United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 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 Identification No.)
incorporation or organization)
Wall Street Plaza, 88 Pine Street, New York, NY 10005
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212 825-9060
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No_________
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by this report.
Class Outstanding at December 31, 1996
Common Stock par value $0.01 10,650,838 shares
<PAGE>
IPC INFORMATION SYSTEMS, INC.
INDEX TO FORM 10-Q
PAGE
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements (unaudited)
Consolidated Balance Sheets at December 31, 1996
and September 30, 1996 2
Consolidated Statements of Operations for the
Three Months Ended December 31, 1996 and 1995 3
Consolidated Statements of Cash Flows for the
Three Months Ended December 31, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
ITEM 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 9
PART II. OTHER INFORMATION 10
SIGNATURES 11
<PAGE>
IPC INFORMATION SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS (unaudited)
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
<S> <C> <C>
ASSETS:
Current assets:
Cash and temporary cash investments.... $ 1,246 $ 2,306
Trade receivables, less allowance of
$1,526 and $1,521..................... 65,391 66,468
Inventories............................ 42,911 36,367
Prepaid expenses and other current..... 8,647 7,284
Total current assets................ 118,195 112,425
Property, plant and equipment, net........ 27,339 21,867
Other assets, net......................... 6,197 6,665
Total assets............................. $ 151,731 $ 140,957
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Note payable............................$ 7,900 $ 13,900
Accounts payable........................ 22,234 14,369
Accrued liabilities..................... 11,190 12,963
Customer advances and deferred revenue.. 24,894 19,446
Short-term lease commitments............ 1,028 940
Total current liabilities................ 67,246 61,618
Long-term lease commitments.............. 6,957 3,429
Other liabilities........................ 3,885 4,195
Total liabilities......................... 78,088 69,242
Commitments and contingencies
Stockholders' equity:
Preferred stock - $0.01 par value,
authorized 10,000,000 shares,
none issued and outstanding
Common stock - $0.01 par value,
authorized 25,000,000 shares;
issued 10,893,023 and 10,860,000
shares outstanding 10,650,838 and
10,617,815 shares at December 31,
1996 and September 30, 1996,
respectively........................... 109 109
Paid-in capital......................... 47,349 46,831
Retained earnings....................... 26,903 25,493
Less treasury stock, at cost, 242,185.. (718) (718)
Total stockholders' equity............... 73,643 71,715
Total liabilities and
stockholders' equity..............$ 151,731 $ 140,957
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
IPC INFORMATION SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(Amounts in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1996 1995
<S> <C> <C>
Revenues:
Product sales and installation...$ 39,798 $ 44,184
Service.......................... 19,613 15,566
59,411 59,750
Cost of revenues:
Product sales and installation... 28,333 30,119
Service.......................... 13,504 11,094
41,837 41,213
Gross profit....................... 17,574 18,537
Research and development expenses... 2,372 2,993
Selling, general and administrative
expenses.......................... 13,847 9,863
Income from operations............. 1,355 5,681
Interest income/(expense), net...... (463) 56
Other income/(expense).............. 261 100
Income before provision for
income taxes................. 1,153 5,837
Provision for income taxes.......... 587 2,355
Net income ........................ $ 566 $ 3,482
Earnings per share..................$ 0.05 $ 0.33
Weighted average shares outstanding.. 10,647 10,521
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
IPC INFORMATION SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three months ended
December 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income................................$ 566 $ 3,482
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization
expense................................ 1,478 779
Other amortization....................... 229 510
Provision for doubtful accounts.......... 5 64
Changes in operating assets and liabilities:
Trade receivables........................ 1,859 3,606
Inventories.............................. (5,792) (2,119)
Prepaid expenses and other current
assets................................. (159) (488)
Other assets............................. (394) (12)
Accounts payable......................... 7,458 1,003
Accrued liabilities and other liabilities. (2,016) (2,123)
Customer advances and deferred
revenue................................ 5,125 (6,154)
Net cash provided by (used in)
operating activities............... 8,359 (1,452)
Cash flows from investing activities:
Capital expenditures..................... (2,614) (1,767)
Contingent acquisition payments
to Bridge Electronics, Inc............. (375)
Net cash (used in) investing
activities.......................... (2,989) (1,767)
Cash flows from financing activities:
Net repayments of note payable......... (6,000)
Principal payments on capital leases. (431)
Proceeds from exercise of stock
options............................... 40
Net cash (used in) financing
activities........................ (6,391)
Effect of exchange rate changes on cash.... (39) 214
Net (decrease) in cash..................... (1,060) (3,005)
Cash and temporary cash investments,
beginning of period...................... 2,306 15,786
Cash and temporary cash investments, end of
period................................. $ 1,246 $ 12,781
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
1. In the opinion of management, the accompanying unaudited
consolidated financial statements include all necessary adjustments
(consisting of normal recurring accruals) and present fairly IPC
Information Systems, Inc.'s ("IPC" or the "Company") financial
position as of December 31, 1996, and the results of its operations
for the three months ended December 31, 1996 and 1995, and its
cash flows for the three months ended December 31, 1996 and 1995,
in conformity with generally accepted accounting principles for
interim financial information applied on a consistent basis.
