IPC ACQUISITION CORP - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2004


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to

Commission File Number 333-82540

IPC ACQUISITION CORP.

(Exact name of registrant as specified in its charter)


Delaware		74-3022102

(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

88 Pine Street, Wall Street Plaza, New York, NY		10005

(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (212) 825-9060

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at April 30, 2004

Common Stock, par value $0.01		14,724,380 shares

Part I – Financial Information:

Item 1. Financial Statements

IPC ACQUISITION CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands Except Share Amounts)

(Unaudited)


	March 31,			September 30,
	2004			2003
Assets
Assets:
Cash	$	10,972		$	25,800
Accounts receivable, net of allowance of $2,170 and $1,103, respectively		53,987			60,201
Inventories, net		25,786			30,396
Prepaid and other current assets		6,031			5,523

Total current assets		96,776			121,920
Property, plant and equipment, net		25,290			24,419
Goodwill		95,251			83,079
Intangible assets, net		198,917			200,085
Deferred financing costs, net		13,191			14,146
Other assets		1,172			1,261

Total assets	$	430,597		$	444,910

Liabilities and Stockholders’ Equity
Liabilities:
Current portion of long term debt	$	550		$	550
Accounts payable		5,294			2,787
Accrued expenses and other current liabilities		29,995			28,541
Income taxes payable		3,975			4,208
Customer advances on installation contracts		11,595			18,989
Deferred revenue on maintenance contracts		19,134			13,128
Current portion of guarantees on former parent obligations		1,353			1,353
Deferred purchase consideration		—			6,722

Total current liabilities		71,896			76,278
Term loan		54,175			54,450
Senior subordinated notes		150,000			150,000
Deferred taxes, net		16,490			12,182
Deferred compensation		2,885			2,936
Guarantees on former parent obligations and other long-term liabilities		1,339			1,885

Total liabilities		296,785			297,731

Commitments and Contingencies
Stockholders’ equity:
Common stock, $0.01 par value, 25,000,000 shares authorized; 14,724,380 shares issued and outstanding at March 31, 2004 and September 30, 2003, respectively		147			147
Paid in capital		145,846			145,846
Notes receivable for purchases of common stock		(325	)		(393	)
Accumulated deficit		(22,084	)		(5,161	)
Accumulated other comprehensive income		10,228			6,740

Total stockholders’ equity		133,812			147,179

Total liabilities and stockholders’ equity	$	430,597		$	444,910

The accompanying notes are an integral part of the condensed consolidated financial statements.

IPC ACQUISITION CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In Thousands)


	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2004			2003			2004			2003
Revenue:
Product sales and installations	$	41,002		$	32,819		$	69,106		$	56,570
Service		38,037			23,486			70,100			48,118

		79,039			56,305			139,206			104,688

Cost of goods sold (depreciation shown separately):
Product sales and installations		22,196			19,680			39,463			31,934
Service		19,059			11,894			35,785			24,929
Depreciation and amortization		968			299			1,710			596

		42,223			31,873			76,958			57,459

Gross profit		36,816			24,432			62,248			47,229

Research and development		3,599			2,928			7,008			5,663
Selling, general and administrative		15,138			10,742			28,426			19,472
Depreciation and amortization		5,388			4,798			10,555			9,529

Income from operations		12,691			5,964			16,259			12,565
Other income (expense):
Interest expense, net		(5,814	)		(6,477	)		(11,336	)		(12,682	)
Other income (expense), net		(140	)		802			307			1,327

Income before income taxes		6,737			289			5,230			1,210
Income tax expense		3,932			900			4,189			2,023

Net income (loss)	$	2,805		$	(611	)	$	1,041		$	(813	)

The accompanying notes are an integral part of the condensed consolidated financial statements.

IPC ACQUISITION CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)


	Six Months Ended
	March 31,
	2004			2003
Cash flows from operating activities:
Net income (loss)	$	1,041		$	(813	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		4,552			2,975
Amortization of intangibles		7,713			7,150
Amortization of deferred financing costs		955			1,463
Provision for doubtful accounts		299			(54	)
Deferred income taxes		2,445			(1,447	)
Amortization of guarantees on former parent obligations		(677	)		—
Changes in operating assets and liabilities:
Accounts receivable		9,634			5,292
Inventories		5,020			(13,626	)
Prepaids and other current assets		(27	)		(1,296	)
Other assets		165			1
Accounts payable, accrued expenses and other liabilities		1,290			(4,656	)
Income taxes payable		(1,083	)		1,162
Customer advances and deferred revenue		(1,983	)		17,196

Net cash provided by operating activities		29,344			13,347

Cash flows from investing activities:
Capital expenditures		(4,221	)		(2,284	)
Global Crossing Settlement:
Proceeds from restricted cash account and other amounts		—			9,419
Cash payments		—			(5,200	)
Payment of Gains US and UK earn-out consideration and deferred purchase price		(6,756	)		—
Acquisition of Gains Asia, net of cash acquired		(15,182	)		—

Net cash provided by (used in) investing activities		(26,159	)		1,935

Cash flows from financing activities:
Principal payments on term loan		(275	)		(17,160	)
Issuance costs for term loan amendment		—			(310	)
Deferred compensation payments		(51	)		(46	)
Payment of special cash dividend		(17,964	)		—

Net cash used in financing activities		(18,290	)		(17,516	)

Effect of exchange rate changes on cash		277			(651	)

Net decrease in cash		(14,828	)		(2,885	)
Cash, beginning of period		25,800			25,294

Cash, end of period	$	10,972		$	22,409

Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Income taxes	$	2,493		$	2,524

Interest	$	10,674		$	11,575

The accompanying notes are an integral part of the condensed consolidated financial statements.

IPC ACQUISITION CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

March 31, 2004

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of IPC Acquisition Corp. (the “Company”) and its wholly and partially owned subsidiaries. The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting and the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include certain information and footnote disclosures required by accounting principles generally accepted in the United States for annual financial reporting and should be read in conjunction with the audited consolidated financial statements included in the Company’s Form 10-K for the fiscal year ended September 30, 2003, as filed with the Securities and Exchange Commission.

These unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, that are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim periods presented. Interim period operating results may not be indicative of the operating results to be expected for the full year or any other interim period.

The unaudited condensed consolidated financial statements for the three and six months ended March 31, 2004 and 2003 include the accounts of the Company and its wholly and partially owned subsidiaries. The Company had no operations prior to the December 20, 2001 acquisition of IPC Information Systems, Inc. and Asia Global Crossing IPC Trading Systems Australia Pty. Ltd. (the “IPC Information Systems Acquisition”). On April 30, 2003, the Company purchased Gains International (US) Inc. and Gains International (Europe) Limited and on January 6, 2004 purchased Gains International Asia Holdings Limited. The results of operations of the acquired businesses have been included in the Company’s financial statements from their respective acquisition dates through March 31, 2004. Intercompany balances and transactions have been eliminated.

Revenue Recognition

Revenue from product sales and installation is recognized upon completion of the installation or, for contracts that are completed in stages and include contract specified milestones, upon achieving such contract milestones, and the delivery and customer acceptance of a fully functional system. Revenue from sales to distributors is recognized upon shipment. Customers are generally progress-billed prior to the completion of the installations. The revenue related to these advance payments is deferred until the system installations are completed or specified milestones are attained. Costs incurred on uncompleted contracts and stages are accumulated and recorded as inventory awaiting installation. In addition, contracts for annual recurring turret and Information Transport Systems, or I.T.S., services are generally billed in advance, and are recorded as revenue ratably (on a monthly basis) over the contractual periods. Revenue from moves, additions and changes, commonly known as MACs, to turret systems is recognized upon completion, which generally occurs in the same month or the month following the order for services. Revenue from the Company’s Network Services division, which provides voice and data services to the financial community, is generally billed at the beginning of the month and recognized in the same month.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the cost over the net of the fair value of the identifiable tangible and intangible assets acquired and the fair value of liabilities assumed in acquisitions. The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”) in December 2001 and, in accordance with SFAS 142, there is no amortization of goodwill and intangible assets that have indefinite useful lives. However, goodwill is tested for impairment annually using the two-step process specifically provided in SFAS 142. Other intangible assets are carried at cost. Technology is amortized over its estimated useful life of between 3 to 7 years, customer relationships are amortized over their estimated useful lives of 8 to 20 years, and proprietary software is amortized over its estimated useful life of 7 years. Trade name has been deemed to have an indefinite life and is not subject to amortization expense, but instead is subject to annual impairment tests in accordance with the provisions of SFAS 142. In determining that the trade name has an indefinite life, the Company considered the following factors: the ongoing active use of its trade name, which is directly associated with a leading position in turret solutions, the lack of any legal, regulatory or contractual provisions that may limit the useful life of the trade name, the lack of any substantial costs to maintain the asset, the positive impact on its trade name generated by its other ongoing business activities (including marketing and development of new technology and new products) and its commitment to products branded with its trade name over its 30 year history. The Company’s acquired trade name has significant market recognition and the Company expects to derive benefits from the use of such asset beyond the foreseeable future.

IPC ACQUISITION CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

March 31, 2004

The Company most recently completed the required annual impairment test as of July 1, 2003 (the first day of the fourth quarter of the 2003 fiscal year), and concluded that there was no impairment to its recorded goodwill or trade name. There have been no indicators of impairment during the six months ended March 31, 2004 that would require the Company to perform an impairment test for this period. The Company believes the recorded values of goodwill and trade name in the amounts of $95.3 million and $18.0 million, respectively, at March 31, 2004 are fully recoverable.

Special Cash Dividend

On December 31, 2003, the Company declared a special cash dividend of approximately $18.0 million, or $1.22 per share, to stockholders of record on December 31, 2003, of which approximately $17.9 million was paid on December 31, 2003. The remaining $0.1 million was paid in January 2004.

