31,152 20,346
Net income (loss) 12,129 13,267 16,549(1) 1,753 (3,478)
Earnings per share $1.15 $1.26
Weighted average
shares outstanding 10,590 10,506
Pro forma earnings
per share $1.11(2)
Pro forma weighted average
shares outstanding 8,535(2)
Supplemental pro forma
earnings per share 0.88(3)
</TABLE>
<TABLE>
September 30,
Balance Sheet Data: 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Working capital $50,268 $46,851 $27,661 $16,696 $7,077
Total Assets 140,957 128,036 110,702 70,120 44,488
Notes payable 13,900 1,411 1,411 1,411
Long-term debt 10,663 12,916 5,338
Long-term lease
commitments 3,429
Stockholders' equity 71,715 58,504 21,122 7,328 5,985
<FN>
</TABLE>
(1) Net income includes the cumulative effect of the Company's
termination of its S corporation status which resulted in
a tax benefit of $3,295.
(2) Pro forma earnings per share was computed by dividing pro
forma net income (income before provision for income taxes
less pro forma provision for income taxes) by pro forma
weighted average number of shares outstanding. The pro
forma provision for income taxes assumes that IPC-US was
subject to corporate federal income taxes for the year and
excludes the tax benefit associated with the termination of
the Company's S corporation status (See (1) above). Pro
forma weighted average number of shares outstanding is the
historical weighted average number of shares outstanding
during the year adjusted to give effect to the number of
shares whose proceeds were necessary to pay the remaining
S corporation distribution to pre-Offering stockholders.
(3) Effective October 1, 1994, and in connection with the
Company's initial public offering, IPC converted from an
S corporation to a C corporation. Supplemental pro forma
earnings per share for 1994 has been calculated using the
Company's reported income before taxes and giving effect
for both the Company's fiscal 1995 effective tax rate and
weighted average shares outstanding.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (unaudited)
The following tables set forth certain statements of operations
data and its percentage to total revenues for the periods indicated:
<TABLE>
<CAPTION>
For the year ended September 30,
(Dollars in Thousands) 1996 1995 1994
<S> <C> <C> <C>
Revenues:
Turret sales and installation.... $109,659 $100,851 $70,166
Turret service................... 55,484 50,057 51,433
Information Transport Systems
sales, installation and service.. 78,842 55,346 42,072
Network services................. 5,523 - -
Total revenues................. 249,508 206,254 163,671
Cost of revenues................. 172,690 143,081 115,628
Gross profit................... 76,818 63,173 48,043
Research and development
expenses......................... 11,467 10,108 7,654
Selling, general and
administrative expenses.......... 45,143 31,038 23,727
Income from operations......... 20,208 22,027 16,662
Interest (expense)/income, net... (678) 233 (1,568)
Gain on renegotiation of lease
obligation on vacant facilities.. - - 517
Other income/(expense), net...... 591 226 65
Income before provision for
income taxes................... 20,121 22,486 15,676
Provision/(benefit) for
income taxes..................... 7,992 9,219 (873)
Net income.................... $12,129 $13,267 $16,549
Revenues:
Turret sales and installation.... 44.0% 48.9% 42.9%
Turret service................... 22.2 24.3 31.4
Information Transport Systems
sales, installation and service.. 31.6 26.8 25.7
Network services................. 2.2 - -
Total revenues................. 100.0 100.0 100.0
Cost of revenues................. 69.2 69.4 70.6
Gross profit................... 30.8 30.6 29.4
Research and development
expenses......................... 4.6 4.9 4.7
Selling, general and
administrative expenses.......... 18.1 15.0 14.5
Income from operations......... 8.1 10.7 10.2
Interest (expense)/income, net... (0.3) 0.1 (1.0)
Gain on renegotiation of lease
obligation on vacant facilities.. - - 0.3
Other income/(expense), net...... 0.2 0.1 0.0
Income before provision for
income taxes................... 8.1 10.9 9.6
Provision/(benefit) for
income taxes..................... 3.2 4.5 (0.5)
Net income.................... 4.9% 6.4% 10.1%
</TABLE>
<PAGE>
Overview
IPC is a worldwide industry leader in providing globally
integrated telecommunications services to the financial
services industry. The Company's highly reliable, customized
telecommunications systems are used on financial trading floors
where they are known as "turrets" or "dealerboards." In 1993,
the Company launched its I.T.S. business to provide and support
the design and implementation of cabling infrastructures and an
expanded product offering including LAN and WAN hubs and
routers, and video conferencing systems. IPC, with its
recently acquired subsidiary, IXNET, has implemented a
facilities-based global network (the "IXNET Network") designed
for the specialized international telecommunications
requirements of the financial services industry.
IPC's goal is to be the preferred single source provider
of integrated voice, data and video communications solutions
and services to the financial trading industry on a worldwide
basis. The Company intends to leverage its existing extensive
customer relationships to provide a continually growing portion
of their customers' global telecommunications requirements
through a combination of products and services developed by IPC
and IXNET. This is to be accomplished through the continued
deployment of a facilities-based global network and the
integration of the network with IPC's product offerings.
The Company's operations are separated into three lines of
business: turret systems, I.T.S. and network services (IXNET).
The Company accounts for sales of turret systems to
distributors and direct sales and installations of turret
systems as "turret sales and installation." The Company
accounts for revenues from turret system maintenance, including
annual and multi-year service contracts, and from moves
additions and changes to existing turret system installations
as "turret service." The Company accounts for revenues from
I.T.S. design, integration and implementation projects, from
sales of intelligent network products, such as hubs, bridges
and routers, from on-site maintenance of customer I.T.S.,
including annual and multi-year contracts, and from the
provision of outsourcing services for the support, expansion
and upgrading of existing customer networks as "I.T.S. sales,
installation and service." Additionally, the Company accounts
for revenues derived from the IXNET Network as "network
services".
Revenue from turret and I.T.S. sales and installation is
recognized upon completion of the installation, except for
revenue from sales of turret systems to distributors, which is
recognized upon shipment of turret products by IPC. Invoices
are submitted during various stages of the installation. The
revenue attributable to such advance payments is deferred until
system installation is completed. In addition, contracts for
annual recurring turret and I.T.S. services are generally
billed in advance, and are recorded as revenues ratably (on a
monthly basis) over the contractual periods. Revenue from
moves, additions and changes to turret systems is recognized
upon completion, which usually occurs in the same month or the
month following the order for services. Revenue from network
services are recognized in the month the service is provided.
Due to the substantial sales price of the Company's large
turret and I.T.S. installations and the Company's recognition
of revenue only upon completion of installations, revenues and
operating results could fluctuate significantly from quarter to
quarter. However, the Company's service business generates a
more consistent revenue stream than sales and installation and,
consequently, these fluctuations could be somewhat diminished in
the future as the Company's service business expands.
<PAGE>
Comparison of the year ended September 30, 1996 to the year
ended September 30, 1995
Revenues. Total revenues increased by $43.3 million or
21.0%, to $249.5 million in the year ended September 30, 1996
from $206.3 million in the year ended September 30, 1995.
