<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM 8-K/A1
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.
The following financial statements have been restated as described
in the notes thereto.
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
Page
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Condensed Consolidated Financial Statements as of October 31, 1998 and for
the six months ended October
31, 1997 and 1998 (unaudited)
Condensed Consolidated Statement of Operations (unaudited) for the six
months ended October 31, 1997 and 1998 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, 1997 and 1998 4
Notes to Condensed Consolidated Financial Statements (unaudited) 5 - 8
Consolidated Financial Statements as of April 30, 1997 and 1998
and for the year ended April 30, 1998
Report of Independent Accountants 9
Consolidated Statement of Operations for the year
ended April 30, 1998 10
Consolidated Balance Sheet at April 30, 1997 and 1998 11
Consolidated Statement of Cash Flows for the year
ended April 30, 1998 12
Notes to Consolidated Financial Statements 13 - 25
Pro Forma Information 26 - 29
Exhibits 30
Signatures 31
</TABLE>
1
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
(U.S. dollars in thousands)
For the six months ended
October 31,
-------------------------------
(Restated - See Note 6 (d))
1997 1998
------------ ---------
Revenue $12,457 $13,966
Cost of products and services 10,564 12,074
------------ ---------
Gross profit 1,893 1,892
Selling, general and administrative 2,936 3,492
------------ ---------
Operating loss (1,043) (1,600)
Interest income 11 7
Interest expense - (19)
------------ ---------
Loss before income taxes (1,032) (1,612)
Income tax provision (benefit) 91 (65)
------------ ---------
Net loss $ (1,123) $ (1,547)
============ =========
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)
<TABLE>
<CAPTION>
October 31,
1998
(Restated-See Note 6 (d))
------------------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $1,136
Accounts receivable 3,581
Prepayment 116
Sales taxes recoverable 30
----------
Total current assets 4,863
----------
Non-current assets:
Property and equipment, net 5,226
----------
Total non-current assets 5,226
----------
Total Assets $ 10,089
==========
LIABILITIES AND SHAREHOLDERS DEFICIT
Current liabilities:
Related party payables $ 5,651
Current portion of long term debt 177
Accounts payable 3,016
Accrued liabilities 6,636
Taxation liabilities 36
-----------
Total current liabilities 15,516
-----------
Non-current liabilities:
Long term debt 325
Deferred taxation 25
-----------
Total non-current liabilities 350
-----------
Commitments and contingencies
Shareholders deficit
Common shares (par value Pound Sterling 1; authorized 500,000
shares; issued and outstanding 483,100 shares) 784
Accumulated deficit (8,165)
Contributed capital 1,236
Cumulative foreign currency translation adjustments 368
-----------
Total shareholders deficit (5,777)
-----------
Total Liabilities and Shareholders Deficit $10,089
===========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
3
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
(U.S. dollars in thousands)
<TABLE>
<CAPTION>
For the six months ended
October 31,
(Restated-See Note 6(d))
------------------------------
1997 1998
------------- -------------
<S> <C> <C>
Cash flows provided by operating activities:
Net loss $(1,123) $ (1,547)
Adjustments to reconcile net loss to operating cash flow:
Depreciation and amortization 610 792
Changes in other assets and liabilities:
Accounts receivable (13) 107
Prepayment and other current assets 74 175
Accounts payable (1,366) (1,896)
Accrued liabilities and other liabilities 2,828 3,467
------------- -------------
Net cash flows provided by operating activities 1,010 1,098
------------- -------------
Cash flows used in investing activities:
Purchase of property and equipment (1,002) (1,082)
------------- -------------
Net cash flows used in investing activities (1,002) (1,082)
------------- -------------
Cash flows provided by financing activities:
(Repayment of) proceeds from Marshalls funding (158) 389
Contributed capital 186 195
Net long term borrowing - 224
------------- -------------
Net cash flows provided by financing activities 28 808
------------- -------------
Effect of exchange rate changes 423 (11)
------------- -------------
Increase in cash and cash equivalents 459 813
Cash and cash equivalents at beginning of period 309 323
------------- -------------
Cash and cash equivalents at end of period $ 768 $ 1,136
============= =============
</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)
1. 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 Services Holdings Limited (Saturn,
or the "Company") as of October 31, 1998, and the results of its
operations and its cash flows for the six months ended October 31, 1997
and 1998, 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, 1997 and 1998 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.
