SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
---------------------------
Date of report (Date of earliest event reported): December 18, 1998
IPC INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-25492 58-1636502
- --------------------------- --------------------- -----------------------
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
Wall Street Plaza, 88 Pine Street, New York, New York 10005
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (212) 825-9060
None
(Former name or former address, if changed since last report)
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial statements of businesses acquired.
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
INDEX TO FINANCIAL STATEMENTS
Page
- --------------------------------------------------------------------------------
Condensed Consolidated Financial Statements as of October 31, 1998 and for the
six months ended October 31, 1998 and 1997 (unaudited)
Condensed Consolidated Statements of Operations (unaudited) for the six
months ended October 31, 1998 and 1997 2
Condensed Consolidated Balance Sheet (unaudited) at October 31, 1998 3
Condensed Consolidated Statement of Cash Flows (unaudited) for the six months
ended October 31, 1998 and 1997 4
Notes to Condensed Consolidated Financial Statements (unaudited) 5
Consolidated Financial Statements as of April 30, 1998 and 1997
and for the year ended April 30, 1998
Report of Independent Accountants 6
Consolidated Statement of Operations for the year
ended April 30, 1998 7
Consolidated Balance Sheets at April 30, 1997 and 1998 8
Consolidated Statement of Cash Flows for the year
ended April 30, 1998 9
Notes to Consolidated Financial Statements 10 to 19
1
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(U.S. dollars in thousands)
For the six months ended
October 31,
------------------------------------
1998 1997
--------------- ---------------
Revenues $13,966 $12,457
Cost of products and services 11,141 9,737
--------------- ---------------
Gross profit 2,825 2,720
Selling, general and administrative 3,987 3,632
--------------- ---------------
Operating loss 1,162 912
Interest income (7) (11)
Interest expense 19 -
--------------- ---------------
Loss before income taxes 1,174 901
Income taxes (65) 91
--------------- ---------------
Net loss $ 1,109 $ 992
=============== ===============
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
2
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
CONDENSED CONSOLIDATED BALANCE SHEET (unaudited)
(U.S. dollars in thousands)
October 31,
1998
-------------
ASSETS
Current assets
Cash and cash equivalents $1,136
Accounts receivable 3,696
Prepayment 115
Sales taxes recoverable 30
----------
Total current assets 4,977
----------
Non-current assets
Property and equipment net 5,226
Deferred taxation -
----------
Total non-current assets 5,226
----------
Total assets $ 10,203
==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Related party payables $ 6,229
Current portion of long term debt 177
Accounts payable 3,016
Accrued liabilities 5,801
Taxation liabilities 36
-----------
Total current liabilities 15,259
-----------
Non-current liabilities
Long term debt 325
Deferred taxation 25
-----------
Total non-current liabilities 350
-----------
Commitments and Contingencies
Shareholder's equity
Common shares (par value Pound Sterling 1;
authorized 500,000 shares; issued and
outstanding 483,100 shares at October 31, 1998 784
Retained deficit (6,558)
Cumulative foreign currency translation adjustments 368
-----------
Total shareholder's equity (5,406)
-----------
Total Liabilities and Shareholder's Equity $10,203
===========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
3
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(U.S. dollars in thousands)
<TABLE>
<CAPTION>
For the six months ended October 31,
-----------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Cash flows provided by operating activities:
Net loss $(1,109) $ (992)
Adjustments to reconcile net loss to operating cash flow:
Depreciation and amortisation 792 610
Changes in other assets and liabilities
Accounts receivable 107 (13)
Prepayment and other current assets 175 74
Other assets 20
Accounts payable (1,896) (1,366)
Accrued liabilities and other liabilities 3,009 2,696
------------- -------------
Net cash flows provided by operating activities 1,098 1,009
------------- -------------
Cash flows used in investing activities:
Purchase of property and equipment (1,082) (1,001)
------------- -------------
Net cash flows used in investing activities (1,082) (1,001)
------------- -------------
Cash flows provided by financing activities:
Proceeds from Marshalls funding 584 28
Net long term borrowing 224 -
------------- -------------
Net cash flows provided by financing activities 808 28
------------- -------------
Effect of exchange rate changes (11) 423
Increase in cash and cash equivalents 813 459
Cash and cash equivalents at beginning of year 323 309
------------- -------------
Cash and cash equivalents at end of year $1,136 $ 768
============= =============
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
4
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all necessary adjustments (consisting
of normal recurring accruals and appropriate intercompany elimination
adjustments) for a fair presentation of the financial position of Saturn Global
Network Holdings Limited ("Saturn") as of October 31, 1998, and the results of
its operations and its cash flows for the six months ended October 31, 1998 and
1997, in conformity with United States generally accepted accounting principles
for interim financial information applied on a consistent basis. The results of
operations for the six months ended October 31, 1998 and 1997 are not
necessarily indicative of the results to be expected for the full year. These
financial statements should be read in conjunction with Saturn's audited
financial statements for the fiscal year ended April 30, 1998.
