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 March 31, 1997
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 March 31, 1997
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 March 31, 1997
and September 30, 1996 2
Consolidated Statements of Operations for the
Three and Six Months Ended March 31, 1997 and 1996 3
Consolidated Statements of Cash Flows for the
Six Months Ended March 31, 1997 and 1996 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>
March 31, September 30,
1997 1996
<S> <C> <C>
ASSETS:
Current assets:
Cash and temporary cash
investments................. $ 2,647 $ 2,306
Trade receivables, less allowance
of $1,517 and $1,521....... 57,892 66,468
Inventories.................... 43,174 36,367
Prepaid expenses and other current
assets..................... 10,395 7,284
Total current assets........ 114,108 112,425
Property, plant and equipment, net. 30,744 21,867
Other assets, net.................. 6,088 6,665
Total assets.................$ 150,940 $ 140,957
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Note payable.....................$ 1,200 $ 13,900
Accounts payable................. 20,675 14,369
Accrued liabilities.............. 15,368 12,963
Customer advances and deferred
revenue...................... 24,474 19,446
Short-term lease commitments..... 2,236 940
Total current liabilities.... 63,953 61,618
Long-term lease commitments....... 8,729 3,429
Other liabilities................. 3,665 4,195
Total liabilities............ 76,347 69,242
Commitments and contingencies
Stockholders' equity:
Preferred stock - $0.01 par value,
authorized 10,000,000 shares, none
issued and outstanding Common
stock - $0.01 par value, authorized
25,000,000 shares; issued 10,893,023
and 10,860,000 shares; outstanding
10,650,838 and 10,617,815 shares at
March 31, 1997 and September 30, 1996,
respectively..................... 109 109
Paid-in capital................... 47,349 46,831
Retained earnings................. 27,853 25,493
Less treasury stock, at cost,
242,185....................... (718) (718)
Total stockholders' equity.... 74,593 71,715
Total liabilities and
stockholders' equity........$ 150,940 $ 140,957
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
IPC INFORMATION SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Product sales and installation. $46,114 $45,347 $85,912 $89,531
Service........................ 20,068 16,851 39,681 32,417
66,182 62,198 125,593 121,948
Cost of revenues:
Product sales and installation. 30,903 31,341 59,236 61,460
Service........................ 14,465 11,578 27,969 22,672
45,368 42,919 87,205 84,132
Gross profit................ 20,814 19,279 38,388 37,816
Research and development expenses. 2,319 3,015 4,691 6,008
Selling, general and administrative
expenses........................ 16,242 10,521 30,089 20,390
Income from operations...... 2,253 5,743 3,608 11,418
Interest income/(expense), net.... (307) 44 (770) 101
Other income/(expense), net....... 102 220 363 319
Income before provision for
income taxes................ 2,048 6,007 3,201 11,838
Provision for income taxes........ 807 2,366 1,394 4,721
Net income ................. $ 1,241 $ 3,641 $ 1,807 $ 7,117
Earnings per share................ $ 0.12 $ 0.34 $ 0.17 $ 0.67
Weighted average shares outstanding. 10,651 10,609 10,651 10,564
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
IPC INFORMATION SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six months ended March 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income............................ $ 1,807 $ 7,117
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization
expense.......................... 3,411 1,611
Other amortization................ 465 1,027
Provision for doubtful accounts... 170 121
Changes in operating assets and liabilities:
Trade receivables.................... 9,215 (3,820)
Inventories.......................... (5,970) (12,720)
Prepaid expenses and other current assets.(1,909) (1,436)
Other assets......................... (59) (16)
Accounts payable..................... 5,820 10,748
Accrued liabilities and other liabilities. 1,860 1,432
Customer advances and deferred revenue. 4,639 (13,159)
Net cash provided by (used in)
operating activities............ 19,449 (9,095)
Cash flows from investing activities:
Capital expenditures................. (4,511) (4,233)
Proceeds from sale of short-term
investment........................ 2,007
Contingent acquisition payments to Bridge
Electronics, Inc.................. (750) (2,240)
Net cash (used in) investing activities.(5,261) (4,466)
Cash flows from financing activities:
Net repayments of note payable....... (12,700)
Net proceeds from note payable....... 1,000
Principal payments on capital leases. (662)
Proceeds from exercise of stock options. 40 17