Turret installation and related service revenues increased
by $14.2 million, or 9.4%, to $165.1 million in the year ended
September 30, 1996 from $150.9 million in the year ended
September 30, 1995. This increase is primarily attributable to
the increased acceptance of TRADENET MX(R). Management expects
that sales of TRADENET MX(R) will continue to generate the
majority of turret sales and installation revenue for the
foreseeable future.
Revenues from I.T.S. sales and related service increased
by $23.5 million, or 42.5% to $78.8 million in the year ended
September 30, 1996 from $55.3 million in the year ended
September 30, 1995. These increases were attributable to the
continuing development and expansion of the I.T.S. business.
Revenues from network services of $5.5 million for the
year ended September 30, 1996 resulted from IXNET's
implementation of its international telecommunication network
during 1996, achieving recurring monthly revenues at an
annualized rate exceeding $10 million at fiscal year end.
Cost of Revenues. Cost of Revenues (as a percentage of
revenues) decreased to 69.2% for the year ended September 30,
1996 from 69.4% for the year ended September 30, 1995. This
decrease is due to continued installation efficiencies and
manufacturing cost reductions.
Research and Development Expenses. Research and
development expenses increased by $1.4 million, or 13.4%, to
$11.5 million in the year ended September 30, 1996 from $10.1
million in the year ended September 30, 1995. The increase was
due to the development of new products and enhancements to
existing products. Also, research and development expenses for
the year ended September 30, 1996 include expenses by IPC
Bridge. Bridge Electronics, Inc., now known as IPC Bridge, was
acquired by the Company in April 1995. The Company believes
that development of new products and enhancements to existing
products are essential to its continuing success, and
management intends to continue to devote substantial resources
to research and product development in the future.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses increased by $14.1 million,
or 45.4%, to $45.1 million in the year ended September 30, 1996
from $31.0 million in the year ended September 30, 1995. These
increases are attributable to an increase in headcount and
other expenses to support higher business levels, start up
costs associated with IXNET and the continued development and
geographic expansion of the Company's I.T.S. business. As the
Company deploys its international network, management
anticipates that selling and administrative expenses will
increase. These expenses will likely be incurred prior to the
realization of revenues.
Interest Income / (Expense). Interest income / (expense)
decreased to $0.7 million in expense for the year ended
September 30, 1996 from $0.2 million in income for the year
ended September 30, 1995. This decrease was primarily due to
the Company's' utilization of its line of credit during fiscal
1996. Total interest expense for the fiscal year ended 1996
was $1.1 million compared to $.4 million in the fiscal year
ended 1995.
Provision for Income Taxes. The Company's effective tax
rate, excluding minority interest, for the year ended September
30, 1996 was 41.0%.
<PAGE>
Comparison of the year ended September 30, 1995 to the year
ended September 30, 1994
Revenues. Total revenues increased by $42.6 million or
26.0%, to $206.3 million in the year ended September 30, 1995
from $163.7 million in the year ended September 30, 1994.
Revenues from turret installation and related service
increased by $29.3 million, or 24.1%, to $150.9 million in the
year ended September 30, 1995 from $121.6 million in the year
ended September 30, 1994. This increase was primarily
attributable to the increased acceptance of TRADENET MX(R).
Revenues from I.T.S. sales and related service increased
by $13.3 million, or 31.6% to $55.3 million in the year ended
September 30, 1995 from $42.1 million in the year ended
September 30, 1994. This increase was attributable to the
continuing development and expansion of the I.T.S. business.
Gross Profit. The gross profit as a percentage of total
revenues increased to 30.6% for the year ended September 30,
1995 from 29.4% for the year ended September 30, 1994. This
increase in gross profit percentage is due to continued
installation efficiencies and manufacturing cost reductions.
Research and Development Expenses. Research and
development expenses increased by $2.5 million, or 32.1%, to
$10.1 million in the year ended September 30, 1995 from $7.7
million in the year ended September 30, 1994. The increase was
due to the ongoing development of new products and enhancements
to existing products.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses increased by $7.3 million,
or 30.8%, to $31.0 million in the year ended September 30,
1995 from $23.7 million in the year ended September 30, 1994.
As a percentage of revenues, expenses increased to 15.0% for
the year ended September 30, 1995, from 14.5% for the year
ended September 30, 1994. This increase was attributable to a
rise in headcount and other expenses to support higher business
levels and the continued development and expansion of the
Company's I.T.S. business.
Interest Income / (Expense). Interest income / (expense)
increased to $0.2 million in income for the year ended
September 30, 1995 from $1.6 million in expense for the year
ended September 30, 1994. This increase was due to the
repayment of long-term debt from the proceeds of the Company's
initial public offering in October 1994 and interest earned on
temporary cash investments and short-term investments
throughout fiscal 1995.
Gain on Renegotiation of Lease Obligation on Vacant
Facilities. The Company renegotiated its obligation in
connection with certain vacant facilities resulting in a $0.5
million gain for the year ended September 1994.
Provision for Income Taxes. The Company's effective tax
rate for the year ended September 30, 1995 was 41%. Effective
October 1, 1994, the Company terminated its S corporation
status and, as a result, was subject to corporate federal
income taxes in fiscal 1995. Accordingly, the year ended
September 30, 1995 reflects an increase in the provision for
income taxes as the comparable prior year's tax provision was
based on the Company's S corporation status. On a comparable
basis, assuming the same effective tax rate and number of
shares outstanding after the Company's October 1994 initial
public offering, net income would have been $9.2 million or
$0.88 per share for the year ended September 30, 1994.
<PAGE>
Liquidity and Capital Resources
Net cash used in operations was $14,737 for the year ended
September 30, 1996 which resulted primarily from changes in
accounts receivable and customer advances and deferred revenue
offset, in part, by changes in depreciation and amortization
and net income. Accounts receivable increased during the
period due to higher business volumes and the timing of
customer billings. The decrease in customer advances and
deferred revenue was due to jobs in progress at September 30,
1996 being at an earlier stage of completion when compared to
1995.
Net cash provided by operations was $7.3 million for the
year ended September 30, 1995. Net cash provided by operations
resulted from operating profits and inventory decreases from
production efficiencies, offset by increases in trade
receivables primarily from higher sales levels.
Net cash provided by operations was $7.3 million in the
year ended September 30, 1994. Increases in inventory due to
higher product demands and increases in trade receivables due
to higher sales levels were more than offset by funds provided
by increases in customer advances and deferred revenue and
accounts payable and higher operating profits.
Cash used in investing activities was $12.7 million, $8.5
million and $1.2 million for the years ended September 30,
1996, 1995 and 1994, respectively. Cash was used in investing
activities for acquisition payments for IPC Bridge and
property, plant and equipment expenditures, primarily composed
of machinery and equipment and leasehold improvements. This
cash use was offset in part by proceeds from the sale of a
short-term investment.
In April 1996, the Company signed a promissory note with a
bank increasing the Company's line of credit from $15,000 to
$25,000. At September 30, 1996 $13,900 of the line is
outstanding. The weighted average interest rate on borrowings
for fiscal year 1996 was 6.31%. At September 30, 1995 there
was no amount outstanding on the line of credit.
In connection with the implementation of the IXNET Network,
IXNET has entered into capital lease agreements totaling
approximately $4.6 million for certain network switching
equipment.