5
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Saturn Global Network Holdings Limited:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and of cash flows present fairly,
in all material respects, the financial position of Saturn Global Network
Services Holdings Limited and its subsidiaries at 30 April, 1997 and 1998, and
the results of their operations and their cash flows for the year ended 30
April, 1998, in conformity with generally accepted accounting principles in the
United States of America. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards in the
United Kingdom, which are substantially consistent with those of the United
States of America. 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers
17 December, 1998
London, England
6
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Consolidated Statement of Operations
For the year ended
------------------
April 30, 1998
--------------
(U.S. Dollars in thousands)
Revenues $ 25,116
Cost of products and services 21,726
--------------
Gross profit 3,390
Selling 982
General and administrative 4,062
--------------
Operating loss 1,654
Interest income 22
Interest expense 2
--------------
Loss before income taxes 1,634
Income taxes 110
--------------
Net loss $ 1,744
==============
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Consolidated Balance Sheets
<TABLE>
<CAPTION>
At April 30,
------------------------
1997 1998
---- ----
(U.S. Dollars in thousands)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 309 $ 323
Accounts receivable - British Telecommunications plc - 282
- Others 2,773 3,521
Prepayment - British Telecommunications plc 124 -
- Others 364 248
Sales taxes recoverable 10 72
------- ---------
Total current assets 3,580 4,446
------- ---------
Non-current assets
Property and equipment net 3,989 4,936
Deferred taxation - 20
------- ---------
Total assets $ 7,569 $ 9,402
======= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Related party payables (refer Note 11) $ 6,558 $ 5,645
Current portion of long term debt - 88
Accounts payable - British Telecommunications plc 92 815
- Others 2,055 4,097
Accrued liabilities - British Telecommunications plc - 97
- Others 1,199 1,030
Deferred revenue 1,209 1,337
Employee liabilities 223 243
Taxation liabilities 27 86
Other liabilities 24 16
------- ---------
Total current liabilities 11,387 13,454
------- ---------
Non-current liabilities
Long term debt - 190
Deferred taxation - 44
------- ---------
Total non-current liabilities - 234
------- ---------
Commitments and Contingencies
Shareholder's Equity
Common shares (par value Pound Sterling 1; authorized 500,000 shares;
issued and outstanding 100 at April 30, 1997
and 483,100 at April 30, 1998 - 784
Retained deficit (3,705) (5,449)
Cumulative foreign currency translation adjustments (113) 379
------- ---------
Total shareholder's equity (3,818) (4,286)
------- ---------
Total Liabilities and Shareholder's Equity $ 7,569 $ 9,402
======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
For the year ended April 30,
----------------------------
1998
----
(U.S. Dollars in thousands)
<S> <C>
Cash flows used in operating activities:
Net loss $(1,744)
Adjustments to reconcile net loss to operating cash flow:
Loss on sale of equipment 6
Depreciation and amortisation 1,392
Deferred taxation 24
Changes in other assets and liabilities
Accounts receivable - Marshalls (2,791)
- British Telecommunications plc (292)
- Other (1,076)
Prepayment - British Telecommunications plc 92
- Other 61
Sales taxes recoverable (67)
Accounts payable - British Telecommunications plc 735
- Other 2,344
Accrued liabilities - British Telecommunications plc 95
- Other (81)
Deferred revenue 274
Employee liabilities 44
Taxation liabilities 54
Other liabilities (8)
-------------
Net cash flows used in operating activities (938)
-------------
Cash flows used in investing activities:
Purchase of property and equipment (2,456)
Proceeds from disposal and retirement of equipment 6
-------------
Net cash flows used in investing activities (2,450)
-------------
Cash flows provided by financing activities:
Proceeds from Marshalls funding 2,925
Repayment of long term borrowing (14)
-------------
Net cash flows provided by financing activities 2,911
-------------
Effect of exchange rate changes 491
-------------
Increase in cash and cash equivalents 14
Cash and cash equivalents at beginning of year 309
=============
Cash and cash equivalents at end of year $ 323
=============
Supplemental disclosure of cash flow information: Cash paid during the year for:
Income taxes $ 26
Interest $ 2
Noncash investing and financing activities:
Property acquired under capital leases $ 292
Intercompany balance settled by issuance of common stock $ 784
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
9
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Notes to Consolidated Financial Statements
(U.S. dollars in thousands)
1. Principal Activities
Saturn Global Network Services Holdings Limited ("the Company" or "SGNS
Limited") was restructured in 1997 as the holding company for the
Saturn Global Network Services ("SGN") group of companies. SGN is a
provider of international managed services for end to end non switched
voice, data and video telecommunications. The extensive international
network currently comprises over 160 points of presence in over 30
countries, with a worldwide network management center in the United
Kingdom.