2. Effect of Recently Issued Accounting Standards
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivatives
and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments and hedging activities. This
standard is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The Company does not currently use derivative
financial instruments.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 is
effective for financial statements for years beginning after December
15, 1998. The Company does not anticipate the adoption of this standard
to have a material effect on its financial position, results of
operations or cash flows.
3. Comprehensive Income
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This
statement requires the Company to include within its financial
statements information on comprehensive income, which is defined as all
activity impacting equity from non-owner sources. For the Company,
comprehensive loss includes net loss and foreign currency translation
adjustments.
Total comprehensive loss, net of taxes, was $801,000 and $1.6 million
for the six months ended October 31, 1997 and 1998, respectively.
5
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
4. Major Suppliers and Customers
The Company is dependent on a limited number of suppliers of equipment
for its telecommunication 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.
5. 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.
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
Summarized 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 geographical region based on
the location of the assets.
6
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Segmental analysis for the six months ended October 31, 1997 and 1998
<TABLE>
<CAPTION>
Europe Australia USA Asia Corporate Total
---------- ------------- ---------- --------- ----------- ----------
(U.S. Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
1997
----
Revenues from customers $ 2,127 $ 7,690 $1,266 $ 1,374 $ - $ 12,457
Depreciation and amortization 140 458 54 44 - 696
Operating profit/(loss) (28) 171 32 (89) (1,129) (1,043)
Total segment assets 2,677 3,882 1,032 767 - 8,358
Capital expenditures $ 1,796 $ 462 $ 431 $ 226 $ - $ 2,915
</TABLE>
<TABLE>
<CAPTION>
Europe Australia USA Asia Corporate Total
---------- ------------- ---------- --------- ----------- ----------
(U.S. Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
1998
----
Revenues from customers $ 5,013 $ 4,840 $ 1,510 $ 2,603 $ - $ 13,966
Depreciation and amortization 338 363 72 95 - 868
Operating profit/(loss) (203) 55 (496) (278) (678) (1,600)
Total segment assets 4,105 2,965 1,409 1,610 - 10,089
Capital expenditures $ 427 $ 440 $ 24 $ 232 $ - $ 1,123
</TABLE>
6. Subsequent Events
(a) Sale of the Company
On December 18, 1998, Marshalls Finance Limited ("Marshalls"), the
parent company, completed the sale of the Company to International
Exchange Networks Limited ("IEXN"), a subsidiary of IPC Information
Systems, Inc.
(b) Commercial Disputes
Since the sale of the Company by Marshalls, certain claims have been
made by suppliers of telecommunications circuits in relation to alleged
payables under commercial arrangements. These claims are being
vigorously contested and are in the process of negotiation; costs
relating to these claims will be recorded on an actual or estimated
basis in the Company's financial statements for the current financial
year. The directors believe that the maximum payment that could arise
as a result of claims currently in negotiation is approximately
$220,000. Had this amount been recorded as an expense in the year in
which the related services were allegedly received, cost of sales would
have increased for the six month periods ended October 31, 1997 and
1998 by $88,000 and $75,000, respectively.
(c) Amounts Payable to Marshalls
At October 31, 1998, the Company owed Marshalls 106 Limited
("Marshalls") $5.7 million which approximated the amount at the date of
disposal of the Company by Marshalls.
7
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Since the disposal of the Company by Marshalls:
(1) An amount of $730,000 was paid on the Company's behalf by IEXN in
consideration for the agreement by the Company to reassign this
payable amount to IEXN.