On October 3, 1994 the Company completed an initial public
offering (the "Offering") of 3,250,000 shares of common stock
at $15.00 per share and received Offering proceeds of $45,337,
net of underwriting discounts and commissions. During the year
ended September 30, 1995, Offering proceeds were used to repay
long-term debt of $10,663, repay notes payable to stockholders
of $1,411 and pay an S corporation distribution of $18,530 to
pre-Offering stockholders. The remaining proceeds were invested
in temporary cash investments and short term investments.
The Company believes that cash flows from operations and
existing credit facilities will be sufficient to meet its
working capital and capital expenditure needs for the near
future.
Quarterly Fluctuations and the Effects of Inflation
The size and lead time of new orders can vary
substantially and, since the Company generally recognizes
revenue from the sale and installation of turret systems and
Information Transport Systems on the completion of an
installation, the Company's quarterly results of operations may
fluctuate significantly. Management does not believe that
inflation has a significant effect on the Company's results.
<PAGE>
Foreign Exchange
The Company's shipments to foreign distributors are
generally invoiced in US Dollars. As a result, the Company
believes its foreign exchange transaction exposure caused by
these shipments is insignificant. Sales to the Company's
customers in the United Kingdom are denominated in British
Pounds Sterling. The Company does not hedge its net asset
exposure to fluctuations in the US Dollar/British Pound
Sterling exchange rate. Accordingly, the Company is subject to
risks associated with such fluctuation. However, adjustments
to the Company's financial position as a result of currency
fluctuations have not been significant.
This Report on Form 10-K contains certain forward-looking
statements concerning, among other things, the Company's plans
and objectives for future operations, planned products and
services, potential expansion into new markets, and anticipated
customer demand for our existing and future products and
services. The Private Securities Litigation Reform Act of 1995
provides a "safe harbor" for forward-looking statements to
encourage the inclusion of prospective information so long as
those statements are accompanied by meaningful cautionary
statements identifying factors that could cause actual results
to differ materially. Among the factors that could cause
actual results, performance or achievement to differ materially
from those described or implied in the forward-looking
statements are general economic conditions, competition,
potential technology changes, changes in or the lack of
anticipated changes in the regulatory environment in various
countries, changes in customer purchasing policies and
practices, the ability to raise additional capital to finance
expansion, and the risks inherent in new product and service
introductions and the entry into new geographic markets.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Financial Statement
Schedule beginning on page 25.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND OTHER OFFICERS OF
THE REGISTRANT
a. Identification of Directors:
The information required by this Item is incorporated
herein by reference to the information contained under the
caption, "Election of Directors" in the Proxy Statement which
will be filed with the SEC within 120 days after the end of the
fiscal year covered by this Form 10-K (the "Proxy Statement").
Such information is incorporated by reference pursuant to
General Instruction G(3).
b. Identification of Executive Officers:
The information required by this Item is incorporated
herein by reference to the information contained under the
captions "Election of Directors" and "Management" in the
Proxy Statement. Such information is incorporated by
reference, pursuant to General Instruction G(3).
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated
herein by reference to the information contained under the
caption "Executive Compensation" in the Proxy Statement. Such
information is incorporated by reference, pursuant to General
Instruction G(3).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated
herein by reference to the information contained under the
caption "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement. Such information is
incorporated by reference, pursuant to General Instruction
G(3).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated
herein by reference to the information contained under the
caption "Certain Transactions and Relationships" in the Proxy
Statement. Such information is incorporated by reference,
pursuant to General Instruction G(3).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a)(1) Financial Statements Page(s)
Report of Independent Accountants 25
Consolidated Balance Sheets as of September 30, 26
1996 and 1995
Consolidated and Combined Statements of 27
Operations for the Years Ended September 30,
1996, 1995 and 1994
Consolidated and Combined Statements of Cash 28
Flows for the Years Ended September 30, 1996,
1995 and 1994
Consolidated and Combined Statements of 29
Stockholders' Equity for the Years Ended
September 30, 1996, 1995 and 1994
Notes to Consolidated and Combined Financial 30-41
Statements
(a)(2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts 42
Schedules not listed have been omitted because they are
not applicable or are not required or the information
required to be set forth therein is included in the
Consolidated and Combined Financial Statements or notes
thereto.
<PAGE>
(a)(3) Exhibits
Exhibit No. Exhibit Title
3.1* Restated Certificate of Incorporation.
3.2* Amended and Restated Bylaws of Registrant.
4.1* Specimen Common Stock of the Registrant.
10.2* Employment Agreement, dated May 9, 1994, between
the Registrant and Richard P. Kleinknecht.
10.2.1** Letter Agreement, dated October 17, 1995, amending
the Employment Agreement between the Registrant
and Richard P. Kleinknecht.
10.3* Employment Agreement, dated May 9, 1994, between
the Registrant and Peter J. Kleinknecht.
10.3.1** Letter Agreement, dated October 17, 1995, amending
the Employment Agreement between the Registrant
and Peter J. Kleinknecht.
10.4* Employment Agreement, dated August 29, 1994,
between the Registrant and Jeffrey M. Gill.
10.4.1** Letter Agreement, dated October 17, 1995, amending
the Employment Agreement between the Registrant
and Jeffrey M. Gill.
10.13* Registration Rights Agreement between the Registrant
and Richard P. Kleinknecht and Peter J. Kleinknecht.
10.14** Employment Agreement, dated as of October 17, 1995,
between the Registrant and Steven Terrell Clontz.
21.3 Subsidiaries of the Registrant.
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule (for SEC use).
* Previously filed as an exhibit to the Registrant's
Registration Statement on Form S-1 (No. 33-78754)
or Amendment No. 1, Amendment No. 2, or Amendment No. 3
to the Registration Statement, and incorporated herein
by reference.
** Previously filed as an exhibit to the Registrant's Report
on Form 8-K, filed November 30, 1995, and incorporated
herein by reference.
<PAGE>
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.
IPC INFORMATION SYSTEMS, INC.