2. Significant Accounting Policies
The financial statements of the Company have been prepared under
generally accepted accounting principles in the United States. The
accounting polices are stated below.
Basis of Presentation:
The origins of the Company began in Australia in August 1992 with the
first SGN company, SGN Pty Limited, a subsidiary of M W Marshall Pty
("MWM") to leverage MWM's experience in addressing complex
telecommunication networking needs within the financial services
sector. At formation, the SGN group of companies were wholly owned
subsidiaries of the Marshalls Finance Limited Group ("Marshalls" or
"parent company"). In order to separately identify its
telecommunication line of business from its finance activities, in May
1997 Marshalls established a fully recognizable group structure for SGN
under the holding company, SGNS Limited.
Marshalls provides the Company with general and administrative services
including legal, finance and other services. These expenses are
allocated to the Company based on incremental costs. Management believe
these costs allocations were made on a reasonable basis.
The consolidated financial statements include the accounts of the
Company and its majority owned subsidiaries and reflect the result of
operations for the Group from May 1, 1997. All significant
inter-company accounts and transactions have been eliminated.
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 at the balance sheet date and the reported amounts of
revenues and expenses in the reporting period. Actual results may
differ from the estimates used in the financial statements.
Translation of Foreign Currencies:
The functional currency is the currency of the country in which the
operations are conducted. Assets and liabilities of those operations
where the functional currency is not US dollars are translated into US
dollars at the exchange rate in effect at the balance sheet date. Non
US entity revenues and expenses are translated into US dollars at the
average rates that prevailed during the period. The resultant net
translation gains and losses are reported as foreign currency
translation adjustments in shareholder's equity.
Other transactions denominated in foreign currency are translated at
the rate prevailing at the time of the transaction. Monetary assets and
liabilities denominated in foreign currencies have been translated at
10
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Notes to Consolidated Financial Statements (continued)
(U.S. dollars in thousands)
rates in effect at the balance sheet date. Gains and losses resulting
from transactions in other than the functional currency are reflected
in the net loss.
Income Taxes:
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognised for the future tax
consequences attributable to differences between the financial
statements carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carry
forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in future years
in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognised in income in the period that includes the
enactment date. A valuation allowance is recorded to reduce the
deferred tax asset if it is more likely than not that some portion of
the asset will not be realised.
Cash and Cash Equivalents:
Cash and cash equivalents are defined as highly liquid investments with
original maturities of 90 days or less.
Property and Equipment:
Property and equipment are stated at historical cost less depreciation
calculated on a straight-line basis over the expected useful lives of
the relevant assets. Major renewals and improvements are capitalised
while maintenance and repairs are expensed when incurred. The cost and
related accumulated depreciation applicable to assets retired are
removed from the accounts and the gain or loss on disposition is
recognized in income.
Depreciation is calculated with reference to expected useful lives,
which are generally as follows:
Leased buildings 2 to 10 years
Network assets 3 to 5 years
Office equipment and furniture 3 to 5 years
Computer equipment and software applications 3 to 5 years
The Company evaluates the carrying value of fixed assets not held for
sale by considering the future undiscounted cash flow expected to arise
from the use of that asset. At the time such evaluations indicate that
future cash flows are insufficient to recover the carrying value of
such assets the assets are adjusted to their fair value.