(2) An amount of approximately $5.0 million was converted into a loan
note repayable by the Company to Marshalls in 24 equal monthly
installments of $222,000, with an effective rate of interest of
9.25%.
(d) Restatement
The Company revised its previously issued interim financial statements
for the six months ended October 31, 1997 and 1998 to properly accrue
for carrier charges in the amount of $131,000 and $438,000,
respectively. In addition, the financial statements have been revised
to reflect as capital contributions corporate expense allocations from
Marshalls for which there was no intent to require payment and certain
other reclassifications which did not impact net loss or total
shareholder's deficit. The effect of these adjustments are as follows:
<TABLE>
<CAPTION>
Previously
Reported Restated
------------------------------------------------
(U.S. dollars in thousands)
<S> <C> <C>
October 31, 1998:
Cost of products and services $11,141 $12,074
Selling, general and administrative expenses 3,987 3,492
Accounts receivable 3,696 3,581
Related party payables 6,229 5,651
Accrued liabilities 5,801 6,636
Contributed capital - 1,236
Accumulated deficit (6,558) (8,165)
October 31, 1997:
Cost of products and services 9,737 10,564
Selling, general, and administrative expenses 3,632 2,936
</TABLE>
8
<PAGE>
Report of Independent Accountants
To the Shareholders of Saturn Global Network Services Holdings Limited:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and of cash flows present fairly, after
the restatement described in Note 14(d) to the financial statements, in all
material respects, the financial position of Saturn Global Network Services
Holdings Limited and its subsidiaries at April 30, 1997 and 1998, and the
results of their operations and their cash flows for the year ended April 30,
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
London
December 17, 1998, except for Note 14, as to which the date is May 11, 1999
9
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Consolidated Statement of Operations
<TABLE>
<CAPTION>
For the year ended
April 30,1998
(Restated-
see Note 14(d))
---------------------
(U.S. Dollars
in thousands)
<S> <C>
Revenues $ 25,116
Cost of products and services 22,063
-----------------
Gross profit 3,053
Selling 982
General and administrative 4,177
-----------------
Operating loss (2,106)
Interest income 22
Interest expense (2)
-----------------
Loss before income taxes (2,086)
Income taxes (110)
-----------------
Net loss $ (2,196)
=================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
10
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Consolidated Balance Sheet
<TABLE>
<CAPTION>
At April 30,
-----------------------------------
1997 1998
(Restated-see (Restated-see
Note 14(d)) Note 14(d))
--------------- ---------------
(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 3,406
Prepayment - British Telecommunications plc 124 -
- Others 364 248
Sales and other taxes recoverable 10 72
--------------- -----------
Total current assets 3,580 4,331
--------------- -----------
Non-current assets:
Property and equipment, net 3,989 4,936
Deferred taxation - 20
--------------- -----------
Total non-current assets 3,989 4,956
=============== ===========
Total Assets $7,569 $ 9,287
=============== ===========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Related party payables (refer Note 11) $6,558 $ 5,261
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 1,259 1,427
Deferred revenue 1,209 1,337
Employee liabilities 223 243
Taxation liabilities 27 86
Other liabilities 24 16
--------------- ------------
Total current liabilities 11,447 13,467
--------------- ------------
Non-current liabilities:
Long term debt - 190
Deferred taxation - 44
--------------- ------------
Total non-current liabilities - 234
--------------- ------------
Commitments and contingencies (refer Note 10)
Shareholder's Deficit:
Common shares (par value Pound Sterling 1; authorized
500,000 shares; 100 and 483,100 outstanding as of
April 30, 1997 and 1998, respectively) - 784
Accumulated deficit (4,422) (6,618)
Contributed capital 657 1,041
Cumulative foreign currency translation adjustments (113) 379
--------------- ------------
Total shareholder's deficit (3,878) (4,414)
=============== ============
Total Liabilities and Shareholde's Deficit $7,569 $9,287
=============== ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
11
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
For the year ended
April 30, 1998
(Restated -see Note 14(d))
-------------------------
(U.S. Dollars in thousands)
<S> <C>
Cash flows used in operating activities:
Net loss $(2,196)
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)
-Others (961)
Prepayment -British Telecommunications plc 92
-Others 61
Sales and other taxes recoverable (67)
Accounts payable -British Telecommunications plc 735
-Others 2,344
Accrued liabilities -British Telecommunications plc 95
-Others 256
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 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
Non-cash 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.