Date: December 27, 1996 By:/s/ Terry Clontz
Terry Clontz
President and Chief
Executive Officer
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 Date
/s/ RICHARD P. KLEINKNECHT Chairman December 27, 1996
Richard P. Kleinknecht
/s/ PETER J. KLEINKNECHT Vice Chairman December 27, 1996
Peter J. Kleinknecht
/s/ TERRY CLONTZ Chief Executive December 27, 1966
Terry Clontz Officer,
President and
Director
(Principal
Executive Officer)
/s/ KEVIN M. ESPOSITO Chief Accounting December 27, 1996
Kevin M. Esposito Officer
(Principal
Financial Officer)
(Principal
Accounting Officer)
/s/ ROBERT J. MCINERNEY Director December 27, 1996
Robert J. McInerney
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders
of IPC Information Systems, Inc.:
We have audited the consolidated and combined financial
statements and the financial statement schedule of IPC
Information Systems, Inc. listed in Item 14(a) of this Form 10-
K. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. 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 Information Systems, Inc. as of
September 30, 1996 and 1995 and the consolidated results of
their operations and their cash flows for the years ended
September 30, 1996 and 1995 and the combined results of their
operations and their cash flows for the year ended September
30, 1994, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information
required to be included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
December 11, 1996
<PAGE>
IPC INFORMATION SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
September 30,
1996 1995
<S> <C> <C>
ASSETS:
Current assets:
Cash and temporary cash investments... $2,306 $15,786
Trade receivables, less allowance
of $1,521 and $1,572................ 66,468 50,513
Inventories......................... 36,367 35,111
Prepaid expenses and other current
assets.............................. 7,284 9,526
Total current assets............. 112,425 110,936
Property, plant and equipment, net..... 21,867 9,236
Other assets, net...................... 6,665 7,864
Total assets..................... $140,957 $128,036
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Note payable......................... $13,900
Accounts payable..................... 14,369 $14,807
Accrued liabilities.................. 13,502 19,366
Customer advances and deferred
revenue.............................. 19,446 29,912
Short-term lease commitments......... 940
Total current liabilities........ 62,157 64,085
Long-term lease commitments............ 3,429
Other liabilities...................... 3,656 5,447
Total liabilities................ 69,242 69,532
Commitments and contingencies
Stockholders' equity:
Preferred stock - $0.01 par value,
authorized 10,000,000 shares,
none issued and outstanding
Common stock - $0.01 par value,
authorized 25,000,000 shares;
issued 10,860,000 and 10,763,740
shares at September 30, 1996
and 1995, respectively............. 109 107
Paid-in capital...................... 46,831 45,853
Retained earnings ................... 25,493 13,262
Less treasury stock, at cost,
242,185 shares.................. (718) (718)
Total stockholders' equity....... 71,715 58,504
Total liabilities and
stockholders' equity........... $140,957 $128,036
<FN>
See Notes to Consolidated and Combined Financial Statements.
</TABLE>
<PAGE>
IPC INFORMATION SYSTEMS, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Per Share Amount)
<TABLE>
<CAPTION>
For the year ended September 30,
1996 1995 1994
Consolidated Consolidated Combined
<S> <C> <C> <C>
Revenues:
Product sales and installation... $178,513 $139,947 $103,529
Service.......................... 70,995 66,307 60,142
249,508 206,254 163,671
Cost of revenues:
Product sales and installation... 122,897 95,174 74,233
Service.......................... 49,793 47,907 41,395
172,690 143,081 115,628
Gross profit.................. 76,818 63,173 48,043
Research and development expenses. 11,467 10,108 7,654
Selling, general and
administrative expenses.......... 45,143 31,038 23,727
Income from operations...... 20,208 22,027 16,662
Interest income/(expense), net.... (678) 233 (1,568)
Gain on renegotiation of lease
obligation on vacant facilities.. 517
Other income/(expense), net....... 591 226 65
Income before provision for
income taxes............... 20,121 22,486 15,676
Provision/(benefit) for
income taxes..................... 7,992 9,219 (873)
Net income.................. $12,129 $13,267 $16,549
Earnings per share................ $1.15 $1.26
Weighted average shares
outstanding...................... 10,590 10,506
Pro forma data (unaudited) (See Note 7):
Pro forma provision for income taxes........................ $6,184
Pro forma earnings per share ............................... $1.11
Pro forma weighted average shares outstanding............... 8,535
<FN>
See Notes to Consolidated and Combined Financial Statements.
</TABLE>
<PAGE>
IPC INFORMATION SYSTEMS, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the year ended September 30,
1996 1995 1994
Consolidated Consolidated Combined
<S> <C> <C> <C>
Cash flows from operating activities:
Net income....................... $12,129 $13,267 $16,549
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization... 4,351 2,058 2,317
Other amortization.............. 2,037 1,782 1,971
Provision for doubtful accounts. 240 861 786
Deferred income taxes........... 674 (1,084) (4,256)
Gain on renegotiation of lease
obligation..................... (517)
Changes in operating assets and liabilities:
Trade receivables............... (16,385) (11,804) (11,783)
Inventories..................... (1,678) 15,440 (23,100)
Prepaid expenses and other
current assets................. (288) (1,606) (3,545)
Other assets.................... 130 (342) 142
Accounts payable................ (950) (717) 3,044
Accrued liabilities and other
liabilities.................... (4,691) (630) 3,190
Customer advances and deferred
revenue........................ (10,306) (9,882) 22,455
Net cash (used in) provided
by operating activities..... (14,737) 7,343 7,253
Cash flows from investing activities:
Capital expenditures............ (11,747) (6,499) (1,173)
Purchase of short-term
investment..................... (2,007)
Proceeds from sale of short-term
investment..................... 2,007
Acquisition of Bridge
Electronics, Inc............... (2,997)
Net cash (used in) investing
activities.................. (12,737) (8,506) (1,173)
Cash flows from financing activities:
Net proceeds from note payable.. 13,900
Proceeds from long-term debt.... 123,211
Principal payments on capital
leases......................... (221)
Repayment of long-term debt..... (10,663) (125,464)
Repayment of notes payable to
affiliates..................... (1,411)
Proceeds from the exercise of
stock options.................. 106
Proceeds from the sale of common
stock.......................... 45,337
Purchase of treasury stock...... (396) (72)
S corporation distribution...... (18,530) (2,470)
Net cash provided by (used in)
financing activities........ 13,785 14,337 (4,795)
Effect of exchange rate changes
on cash.......................... 209 (4) (243)
Net (decrease) increase in cash.... (13,480) 13,170 1,042
Cash and temporary cash investments,
beginning of period.............. 15,786 2,616 1,574
Cash and temporary cash investments,
end of period.................... $2,306 $15,786 $2,616
Supplemental disclosures of cash flow information:
Cash paid during the year for-
Income taxes.................... $6,863 $9,876 $1,390
Interest........................ $ 756 $ 18 $1,157
Non-cash investing and financing activities-
Capital lease obligations....... $4,369
Issuance of stock for the
acquisition of Bridge
Electronics, Inc. ............. $ 700
<FN>
See Notes to Consolidated and Combined Financial Statements.
</TABLE>
<PAGE>
IPC INFORMATION SYSTEMS, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Total
Paid- Retained stock-
Common in earnings Treasury holders'
stock capital (deficit) stock equity
<S> <C> <C> <C> <C> <C>
Combined balance,
September 30, 1993..... $75 $8,986 ($1,483) ($250) $7,328
Translation adjustment. (213) (213)
Net income............. 16,549 16,549
Purchase of treasury
stock................. (72) (72)
S corporation
distribution.......... (2,470) (2,470)
Combined balance,
September 30, 1994...... 75 8,986 12,383 (322) 21,122
Translation adjustment. (34) (34)
Net income............. 13,267 13,267
Net proceeds from initial
public offering....... 32 42,219 42,251
Issuance of common stock
under employment
contract............. 824 824
Purchase of treasury
stock................. (396) (396)
S corporation
distribution.......... (6,176) (12,354) (18,530)
Consolidated balance,
September 30, 1995..... 107 45,853 13,262 (718) 58,504
Translation adjustment. 102 102
Net income............. 12,129 12,129
Issuance of common stock
in acquisition......... 1 699 700
Issuance of common stock
under stock purchase
plan................... 1 171 172
Issuance of common stock
under stock option plan. 108 108
Consolidated balance,
September 30, 1996...... $109 $46,831 $25,493 ($718) $71,715
<FN>
See Notes to Consolidated and Combined Financial Statements.