Revenue Recognition:
Communications revenues are recognised when services are rendered in
accordance with usage of the Company's network. Certain network
services are billed in advance in accordance with the contractual
agreement and related revenues are initially deferred and recognized as
services are provided.
Employee Benefits:
The Group operates defined contribution pension plans. Such plans vary
according to the customary plan
11
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Notes to Consolidated Financial Statements (continued)
(U.S. dollars in thousands)
prevailing in the country concerned and the contributions to the
schemes are charged in results of operations.
Financial Instruments:
The Company does not use derivative financial instruments for the
purpose of hedging currency risk and managing interest rate exposures
which exist as part of ongoing business operations. As a policy, the
Company does not engage in speculative or leveraged transactions, nor
does the Company hold or issue financial instruments for trading
purposes.
Dividends:
Dividends paid are recognised when declared by the Supervisory Board.
Dividends are payable in Pounds Sterling. No dividends have been paid
to date.
Recent pronouncements:
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of financial Accounting Standard ("SFAS") No. 130, "Reporting
Comprehensive Income", which requires that all elements of changes in
equity arising from events and transactions with non-owner sources are
reported with equal prominence within the financial statements. The
Company will adopt SFAS No. 130 in the financial year ending April 30,
1999, as it is effective for years beginning after December 15, 1997.
3. Income taxes
Income tax expense consists of:
For the year ended
April 30, 1998
----------------------
Currently payable
United Kingdom $ (23)
International (63)
-----------
Total currently payable (86)
-----------
Deferred
United Kingdom (24)
International -
-----------
Total deferred (24)
-----------
Total Provision for Income Taxes $ (110)
===========
12
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Notes to Consolidated Financial Statements (continued)
(U.S. dollars in thousands)
A reconciliation between income tax credit/(expense) at the mainstream
corporation tax rate of 31% for the year ended April 30, 1998 to the
Group's effective tax rate is as follows:
1998
-----------
%
UK Statutory tax rate 31
Differences in tax rates 4
Deferred tax valuation allowance adjustments (17)
Permanent differences (16)
Other differences (9)
-----------
Effective tax rate (7)
===========
3. Income taxes (continued)
The tax effects of the temporary differences and carry forwards that
give rise to significant portions of deferred tax assets and
liabilities at April 30, 1997 and 1998 are as follows:
At April 30,
------------
1997 1998
---- ----
Deferred tax assets:
Operating losses carried forward $747 $ 960
Other temporary differences 99 177
---- -----
Total deferred tax asset 846 1,137
Less: valuation allowances (846) (1,117)
---- -----
$ - $ 20
---- -----
Deferred tax liabilities
Temporary differences on property and equipment - (24)
Other temporary differences - (20)
---- -----
Total deferred tax liability - (44)
---- -----
Net deferred tax liability $ - $ (24)
==== =====
13
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Notes to Consolidated Financial Statements (continued)
(U.S. dollars in thousands)
Estimated net operating loss carry forwards at April 30, 1997 and 1998
and their expiration dates are shown below; assuming the change of
ownership has no effect on the carry forward provisions.
<TABLE>
<CAPTION>
1997 1998
------------------------------------- -----------------------------------
Net Net
Expiration Dates Operating loss Expiration Dates Operating loss
------------------------------ ------------------- ----------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Country of tax jurisdiction
Australia No expiration 1,570 No expiration 2,140
UK No expiration 0 No expiration 0
USA 30 April 2012 0 30 April 2013 0
Hong Kong No expiration 166 No expiration 166
Japan 30 April 2002 293 30 April 2002 300
to 30 April 2003
Singapore No expiration 14 No expiration 29
================= ================
2,043 2,635
================= ================
</TABLE>
4. Accounts Receivable
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
At April 30,
------------
1997 1998
---- ----
<S> <C> <C>
Accounts receivable $2,775 $3,373
Less: allowance for doubtful accounts (16) (50)
------------ ----------
2,759 3,323
Other receivables 14 198
------------ ----------
$2,773 $3,521
============ ==========
</TABLE>
14
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Notes to Consolidated Financial Statements (continued)
(U.S. dollars in thousands)
5. Property and Equipment
Property and equipment, which is stated at cost, consists of the
following:
<TABLE>
<CAPTION>
At April 30,
------------
1997 1998
---- ----
<S> <C> <C>
Leased land and buildings $ 65 $ 132
Network assets 5,777 7,067
Computer equipment and software applications 241 217
Office equipment, furniture 112 199
----------- -----------
6,195 7,615
Less: accumulated depreciation (2,206) (2,679)
=========== ===========
Property and equipment, net $ 3,989 $ 4,936
=========== ===========
</TABLE>
Total depreciation and amortisation expense for the year ended April
30, 1998 amounted to $1,392. Accumulated depreciation pertaining to
leased assets for the year ended April 30, 1998 amounted to $14.