12
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Notes to Consolidated Financial Statements
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. Prior to the
formation of SGNS Limited, the SGN group of companies were wholly owned
subsidiaries of the Marshalls Finance Limited Group ("Marshalls"). 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 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. 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
believes these costs allocation were made on a reasonable basis.
The consolidated balance sheet for the 1997 fiscal year includes the
accounts of the SGN group of companies. The consolidated financial
statements for the 1998 fiscal year include the accounts of the Company
and its wholly-owned subsidiaries (the "Group") and reflect the results
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 deficit.
13
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Notes to Consolidated Financial Statements (continued)
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
rates in effect at the balance sheet date. Gains and losses resulting
from transactions in other than the functional currency are reflected
in the results of operations.
Income taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement 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 recognized 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.
14
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Notes to Consolidated Financial Statements (continued)
Revenue Recognition
Communications revenues are recognized 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 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 recognized 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 Standards ("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.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives
and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. This
standard is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The Company does not currently use derivative
financial instruments.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 is
effective for financial statements for years beginning after December
15, 1998. The Company does not anticipate the adoption of this standard
to have a material effect on its financial position, results of
operations or cash flows.
15
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Notes to Consolidated Financial Statements (continued)
3. Income taxes
Income tax expense consists of:
<TABLE>
<CAPTION>
For the year
ended April 30,
1998
-----------------
(U.S. Dollars in
thousands)
-----------------
<S> <C>
Currently payable
United Kingdom $ (23)
International (63)
-----------
Total currently receivable/(payable) (86)
-----------
Deferred
United Kingdom (24)
International -
-----------
Total deferred (24)
-----------
Total Provision for Income Taxes $ (110)
===========
</TABLE>
A reconciliation between income tax rate 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 %
Differences in tax rates 31
5
Deferred tax valuation allowance adjustments (20)
Permanent differences (14)
Other differences (7)
===========
Effective tax rate (5)
===========
16
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Notes to Consolidated Financial Statements (continued)
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:
<TABLE>
<CAPTION>
At April 30,
1997 1998
------------ -----------
(U.S. Dollars in
thousands)
<S> <C> <C>
Deferred tax assets:
Operating losses carried forward $ 747 $ 960
Other temporary differences 121 345
----------- -----------
Total deferred tax asset 868 1,305
Less: valuation allowances (868) (1,285)
----------- -----------
- 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)
=========== ===========
</TABLE>
Estimated net operating loss carry forwards at April 30, 1997 and 1998
and their expiration dates are shown below.
<TABLE>
<CAPTION>
1997 1998
---------------------------- --------------------
Expiration Net Operating Expiration Net
Dates loss Dates Operating
loss
Country of tax jurisdiction (U.S. Dollars in thousands)
---------------------------
<S> <C> <C> <C> <C>
Australia No expiration $1,570 No expiration $2,140
Hong Kong No expiration 166 No expiration 166
Japan April 30, 2002 293 April 30, 2002 300
to April 30,
2003
Singapore No expiration 14 No expiration 29
------------- ---------
$2,043 $2,635
============= =========
</TABLE>
17
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Notes to Consolidated Financial Statements (continued)
4. Accounts Receivable - Others
Accounts receivable - others consist of the following:
<TABLE>
<CAPTION>
At April 30,
1997 1998
--------- ---------
(U.S. Dollars in
thousands)
<S> <C> <C>
Accounts receivable $ 2,775 $ 3,339
Less: allowance for doubtful accounts (16) (50)
---------- ----------
2,759 3,289
Other receivables 14 117
---------- ----------
$ 2,773 $ 3,406
========== ==========
</TABLE>
5. Property and Equipment
Property and equipment, which is stated at cost, consists of the
following:
<TABLE>
<CAPTION>
At April 30,
1997 1998
--------- ------
(U.S. Dollars in
thousands)
<S> <C> <C>
Leased land and buildings $ 65 $ 132
Network assets 5,777 7,067
Computer equipment and software applications 241 217
Office equipment and 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 amortization expense for the year ended April
30, 1998 amounted to $1,392,000. Accumulated depreciation pertaining to
leased assets at April 30, 1998 amounted to $14,000.