</TABLE>
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS,
(Dollars in Thousands, Except Per Share Amounts)
1. The Company:
IPC Information Systems, Inc. ("the Company") provides
globally integrated telecommunications products and services
to the financial services industry primarily in the United
States and United Kingdom. The Company is in the business of
designing, manufacturing, installing and servicing trading
room voice communication workstations and installing and
servicing comprehensive Local Area Networks. In addition,
International Exchange Networks Ltd. ("IXNET"), a subsidiary
of the Company, has implemented a facilities-based global
network designed for the specialized international
telecommunications requirements of the financial services
industry.
2. Summary of Significant Accounting Policies:
Principles of Consolidation and Combination
The consolidated financial statements include the accounts of
IPC Information Systems, Inc. and its subsidiaries. The
combined financial statements include the accounts of IPC-US
and its affiliated company, IPC-UK. Intercompany balances
and transactions have been eliminated.
Revenue Recognition
Revenue from product sales and installation is recognized
upon completion of the installation except for revenue from
sales to distributors, which is recognized upon shipment.
Under contract provisions, customers are progress-billed
prior to the completion of the installations. The revenue
related to these advance payments is deferred until the
system installations are completed. Contracts for
maintenance are billed in advance, and are recorded as
deferred revenue and recognized ratably over the contractual
periods. Revenue from network services are recognized in the
month the related service is provided.
Cash and Temporary Cash Investments
The Company places cash with several high quality financial
institutions and thereby limits the amount of credit exposure
to any single financial institution. Temporary cash
investments with original maturities of less than three
months are considered cash equivalents and consist of high
grade municipal bond funds and time deposits. 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.
Inventories
Inventories are stated at the lower of FIFO (first in, first
out) cost or market. Inventory costs include all direct
manufacturing costs and applied overhead.
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS,Continued
(Dollars in Thousands, Except Per Share Amounts)
Property, Plant and Equipment
Property, plant and equipment are stated at cost and
depreciated on a straight-line basis over their estimated
useful lives. Network switching equipment are stated at
cost. Various costs are capitalized during the installation
and expansion of the network. Depreciation is calculated
using the straight line method over the estimated useful
lives beginning in the year the asset was placed into
service.
Capitalized Product Development Costs
Capitalized product development costs represent costs
incurred after technological feasibility is established for
the related product. The amortization of capitalized product
development costs is, the greater of the amounts computed
based on the estimated revenue distribution over the products
revenue-producing lives, or the straight-line basis, not to
exceed four years, beginning when the product becomes
available for general release to customers. No product
development costs were capitalized in the years ended
September 30, 1996 and 1995. There are no unamortized
product development costs at September 30, 1996. Unamortized
product development costs at September 30, 1995 was $626 and
is included in other assets. Amortization expense for each
of the years ended September 30, 1996, 1995 and 1994 was
$626.
Intangible Assets
Intangible assets, which are carried at cost less accumulated
amortization, consist primarily of acquired technology and
goodwill. Goodwill represents the excess of the cost over
the fair value of the identifiable tangible and intangible
assets acquired in various acquisitions. Costs allocated to
technology and goodwill acquired in acquisitions are
amortized on a straight-line basis over the periods
benefited, principally 7 to 10 years. The Company measures
the recoverability of acquired technology and goodwill based
on anticipated gross operating income.
Research and Development
Research and development expenditures are charged to expense
as incurred.
Income Taxes
In accordance with Statement of Financial Accounting
Standards 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. Provision for income taxes is the tax
payable for the period and the change during the period in
deferred tax assets and liabilities.
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could
differ from those estimates.
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS,Continued
(Dollars in Thousands, Except Per Share Amounts)
Foreign Currency Translation Adjustment
The balance sheets and statements of operations of IPC's UK
subsidiary ("IPC-UK") are measured using the local currency
as the functional currency. Assets and liabilities of IPC-UK
are translated at the year end exchange rate. Revenue and
expense amounts are translated at the average rate of
exchange prevailing during the year. Translation adjustments
arising from the use of differing exchange rates from period
to period are included in the cumulative translation
adjustment account in stockholders' equity.
Earnings Per Share
Earnings per share are based on the weighted average number
of shares of common stock and common stock equivalents
outstanding during the period, computed in accordance with
the treasury stock method. Historical earnings per share was
$2.27 for the year ended September 30, 1994.
3. Acquisitions:
During June 1995, the Company acquired a controlling interest
in International Exchange Networks, Ltd. ("IXNET"). The
Company acquired 80% of IXNET for providing $5,500 in working
capital. The acquisition was accounted for using the
purchase method of accounting. Included in other assets is
$1,041 and $1,222 at September 30, 1996 and 1995,
respectively, representing the excess of the cost over the
fair value of the identifiable tangible assets acquired,
allocated to acquired technology.
During April 1995, the Company acquired the assets of Bridge
Electronics, Inc. ("IPC Bridge"). The terms of the
acquisition included a payment in January 1996 of $2,025 in
cash and 76,923 shares of the Company's common stock, valued
at $700. Additionally, during fiscal 1996, the Company made
$1,000 in contingent acquisition payments based on IPC
Bridge's performance. The acquisition was accounted for
using the purchase method of accounting. Included in other
assets is $3,202 and $2,501 at September 30, 1996 and 1995,
respectively, representing the excess of the cost over the
fair value of the identifiable tangible and intangible assets
acquired.
4. Inventories:
`
<TABLE>
<CAPTION>
September 30,
1996 1995
<S> <C> <C>
Components and manufacturing work in process $13,913 $ 9,245
Inventory on customer sites awaiting
installation 12,503 18,984
Parts and maintenance supplies 9,951 6,882
$36,367 $35,111
</TABLE>
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS,Continued
(Dollars in Thousands, Except Per Share Amounts)
5. Property, Plant and Equipment:
<TABLE>
<CAPTION>
September 30,
1996 1995
<S> <C> <C>
Machinery and Equipment $19,479 $13,027
Furniture and Fixtures 2,006 1,654
Leasehold Improvements 5,424 2,789
Network Switching Equipment 1,600 -
Network Switching Equipment
under capital leases 4,619 -
Total depreciable property, plant and 33,128 17,470
equipment
Less, accumulated depreciation and
amortization (13,376) (9,037)
$19,752 $ 8,433
Land 329 329
Construction in Progress 1,786 474
$21,86 $ 9,236
</TABLE>
6. Note Payable:
In April 1996, the Company signed a promissory note with a
bank increasing the Company's line of credit from $15,000 to
$25,000. At September 30, 1996, $13,900 of the line was
outstanding and is payable upon demand. The weighted average
interest rate on borrowings for fiscal year 1996 was 6.31%.
At September 30, 1995 there was no amount outstanding on the
line of credit.
7. Initial Public Offering:
The Company completed an initial public offering (the
"Offering") of 3,250,000 shares of common stock at $15.00 per
share on October 3, 1994. In connection with the Offering,
on May 9, 1994, the Company's stockholders approved a change
in the Company's capital stock to authorize 25,000,000 shares
of $.01 par value common stock and 10,000,000 shares of $.01
par value preferred stock. Pre-Offering stockholders
exchanged their shares for new common shares on a 620.991 for
1 basis prior to consummation of the Offering. The financial
statements reflect this change in capitalization.