The results of operations for the three months ended December 31,
1996, are not necessarily indicative of the results to be expected
for the full year. These financial statements should be read in
conjunction with IPC's 1996 Annual Report to stockholders and
Form 10-K for the fiscal year ended September 30, 1996.
2. Classification of inventories is:
<TABLE>
December 31, September 30,
1996 1996
<S> <C> <C>
Components and manufacturing work in process $13,861 $13,913
Inventory on customer sites awaiting installation 20,167 12,503
Parts and maintenance supplies 8,883 9,951
$42,911 $36,367
</TABLE>
3. The Company maintains a promissory note with a bank for a
line of credit up to $25,000 of which $7,900 is outstanding
at December 31, 1996. Interest rates ranged from 6.19% to
6.88% throughout the period.
4. Certain reclassifications have been made to the fiscal 1996
financial statements in order to conform to the current
period's presentation.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Dollars in thousands, except per share data)
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
Information Transport Systems 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 subsidiary, International Exchange
Networks, Ltd., 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.
<PAGE>
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.
Results of Operations
Total revenues of $59,411 for the three months ended December 31,
1996 decreased by 0.6% from $59,750 in the comparable prior-year period.
Turret installation and related service revenues decreased by $2,311
or 5.7%, to $38,033 in the three months ended December 31, 1996 from
$40,344 in the comparable prior-year period due to a decrease in
turret installation revenue resulting from the timing of various
installation cutovers at the end of the quarter. The Company recognizes
turret installation revenue upon the completion of installations,
therefore, operating results could fluctuate significantly from
quarter to quarter. Management continues to expect that sales of
TRADENET MX(R) will generate the majority of turret sales and
installation revenue for the foreseeable future.
Revenues from I.T.S. sales and related service decreased by $779 or
4.1%, to $18,308 in the three months ended December 31, 1996 from
$19,087 in the comparable prior-year period. During the fourth
quarter of fiscal 1996, the Company restructured I.T.S. into its
own division which will enable the Company to better monitor and
manage its operations and to capitalize on new growth opportunities,
both within and outside the financial services industry.
Revenues from network services increased by $2,751 or 862.4% to
$3,070 in the three months ended December 31, 1996 from $319 in the
comparable prior year period. The increase resulted from IXnet's
implementation of its global telecommunication network during fiscal
1996, achieving recurring monthly revenues at an annualized rate (based
upon recurring revenues incurred in the final month of the quarter)
exceeding $12 million.
Cost of revenues (as a percentage of revenues) of 70.4% for the three
months ended December 31, 1996 increased from 69.0% in the comparable
prior-year period, primarily due to a change in product revenue mix
that included a lower percentage of turret installation and related
service revenue for the three months ended December 31, 1996 when compared
to the comparable prior-year period. Turret revenues are generally
sold at higher margins than the Company's I.T.S. and network service
businesses. This increase is offset in part by continued installation
efficiencies and manufacturing cost reductions.
Research and development expenses for the three months ended December 31,
1996 decreased to $2,372 from $2,993 in the comparable prior-year period.