Net cash (used in) provided by
financing activities............ (13,322) 1,017
Effect of exchange rate changes on cash. (525) 152
Net increase (decrease) in cash......... 341 (12,392)
Cash and temporary cash investments,
beginning of period................... 2,306 15,786
Cash and temporary cash investments,
end of period......................... $ 2,647 $ 3,394
<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 March 31,
1997, and the results of its operations for the three and six months
ended March 31, 1997 and 1996, and its cash flows for the six months
ended March 31, 1997 and 1996, in conformity with generally accepted
accounting principles for interim financial information applied on a
consistent basis. The results of operations for the three and six
months ended March 31, 1997 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>
<CAPTION>
March 31, September 30,
1997 1996
<S> <C> <C>
Components and manufacturing work in process $11,993 $13,913
Inventory on customer sites awaiting
installation 22,627 12,503
Parts and maintenance supplies 8,554 9,951
$43,174 $36,367
</TABLE>
3. The Company maintains a promissory note with a bank for a line
of credit up to $25,000 of which $1,200 is outstanding at
March 31, 1997. 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 in building 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. ("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
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 cabling and LAN infrastructure,
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 representing
progress payments 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
<PAGE>
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.
Results of Operations
Total revenues of $66,182 and $125,593, for the three and six months
ended March 31, 1997 increased by 6.4% and 3.0%, respectively, from
$62,198 and $121,948, respectively, in the comparable prior-year
periods.
Turret installation and related service revenues increased by $11,030
and $8,719 or 26.2% and 10.6%, respectively, to $53,194 and $91,227,
in the three and six months ended March 31, 1997 from $42,164 and
$82,508, respectively, in the comparable prior-year periods resulting
from the timing of various large job installation cutovers at the end
of the quarter. Additionally, turret revenues are growing
internationally, particularly in the United Kingdom where, in a recent
independent survey, IPC was named the leading supplier of trading
floor technology.
Revenues from I.T.S. sales and related service decreased by $10,247
and $11,026 or 51.8% and 28.4%, respectively, to $9,522 and $27,830
in the three and six months ended March 31, 1997 from $19,769 and
$38,856, respectively, in the comparable prior-year periods. The
decrease is primarily due to the timing of completed jobs and a
slower rollout of I.T.S. outside the New York market and in market
segments outside the financial services industry.
Revenues from network services grew to $3,466 and $ 6,536,
respectively, in the three and six months ended March 31, 1997 from
$265 and $584, respectively, in the comparable prior year periods.
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 $15.5 million.
Cost of revenues (as a percentage of revenues) of 68.6% for the three
months ended March 31, 1997 decreased from 69.0% in the comparable
prior-year period, primarily due to a change in product revenue mix
that included a higher percentage of turret installation and related
service revenue 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 services businesses. Although the
revenue mix favored turrets, year-to-date cost of revenues remained
constant at 69% due to a large turret cutover in the current period
which carried a higher mix of third party products sold by IPC.
<PAGE>
Research and development expenses for the three and six months ended
March 31, 1997 decreased to $2,319 and $4,691, respectively, from
$3,015 and $6,008 in the comparable prior-year periods from
concentrating current year spending on software development as opposed
to hardware applications. The Company intends to focus on the
integration of the TRADENET MX(R) turret with IXnet's network
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 and six
months ended March 31, 1997 increased to $16,242 and $30,085,
respectively, from $10,521 and $20,390 in the comparable prior-year
periods. These increases are attributable to an increase in people
resources, and other expenses required to build, manage and grow the
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. Additionally, included in selling,
general and administrative expenses for the three months ended
March 31, 1997 is $650 or $0.04 per share representing the settlement
of an employment agreement with the former Chief Operating Officer.