6. Capital Lease Commitments
The Company leases certain telecommunications equipment under long-term
capital leases.
Future minimum lease payments for assets held under capital lease
arrangements at April 30, 1998 are as follows:
1999 $113
2000 113
2001 98
2002 -
2003 and thereafter -
----------
Total minimum lease payments 324
Less: amount representing interest (46)
----------
Present value of minimum lease payments 278
Less capital lease obligations included
in current portion of long-term debt (88)
----------
Long term capital lease obligations $190
==========
7. Financial Instruments
Fair Value of Financial Instruments:
The carrying amount of accounts receivable and accounts payable,
approximates fair value due to the short-term maturity of these
instruments.
15
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Notes to Consolidated Financial Statements (continued)
(U.S. dollars in thousands)
The Company invests its excess cash in deposits with major banks
throughout the world. The Company has a policy of making investments
only with commercial banks that have at least an "A" (or equivalent)
credit rating.
Concentration of Credit Risk:
Concentration of credit risk with respect to trade receivables is
limited due to the large number of customers comprising the Company's
customer base. Ongoing credit evaluations of customers' financial
conditions are performed and generally, no collateral is required. The
company maintains reserves for potential credit losses and such losses
in the aggregate have not exceeded management's expectations.
8. Statement of Shareholder's Equity
<TABLE>
<CAPTION>
Common Stock Cumulative
-------------------------- foreign Total
Number of Retained currency shareholder's
Shares Amount deficit translation equity
-------------- ----------- ------------ ----------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at May 1, 1997 100 $ - $ (3,705) $ (113) $ (3,818)
New issue 483,000 784 - - 784
Net loss - - (1,744) - (1,744)
Foreign currency
translation adjustment - - 492 492
----------- ------------ -------------- --------------- ---------------
Balance at April 30,1998 483,100 $ 784 $ (5,449) $ 379 $ (4,286)
----------- ------------ -------------- --------------- ---------------
</TABLE>
Authorised Share Capital:
There is only one class of share - Ordinary Shares of (pound)1 each.
The rights attaching to these shares are set out in the Articles of
Association and The Companies (Tables A to F) Regulations 1985.
There are no unusual or special rights conferred upon the shares. The
only rights ascribed to the shares are those exercisable under UK
company Law.
Foreign Currency Translation Adjustment:
The equity account includes the results of translating all balance
sheet assets and liabilities at current exchange rates. Income
statement items are translated at the average exchange rate for the
period. The foreign currency translation adjustment is $492 for the
year ended April 30, 1998.
Net currency transaction loss included in net loss for the year ended
April 30, 1998 was $1,039.
16
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Notes to Consolidated Financial Statements (continued)
(U.S. dollars in thousands)
9. Employee Benefits
Defined contribution plans:
The Group sponsors various defined contribution schemes that cover the
majority of world-wide employees. The percentage contribution rate
varies according to seniority, age, length of service and local country
standards. Total Group contributions charged to income for defined
contribution plans for the year ended April 30, 1998 was $68.
10. Commitments and Contingent Liabilities
Rentals for office space and commitments under supplier contracts
amounted to approximately $15,921 in the year ended April 30, 1998.
At April 30, 1998 the approximate future minimum lease payments under
non-cancellable operating leases that have initial or remaining
non-cancellable lease terms in excess of one year were as follows:
1999 $ 4,224
2000 431
2001 -
2002 -
2003 and thereafter -
===========
$ 4,655
===========
There are no material contingent liabilities that have not been
provided for in these financial statements.
11. Related Party Transactions
In the normal course of business, the Company engaged in several
transactions with Marshalls. The Company received revenues of $7,648
from Marshalls for providing network services. Trade receivables from
Marshalls in respect of these services at April 30, 1997 and 1998 were
$1,466 and $1,709, respectively.