Pro Forma Information
Pro forma provision for income taxes for 1994 assumes that
IPC was subject to corporate federal income taxes for the
year and excludes the tax benefit associated with the
termination of the Company's S corporation status (see Note
11). The pro forma weighted average number of shares
outstanding is the historical weighted average number of
shares outstanding during the year adjusted to give effect to
the number of shares, at the initial offering price of $15.00
per share, whose proceeds were necessary to pay the remaining
S corporation distribution. The pro forma net income per
share has been computed by dividing pro forma net income
(income before provision for income taxes less pro forma
provision for income taxes) by the pro forma weighted average
number of shares outstanding.
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS,Continued
(Dollars in Thousands, Except Per Share Amounts)
8. Deferred Compensation and Other Benefit Plans:
The Company has assumed responsibility for deferred
compensation agreements with certain past key officers and
employees. Amounts to be paid range from $20-$75 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 $7,300 and $3,732 at September 30, 1996 and
$7,450 and $3,606 at September 30, 1995, respectively.
Approximate payments for subsequent annual periods related to
the deferred compensation agreements, at September 30, 1996,
are as follows:
<TABLE>
<S> <C>
1997 $187
1998 225
1999 280
2000 320
2001 390
Thereafter 5,898
$7,300
</TABLE>
In April 1995, IPC terminated its participation in a defined
contribution plan sponsored by Kleinknecht Electric Company
("KEC"), an affiliated company, and adopted its own plan for
all eligible US employees. According to plan provisions, IPC
contributions are discretionary and are subject to approval
by the Board of Directors. Eligible employees may contribute
up to 15% of their annual compensation. IPC contributed $556
and $520 for the years ended September 30, 1996 and 1995,
respectively. For the year ended September 30, 1994, the
Company elected not to contribute to the plan.
IPC-UK has a defined contribution plan covering all UK
employees. Employee contributions are limited by statute,
generally not to exceed 17.5% of base salary. IPC-UK
contributions, net of forfeitures, for the years ended
September 30, 1996, 1995 and 1994 were $229, $92 and $76,
respectively.
The Company paid to KEC and Kleinknecht Electric Company -
New Jersey ("KEC-NJ"), also an affiliated company, in
accordance with labor pooling agreements, approximately
$7,750, $5,074 and $4,744 for the years ended September 30,
1996, 1995 and 1994, respectively, representing pass through
contributions to various union sponsored pension plans.
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS,Continued
(Dollars in Thousands, Except Per Share Amounts)
Stock Option and Incentive Plan
The following table summarizes stock option plan activity:
<TABLE>
<CAPTION>
Shares
Under Option Option Prices
<S> <C> <C>
Balance, September 30, 1994
Granted 263,500 $13.50 - $18.00
Canceled (16,000) $15.00
Balance, September 30, 1995 247,500 $13.50 - $18.00
Granted 573,000 $14.125 - $19.00
Granted 25,000 $25.00
Granted 25,000 $40.00
Exercised (8,964) $13.75 - $15.00
Canceled (35,335) $13.75 - $19.00
Balance, September 30, 1996 826,201
Exerciseable,
September 30, 1996 776,201
</TABLE>
Employees generally vest in stock options over a period of
three to five years. As of September 30, 1996, the Company
had reserved 1,579,337 shares of common stock for the
exercise of options.
The option plan also provides for the issuance of stock
appreciation rights and restricted stock features under which
shares of common stock may be issued to eligible employees.
No such awards have been made.
During October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation." The disclosure
requirements under this Standard will affect the Company
beginning in fiscal 1997 for all of its stock options granted
after September 30, 1995. The Statement allows alternate
accounting methods and the Company intends to account for
stock options as in the past under Accounting Principles
Board Opinion No. 25. The Company will disclose certain pro
forma information required by the Statement beginning with
the Company's next annual report.
Employee Stock Purchase Plan
In 1994, the Company adopted an employee stock purchase plan
and reserved 526,813 shares of common stock for issuance
thereunder. Under the stock purchase plan, the Company's
employees may purchase shares of common stock at a price per
share that is the lesser of the common stock fair market
value on the first business day of the purchase period or 90%
of the common stock fair market value on the last day of the
purchase period, but in no event less than 85% of the common
stock fair market value on either the option grant date or
option exercise date. Through September 30, 1996, 10,373
shares have been issued and 516,440 shares are reserved for
future issuances under this plan.
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS,Continued
(Dollars in Thousands, Except Per Share Amounts)
9. Commitments and Contingencies:
Litigation
Knight Ventures, Inc. ("KVI"), a company principally owned by
Richard P. Kleinknecht and Peter J. Kleinknecht (the
"Principal Stockholders"), and the former parent of the
Company, agreed to settle its litigation with Contel
Corporation ("Contel") over, among other claims,
responsibility for taxes, tax liens, tax assessments and tax
warrants with respect to Contel IPC, for periods prior to the
acquisition of the Company from Contel.
As of May 9, 1994, the Company, KVI and the Principal
Stockholders entered into a Tax Allocation and Indemnification
Agreement (the "Tax Agreement") relating to their respective
income tax liabilities and certain related matters as a
consequence of the Company's termination of its S Corporation
status and its initial public offering. In addition, the
Company, KVI and the Principal Stockholders agreed, to the
extent that either KVI or the Principal Stockholders receives
any cash proceeds or other benefit in the form of a reduction
in amounts payable to Contel, as a consequence of the
litigation, they will pay to the Company the lesser of (i)
such benefit or (ii) the amount paid by the Company for taxes
and related charges subject to the dispute, plus the amount of
any expenses of such litigation incurred by the Company
following the consummation of the Company's initial public
offering.
As of May 15, 1996, Contel, KVI, the Principal Stockholders
and the Company, although not a party to the litigation,
entered into a settlement agreement and mutual releases. In
connection with this settlement agreement, KVI has executed,
and the Principal Stockholders have guaranteed, a note payable
to the Company, in the amount of $1,300, to fulfill
obligations under the Tax Agreement.
Operating Leases
The Company has entered into various operating leases for
real estate, equipment and automobiles.
Rental expenses under operating leases (excluding rentals on
vacant facilities) were $6,513, $5,587 and $5,252 for the
years ended September 30, 1996, 1995 and 1994, respectively.
Future minimum annual rental payments required under
noncancellable operating leases (including rentals on vacant
facilities) at September 30, 1996 are as follows:
<TABLE>
<S> <C>
1997 $5,688
1998 4,707
1999 3,270
2000 2,757
2001 2,474
Thereafter 4,282
$23,178
</TABLE>
The Company has accrued for the minimum annual rental and
estimated building operating costs under noncancellable
operating leases for vacated facilities. These leases extend
through May 1998. The gross and discounted present value of
the accrued liability, net of payments made,
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS,Continued
(Dollars in Thousands, Except Per Share Amounts)
approximated $1,224 and $1,200 at September 30, 1996 and
$1,958 and $1,844 at September 30, 1995, respectively. The
discount rate applied was 6.8%.
Capital Leases
IXNET has entered into two capital leases during fiscal 1996
to purchase certain network switching equipment used for
IXNET's international private network.