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 and six months ended March 31, 1997
increased to $371 and $869, respectively, from $114 and $223 in the
comparable prior-year periods. This increase was primarily due to
the utilization of the Company's line of credit during fiscal 1997,
along with interest expense from the Company's capital lease
commitments.
The Company's effective tax rate for the three and six months ended
March 31, 1997, excluding minority interest and a tax adjustment,
was 41.0%, which is consistent with the comparable prior year periods.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share"
(SFAS 128), which simplifies existing computational guidelines,
revises disclosure requirements and increases the comparability of
earnings per share data on an international basis. The Company is
currently evaluating the new statement. However, the impact of
adoption of SFAS 128 on the Company's financial statements is not
expected to be significant. This statement is effective for
financial statements for periods ending after December 15, 1997
and requires restatement of prior-period earnings per share data.
Liquidity and Capital Resources
Net cash provided by operating activities was $19,449 for the six
months ended March 31, 1997 compared with net cash used in operating
activities of $9,095 for the six months ended March 31, 1996. Net
cash provided by operations resulted from changes in accounts
receivable, accounts payable, customer advances and deferred revenue,
offset in part by an increase in inventory. Decrease in accounts
receivable was primarily due to large cash collections during he
second quarter. Increases in inventories and customer
<PAGE>
advances were due to work in progress at March 31, 1997 being at a
later stage of completion as compared to September 30, 1996. Increase
in accounts payable was due to the timing of inventory purchases and
vendor payments.
Cash used in investing activities for the six months ended March 31,
1997 totaled $5,261 compared with $4,466 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 $13,322 for the six months
ended March 31, 1997 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 $1,200 is
outstanding at March 31, 1997.
In connection with the Company's implementation of a global virtual
private network, IXnet has entered into capital lease commitments
totaling approximately $11,200. 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.
With respect to any forward-looking comments contained herein, the
Company refers readers to the cautionary statement under the Private
Securities Litigation Reform Act of 1995, contained in the Company's
Report on Form 10-K for fiscal year ending September 30, 1996.
<PAGE>
Part II - Other Information
ITEM 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the stockholders (the "Meeting") of the Company
was held on February 14, 1997.
The Company's stockholders voted at this Meeting on the following
matters, which were set forth in full in the Company's proxy
statement dated January 24, 1997.
Election of Directors
Nominee For Withhold
Robert J. McInernery 8,996,916 4,761
Peter M. Stein 8,996,676 5,001
A majority of the outstanding voting stock of the Company voted for
the election of the two nominees. The directors whose terms of
office continued after the Meeting are S. Terry Clontz, Theodore J.
Johnson, Richard P. Kleinknecht and Peter J. Kleinknecht.
Ratification of the firm of Coopers & Lybrand L.L.P. as the
independent auditors to audit the Company's financial statements for
the fiscal year 1997 was approved by a vote of 8,995,498 in favor,
3,220 against and 2,959 abstaining.
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: May 15, 1997 By:/s/ TERRY CLONTZ
Terry Clontz
President and
Chief Executive Officer
Dated: May 15, 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 March 31, 1997 and the unaudited condensed statement
of income for the six-month period ending March 31, 1997
and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 2647
<SECURITIES> 0
<RECEIVABLES> 57892
<ALLOWANCES> 0
<INVENTORY> 43174
<CURRENT-ASSETS> 114108
<PP&E> 30744
<DEPRECIATION> 0
<TOTAL-ASSETS> 150940
<CURRENT-LIABILITIES> 63953
<BONDS> 0
0
0
<COMMON> 109
<OTHER-SE> 74484
<TOTAL-LIABILITY-AND-EQUITY> 150940
<SALES> 125593
<TOTAL-REVENUES> 125593
<CGS> 87205
<TOTAL-COSTS> 87205
<OTHER-EXPENSES> 35143
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 770
<INCOME-PRETAX> 3201
<INCOME-TAX> 1394
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1807
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0
</TABLE>