The Company occupies certain office space where the lessee is
Marshalls. The Company reimbursed Marshalls rent expense of $151 for
the year ended April 30, 1998. Had the Company sub-leased the office
space as an unaffiliated entity, management estimates that additional
rent expense would have been $229 for the year ended April 30, 1998
which has been reflected in these accounts. In respect of office space
under a non-cancellable sub-lease with a Marshalls Group related
entity, the Company reimbursed charges of $102 for the year ended April
30, 1998 and under the terms of the lease there is no renewal option.
As disclosed in Note 2, Marshalls provides the Company with general and
administrative services including legal, finance and other services.
For the year ended April 30, 1998 the costs amounted to $225.
In 1997, the Company received an advance from Marshalls in the form of
a non-interest-bearing loan.
17
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Notes to Consolidated Financial Statements (continued)
(U.S. dollars in thousands)
The loan has no formal repayment term.
Details of amounts outstanding under the loan, and the net trading
balance with Marshalls are shown below:
<TABLE>
<CAPTION>
Non interest Net trading
bearing loan balance Total
-------------------- -------------------- -----------------
<S> <C> <C> <C>
Balance at May 1, 1997 $ 4,880 $ 1,678 $ 6,558
Additional funds advanced 2,925 - 2,925
Capitalisation of new issue of
common stock (784) - (784)
Amounts invoiced to Marshalls companies - (7,648) (7,648)
Settlements/other transactions - 4,857 4,857
Effect of exchange rate changes 49 (312) (263)
-------------------- -------------------- -----------------
Balance at April 30, 1998 $ 7,070 $(1,425) $ 5,645
==================== ==================== =================
Average quarterly Inter-Company balance
during year $ 6,217 $ (416) $ 5,801
==================== ==================== =================
</TABLE>
Substantially all of the Company's assets are pledged as collateral
under certain financing agreement entered into by Marshalls. These
financing agreements limit the Company from incurring additional
indebtedness and liens on assets.
British Telecommunications, plc ("BT") has an indirect interest in the
Company through its 30.7% shareholding interest in Marshalls. In 1998,
the Company received revenues of $645 from BT for providing network
management services to its customers. In addition the cost of services
provided by BT for network services to the company was $2,572 for the
year ended April 30, 1998. In the normal course of business, the
Company leases circuits under non-cancellable operating leases from BT.
The future rental payments of approximately $729 under the leases are
included in the table of future minimum lease payments (see Note 10).
12. Segmental Information
The Company has adopted SFAS No. 131 "Disclosure about Segments of an
Enterprise and Related Information" which affects the way the Company
reports certain information about its operating segments.
Factors management use to identify the Group Reportable Segments.
The Group is managed on a regional basis. Management considers each
region to be a separate reportable segment. The regions are managed
separately because each segment requires different product and
marketing strategies and operates under different regulatory
environments.
18
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Notes to Consolidated Financial Statements (continued)
(U.S. dollars in thousands)
Measurement of segment profit/loss and segment assets:
The accounting policies adopted by each segment are the same as those
described in the summary of significant accounting policies. Saturn's
management evaluates performance based on profit/(loss) from operations
before interest, exchange differences and income taxes.
Segmental analysis for year ended April 30, 1998:
Summarised financial information concerning the Group's reportable
segments is shown in the following table. The "Corporate" column
includes corporate related items and income and expense not allocated
to reportable segments and is included to reconcile segmental data to
total company data.
The following table presents revenue by geographical region based on
customer location and long-lived assets by geographic region based on
the location of the assets.
<TABLE>
<CAPTION>
Europe Australia USA Asia Corporate Total
---------- ------------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues from customers $ 9,309 $10,026 $2,717 $3,064 $ - $25,116
Depreciation and amortizations 332 806 123 117 14 1,392
Operating profit/(loss) 430 377 134 (162) (2,433) (1,654)
Total segment assets 3,498 3,269 1,182 1,413 40 9,402
Capital expenditure $ 726 $ 707 $ 537 $ 483 $ 3 $ 2,456
</TABLE>
13. Major Suppliers and Customers
The Company is substantially dependent on a limited number of suppliers
of equipment for the Common Network. Certain key items of equipment,
including routers and data switches are purchased from a single source
due to technology, availability, price, quality and other
considerations. In the event that a supply of key single-sourced
equipment was suddenly delayed or curtailed the Company's ability to
develop the Common Network could be adversely affected in the short
term. The Company attempts to mitigate this risk by working closely
with key suppliers.