The Company intends to continue to focus on the integration of the
TRADENET MX(R) turret with IXnet's network
<PAGE>
capabilities as well as investing in the enhancement of existing products
in the TRADENET MX(R) family to sustain the Company's leadership position
in voice-based trading system products.
Selling, general and administrative expenses for the three months ended
December 31, 1996 increased to $13,847 from $9,863 in the comparable
prior-year period. These increases are attributable to an increase
in people resources, and other expenses to build, manage and grow global
businesses. Specifically, the Company intends to incur additional
start-up costs and network deployment costs associated with IXnet's
implementation of a global virtual private network for the financial
services industry and expenses connected with the development and
expansion of the I.T.S. business. As the Company deploys its global
network, management anticipates that selling, general and administrative
expenses will increase. These expenses may be incurred prior to the
realization of revenues.
Interest expense for the three months ended December 31, 1996 increased
to $497 from $109 in the comparable prior-year period. This increase
was primarily due to the Company's utilization of its line of credit
in the current period.
The Company's effective tax rate for the three months ended December 31,
1996, excluding minority interest and a tax adjustment, was 41.0%, which
is comparable to the first quarter of fiscal 1996.
Liquidity and Capital Resources
Net cash provided by operating activities was $8,359 for the three
months ended December 31, 1996 compared with net cash used in operating
activities of $1,452 for the three months ended December 31, 1995.
Net cash provided by operations resulted from changes in accounts
payable, customer advances and deferred revenue offset in part by
changes in inventories and accrued liabilities. Increases in inventories
and customer advances were due to work in progress at December 31,
1996 being at a later stage of completion as compared to September 30,
1996. Increases in accounts payable were due to the timing of inventory
purchases and vendor payments.
Cash used in investing activities for the three months ended December 31,
1996 totaled $2,989 compared with $1,767 for the comparable prior-year
period. Net cash used in investing activities resulted from contingent
acquisition payments based on IPC BRIDGE's performance and expenditures
for property, plant and equipment, primarily composed of machinery
and equipment and leasehold improvements.
Net cash used in financing activities of $6,391 for the three months
ended December 31, 1996 resulted from net repayments of the Company's
short-term note payable. The Company maintains a promissory note with
a bank for a line of credit up to $25,000 of which $7,900 is outstanding
at December 31, 1996.
<PAGE>
In connection with the Company's implementation of a global virtual
private network, IXnet has entered into capital lease commitments
totaling approximately $8,000, of which $3,700 was incurred during
the first quarter of fiscal 1997. The Company does not have any
other material commitments for capital expenditures.
The Company believes that the net cash from operations and existing
credit facilities will be sufficient to meet its working capital
and capital expenditure needs for the near future.
<PAGE>
Part II - Other Information
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit Number 27 Financial Data Schedule
(b) Form 8-K - None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
IPC INFORMATION SYSTEMS, INC.
Dated: February 14, 1997 By: /s/ TERRY CLONTZ
Terry Clontz
President and
Chief Executive Officer
Dated: February 14, 1997 By: /s/ KEVIN ESPOSITO
Kevin M. Esposito
Chief Accounting Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the unaudited balance sheet of IPC Information Systems
at December 31, 1996 and the unaudited condensed statement
of income for the three-month period ending December 31, 1996
and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER>1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 1,246
<SECURITIES> 0
<RECEIVABLES> 65,391
<ALLOWANCES> 0
<INVENTORY> 42,911
<CURRENT-ASSETS> 8,647
<PP&E> 27,339
<DEPRECIATION> 0
<TOTAL-ASSETS> 151,731
<CURRENT-LIABILITIES> 67,246
<BONDS> 0
0
0
<COMMON> 109
<OTHER-SE> 73,534
<TOTAL-LIABILITY-AND-EQUITY> 151,731
<SALES> 0
<TOTAL-REVENUES> 59,411
<CGS> 41,837
<TOTAL-COSTS> 41,837
<OTHER-EXPENSES> 16,219
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 463
<INCOME-PRETAX> 1,153
<INCOME-TAX> 587
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 566
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0
</TABLE>