Future minimum lease payments required under noncancellable
capital leases at September 30, 1996 are as follows:
<TABLE>
<S> <C>
1997 $1,326
1998 1,327
1999 1,208
2000 850
2001 638
5,349
Less, amount representing interest (980)
Present value of net minimum lease payments under
capital leases $4,369
</TABLE>
Employment Agreements
The Company has executed employment contracts for future
services, that vary in length up to 5 years, with certain
senior executives for which the Company has a minimum
commitment aggregating approximately $6,466 at September 30,
1996.
10.Related Party Transactions:
Services Provided
Affiliated companies performed various services and provided
certain equipment to the Company. Services and/or equipment
provided by affiliates are billed to the Company and settled
through a periodic cash transfer to the respective affiliate.
Approximately $52,592, $38,666 and $36,293 of technical
labor, and $2,327, $2,083 and $1,767 of administrative labor
was provided through agreements with KEC and KEC-NJ during
the years ended September 30, 1996, 1995 and 1994,
respectively.
Effective October 1, 1993, the Company formalized in writing
existing arrangements with KEC and KEC-NJ with respect to a
pool of field technicians utilized by all three companies.
KEC and KEC-NJ are responsible for administering the payroll
and related services for these technical and clerical workers
and the Company reimburses all compensation and benefits paid
by KEC and KEC-NJ attributable to services performed for the
Company plus a fee equal to 2.5% of such costs. For the
years ended September 30, 1996, 1995 and 1994, KEC and KEC-NJ
billed the Company payroll administrative services of $1,374,
$1,024 and $922, respectively.
A portion of the Company's New York branch operation is co-
located with KEC in a building owned by the Principal
Stockholders. For each of the years ended September 30,
1996, 1995 and 1994, the Company was charged approximately
$430 for rent expense. In addition, for the years
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS,Continued
(Dollars in Thousands, Except Per Share Amounts)
ended September 30, 1996, 1995 and 1994, the Company rented on
a month to month basis, two other facilities from entities
controlled by the Principal Stockholders for which the
Company was charged approximately $30, $55 and $130,
respectively.
Equipment Rentals
Equipment rentals from an affiliated company were $898, $975
and $1,201 for the years ended September 30, 1996, 1995 and
1994, respectively.
Subcontracts and Other
The Company and other companies controlled by the Principal
Stockholders periodically subcontract certain work to one
another. Amounts charged to companies controlled by the
Principal Stockholders under subcontracts with IPC for the
years ended September 30, 1996, 1995 and 1994 were
approximately $993, $2,220 and $128, respectively, while
amounts charged to IPC under subcontracts with companies
controlled by the Principal Stockholders were approximately
$703, $587 and $993, respectively.
In addition to the foregoing, the Company, KEC and KEC-NJ
entered into a 20 year agreement dated as of May 9, 1994,
with respect to business opportunities regarding cabling of
communication infrastructures. KEC and KEC-NJ have agreed
not to bid for or accept cabling jobs in competition with the
Company, if it intends to bid or accept such work. In
addition, because the Company is not a licensed electrical
contractor, it has agreed to refrain from bidding for or
accepting without the consent of KEC or KEC-NJ, as the case
may be, all opportunities that combine both electrical and
cabling work. The Company has also agreed to continue to
refer to KEC and KEC-NJ certain electrical contracting bid
opportunities identified from time to time. Pursuant to such
agreement, all estimates for cabling work shall be generated
by the Company on behalf of KEC, and KEC will pay the Company
a nominal amount for preparing such estimates.
The Company and companies controlled by the Principal
Stockholders also charge each other certain miscellaneous
expenses, including, but not limited to, office equipment
rentals and certain other administrative expenses.
11.Income Taxes:
Pretax earnings consisted of the following:
<TABLE>
<CAPTION>
For the year ended September 30,
1996 1995 1994
<S> <C> <C> <C>
Pretax earnings:
United States $10,020 $17,158 $ 9,760
Foreign 10,101 5,328 5,916
Total pretax earnings $20,121 $22,486 $15,676
</TABLE>
Effective October 1, 1992, IPC-US elected to be treated as an
S corporation for federal income tax purposes. In the year
ended September 30, 1994 the Company was not subject to
federal income taxes. The Company's income was passed through
and taxed directly to the stockholders.
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS,Continued
(Dollars in Thousands, Except Per Share Amounts)
On September 29, 1994, IPC-US filed a notification
terminating its S corporation status, effective October 1,
1994. For the years ended September 30, 1996 and 1995, the
Company was subject to corporate federal income taxes.
The provision (benefit) for income taxes consisted of the
following:
<TABLE>
<CAPTION>
For the year ended September 30,
1996 1995 1994
<S> <C> <C> <C>
Current:
Federal $1,844 $ 5,887
State and local 1,967 2,558 $1,160
Foreign 3,507 1,858 2,223
7,318 10,303 3,383
Deferred:
Termination of
S corporation
status (3,295)
Federal 513 (673)
State and local 207 (359) (744)
Foreign (46) (52) (217)
674 (1,084) (4,256)
Income tax
provision / (benefit) $7,992 $ 9,219 $ (873)
</TABLE>
The components of net deferred tax assets are as follows:
<TABLE>
<CAPTION>
September 30,
1996 1995
US Foreign Total US Foreign Total
<S> <C> <C> <C> <C> <C> <C>
Deferred tax assets:
Excess of book over
tax depreciation $917 $59 $976 $1,133 $26 $1,159
Amortization
intangibles 66 66 25 25
Inventory and
receivables 2,172 221 2,393 2,602 214 2,816
Accrued expenses 1,228 5 1,233 1,570 1,570
Total deferred tax
assets 4,383 285 4,668 5,330 240 5,570
Deferred tax
liabilities:
Amortization of
intangibles (227) (1) (228)
____ ____ ____ ____ ____ ____
Total deferred tax
liabilities (227) (1) (228)
____ ____ ____ ____ ____ ____
Net deferred
tax asset $4,383 $285 $4,668 $5,103 $239 $5,342
</TABLE>
These net deferred tax assets arise from temporary
differences related to depreciation, the amortization of
intangible assets, the allowance for doubtful accounts,
inventory valuation and the Company's various accruals. No
valuation allowance was required at September 30, 1996 and
1995.
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS,Continued
(Dollars in Thousands, Except Per Share Amounts)
A reconciliation between the statutory US federal income tax
rate and the Company's effective tax rate, excluding minority
interest, is as follows:
<TABLE>
<CAPTION>
For the year ended
September 30,
1996 1995
<S> <C> <C>
Statutory US federal tax rate 35.0% 35.0%
State and local income taxes,
net of federal benefit 6.8 6.4
Tax exempt interest income (0.5)
Other, net 0.8 0.1
41.0% 41.0%
</TABLE>
12. Operations by Geographic Areas:
Information about the Company's operations by geographic area
is as follows:
<TABLE>
<CAPTION>
For the year ended September 30,
1996 1995 1994
<S> <C> <C> <C>
Revenues:
United States $ 202,926 $ 186,355 $ 142,130
United Kingdom 46,582 19,899 21,541
$ 249,508 $ 206,254 $ 163,671
Operating Profits:
United States $ 24,485 $ 30,714 $ 20,371
United Kingdom 9,745 4,192 5,345
Corporate (14,022) (12,879) (9,054)
$20,208 $22,027 $16,662
Identifiable Assets:
United States $ 111,829 $ 98,228 $ 94,530
United Kingdom 17,547 25,417 8,799
Corporate 11,581 4,391 7,373
$ 140,957 $ 128,036 $ 110,702
</TABLE>
Included in the United States revenues are export sales to
unaffiliated customers of $16,126, $17,063 and $12,849 for the
years ended September 30, 1996, 1995 and 1994, respectively.