The Company is also substantially dependent on sales to the Marshalls
Group, in the year ended April 30, 1998, approximately 30 % of total
revenues were generated from sales to this Group.
14. Sale of the Company
On October 6, 1998 Marshalls Finance Limited, the parent company,
completed the sale of the Company (subject to certain adjustments and
authorizations) to International Exchange Networks Limited, a
subsidiary of IPC Information Systems Inc.
19
<PAGE>
(b) Pro forma financial information.
IPC Information Systems, Inc. (the "Company"), through its wholly owned
subsidiary, International Exchange Networks Ltd. ("IXnet") acquired all of the
outstanding shares of Saturn Global Network Services Holdings Limited ("Saturn")
from Marshalls 106 Limited ("Marshalls") on December 18, 1998 ("Saturn
Acquisition"). This purchase price included the payment of cash in the amount of
$35.7 million and the issuance of a promissory note by IXnet and guaranteed by
the Company in the amount of $7.5 million bearing interest at the UK sterling
Base Rate, as defined, plus three percent and payable over three years
("Marshalls Note"). In addition, the Company assumed indebtedness of Saturn due
to Marshalls in the amount of $5.0 million payable over 24 months with interest
at 9.25% ("Saturn Note"). Under the agreement, the Marshalls Note is subject to
certain rights of offset.
Saturn, a UK Holding Company, owns telecommunication network operating
subsidiaries in the United Kingdom, USA, Hong Kong, Australia, Japan and
Singapore. It has established a business selling managed premium grade voice and
data communication services to the financial community, similar to IXnet, but
focused on Europe, Australia and the Pacific Rim; therefore, its customer base
and network facilities are geographically complementary to IXnet.
The following unaudited consolidated pro forma financial information
(the "Pro Forma Financial Information") is based on the historical consolidated
financial statements of the Company and Saturn and gives effect to the Saturn
Acquisition. The unaudited pro forma condensed combined statement of operations
for the twelve months ended September 30, 1998 gives effect to the Saturn
Acquisition as if it had occurred on October 1, 1997. The unaudited pro forma
condensed combined balance sheet gives effect to the Saturn Acquisition as if it
had occurred on September 30, 1998.
The Pro Forma Financial Information and accompanying notes should be
read in conjunction with the historical financial statements of the Company and
Saturn, including the notes thereto. The Pro Forma Financial Information does
not purport to represent what the Company's future results of operations or
financial position would have been if the Saturn Acquisition has in fact
occurred on such dates or to project the Company's results of operations or
financial position for any future period or date.
20
<PAGE>
IPC INFORMATION SYSTEMS, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET (UNAUDITED)
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
IPC Saturn
------------- --------------
September 30, July 31, Pro forma Pro forma
1998 1998 Adjustments Combined
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 28,084 $ 680 $ (19,366)(a) $ 9,009
(389)(b)
Trade receivables, net 71,521 2,947 74,468
Inventories 40,046 - - 40,046
Prepaid expenses and other current assets 15,904 180 (554)(a) 15,530
------------ -------------- -------------- --------------
Total current assets 155,555 3,807 (20,309) 139,053
Property, plant and equipment, net 56,763 4,892 91 (b) 61,746
Debt issuance costs, net 10,707 - - 10,707
Intangible assets, net 15,639 - 48,906 (c) 64,545
Other assets, net 2,628 20 44,034 (a) 2,648
(44,034)(c)
------------ -------------- -------------- --------------
Total assets $241,292 $ 8,719 $ 28,688 $278,699
============ ============== ============== ==============
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Note payable $ - $ 2,711 $ (432)(a) $ 1,981
(298)(b)
Senior secured revolving credit facility 16,300 (a) 16,300
Accounts payable 21,965 3,218 - 25,183
Accrued liabilities 38,833 5,535 700 (a) 45,068
Customer advances and deferred revenue 38,119 - - 38,119
Current portion of capital leases 4,462 - - 4,462
------------ -------------- -------------- --------------
Total current liabilities 103,379 11,464 16,270 131,113
Senior unsecured notes 188,223 - - 188,223
Notes payable, net of short term portion - 1,980 7,546 (a) 9,526
Lease obligations, net of current portion 12,490 - - 12,490
Other liabilities 3,741 147 - 3,888
------------ -------------- -------------- --------------
Total liabilities 307,833 13,591 23,816 345,240
------------ -------------- -------------- --------------
Commitments and contingencies
Stockholders' (deficit) 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;
8,076,188 shares issued and outstanding at September 30, 1998 81 784 (784)(c) 81
Paid-in capital 4,797 - 4,797
Retained (deficit) earnings (71,419) (5,656) 5,656 (c) (71,419)
------------ -------------- -------------- --------------
Total stockholders' (deficit) equity (66,541) (4,872) 4,872 (66,541)
------------ -------------- -------------- --------------
Total liabilities and stockholders' (deficit) equity $241,292 $ 8,719 $ 28,688 $278,699
============ ============== ============== ==============
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Information.