Stock-Based Compensation

As permitted by Financial Accounting Standards Board (“FASB”) Statement No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), the Company has elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations in accounting for its employee option plans. Under APB 25, no compensation expense is recognized at the time of an option grant if the exercise price of the employee stock option is fixed and equals or exceeds the fair market value of the underlying common stock on the date of the grant and the number of shares to be issued pursuant to the exercise of such options are fixed on the date of the grant.

Pro forma information regarding net income (loss) is required by SFAS 123, and has been determined as if the Company had been accounting for its employee stock options under the fair value method of that Statement. The fair value of these options was estimated at the date of the grant using a Black-Scholes option pricing model with the following assumptions for the three months ended March 31, 2004 and 2003: weighted-average risk-free interest rate of 2.1%; weighted-average volatility factor of the expected market price of the Company’s common stock of 90%; dividend yield of 14.2% for 2004 only and a weighted-average expected life of the options of 4 years.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of options granted is amortized to expense over their vesting periods. The weighted-average grant date fair value of options granted during the three months ended March 31, 2004 was $2.44. The Company’s pro forma net income (loss) for all periods is shown below. These amounts may not necessarily be indicative of the pro forma effect of SFAS 123 for future periods in which ptions may be granted.

The Company recorded no compensation expense under APB 25 for the periods presented. If the Company elected to recognize compensation expense based on the fair value of the options granted at grant date, as prescribed by SFAS 123, net income (loss) would have been adjusted to the pro forma amounts indicated in the table below:


	Three Months Ended						Six Months Ended
	March 31,						March 31,
(dollars in thousands)	2004			2003			2004			2003
Reported net income (loss)	$	2,805		$	(611	)	$	1,041		$	(813	)
Add back total stock-based employee compensation determined under APB 25 intrinsic value method, net of tax		—			—			—			—
Deduct total stock-based employee compensation expense determined under SFAS 123 fair value based method for all awards, net of tax		(383	)		(186	)		(751	)		(371	)

Net income (loss), pro forma	$	2,422		$	(797	)	$	290		$	(1,184	)

The special cash dividend that was declared by the Company on December 31, 2003 reduced the market value per share of the Company’s common stock. As a result, in order to provide equitable treatment to holders of stock options to purchase the

IPC ACQUISITION CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

March 31, 2004

Company’s common stock, the Company repriced the exercise price of all of its outstanding stock options from $10.00 per share to $8.78 per share on December 31, 2003. This repricing does not require variable accounting treatment for such options (recording future compensation expense based upon changes in the fair value of the options). The reduction in the exercise price of $1.22 per share is equivalent to the per share amount of the special cash dividend to stockholders at that date and to the reduction in market value per share of the Company’s common stock.

Effects of Recently Issued Accounting Standards

In December 2003, the FASB issued FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities an Interpretation of ARB No. 51” (“FIN 46R”). This Interpretation, which replaces FASB Interpretation No. 46 “Consolidation of Variable Interest Entities”, clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements” (“ARB 51”), to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. Application of FIN 46R was required for the Company for the second quarter of its 2004 fiscal year. The Company has determined that its investment in Purple Voice Holdings Limited (“Purple Voice”) meets the criteria of a variable interest entity requiring consolidation under FIN 46R. However, because the Company has voting control over Purple Voice, it has been consolidating Purple Voice in accordance with the requirements of ARB 51. Accordingly, there was no further impact upon the consolidated financial statements resulting from the adoption of FIN 46R.

Comprehensive Income (Loss)

The balance sheets and statements of operations of the Company’s foreign operations are measured using the local currency as the functional currency. Assets and liabilities of these foreign operations are translated at the period-end exchange rate and revenue and expense amounts are translated at the average rates of exchange prevailing during the period. The resulting foreign currency translation adjustments are accumulated as a component of other comprehensive income (loss).


	Three Months Ended					Six Months Ended
	March 31,					March 31,
(dollars in thousands)	2004		2003			2004		2003
Reported net income (loss)	$	2,805	$	(611	)	$	1,041	$	(813	)
Translation adjustment, net of tax		374		(949	)		3,488		161

Total comprehensive income (loss)	$	3,179	$	(1,560	)	$	4,529	$	(652	)

2. Acquisitions

IPC Information Systems Acquisition

The Company was formed in November 2001 by a group led by GS Capital Partners 2000, L.P. (“GSCP 2000”), and other private equity funds affiliated with Goldman, Sachs & Co., to acquire IPC Information Systems, Inc. and Asia Global Crossing IPC Trading Systems Australia Pty. Ltd (collectively, “IPC Information Systems”). The Company did not have any assets or operations prior to the IPC Information Systems Acquisition. On December 20, 2001, the Company purchased IPC Information Systems from Global Crossing and Asia Global Crossing, Ltd. and various of their affiliates. The Company and various of its subsidiaries also entered into a network services, channel sales and transition services agreement with Global Crossing and various other parties that obligated the Company to market or resell Global Crossing’s channel network services to its customers and restricted its ability to supply telecommunications services to any third party or to own a network capable of providing these services to any third party. Under the purchase agreement, the total purchase price for the shares and assets was $360.0 million, subject to various adjustments for working capital and customer advances. As a result of the IPC Information Systems Acquisition, the Company owns a leader in turret solutions, based on its base of approximately 110,000 turrets and related equipment installed in trading positions worldwide.

On January 28, 2002, Global Crossing and 54 of its subsidiaries filed petitions for relief under Chapter 11 of Title 11 of the United States Code. On March 13, 2003, the Company entered into a settlement and rejection agreement with Global Crossing. Pursuant to the settlement and rejection agreement, all of the remaining obligations under the purchase agreement relating to the IPC Information Systems Acquisition were terminated, including Global Crossing’s obligation to pay any portion of the deferred purchase price and Global Crossing’s obligation to indemnify the Company for specific tax liabilities. In addition, the Company and Global Crossing mutually released each other for all prior claims. The bankruptcy court entered an order on March 14, 2003 approving the settlement and rejection agreement.

IPC ACQUISITION CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Continued

(Unaudited)

March 31, 2004

Prior to the completion of the IPC Information Systems Acquisition, a subsidiary of IPC Information Systems leased six floors at 67-73 Worship Street, London, England at an annual rate of approximately £565,000, or $1.0 million, assuming an exchange rate of £1 to $1.8262. Of these six floors, the Company uses one floor for office space and an affiliate of Global Crossing uses five floors for telecommunications and networking equipment. Under the lease, which expires in 2010, the Company remains liable to the landlord for all six floors. Pursuant to the purchase agreement with Global Crossing, the Company entered into a sublease for a portion of these premises with an affiliate of Global Crossing and the landlord has consented to that sublease. Through March 31, 2004, Global Crossing’s affiliate has made all of its required sublease payments.

Under the terms of the settlement and rejection agreement, the Company deposited $5.2 million in an escrow account. Global Crossing received $3.2 million from the escrow account upon the filing of certain tax returns. Global Crossing will receive the remaining $2.0 million from the escrow account after a $2.0 million irrevocable letter of credit is issued on behalf of the Company. The Company will have the right to draw on that letter of credit in the event Global Crossing’s affiliate fails to make any payments due to the Company pursuant to the sublease for office space at 67-73 Worship Street in London, England.

The Company believes that all tax returns required to be filed in respect of IPC Information Systems, Inc. and its subsidiaries for periods prior to and including the date of the IPC Information Systems Acquisition have now been filed. These returns consist of consolidated tax returns with Global Crossing, and, where required by law, separate tax returns for IPC Information Systems, Inc. and/or its subsidiaries.

As a result of the termination of the purchase agreement, Global Crossing has been relieved of all of its obligations under the purchase agreement, including, among other things, indemnifying the Company for tax liabilities that may be imposed upon IPC Information Systems, Inc. and its subsidiaries for periods prior to and including the date of the IPC Information Systems Acquisition. Therefore, in the event that any tax liabilities are imposed, as a result of an audit or otherwise, on IPC Information Systems, Inc. and/or its subsidiaries for periods prior to and including the date of the IPC Information Systems Acquisition, the Company may be required to pay those taxes and is no longer able to seek indemnification from Global Crossing. As of March 31, 2004, the aggregate amount of taxes for which the Company has received notices of taxes due from various jurisdictions and recognized as tax liabilities under purchase accounting is approximately $6.5 million and, as of March 31, 2004, the Company has made settlement payments aggregating $0.8 million. The Company estimates that the range of its exposure for additional tax liabilities is from $0.0 to $36.0 million. In computing its estimated range of potential tax liabilities, the Company took into account tax returns in certain jurisdictions where the statutes of limitations have not yet expired. Under those tax returns as filed, the remaining liability is zero. Although the Company believes that all those tax returns have been filed correctly, such returns may be audited and additional taxes may be assessed (or refunds may be granted). Payment by the Company of a significant amount of these potential tax liabilities could have a material adverse effect on the Company’s financial condition and results of operations, requiring the Company to seek additional financing. In that event, the Company cannot make assurances that it will be able to obtain additional financing on commercially reasonable terms, or at all.

Pursuant to the settlement and rejection agreement, Global Crossing has also paid over to the Company approximately $2.2 million for payroll and federal tax refunds received by it for periods prior to and including the date of the IPC Information Systems Acquisition. Global Crossing is also required to pay the Company any future tax refunds or credits it receives that are applicable to IPC Information Systems, Inc. and its subsidiaries for these periods.

As part of the settlement and rejection agreement, the Company also entered into an amendment to the network services, channel sales and transition services agreement. Under the amendment, the Company no longer has any obligation to market or resell Global Crossing’s channel network services to its customers. Additionally, pursuant to the amendment, the Company is permitted to use any other provider of network services for its own internal purposes so long as the Company’s aggregate annual payments to Global Crossing and its subsidiaries are at least $48,000.