6. Capital Lease Commitments
The Company leases certain telecommunications equipment under long-term
capital leases.
18
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Notes to Consolidated Financial Statements (continued)
Future minimum lease payments for assets held under capital lease
arrangements at April 30, 1998 are as follows:
(U.S. Dollars in thousands)
1999 $ 113
2000 113
2001 98
---------
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.
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.
19
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Notes to Consolidated Financial Statements (continued)
8. Statement of Shareholder's Deficit
<TABLE>
<CAPTION>
Common Stock Cumulative
------------------- foreign
currency Total
Number of Contributed Accumulated translation Shareholder's
Shares Amount Capital deficit adjustment deficit
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1997 100 $ - $ 657 $ (4,422) $ (113) $ (3,878)
New issue 483,000 784 - - - 784
Net loss (refer Note 14(d)) - - (2,196) - (2,196)
Foreign currency translation
adjustment - - - - 492 492
Shareholder contribution (refer - - 384 - - 384
Note 14d))
----------- --------- --------------- -------------- --------------- --------------
Balance at April 30, 1998 483,100 $ 784 $ 1,041 $ (6,618) $ 379 $ (4,414)
----------- --------- --------------- -------------- --------------- --------------
</TABLE>
Authorised Share Capital
There is only one class of share - Ordinary Shares of 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.
Net currency transaction loss included in the results of operations for
the year ended April 30, 1998 was $1,039,000.
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 $68,000.
20
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Notes to Consolidated Financial Statements (continued)
10. Commitments and Contingent Liabilities
Rentals for office space and commitments under supplier contracts
amounted to $19,893,000 in the year ended April 30, 1998.
At April 30, 1998 the approximate future minimum lease payments under
non-cancelable operating leases that have initial or remaining non-
cancelable lease terms in excess of one year were as follows:
(U.S. Dollars in thousands)
--------------------------
1999 $ 4,224
2000 431
-----------
$ 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
$7,648,000 from Marshalls for providing network services for the year
ended April 30, 1998. Trade receivables from Marshalls in respect of
these services at April 30, 1997 and 1998 were $1,466,000 and
$1,709,000 respectively.
The Company occupies certain office space where the lessee is
Marshalls. The Company reimbursed Marshalls rent expense of $151,000
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 $229,000 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 $102,000 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 1998 the costs amounted to $225,000.
In 1995, the Company received an advance from Marshalls in the form of
a non-interest bearing loan. The loan has no formal repayment term.
21
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Notes to Consolidated Financial Statements (continued)
Details of amounts outstanding under the loan, and the net trading balance with
Marshalls are shown below:
<TABLE>
<CAPTION>
Non interest Net trading balance
bearing loan Total
-------------------- -------------------- -----------------
(U.S. dollars in thousands)
<S> <C> <C> <C>
Balance at April 30, 1996 $ 5,157 $ 780 $ 5,937
Repayment of funds advanced (645) - (645)
Amounts invoiced to Marshalls companies - (9,347) (9,347)
Settlements/other transactions - 10,245 10,245
Effect of exchange rate changes 368 - 368
---------------- ---------------- -------------
Balance at April 30, 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 - 4,473 4,473
Effect of exchange rate changes 49 (312) (263)
-----------------------------------------------------------
Balance at April 30, 1998 $ 7,070 $ (1,809) $ 5,261
===========================================================
Average quarterly inter-company balance
during year April 30,1998 $ 6,217 $ (416) $ 5,801
===========================================================
</TABLE>
During the period covered by these financial statements, substantially
all of the Company's assets were pledged as collateral under certain
financing agreements entered into by Marshalls. These financing
agreements limited the Company from incurring additional indebtedness
and liens on assets. The Company was released from these obligations on
December 18, 1998.