21
<PAGE>
IPC INFORMATION SYSTEMS, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
IPC Saturn
------------- --------------
September 30, July 31, Pro forma Pro forma
1998 1998 Adjustments Combined
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue:
Product sales and installation $ 173,350 $ -- $ 173,350
Service 122,547 $ 25,784 -- 148,331
--------- --------- --------- ---------
295,897 25,784 -- 321,681
--------- --------- --------- ---------
Cost of revenue:
Product sales and installation 100,727 -- 100,727
Service 78,416 20,987 -- 99,403
--------- --------- --------- ---------
179,143 20,987 -- 200,130
--------- --------- --------- ---------
Gross profit 116,754 4,797 -- 121,551
Research and development expenses 9,994 -- -- 9,994
Selling, general and administrative expenses 77,312 6,861 4,891 (d) 89,064
Change in control expense 10,640 -- -- 10,640
--------- --------- --------- ---------
Income from operations 18,808 (2,064) (4,891) 11,853
Interest expense, net (10,337) 13 (2,636)(e) (12,960)
Other income/(expense), net (2) -- (2)
Income (loss) before provision for income taxes 8,469 (2,051) (7,527) (1,109)
Provision (benefit) for income taxes 6,191 (16) (669)(f) 5,506
--------- --------- --------- ---------
Net income (loss) $ 2,278 $ (2,035) $ (6,858) $ (6,615)
========= ========= ========= =========
Basic earnings (loss) per share $ 0.14 $ (0.42)
========= =========
Basic weighted average shares outstanding 15,774 15,774
========= =========
Diluted earnings per share $ 0.14
=========
Diluted weighted average shares outstanding 15,941
=========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Information
22
<PAGE>
NOTES TO CONSOLIDATED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(Dollar amounts in thousands)
(a) Represents IXnet's acquisition of Saturn's stock and related costs.
<TABLE>
<S> <C>
Cash from operations $19,366
Borrowings from senior secured revolving credit facility 16,300
--------------
35,666
Marshalls Note 7,546
Costs related to Saturn acquisition advanced prior to closing
($554) and accrued at closing ($700) 1,254
Working capital adjustment to purchase price, offset against
Saturn Note (432)
==============
Total investment in Saturn $44,034
==============
</TABLE>
(b) Repayment of Saturn debt to Marshalls at closing ($389) and an adjustment
to Saturn Note for property, plant & equipment ($91) at closing.
(c) Represents the elimination of IXnet's investment in Saturn ($44,034),
Saturn's stockholders deficit at closing ($4,872) and the allocation of the
excess of fair value over net assets acquired ($48,906) to goodwill.
(d) To reflect amortization of goodwill using a ten-year life.
(e) Represents interest expense on borrowings from the Company's senior secured
revolving credit facility, the Marshalls Note and the Saturn Note, for the
twelve months ended September 30, 1998.
(f) Represents the income tax benefit related to the combination of Saturn with
the Company and the pro forma adjustments for the twelve months ended
September 30, 1998.
23
<PAGE>
(c) Exhibits. The following Exhibits are filed as part of this report:
Exhibit No. Description
----------- -----------
*2.3 Agreement for Sale/Purchase of the Issued Share Capital of
Saturn Global Network Services Holdings Limited dated August 7,
1998 (as amended on December 18, 1998) among Marshalls 106
Limited, Marshalls Finance Limited, International Exchange
Networks, Ltd. and IPC Information Systems, Inc.
* 99 Press Release issued on December 21, 1998.
* Incorporated by reference to Current Report on Form 8-K, filed January 4,
1999.
24
<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 hereunto duly authorized.
IPC INFORMATION SYSTEMS, INC.
By: /s/ Gerald E. Starr
-------------------------------------
Gerald E. Starr
President and Chief Executive Officer
Dated: February 11, 1999
25