Gains US and UK Acquisition

On April 30, 2003, the Company exercised its option to purchase Gains International (US) Inc. and Gains International (Europe) Limited (collectively “Gains US and UK”) from GSCP 2000 and other private equity funds affiliated with Goldman, Sachs & Co., who own substantially all of the Company’s common stock, for 664,380 shares of common stock valued at approximately $5.7 million, deferred purchase consideration of $3.1 million and earn-out consideration of approximately $3.6 million. There is no further contingent consideration in connection with this acquisition. With the acquisition of Gains US and UK, the Company now offers voice and data services primarily to the financial services community under the name Network

IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
March 31, 2004

Services. This transaction followed the completion of a transaction involving the sale of Gains International (US) Inc., Gains International (Europe) Limited and Gains International Asia Holdings Limited to entities formed by GSCP 2000 and other private equity funds affiliated with Goldman, Sachs & Co.

The following table summarizes the fair value of the assets acquired and the liabilities assumed at the date of the acquisition. The purchase price on the date of the acquisition exceeded the fair market value of the net assets acquired by approximately $11.3 million and was recorded as goodwill on the consolidated balance sheet. The primary factor that contributed to a purchase price that resulted in the recognition of goodwill is the potential ability of the Network Services division to generate income from operations and cash flows from operating activities in the future. The goodwill and intangible assets are not amortizable for income tax purposes.


Condensed Balance Sheet (dollars in thousands)
Current assets	$	6,115
Property, plant and equipment, net		2,645
Goodwill		11,324
Intangible assets		1,664
Other long-term assets		12

Total assets acquired		21,760

Current liabilities		9,345
Deferred purchase consideration		3,128
Earn-out consideration		3,594

Total liabilities assumed		16,067

Acquisition consideration at closing	$	5,693

The acquisition of Gains US and UK was accounted for using the purchase method of accounting in accordance with FASB Statement No. 141, “Business Combinations” (“SFAS 141”) and accordingly, the Company’s consolidated results of operations for the six months ended March 31, 2004 include the operating results of Gains US and UK from the date of purchase. The following table represents the allocation of the excess of the purchase price over the historical cost of the net tangible assets acquired at the date of the purchase:


(dollars in thousands)
Common stock issued at closing			$	5,693
Deferred purchase price payment				3,128
Earn-out consideration				3,594
Transaction costs				1,703

Total consideration				14,118
Historical cost of net tangible assets acquired				(1,130	)

Excess of purchase price over net tangible assets acquired			$	12,988

Allocation of excess purchase price:
Residual goodwill (indefinite life)			$	11,324
Identified intangibles:
Customer relationships (8 year life)	$	1,200
Proprietary software (7 year life)		464

Total identified intangibles				1,664

Total allocation of excess purchase price			$	12,988

IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
March 31, 2004

Gains Asia Acquisition

On January 6, 2004, the Company purchased Gains International Asia Holdings Limited (“Gains Asia”) from GSCP 2000 and other private equity funds affiliated with Goldman, Sachs & Co. for approximately $17.4 million in cash consideration, including an $11.9 million payment at closing and an advance payment of $5.5 million made in October 2003. This transaction followed the acquisition of Gains US and UK in April 2003 and completes the purchase of all the Gains related entities. With the acquisition of Gains Asia, along with the acquisition of Gains US and UK, the Company now owns and operates its own private global voice and data network under the name Network Services.

The following table summarizes the fair value of the assets acquired and the liabilities assumed at the date of the acquisition. The purchase price on the date of the acquisition exceeded the fair market value of the net assets acquired by approximately $9.6 million and was recorded as goodwill on the consolidated balance sheet. The primary factor that contributed to a purchase price that resulted in the recognition of goodwill is the ability of Gains Asia, along with Gains US and UK, to generate income from operations and cash flows from operating activities in the future. The goodwill and intangible assets are not amortizable for income tax purposes.


Condensed Balance Sheet (dollars in thousands)
Current assets	$	5,010
Property, plant and equipment, net		991
Goodwill		9,616
Intangible assets		4,400

Total assets acquired		20,017

Current liabilities		2,252
Advance payment and other liabilities		5,848

Total liabilities assumed		8,100

Acquisition consideration at closing	$	11,917

The acquisition of Gains Asia was accounted for using the purchase method of accounting in accordance with SFAS 141 and accordingly, the Company’s consolidated results of operations for the three and six months ended March 31, 2004 include the operating results of Gains Asia from the date of purchase. The following table represents the preliminary allocation of the excess of the purchase price over the historical cost of the net tangible assets acquired at the date of the purchase:


(dollars in thousands)
Cash paid at closing	$	11,917
Advance payment		5,528
Transaction costs		425

Total consideration		17,870
Historical cost of net tangible assets acquired		(3,854	)

Excess of purchase price over net tangible assets acquired	$	14,016

Allocation of excess purchase price:
Residual goodwill (indefinite life)	$	9,616
Identified intangibles:
Customer relationships (8 year life)		4,400

Total allocation of excess purchase price	$	14,016

IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
March 31, 2004

Proforma Financial Information for Gains US and UK and Gains Asia Acquisitions

Set forth below is the unaudited pro forma consolidated results of operations of the Company for the three and six months ended March 31, 2004 and 2003, assuming the Gains US and UK and Gains Asia acquisitions occurred as of the beginning of the period.

The unaudited pro forma condensed financial information is presented for informational purposes only and does not purport to represent the results of operations of the Company for the periods described above had the Gains US and UK and Gains Asia acquisitions occurred as of the beginning of the period, or to project the results for any future period.


	Three Months Ended					Six Months Ended
	March 31,					March 31,
(dollars in thousands)	2004		2003			2004		2003
Revenue	$	79,039	$	64,802		$	142,733	$	120,971
Net income (loss)	$	2,805	$	(417	)	$	1,780	$	(1,434	)

Investment in Purple Voice

IPC UK Holdings Limited (“IPC UK”), a subsidiary of the Company, entered into a series of transactions with Purple Voice, a business-to-business Internet Protocol (“IP”) software company that provides Voice over IP (“VoIP”) solutions to the financial community. VoIP is the method by which voice communication is delivered from one computer to another over a network. As a result of these transactions, which closed on August 1, 2003:

• IPC UK acquired approximately 40% of the currently outstanding common shares (calculated on a non-diluted basis) of Purple Voice together with a warrant for additional shares from certain minority shareholders of Purple Voice for approximately $120,000;

• IPC UK invested $1.0 million in a 7% secured convertible note, due September 2007, issued by Purple Voice, which is convertible into 49% of Purple Voice’s share capital on a fully diluted basis;

• The remaining shareholders of Purple Voice granted a call option to IPC UK, which permits IPC UK to acquire the remaining issued share capital of Purple Voice for an aggregate amount of $0.8 million, plus an earn-out of up to $9.0 million, dependent on certain revenue targets being met; and

• IPC Information Systems, Inc. and Purple Voice entered into an agreement under which IPC Information Systems, Inc. has been appointed Purple Voice’s exclusive reseller worldwide.

On a pro forma basis, this acquisition did not have a material impact on the Company’s results of operations for the three and six months ended March 31, 2003.

In April and May 2004, IPC UK acquired additional shares and share warrants in Purple Voice from Scipher PLC and certain individual shareholders for a total consideration of approximately $355,000. Following those acquisitions, IPC UK now holds approximately 83% of the currently outstanding common shares (calculated on a non-diluted basis) of Purple Voice together with warrants to subscribe for additional shares.

3. Inventories


	March 31,		September 30,
(dollars in thousands)	2004		2003
Components and manufacturing work in process	$	6,150	$	5,980
Inventory on customer sites awaiting installation		14,268		17,874
Parts and maintenance supplies		5,368		6,542

	$	25,786	$	30,396

4. Goodwill and Intangible Assets

The Company adopted SFAS 142 in December 2001. Under SFAS 142, goodwill and intangible assets that have indefinite useful lives are no longer amortized. Rather, they are reviewed for impairment annually or more frequently if certain indicators arise.

IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
March 31, 2004

The following table reflects the changes in goodwill for the six months ended March 31, 2004:


(dollars in thousands)
Balance at September 30, 2003	$	83,079
Gains Asia acquisition		9,616
Write-offs		—
Effects of currency translation adjustments		2,556

Balance at March 31, 2004	$	95,251

The following table reflects the gross carrying amount and accumulated amortization of the Company’s intangible assets included in the consolidated balance sheets as of the dates indicated:


	March 31,			September 30,
(dollars in thousands)	2004			2003
Intangible assets:
Amortized intangible assets:
Technology	$	46,346		$	46,346
Customer relationships		159,630			155,230
Effect of currency translation adjustments		8,192			6,081
Accumulated amortization-technology		(14,958	)		(11,517	)
Accumulated amortization-customer relationships		(18,293	)		(14,055	)

Net carrying amount		180,917			182,085
Non-amortized intangible assets:
Trade name		18,000			18,000

Net carrying amount	$	198,917		$	200,085

Amortization expense for those intangible assets required to be amortized under SFAS 142 was $3.9 million and $7.7 million for the three and six months ended March 31, 2004 and $3.6 million and $7.2 million for the three and six months ended March 31, 2003.