Transfers from the United States to the United Kingdom,
eliminated in consolidation, were $12,681, $7,999 and $6,764
for the years ended September 30, 1996, 1995 and 1994,
respectively.
For the year ended September 30, 1996, approximately 13% of
total revenues were from one customer. Corporate assets are
principally prepaids, intangibles and other assets.
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS,Continued
(Dollars in Thousands, Except Per Share Amounts)
13. Quarterly Financial Information (unaudited)
The following tables set forth unaudited quarterly financial
information for the years ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
Quarter Ended
December 31 March 31 June 30 September 30
<S> <C> <C> <C> <C>
Year Ended
September 30, 1996:
Net Revenues $59,750 $62,198 $69,424 $58,136
Gross Profit 18,537 19,279 20,740 18,262
Net earnings 3,482 3,641 3,701 1,305
Earnings per Share $0.33 $0.34 $0.35 $0.12
Year Ended
September 30, 1995:
Net Revenues $47,716 $50,528 $52,458 $55,552
Gross Profit 14,511 15,415 16,138 17,109
Net earnings 3,068 3,268 3,486 3,445
Earnings per Share $0.29 $0.31 $0.33 $0.33
</TABLE>
The quarterly earnings per share information is computed separately
for each period. Therefore, the sum of such quarterly per share
amounts may differ from the total for the year.
<PAGE>
Schedule II
IPC INFORMATION SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
Additions
Balance Charged to
at Charged to costs and Balance
Beginning costs and Other at End
Description of Period Expenses Accounts Deductions of Period
<S> <C> <C> <C> <C> <C>
For the Year
September 30, 1994
Provision for
Doubtful Accounts $823 $786 $278(1) $1,331
Provision for Inventory
Obsolescense... $3,925 $2,062 $427(2) $5,560
For the Year
September 30, 1995
Provision for
Doubtful Accounts $1,331 $861 $620(1) $1,572
Provision for Inventory
Obsolescense... $5,560 $3,052 $1,123(2) $7,489
For the Year
September 30, 1996
Provision for
Doubtful Accounts $1,572 $240 $291(1) $1,521
Provision for Inventory
Obsolescense... $7,489 $1,143 $2,267(2) $6,365
<FN>
(1) Doubtful Accounts Written Off, Net of Cash Recovered
(2) Inventory Written Off
</TABLE>
<PAGE>
[ARTICLE] 5
<TABLE>
[MULTIPLIER]1000
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] SEP-30-1996
[PERIOD-END] SEP-30-1996
[CASH] 2306
[SECURITIES] 0
[RECEIVABLES] 66468
[ALLOWANCES] 0
[INVENTORY] 36367
[CURRENT-ASSETS] 13949
[PP&E] 21867
[DEPRECIATION] 0
[TOTAL-ASSETS] 140957
[CURRENT-LIABILITIES] 62157
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 109
[OTHER-SE] 71606
[TOTAL-LIABILITY-AND-EQUITY] 140957
[SALES] 249508
[TOTAL-REVENUES] 249508
[CGS] 172690
[TOTAL-COSTS] 229300
[OTHER-EXPENSES] 591
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] (678)
[INCOME-PRETAX] 20121
[INCOME-TAX] 7992
[INCOME-CONTINUING] 12129
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 12129
[EPS-PRIMARY] 1.15
[EPS-DILUTED] 0
</TABLE>
Commission File No. 0-25492
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
____________________
Exhibits
to
Form 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
____________________
IPC Information Systems, Inc.
(Exact name of registrant as specified in its charter)
____________________
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
Exhibit Sequential
No. Exhibit Title Page Number
<S> <S> <S>
*3.1 Restated Certificate of Incorporation.
*3.2 Amended and Restated Bylaws of Registrant.
*4.1 Specimen Common Stock of the Registrant.
*10.2 Employment Agreement, dated May 9, 1994,
between the Registrant and Richard
P. Kleinknecht.
**10.2.1 Letter Agreement, dated October 17, 1995
by and between the Registrant and Richard
P. Kleinknecht amending the Employment
Agreement, dated May 9, 1994 by and between
the Registrant and Richard P. Kleinknecht.
*10.3 Employment Agreement, dated May 9, 1994,
between the Registrant and Peter J. Kleinknecht.
**10.3.1 Letter Agreement, dated October 17, 1995 by
and between the Registrant and Peter J.
Kleinknecht amending the Employment Agreement,
dated May 9, 1994 by and between the Registrant
and Peter J. Kleinknecht.
*10.4 Employment Agreement, dated August 29, 1994,
between the Registrant and Jeffrey M. Gill.
**10.4.1 Letter Agreement, dated October 17, 1995 by
and between the Registrant and Jeffrey M. Gill
amending the Employment Agreement, dated
August 29, 1994 by and between the Registrant
and Jeffrey M. Gill.
*10.13 Registration Rights Agreement between the
Registrant and Richard P. Kleinknecht and
Peter J. Kleinknecht.
**10.14 Employment Agreement, dated as of October 17,
1995, by and between the Registrant and
Stephen T. Clontz.
21.3 Subsidiaries of the Registrant . 1
23 Consent of Coopers & Lybrand L.L.P. 2
27 Financial Data Schedule (for SEC use). 3
* Previously filed as an exhibit to the Registrant's
Registration on Form S-1 (No. 33-78754) or Amendment
No.1, Amendment No. 2, or Amendment No. 3 to the
Registration Statement, and incorporated herein by reference.
** Filed as an Exhibit to the Registrant's Report on Form 8-K,
filed November 30,1995 and incorporated herein by reference.
Exhibit 21.3
Exhibit 21.3
Subsidiaries of the Registrant
HNG Corp., a Delaware corporation
RIE Corp., a Delaware corporation
IPC Information Systems, a United Kingdom unlimited liability corporation
IPC Information Systems Canada, Inc., a Canadian federal corporation
IPC Information Systems Far East, Inc., a Delaware corporation
IPC Bridge, Inc., a New York corporation
International Exchange Networks, Ltd. a Delaware corporation (80% owned)
International Exchange NetworksCorp., a Delaware corporation
International Exchange Networks (Hong Kong) Ltd., a Hong Kong limited
liability corporation
</TABLE>
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statement on Form S-8(File Nos. 33-93134, 33-93135 and 33-93136)
of our report dated December 11, 1996, on our audits of the
consolidated and combined financial statements and financial
statement schedule of IPC Information Systems, Inc., which report
is included in this Annual Report on Form 10-K for the fiscal year
1996.
/s/ COOPER & LYBRAND L.L.P.
New York, New York
December 26, 1996