British Telecommunications, plc ("BT") had until December 18, 1998, an
indirect interest in the Company through its 30.7% shareholding
interest in Marshalls. In 1998, the Company received revenues of
$645,000 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 $2,572,000 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 $729,000 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.
22
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Notes to Consolidated Financial Statements (continued)
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.
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
Summarized 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 geographical region based on
the location of the assets.
Segmental analysis for the year ended April 30, 1998
<TABLE>
<CAPTION>
Europe Australia USA Asia Corporate Total
---------- ------------- ---------- --------- ----------- ----------
(U.S. Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues from customers $ 9,309 $ 10,026 $ 2,717 $ 3,064 $ - $ 25,116
Depreciation and amortization 332 806 123 117 14 1,392
Operating profit/(loss) 296 167 26 (162) (2,433) (2,106)
Total segment assets 3,452 3,269 1,113 1,413 40 9,287
Capital expenditures $ 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 its telecommunication 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 its 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 Marshalls, in
the year ended April 30, 1998, approximately 30% of total revenues were
generated from sales to Marshalls.
23
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Notes to Consolidated Financial Statements (continued)
14. Subsequent events
(a) Sale of the Company
On December 18, 1998 Marshalls completed the sale of the Company to
International Exchange Networks Limited, a subsidiary of IPC
Information Systems Inc.
(b) Commercial disputes
Since the sale of the Company by Marshalls certain claims have been
made by suppliers of telecommunications circuits in relation to amounts
allegedly payable under commercial arrangements. These claims are being
vigorously contested and are in the process of negotiation; costs
relating to these claims will be recorded on an actual or estimated
basis in the Company's financial statements for the current financial
year. The directors believe that the maximum payment that could arise
as a result of claims currently in negotiation is approximately
$220,000. Had this amount been recorded as an expense in the year in
which the related services were allegedly received, cost of sales would
have increased in the year ended April 30, 1998 by $175,000.
(c) Amounts payable to Marshalls
At April 30, 1998, the Company owed Marshalls $5.3 million, and this
amount increased to $5.7 million at the date of disposal of the Company
by Marshalls.
Since the disposal of the Company by Marshalls;
(1) An amount of $730,000 was paid on the Company's behalf by IXnet in
consideration for the agreement by the Company to reassign this
payable amount to IXnet.
(2) An amount of $4,970,000 was converted into a loan note repayable
by the Company to Marshalls in 24 equal monthly installments of
$222,000 an effective rate of interest of 9.25%.
24
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Notes to Consolidated Financial Statements (continued)
(d) Restatement
The Company revised its previously issued financial statements as of April 30,
1998 and 1997 and for the year ended April 30, 1998 to properly accrue for
carrier charges ($337,000 :1998, $60,000 :1997) and to write off certain
receivable amounts which were not then collectable ($115,000 :1998). In
addition, the financial statements have been revised to reflect as capital
contributions corporate expense allocations from Marshalls for which there was
no intent to require payment and certain other reclassifications which did not
impact net loss or total shareholder's deficit. The effects of these adjustments
are as follows:
<TABLE>
<CAPTION>
Previously Reported Restated
---------------------- ----------------------
(U.S. Dollars in thousands)
<S> <C> <C>
April 30, 1998:
Cost of products and services $21,726 $22,063
General and administrative expenses 4,062 4,177
Accounts receivable - others 3,521 3,406
Related party payables 5,645 5,261
Accrued liabilities - others 1,030 1,427
Contributed capital - 1,041
Accumulated deficit (5,449) (6,618)
April 30, 1997:
Accrued liabilities - others 1,199 1,259
Contributed capital - 657
Accumulated deficit (3,705) (4,422)
</TABLE>
25
<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 year 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 as of September 30, 1998 gives effect to the Saturn
Acquisition as if it had occurred on that date.