Estimated annual amortization expense for fiscal year 2004 and each of the four succeeding fiscal years for identifiable intangible assets required to be amortized under SFAS 142 are as follows:


(dollars in thousands)	2004		2005		2006		2007		2008
Estimated annual amortization expense	$	15,470	$	15,470	$	15,470	$	15,022	$	15,022

5. Accrued Expenses and Other Current Liabilities


	March 31,		September 30,
(dollars in thousands)	2004		2003
Accrued compensation and benefits	$	8,754	$	7,433
Warranty reserves		1,951		1,889
Sales taxes payable		1,043		891
Accrued job costs		1,352		2,536
Accrued transaction costs		2,193		2,124
Accrued carrier costs		4,769		3,650
Current portion of deferred compensation		692		692
Accrued interest		5,106		5,299
Other accruals		4,135		4,027

	$	29,995	$	28,541

IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
March 31, 2004

6. Long Term Debt

Senior Secured Credit Facilities

On December 20, 2001, the Company entered into senior secured credit facilities comprised of a $105.0 million term loan and a $15.0 million revolving credit facility. On September 2, 2003, the Company amended and restated its senior secured credit facilities. The amended and restated senior secured credit facilities consist of a $25.0 million revolving credit facility and a $55.0 million term loan; provided, however, that the Company can increase the committed amount under these facilities by up to $25.0 million so long as one or more lenders agrees to provide this incremental commitment and other customary conditions are satisfied. The term loan was borrowed in full at closing. As of March 31, 2004, the amount available for borrowing under the revolving credit facility was $20.7 million, as availability of $25.0 million was reduced by outstanding letters of credit of $4.3 million. For the three months ended March 31, 2004, the weighted average interest rate for borrowings outstanding under the amended and restated senior secured credit facilities was 5.11%. On April 20, 2004, the Company completed an agreement to increase the availability under the revolving credit facility by $10.0 million under the provisions mentioned above. The total amount available for borrowing under the revolving credit facility after this increase is $30.7 million ($35.0 million reduced by outstanding letters of credit of $4.3 million).

Mandatory prepayments of the amended and restated senior secured credit facilities are required upon the occurrence of certain events, including certain asset sales, equity issuances and debt issuances, as well as from 50% of the Company’s excess cash flow in the 2004 fiscal year and thereafter. Excess cash flow is defined in the Company’s amended and restated credit agreement as: (1) the sum of net income, interest expense, provisions for taxes, depreciation expense, amortization expense, other non-cash items affecting net income and to the extent included in calculating net income, expenses incurred by the Company in connection with an amendment of the then existing credit agreement, certain restructuring expenses and prepayment premiums in connection with prepayment of loans under the then existing credit agreement, plus (2) a working capital adjustment less (3) scheduled repayments of debt, capital expenditures, cash interest expense and provisions for taxes based on income.

As required under the terms of the Company’s senior secured credit facilities, the Company made mandatory excess cash flow repayments of $30.0 million and $0.8 million on September 30, 2002 and December 29, 2002, respectively, based upon 75% of its excess cash flow for the period ended September 30, 2002. On March 3, 2003, the Company also voluntarily prepaid $14.0 million in debt on its then existing senior secured credit facilities. For the year ended September 30, 2003, the Company was not required to make a mandatory excess cash flow repayment under the terms of the amended and restated senior secured credit facilities.

Obligations under the amended and restated senior secured credit facilities are secured by a first priority security interest in substantially all of the Company’s assets and the assets of its domestic subsidiaries and by a pledge of 100% of the shares of its domestic subsidiaries and 65% of the shares of direct foreign subsidiaries. The Company’s domestic subsidiaries have unconditionally guaranteed its obligations under the amended and restated senior secured credit facilities.

The amended and restated senior secured credit facilities contain customary affirmative covenants as well as negative covenants that, among other things, restrict the Company’s and its subsidiaries’ ability to: incur additional indebtedness (including guarantees of certain obligations); create liens; engage in mergers, consolidations, liquidations and dissolutions; sell assets; enter into capital leases; pay dividends or make other payments in respect of capital stock; make acquisitions; make investments, loans and advances; enter into transactions with affiliates; make payments with respect to or modify subordinated debt instruments; enter into sale and leaseback transactions; change the fiscal year or lines of business; and enter into agreements with negative pledge clauses or clauses restricting subsidiary distributions.

The amended and restated senior secured credit facilities also contain minimum interest coverage and fixed charge coverage ratios and maximum senior secured and total leverage ratios as well as a restriction on the amount of capital expenditures the Company can incur in a fiscal year.

As of March 31, 2004, annual principal repayments required under the $55.0 million term loan, (excluding any future excess free cash flow amounts), by fiscal year, are as follows (in thousands):


2004		2005		2006		2007		2008		Total
$	275	$	550	$	550	$	550	$	52,800	$	54,725

IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
March 31, 2004

Senior Subordinated Notes

The Company issued $150.0 million in aggregate principal amount of 11.50% senior subordinated notes on December 20, 2001 to fund a portion of the consideration for the acquisition of IPC Information Systems. Under the terms of the indenture governing the senior subordinated notes, the Company may, subject to certain restrictions, issue additional notes up to a maximum aggregate principal amount of $250.0 million. The senior subordinated notes mature on December 15, 2009 and are callable, at the Company’s option, beginning in December 2005. The senior subordinated notes are general unsecured obligations of the Company, are subordinated in right of payment to all existing and future senior debt, including the senior secured credit facilities, are pari passu in right of payment with any future senior subordinated indebtedness of the Company, and are unconditionally guaranteed by certain of the Company’s domestic restricted subsidiaries.

Interest on the senior subordinated notes accrues at the rate of 11.50% per annum and is payable semi-annually in arrears on June 15 and December 15, commencing on June 15, 2002. Pursuant to a registration rights agreement entered into at the time the senior subordinated notes were issued, on June 21, 2002 the Company completed an exchange offer registered under the Securities Act of 1933, as amended, in which 100% of the outstanding senior subordinated notes were exchanged for a different series of senior subordinated notes having substantially identical terms.

The indenture governing the senior subordinated notes contains covenants that impose significant restrictions on the Company. These restrictions include limitations on the ability of the Company and its restricted subsidiaries to: incur indebtness or issue preferred shares; pay dividends or make distributions in respect of capital stock or to make other restricted payments; create liens; agree to payment restrictions affecting restricted subsidiaries; consolidate, merge, sell or otherwise dispose of all or substantially all of its assets; enter into transactions with affiliates; and designate subsidiaries as unrestricted subsidiaries.

7. Commitments and Contingencies

Warranties

The Company records a reserve for future warranty costs based on current unit sales, historical experience and management’s judgment regarding anticipated rates of warranty claims and cost per claim. The adequacy of the recorded warranty liabilities is assessed each quarter and adjustments are made as necessary. The specific terms and conditions of the warranties vary depending on the products sold and the countries in which the Company does business. Changes in the warranty liability during the periods presented are as follows:


	Six Months Ended
	March 31,
(dollars in thousands)	2004			2003
Balance at beginning of period	$	1,889		$	2,159
Warranty accrual		949			647
Material and labor usage		(887	)		(1,377	)

Balance at end of period	$	1,951		$	1,429

Guarantees

The Company, through its subsidiaries, guaranteed certain equipment lease, real estate and other obligations of its former affiliate, Global Crossing. A subsidiary of the Company remains a guarantor of certain real estate lease obligations on behalf of Global Crossing including a sublease for office space at 67-73 Worship Street in London, England. The terms of these guarantees will expire in November 2004 and December 2005. These obligations were entered as a result of Global Crossing’s ownership of the Company and the Company is responsible for any payments if Global Crossing fails to make the required payments under the lease agreements. However, under the settlement and rejection agreement (as discussed in Note 2), $2.0 million has been placed in an escrow account pending the issuance of an irrevocable letter of credit from Global Crossing to the Company as beneficiary in the event that Global Crossing fails to make the required payments under the Worship Street sublease. The maximum potential future payments the Company could be required to make under these obligations is $3.5 million. The carrying value of these guarantees as of March 31, 2004 is $1.9 million, and such amount has been recorded on the Company’s consolidated balance sheet in accordance with FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). Such amount has been reduced by the $2.0 million escrow account. Through March 31, 2004, Global Crossing’s affiliate has made all of the required Worship Street sublease payments.

IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
March 31, 2004

Litigation

Except as described below, the Company is not a party to any pending legal proceedings other than claims and lawsuits arising in the normal course of business. Management believes these proceedings will not have a material adverse effect on the Company’s consolidated financial condition or results of operations.

On June 27, 2000, an action was brought against several defendants, including the Company’s subsidiary, IPC Communications, Inc., in the United States District Court for the Southern District of New York by two telecommunications cabling contractors alleging that IPC Communications, Inc. violated federal antitrust and New York state law by conspiring with the International Brotherhood of Electrical Workers Local Union Number 3, AFL-CIO, and five electrical contractors to exclude plaintiffs from telecommunications wiring and systems installation jobs in the New York City metropolitan area. Subsequently, the complaint was amended to add an additional plaintiff and an additional defendant contractor. The Company believes the suit is without merit. However, there can be no assurance that the resolution of this lawsuit will ultimately be favorable. Plaintiffs are seeking injunctive relief and damages from the defendants, jointly and severally, in excess of an aggregate of $75.0 million.

On September 8, 2003, an action was brought against several defendants, including the Company’s subsidiary, IPC Information Systems, Inc. and its President, in the United States District Court for the Eastern District of New York by Advance Relocation & Storage Co., Inc., a moving company. The complaint alleges that IPC Information Systems, Inc. and 23 other defendants violated the Racketeer Influenced and Corrupt Organizations Act and engaged in tortious interference with prospective business advantage by preventing the plaintiff from obtaining work as a mover in jobs performed in large commercial buildings in New York City. The Company believes the suit is without merit and intends to vigorously defend against all claims alleged against it in the complaint. Plaintiffs are seeking injunctive relief and damages from the defendants, jointly and severally, in an aggregate amount of approximately $7.0 million.

8. Income Taxes

The Company’s effective tax rate for the six months ended March 31, 2004 was 80.1% and 167.2% for the six months ended March 31, 2003. The Company’s effective tax rates reflect the Company’s foreign, federal and state taxes, the non-deductibility of foreign losses for federal tax purposes, the non-deductibility of certain expenses and taxable income at several of the Company’s foreign subsidiaries, which, as compared to the absolute amount of pre-tax earnings (or loss), has a significant impact on the Company’s effective tax rates.

As of September 30, 2003, the Company has recognized deferred tax assets related to its US federal and state net operating loss carryforwards of approximately $5.4 million. In determining whether it is more likely than not that the Company will realize the benefits of the net deferred tax assets from US operations, the Company considered all available evidence, both positive and negative. The principal factors that led the Company to recognize these benefits were: (1) US results of operations for the period ended September 30, 2002 reported a loss before income taxes of $22.1 million, after reflecting charges of $34.3 million resulting from the fair-value inventory adjustments under the purchase price allocation of the IPC Information Systems Acquisition (which, as a result of the Internal Revenue Code Section 338(h)(10) tax election, jointly made by the Company and Global Crossing, also generate deductions for income tax purposes); (2) US results of operations for subsequent fiscal years are expected to generate sufficient taxable income to fully utilize these tax loss carryforwards; and (3) the Company’s conclusion that the net US deferred tax assets were generated by an event (the Company’s purchase of the business), rather than a continuing condition. As of March 31, 2004, no circumstances have arisen that would require the Company to change such conclusion.

IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
March 31, 2004

returns may be audited and additional taxes may be assessed (or refunds may be granted). Payment by the Company of a significant amount of these potential tax liabilities could have a material adverse effect on the Company’s financial condition and results of operations, requiring the Company to seek additional financing. In that event, the Company cannot assure you that it will be able to obtain additional financing on commercially reasonable terms, or at all.

9. Business Segment Information

The Company’s operations include the Trading Systems, Information Transport Systems, or I.T.S., and the Network Services divisions. Trading Systems reports sales of turret systems to distributors and direct sales and installations of turret systems as “Product sales and installations.” It reports revenue from turret system maintenance, including annual and multi-year service contracts, and from MACs to existing turret system installations as “Service.” I.T.S. reports revenue from the design, integration and implementation of cabling infrastructure projects, including local and wide area networks, and from the sales of intelligent network products, such as hubs, bridges and routers, as “Product sales and installations.” It reports revenue from on-site maintenance of customer cable infrastructure, including annual and multi-year contracts, and from the provision of outsourcing services for the support, expansion and upgrading of existing customer networks, as “Service.” Revenue from the Network Services division, which provides voice and data services to the financial community, is generally billed at the beginning of the month and recognized in the same month, as “Service”. The Company’s primary measures to evaluate performance are direct margin (revenue less cost of goods sold, excluding indirect costs and depreciation and amortization) and income from operations.


	Trading						Network
For the Three Months Ended March 31, 2004	Systems			I.T.S.			Services			Consolidated
	(dollars in thousands)
Revenue:
Product sales and installations	$	32,243		$	8,759		$	—		$	41,002
Service		25,672			456			11,909			38,037

Total revenue		57,915			9,215			11,909			79,039
Direct margin		37,657			1,297			6,211			45,165
Depreciation and amortization		5,379			60			917			6,356
Income (loss) from operations		11,764			(15	)		942			12,691
Interest expense, net		(5,785	)		—			(29	)		(5,814	)
Other income (expense), net		(219	)		—			79			(140	)
Income (loss) before income taxes		5,760			(15	)		992			6,737
Income tax provision		3,382			—			550			3,932
Goodwill	$	72,581		$	971		$	21,699		$	95,251
Total assets	$	368,022		$	21,220		$	41,355		$	430,597
Capital expenditures	$	1,626		$	—		$	854		$	2,480


	Trading
For the Three Months Ended March 31, 2003	Systems			I.T.S.			Consolidated
	(dollars in thousands)
Revenue:
Product sales and installations	$	23,902		$	8,917		$	32,819
Service		21,191			2,295			23,486

Total revenue		45,093			11,212			56,305
Direct margin		28,620			1,249			29,869
Depreciation and amortization		5,037			60			5,097
Income (loss) from operations		6,410			(446	)		5,964
Interest expense, net		(6,477	)		—			(6,477	)
Other income (expense), net		802			—			802
Income (loss) before income taxes		735			(446	)		289
Income tax provision		900			—			900
Goodwill	$	69,242		$	971		$	70,213
Total assets	$	390,189		$	28,686		$	418,875
Capital expenditures	$	1,289		$	1		$	1,290

IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
March 31, 2004


	Trading						Network
For the Six Months Ended March 31, 2004	Systems			I.T.S.			Services			Consolidated
	(dollars in thousands)
Revenue:
Product sales and installations	$	53,701		$	15,405		$	—		$	69,106
Service		49,664			1,283			19,153			70,100

Total revenue		103,365			16,688			19,153			139,206
Direct margin		65,526			2,310			9,495			77,331
Depreciation and amortization		10,668			120			1,477			12,265
Income (loss) from operations		15,578			(280	)		961			16,259
Interest expense, net		(11,307	)		—			(29	)		(11,336	)
Other income (expense), net		319			—			(12	)		307
Income (loss) before income taxes		4,590			(280	)		920			5,230
Income tax provision		3,499			—			690			4,189
Goodwill	$	72,581		$	971		$	21,699		$	95,251
Total assets	$	368,022		$	21,220		$	41,355		$	430,597
Capital expenditures	$	2,715		$	—		$	1,506		$	4,221


	Trading
For the Six Months Ended March 31, 2003	Systems			I.T.S.			Consolidated
	(dollars in thousands)
Revenue:
Product sales and installations	$	44,911		$	11,659		$	56,570
Service		42,707			5,411			48,118

Total revenue		87,618			17,070			104,688
Direct margin		55,809			2,461			58,270
Depreciation and amortization		10,005			120			10,125
Income (loss) from operations		13,311			(746	)		12,565
Interest expense, net		(12,682	)		—			(12,682	)
Other income (expense), net		1,327			—			1,327
Income (loss) before income taxes		1,956			(746	)		1,210
Income tax provision		2,023			—			2,023
Goodwill	$	69,242		$	971		$	70,213
Total assets	$	390,189		$	28,686		$	418,875
Capital expenditures	$	2,275		$	9		$	2,284

10. Guarantor Subsidiaries’ Financial Information

Certain of the Company’s domestic restricted subsidiaries guarantee the senior secured credit facilities and the senior subordinated notes. These subsidiary guarantees are both full and unconditional, as well as joint and several. Information regarding the guarantors is as follows (in thousands):

IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
March 31, 2004

Condensed Consolidating Balance Sheet at March 31, 2004


						Non-
	IPC		Guarantor			Guarantor
	Acquisition		Subsidiaries			Subsidiaries			Eliminations			Consolidated
Assets:
Cash	$	27	$	4,004		$	6,941		$	—		$	10,972
Accounts receivable, net		—		34,866			19,121			—			53,987
Inventories, net		—		21,548			8,321			(4,083	)		25,786
Prepaid and other current assets		—		1,980			4,051			—			6,031
Due from (to) affiliate		190,063		(174,388	)		(15,675	)		—			—

Total current assets		190,090		(111,990	)		22,759			(4,083	)		96,776
Investment in subsidiaries		151,722		10,524			19,138			(181,384	)		—
Property, plant and equipment, net		—		20,280			5,010			—			25,290
Goodwill and intangibles, net		—		195,646			98,522			—			294,168
Deferred financing costs, net		13,191		—			—			—			13,191
Other assets		—		419			753			—			1,172

Total assets	$	355,003	$	114,879		$	146,182		$	(185,467	)	$	430,597

Liabilities and stockholders’ equity:
Current portion of long-term debt	$	550	$	—		$	—		$	—		$	550
Accounts payable, accrued expenses and other current liabilities		5,301		17,233			18,083			—			40,617
Customer advances and deferred revenue		—		19,735			10,994			—			30,729

Total current liabilities		5,851		36,968			29,077			—			71,896
Long-term debt		204,175		—			—			—			204,175
Other long-term liabilities		11,165		3,431			7,118			(1,000	)		20,714

Total liabilities		221,191		40,399			36,195			(1,000	)		296,785
Total stockholders’ equity		133,812		74,480			109,987			(184,467	)		133,812

Total liabilities and stockholders’ equity	$	355,003	$	114,879		$	146,182		$	(185,467	)	$	430,597

Condensed Consolidating Balance Sheet at September 30, 2003


						Non-
	IPC		Guarantor			Guarantor
	Acquisition		Subsidiaries			Subsidiaries			Eliminations			Consolidated
Assets:
Cash	$	9,088	$	3,135		$	13,577		$	—		$	25,800
Accounts receivable, net		—		47,025			13,176			—			60,201
Inventories, net		—		28,584			4,666			(2,854	)		30,396
Prepaid and other current assets		—		2,110			3,413			—			5,523
Due from (to) affiliate		213,600		(190,517	)		(23,083	)		—			—

Total current assets		222,688		(109,663	)		11,749			(2,854	)		121,920
Investment in subsidiaries		129,364		10,524			1,375			(141,263	)		—
Property, plant and equipment, net		—		20,433			3,986			—			24,419
Goodwill and intangibles, net		—		195,802			87,362			—			283,164
Deferred financing costs, net		14,146		—			—			—			14,146
Other assets		—		855			406			—			1,261

Total assets	$	366,198	$	117,951		$	104,878		$	(144,117	)	$	444,910

Liabilities and stockholders’ equity:
Current portion of long-term debt	$	550	$	—		$	—		$	—		$	550
Accounts payable, accrued expenses and other current liabilities		5,299		15,384			16,206			—			36,889
Customer advances and deferred revenue		—		26,043			6,074			—			32,117
Deferred purchase price consideration		—		6,722			—			—			6,722

Total current liabilities		5,849		48,149			22,280			—			76,278
Long-term debt		204,450		—			—			—			204,450
Other long-term liabilities		8,720		4,159			5,124			(1,000	)		17,003