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.
26
<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
ASSETS 1998 1998 Adjustments Pro forma
Current assets: ------------- ------------- --------------------------------
(Restated)
<S> <C> <C> <C> <C>
Cash and cash equivalents $28,084 $ 680 $ (19,366) (a) $ 9,009
(389) (b)
Trade receivables, net 71,521 2,832 74,353
Inventories 40,046 - - 40,046
Prepaid expenses and other current assets 15,904 180 (554) (a) 15,530
------------- ------------- -------------- --------------
Total current assets 155,555 3,692 (20,309) 138,938
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 - 49,241 (c) 64,880
Other assets, net 2,628 20 44,034 (a) 2,648
(44,034) (c)
------------- ------------- -------------- --------------
Total assets $241,292 $ 8,604 $29,023 $278,919
LIABILITIES AND STOCKHOLDERS' DEFICIT ============= ============= ============== ==============
Current liabilities:
Note payable $ - $ 2,230 $ (432) (a) $ 1,500
(298) (b)
Senior secured revolving credit facility 16,300 (a) 16,300
Accounts payable 21,965 3,218 - 25,183
Accrued liabilities 38,833 6,295 700 (a) 45,828
Customer advances and deferred revenue 38,119 - - 38,119
Current portion of capital leases 4,462 - - 4,462
------------- ------------- -------------- --------------
Total current liabilities 103,379 11,743 16,270 131,392
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 13,870 23,816 345,519
------------- ------------- -------------- --------------
Commitments and contingencies
Stockholders' deficit:
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 1,138 5,935
Accumulated deficit (71,419) (7,188) 5,991 (c) (72,616)
------------- ------------- -------------- --------------
Total stockholders' deficit (66,541) (5,266) 5,207 (66,600)
------------- ------------- -------------- --------------
Total liabilities and stockholders' deficit $241,292 $ 8,604 $29,023 $278,919
============= ============= ============== ==============
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Information.
27
<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
1998 1998 Adjustments Pro forma
------------- --------------- ---------------- --------------
(Restated)
Revenue:
<S> <C> <C> <C> <C>
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 21,305 - 99,721
------------- --------------- ------------- -------------
179,143 21,305 - 200,448
------------- --------------- ------------- -------------
Gross profit 116,754 4,479 - 121,233
Research and development expenses 9,994 - - 9,994
Selling, general and administrative expenses 77,312 7,232 4,924 (d) 89,468
Change in control expense 10,640 - - 10,640
------------- --------------- ------------- -------------
Income from operations 18,808 (2,753) (4,924) 11,131
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 (2,740) (7,560) (1,831)
Provision (benefit) for income taxes 6,191 (16) (673) (f) 5,502
-------------- --------------- ------------- -------------
Net income (loss) $ 2,278 $ (2,724) $ (6,887) $ (7,333)
============= =============== ============= =============
Basic earnings (loss) per share $ 0.14 $ (0.46)
============= =============
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.
28
<PAGE>
NOTES TO COMBINED CONDENSED PRO FORMA FINANCIAL INFORMATION
(Dollar amounts in thousands)
(a) Represents IXnet's acquisition of Saturn's stock and related costs.
<TABLE>
<CAPTION>
<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 stockholder's deficit at closing ($5,207) and the allocation of
the excess of fair value over net assets acquired ($49,241) to goodwill.
(d) To reflect straight-line 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
year 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 year ended September 30,
1998.
29
<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.
30
<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: May 20, 1999
31