Total liabilities		219,019		52,308			27,404			(1,000	)		297,731
Total stockholders’ equity		147,179		65,643			77,474			(143,117	)		147,179

Total liabilities and stockholders’ equity	$	366,198	$	117,951		$	104,878		$	(144,117	)	$	444,910

IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
March 31, 2004

Condensed Consolidated Statement of Operations
For the Six Months Ended March 31, 2004


						Non-
	IPC			Guarantor		Guarantor
	Acquisition			Subsidiaries		Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	105,837	$	39,799		$	(6,430	)	$	139,206
Cost of goods sold		—			60,449		21,710			(5,201	)		76,958

Gross profit		—			45,388		18,089			(1,229	)		62,248
Other operating expenses		—			33,516		12,473			—			45,989

Income (loss) from operations		—			11,872		5,616			(1,229	)		16,259
Interest income (expense) and other, net		(11,160	)		553		(422	)		—			(11,029	)
Income tax provision		—			4,160		29			—			4,189

Net income (loss)	$	(11,160	)	$	8,265	$	5,165		$	(1,229	)	$	1,041

Condensed Consolidated Statement of Operations
For the Six Months Ended March 31, 2003


							Non-
	IPC			Guarantor			Guarantor
	Acquisition			Subsidiaries			Subsidiaries		Eliminations			Consolidated
Revenue	$	—		$	87,003		$	24,470	$	(6,785	)	$	104,688
Cost of goods sold		—			49,694			14,336		(6,571	)		57,459

Gross profit		—			37,309			10,134		(214	)		47,229
Other operating expenses		—			27,242			7,422		—			34,664

Income (loss) from operations		—			10,067			2,712		(214	)		12,565
Interest income (expense) and other, net		(12,768	)		(142	)		1,555		—			(11,355	)
Income tax provision (benefit)		—			(459	)		2,482		—			2,023

Net income (loss)	$	(12,768	)	$	10,384		$	1,785	$	(214	)	$	(813	)

Condensed Consolidated Statement of Cash Flows
For the Six Months Ended March 31, 2004


							Non-
	IPC			Guarantor			Guarantor
	Acquisition			Subsidiaries			Subsidiaries			Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	(7,885	)	$	32,068		$	5,161		$	—	$	29,344
Capital expenditures		—			(3,032	)		(1,189	)		—		(4,221	)
Payment of Gains US and UK earn-out and deferred purchase price		—			(6,756	)		—			—		(6,756	)
Intercompany borrowings		28,785			(15,832	)		(12,953	)		—		—
Acquisition of Gains Asia, net of cash acquired		(11,722	)		(5,528	)		2,068			—		(15,182	)

Net cash provided by (used in) investing activities		17,063			(31,148	)		(12,074	)		—		(26,159	)
Principal payments on term loan		(275	)		—			—			—		(275	)
Deferred compensation payments		—			(51	)		—			—		(51	)
Special cash dividend paid		(17,964	)		—			—			—		(17,964	)

Net cash used in financing activities		(18,239	)		(51	)		—			—		(18,290	)
Effect of exchange rate changes on cash		—			—			277			—		277

Net increase (decrease) in cash		(9,061	)		869			(6,636	)		—		(14,828	)
Cash at beginning of period		9,088			3,135			13,577			—		25,800

Cash at end of period	$	27		$	4,004		$	6,941		$	—	$	10,972

IPC ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Continued
(Unaudited)
March 31, 2004

Condensed Consolidated Statement of Cash Flows
For the Six Months Ended March 31, 2003


							Non-
	IPC			Guarantor			Guarantor
	Acquisition			Subsidiaries			Subsidiaries			Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	(12,845	)	$	13,272		$	12,920		$	—	$	13,347
Capital expenditures		—			(1,947	)		(337	)		—		(2,284	)
Intercompany borrowings		31,659			(7,020	)		(24,639	)		—		—
Proceeds from restricted cash account and other amounts in connection with Global Crossing settlement		—			9,419			—			—		9,419
Cash payments in connection with Global Crossing settlement		—			(5,200	)		—			—		(5,200	)

Net cash provided by (used in) investing activities		31,659			(4,748	)		(24,976	)		—		1,935
Debt issue costs		(310	)		—			—			—		(310	)
Deferred compensation payments		—			(46	)		—			—		(46	)
Principal payments on term loan		(17,160	)		—			—			—		(17,160	)

Net cash used in financing activities		(17,470	)		(46	)		—			—		(17,516	)
Effect of exchange rate changes on cash		—			(651	)		—			—		(651	)

Net increase (decrease) in cash		1,344			7,827			(12,056	)		—		(2,885	)
Cash at beginning of period		6,123			(1,610	)		20,781			—		25,294

Cash at end of period	$	7,467		$	6,217		$	8,725		$	—	$	22,409

11. Subsequent Events

On April 20, 2004, the Company entered into a joinder agreement to the amended and restated senior secured credit facilities which increased the amount the Company can borrow under the revolving credit facility by $10.0 million from $25.0 million to $35.0 million. No other terms or conditions were changed.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations with our condensed consolidated financial statements and related notes included elsewhere in this filing.

Some of the matters discussed in this filing include forward-looking statements. Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, “thinks”, and similar expressions are forward-looking statements. These statements involve known and unknown risks, uncertainties and other risk factors, including but not limited to:

• risks associated with substantial indebtedness, leverage and debt service;

• performance of our business and future operating results;

• risks of competition in our existing and future markets;

• loss or retirement of any key executives;

• general business and economic conditions;

• market acceptance issues, including the failure of products or services to generate anticipated sales levels; and

• other risks described in our Registration Statement on Form S-1 (333-103264).

Our actual results and performance may be materially different from any future results or performance expressed or implied by these forward-looking statements.

Although we believe that these statements are based upon reasonable assumptions, we can give no assurance that our goals will be achieved. Given these uncertainties, prospective investors are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements are made as of the date of this filing. We assume no obligation to update or revise them or provide reasons why actual results may differ.

Overview

Our primary business is the design, manufacture, installation and service of turret systems for the trading operations of the financial community, which includes investment and commercial banks, foreign exchange and commodity brokers and dealers, market exchanges, mutual and hedge fund companies, asset managers and insurance companies. Turrets are specialized telephone systems that are designed for high reliability and provide users instant access to hundreds of dedicated telephone lines that are directly connected to other trading partners and customers. Traders, brokers and salespersons occupy desks known as trading positions from which they trade various financial instruments including stocks, bonds, currencies and futures using turrets. We are a leader in turret solutions, based on our base of approximately 110,000 turrets and related equipment installed in trading positions worldwide. We also install and service the cabling infrastructure and networks within buildings that connect voice and data communications devices for traders and others in the global financial, trading and exchange trading industries, as well as sell network voice and data services to customers primarily in the financial community.

Our major operating divisions are Trading Systems, I.T.S., and Network Services. Trading Systems reports (1) sales of turret systems to distributors and direct sales and installations of turret systems as “Product sales and installations,” and (2) revenue from turret system maintenance, including annual and multi-year service contracts, and from MACs to existing turret system installations as “Service.” I.T.S. reports (1) revenue from the design, integration and implementation of cabling infrastructure projects, including local and wide area networks, and from sales of intelligent network products, such as hubs, bridges and routers, as “Product sales and installations” and (2) revenue from on-site maintenance of customer cable infrastructures and from the provision of outsourcing services for the support, expansion and upgrading of existing customer networks as “Service.” Network Services records the sale of voice and data services such as ring down connection, T1 high speed digital connections and hoot and holler broadcasts, which is a dedicated line used to link different locations together, as “Service.”

Revenue from product sales and installations is recognized upon completion of the installation or, for contracts that are completed in stages and include contract specified milestones, upon achieving such contract milestones, and delivery and customer acceptance of a fully functional system. Revenue from sales to distributors is recognized upon shipment. Customers are generally progress-billed prior to the completion of the installations. The revenue related to these advance payments is deferred until the system installations are completed or specified milestones are attained. Costs incurred on uncompleted contracts and stages are accumulated and recorded as inventory awaiting installation. In addition, contracts for annual recurring turret and I.T.S. services are generally billed in advance, and are recorded as revenue ratably (on a monthly basis) over the contractual periods. Revenue from MACs to turret systems is recognized upon completion, which generally occurs in the same month or the month following the order for services. Revenue from our Network Services division is generally billed at the beginning of the month and recognized in the same month.

Cost of revenue for our Trading Systems and I.T.S. divisions includes the costs of equipment sold, the costs of parts used for service of the equipment, labor to install the equipment sold, labor to provide service, warehouse and project management costs

and the depreciation of the equipment in our manufacturing and assembly facility. Cost of revenue for our Network Services division includes the costs to lease local and long distance circuits, the cost of our network provisioning and operations organizations and depreciation of the equipment.

Our revenues and operating results fluctuate significantly from period to period for our Trading Systems and ITS divisions. Given the relatively large sales price of our trading systems and our recognition of revenue only upon completion of installations or specified contract milestones, a limited number of system installations may account for a substantial portion of revenues in any particular period. As a result of these and other factors, we could experience significant fluctuations in revenues and operating results in future periods. In addition, our customers are concentrated in the global financial, trading and exchange trading industries and our revenues will likely decline during periods of economic downturn that impact those sectors.

Our Strategy

The key elements of our strategy are to:

• Generate revenue growth through replacement sales, technology upgrades and trading floor expansions. Regular turnover of our installed base is driven primarily by customers’ facility moves, mergers or consolidations and the development of new trading markets and products. Additionally, other factors, such as customer business initiatives, including global trading platform standardization, regulatory developments, and customer expansion affect turnover, as customers require more flexible, efficient and technologically advanced turret systems. By developing new systems, such as our IQMX™ turret system, that address these factors in a timely, proactive fashion, we believe we can increase overall turnover rates, as customers are motivated to replace older, less-advanced equipment with our latest most-advanced product offerings.

• Expand by developing new products and services and capitalizing on new trends. We believe there is an opportunity to increase our revenues by strategically broadening our product portfolio, enhancing our technology architecture and addressing new developments in the marketplace. Examples of our efforts include:

• Providing voice, data and video communications. The introduction of our IQMX product with expansion modules provides the ability to communicate by exchanging text (such as Chat and Instant Messaging programs) and video (such as popular desktop video conferencing systems) as quickly and easily as the communications systems currently allow traders to do so with voice. By creating a communications system that utilizes IP to deliver communications, and by combining this delivery methodology with the expansion modules that support exchanging text and video in addition to voice, we eliminate the need for our customers to purchase stand-alone equipment to deliver these solutions and leverage opportunities to sell additional solutions to our established customers.

• Developing applications. Application integration and development is driven by the need to create a seamless and efficient work environment in much the same way that increasingly sophisticated call centers were developed in the mid-1990s. We have demonstrated our capability in this market through sales of our Computer Telephony Integration, or CTI, products which allow telephony devices to communicate with computers.

• Increasing our penetration of disaster recovery and contingency planning sales. We intend to further penetrate the growing demand for disaster recovery and business continuity solutions. We believe we can effectively capitalize on our strong track record and customer relationships to drive future business in this area from both existing customers and emerging third-party providers.

• Penetrating middle office support positions. In June 2002, we released the ICMX, a VoIP intercom module, and a member of our IQMX family of turret products. The ICMX extends intercom functionality by providing hands-free communication between sites, a unified numbering plan, group calls and all calls and support for hoot and holler applications, an open broadcast system that allows a trader to communicate with a large group of traders located around the world. Compact in size and with features designed specifically for support functions of a trading floor, we believe the ICMX positions us to penetrate a large number of trading support positions.

• Increase our product offerings. With the acquisition of Gains US and UK, and Gains Asia, we created a new business division called Network Services. Our Network Services division provides network voice and data services that connect traders across six continents. In addition, in June 2003, we launched a suite of services under the name Managed Services. Managed Services are a set of premium, specialized services that deliver fully managed connectivity to trading floors worldwide. We believe we can provide these services to customers in combination with sales of our turrets. In February 2004, we launched Advanced Fault Management, or AFM, which is a proactive, real-time monitoring service designed to optimize trader voice system availability from the trading desk to the carrier network and Total Circuit Management, or TCM, which is for customers that seek a partner to manage their entire circuit provisioning and maintenance process. With several different service products being offered, we

believe we can be successful in marketing these services to customers of our turrets. Also, with our investment in Purple Voice in August 2003, we can provide users such as researchers, analysts, and retail brokers who are based off the main trading floor with seamless access to audio broadcasts, intercom calls, group calls and hoot and holler broadcasts regardless of the user’s location.

• Increase our sales through organic growth and opportunistic acquisitions. We intend to continue to enhance our competitive position by (1) converting customers from competitors’ systems to our own, (2) further expanding into currently under-penetrated business opportunities, (3) winning competitive bids for new installation opportunities, and (4) expanding geographically. We plan to achieve these objectives through a combination of expanding our direct presence, continuing our new product development efforts and making strategic acquisitions and/or alliances.

• Continue our track record of customer service excellence. We believe our high level of customer service differentiates us from our competition, positions us to capture more revenue from our existing client base by providing value-added services, and allows us to maintain our pricing and profitability.

Recent Events

On April 20, 2004, We entered into a joinder agreement to the amended and restated senior secured credit facilities which increased the amount we can borrow under the revolving credit facility by $10.0 million from $25.0 million to $35.0 million. No other terms or conditions were changed.

Comparison of the Three Months (“Q2 2004”) and Six Months (“YTD 2004”) Ended March 31, 2004 to the Three Months (“Q2 2003”) and Six Months (“YTD 2003”) Ended March 31, 2003.

The following tables sets forth, as a percentage of consolidated revenue, our condensed consolidated statements of operations for the periods indicated. The following table also presents, as a percentage of division revenue, our statements of operations for our three major operating divisions for the periods indicated.


	Q2 2004												Q2 2003
				Trading						Network						Trading						Network
	Consolidated			Systems			I.T.S.			Services			Consolidated			Systems			I.T.S.			Services
Revenue:
Product sales and installations		52	%		56	%		95	%		0	%		58	%		53	%		79	%		—
Service		48	%		44	%		5	%		100	%		42	%		47	%		21	%		—

		100	%		100	%		100	%		100	%		100	%		100	%		100	%		—

Cost of goods sold (depreciation shown separately):
Product sales and installations		28	%		24	%		88	%		0	%		35	%		25	%		76	%		—
Service		24	%		20	%		7	%		59	%		21	%		21	%		22	%		—
Depreciation and amortization		1	%		1	%		0	%		6	%		1	%		1	%		0	%		—

		53	%		45	%		95	%		65	%		57	%		47	%		98	%		—

Gross profit		47	%		55	%		5	%		35	%		43	%		53	%		2	%		—
Research and development		5	%		6	%		0	%		0	%		5	%		6	%		0	%		—
Selling, general and administrative expense		19	%		20	%		4	%		25	%		19	%		23	%		5	%		—
Depreciation and amortization		7	%		9	%		1	%		2	%		8	%		10	%		1	%		—

Income (loss) from operations		16	%		20	%		0	%		8	%		11	%		14	%		(4	%)		—

Other income (expense):
Interest expense, net		(7	%)		(10	%)		0	%		0	%		(11	%)		(14	%)		0	%		—
Other income (expense), net		0	%		0	%		0	%		1	%		1	%		2	%		0	%		—

Income (loss) before income taxes		9	%		10	%		0	%		9	%		1	%		2	%		(4	%)		—
Income tax expense		5	%		6	%		0	%		5	%		2	%		2	%		0	%		—

Net income (loss)		4	%		4	%		0	%		4	%		(1	%)		0	%		(4	%)		—


	YTD 2004												YTD 2003
				Trading						Network						Trading						Network
	Consolidated			Systems			I.T.S.			Services			Consolidated			Systems			I.T.S.			Services
Revenue:
Product sales and installations		50	%		52	%		92	%		0	%		54	%		51	%		68	%		—
Service		50	%		48	%		8	%		100	%		46	%		49	%		32	%		—

		100	%		100	%		100	%		100	%		100	%		100	%		100	%		—

Cost of goods sold (depreciation shown separately):
Product sales and installations		28	%		24	%		85	%		0	%		31	%		24	%		65	%		—
Service		26	%		21	%		11	%		61	%		23	%		22	%		32	%		—
Depreciation and amortization		1	%		1	%		0	%		6	%		1	%		1	%		0	%		—

		55	%		46	%		96	%		67	%		55	%		47	%		97	%		—

Gross profit		45	%		54	%		4	%		33	%		45	%		53	%		3	%		—
Research and development		5	%		7	%		0	%		0	%		5	%		6	%		0	%		—
Selling, general and administrative expense		20	%		22	%		5	%		26	%		19	%		21	%		6	%		—
Depreciation and amortization		8	%		10	%		1	%		2	%		9	%		11	%		1	%		—

Income (loss) from operations		12	%		15	%		(2	%)		5	%		12	%		15	%		(4	%)		—

Other income (expense):
Interest expense, net		(8	%)		(11	%)		0	%		0	%		(12	%)		(14	%)		0	%		—
Other income (expense), net		0	%		0	%		0	%		0	%		1	%		1	%		0	%		—

Income (loss) before income taxes		4	%		4	%		(2	%)		5	%		1	%		2	%		(4	%)		—
Income tax expense		3	%		3	%		0	%		4	%		2	%		2	%		0	%		—

Net income (loss)		1	%		1	%		(2	%)		1	%		(1	%)		0	%		(4	%)		—

Revenue

The following table sets forth our consolidated revenue and revenue as reported for our three major operating divisions.


	Consolidated
	Q2		Q2		$			%			YTD		YTD		$			%
(dollars in thousands)	2004		2003		Change			Change			2004		2003		Change			Change
Product sales and installations	$	41,002	$	32,819	$	8,183			25	%	$	69,106	$	56,570	$	12,536			22	%
Service		38,037		23,486		14,551			62	%		70,100		48,118		21,982			46	%

Total	$	79,039	$	56,305	$	22,734			40	%	$	139,206	$	104,688	$	34,518			33	%


	Trading Systems
	Q2		Q2		$			%			YTD		YTD		$			%
(dollars in thousands)	2004		2003		Change			Change			2004		2003		Change			Change
Product sales and installations	$	32,243	$	23,902	$	8,341			35	%	$	53,701	$	44,911	$	8,790			20	%
Service		25,672		21,191		4,481			21	%		49,664		42,707		6,957			16	%

Total	$	57,915	$	45,093	$	12,822			28	%	$	103,365	$	87,618	$	15,747			18	%


	I.T.S.
	Q2		Q2		$			%			YTD		YTD		$			%
(dollars in thousands)	2004		2003		Change			Change			2004		2003		Change			Change
Product sales and installations	$	8,759	$	8,917	$	(158	)		(2	%)	$	15,405	$	11,659	$	3,746			32	%
Service		456		2,295		(1,839	)		(80	%)		1,283		5,411		(4,128	)		(76	%)

Total	$	9,215	$	11,212	$	(1,997	)		(18	%)	$	16,688	$	17,070	$	(382	)		(2	%)


	Network Services
	Q2		Q2		$			%			YTD		YTD		$			%
(dollars in thousands)	2004		2003		Change			Change			2004		2003		Change			Change
Product sales and installations	$	—	$	—	$	—			—	%	$	—	$	—	$	—			—	%
Service		11,909		—		11,909			—	%		19,153		—		19,153			—	%

Total	$	11,909	$	—	$	11,909			—	%	$	19,153	$	—	$	19,153			—	%

Comparison of Q2 2004 to Q2 2003

Consolidated

We believe the overall decline in the global economy has caused our customers to extend their planning and implementation cycles. While we expect this downward trend to continue for the remainder of the 2004 fiscal year, there can be no certainty as to

the degree or duration of this trend. We expect our fiscal year 2004 total consolidated revenues to be approximately $290 million to $300 million, which has been revised since the three months ended December 31, 2003 (“Q1 2004”); however, the actual total consolidated revenues could be lower.

Product Sales and Installations. The increase in product sales and installation revenue of $8.2 million in Q2 2004 from Q2 2003 was primarily due to three large (greater than $2.0 million) projects totaling $15.7 million completed in Q2 2004 compared to four large and medium (between $1.0 million and $2.0 million) projects totaling $7.5 million completed in Q2 2003 in our Trading Systems division. I.T.S. product sales and installation revenue has remained relatively consistent from Q2 2004 to Q2 2003.

We expect our fiscal year 2004 product sales and installation revenue to be approximately $150 million to $155 million which has been revised since Q1 2004. However, customer commitments could be delayed due to budgetary constraints, changes to real estate planning, merger and acquisitions activity in our customer base, a decrease in our customers’ headcount or changes in our customers’ technology needs. As a result, actual product sales and installation revenue in the 2004 fiscal year could be lower.

Service. The increase in service revenue of $14.6 million in Q2 2004 from Q2 2003 was primarily due to the addition of our Network Services division, which was created following the acquisition of the Gains US and UK entities in April 2003 and the acquisition of Gains Asia in January 2004. We generated $11.9 million of service revenue from our Network Services division in Q2 2004 as compared to no revenue in Q2 2003. In addition, there was a higher volume of contract maintenance revenue totaling $3.3 million and non-contract MAC revenue totaling $1.2 million in our Trading Systems division, partially offset by a $1.8 million decrease in Q2 2004 due to the loss of a large service customer in our I.T.S. division in Q1 2004.

We expect our fiscal year 2004 consolidated service revenue to be approximately $140 million to $145 million which has been revised since Q1 2004. However, customer commitments could be delayed due to budgetary constraints, changes to real estate planning, merger and acquisition activity in our customer base, a decrease in our customers’ headcount or technology needs. As a result, the actual service revenue in the 2004 fiscal year could be lower.

Trading Systems

Product Sales and Installations. The increase in product sales and installation revenue of $8.3 million in Q2 2004 from Q2 2003 was primarily due to three large installation projects totaling $15.7 million completed in Q2 2004 compared to four large and medium installation projects totaling $7.5 million completed in Q2 2003. There were a similar number of small (less than $1.0 million) installation projects completed in Q2 2004 aggregating $16.5 million, as compared to $16.4 million of small projects completed in Q2 2003.

Service. The increase in service revenue of $4.5 million in Q2 2004 from Q2 2003 was primarily due to a higher volume of contract maintenance revenue totaling $3.3 million and non-contract MAC revenue totaling $1.2 million in Q2 2004. The increase in contract maintenance revenue in Q2 2004 was primarily due to the expiration of warranties for installation contracts. The increase in non-contract MAC revenue was primarily due to increased requests for trading floor re-configurations globally.

I.T.S.

Product Sales and Installations. Product sales and installation revenue in Q2 2004 remained relatively consistent compared to Q2 2003. There were three large and medium projects completed totaling $7.3 million and small projects totaling $1.5 million in Q2 2004 compared to one large project totaling $6.5 million and small projects totaling $2.4 million completed in Q2 2003.

Service. The decrease in service revenue of $1.8 million in Q2 2004 from Q2 2003 was primarily due to the loss of a large service customer in Q1 2004, resulting in a $1.8 million decrease in revenue when compared to Q2 2003.

Network Services

Service. Service revenue for our Network Services division was $11.9 million in Q2 2004. We generated no revenue from our Network Services division in Q2 2003 as it was created following the acquisition of the Gains US and UK entities in April 2003 and expanded by the acquisition of Gains Asia in January 2004.

Comparison of YTD 2004 to YTD 2003

Consolidated

Product Sales and Installations. The increase in product sales and installation revenue of $12.5 million in YTD 2004 from YTD 2003 was primarily due to six large installation projects totaling $24.1 million and medium and small projects totaling $45.0 million completed in YTD 2004 compared to four large installation projects totaling $15.7 million and medium and small projects totaling $40.9 million completed in YTD 2003.

Service. The increase in service revenue of $22.0 million in YTD 2004 from YTD 2003 was primarily due to $19.2 million generated by the addition of our Network Services division, which was created following the acquisition of the Gains US and UK entities in April 2003 and expanded by the acquisition of Gains Asia in January 2004. We generated no revenue from our Network Services division in YTD 2003. In addition, there was a higher volume of contract maintenance revenue totaling $5.4 million and non-contract MAC revenue totaling $1.5 million in our Trading systems division, partially offset by the loss of a large service customer in Q1 2004, resulting in a decrease of $3.8 million of revenue in our I.T.S. division.

Trading Systems

Product Sales and Installations. The increase in product sales and installation revenue of $8.8 million in YTD 2004 from YTD 2003 was primarily due to four large installation projects totaling $18.1 million completed in YTD 2004 compared to three large installation projects totaling $9.1 million completed in YTD 2003. There were a similar number of medium and small installation projects completed totaling $35.6 million in YTD 2004, as compared to $35.8 million of medium and small projects completed in YTD 2003.

Service. The increase in service revenue of $7.0 million in YTD 2004 from YTD 2003 was primarily due to a higher volume of contract maintenance revenue totaling $5.4 million and non-contract MAC revenue totaling $1.5 million in YTD 2004 when compared to YTD 2003. The increase in contract maintenance revenue in YTD 2004 was primarily due to the expiration of warranties for installation contracts. The increase in non-contract MAC revenue was primarily due to increased requests for trading floor re-configurations globally.

I.T.S.

Product Sales and Installations. The increase in product sales and installation revenue of $3.7 million in YTD 2004 from YTD 2003 was primarily due to a greater amount of medium and small projects completed in YTD 2004 when compared to YTD 2003. There were two large installation projects totaling $6.1 million and medium and small projects totaling $9.4 million in YTD 2004 compared to one large installation project totaling $6.5 million and small installation projects totaling $5.2 million completed in YTD 2003.

Service. The decrease in service revenue of $4.1 million in YTD 2004 from YTD 2003 was primarily due to the loss of a large service customer in Q1 2004, resulting in a $3.8 million decrease in revenue when compared to Q2 2003, as well as a decrease in service revenue from our customer base.

Network Services

Service. Service revenue for our Network Services division was $19.2 million in YTD 2004. We generated no revenue from our Network Services division in YTD 2003 as it was created following the acquisition of the Gains US and UK entities in April 2003 and expanded by the acquisition of Gains Asia in January 2004.

Cost of Revenue

The following table sets forth our consolidated cost of revenue and our cost of revenue as reported for our three major operating divisions. Cost of revenue for our Trading Systems and I.T.S. divisions includes the costs of equipment sold, the costs of parts used for service of the equipment, labor to install the equipment sold, labor to provide service, warehouse and project management costs and the depreciation of the equipment in our manufacturing and assembly facility. Cost of revenue for our Network Services division includes the costs to lease local and long distance circuits, the cost of our network provisioning and operations organizations and depreciation of equipment.


	Consolidated
	Q2		% of			Q2		% of			%			YTD		% of			YTD		% of			%
(dollars in thousands)	2004		Rev.			2003		Rev.			Change			2004		Rev.			2003		Rev.			Change
Product sales and installations	$	22,196		54	%	$	19,680		60	%		(6	%)	$	39,463		57	%	$	31,934		56	%		1	%
Service		19,059		50	%		11,894		51	%		(1	%)		35,785		51	%		24,929		52	%		(1	%)
Depreciation and amortization		968		1	%		299		1	%		0	%		1,710		1	%		596		1	%		0	%

Total	$	42,223		53	%	$	31,873		57	%		(4	%)	$	76,958		55	%	$	57,459		55	%		0	%


	Trading Systems
	Q2		% of			Q2		% of			%			YTD		% of			YTD		% of			%
(dollars in thousands)	2004		Rev.			2003		Rev.			Change			2004		Rev.			2003		Rev.			Change
Product sales and installations	$	14,034		44	%	$	11,135		47	%		(3	%)	$	25,172		47	%	$	20,814		46	%		1	%
Service		11,367		44	%		9,418		44	%		0	%		22,219		45	%		19,483		46	%		(1	%)
Depreciation and amortization		287		1	%		299		1	%		0	%		572		1	%		596		1	%		0	%

Total	$	25,688		44	%	$	20,852		46	%		(2	%)	$	47,963		46	%	$	40,893		47	%		(1	%)


	I.T.S.
	Q2		% of			Q2		% of			%			YTD		% of			YTD		% of			%
(dollars in thousands)	2004		Rev.			2003		Rev.			Change			2004		Rev.			2003		Rev.			Change
Product sales and installations	$	8,162		93	%	$	8,545		96	%		(3	%)	$	14,291		92	%	$	11,120		95	%		(3	%)
Service		619		136	%		2,476		108	%		28	%		1,804		141	%		5,446		101	%		40	%
Depreciation and amortization		—		0	%		—		0	%		0	%		—		0	%		—		0	%		0	%

Total	$	8,781		95	%	$	11,021		98	%		(3	%)	$	16,095		96	%	$	16,566		97	%		(1	%)


	Network Services
	Q2		% of			Q2		% of			%			YTD		% of			YTD		% of			%
(dollars in thousands)	2004		Rev.			2003		Rev.			Change			2004		Rev.			2003		Rev.			Change
Product sales and installations	$	—		—	%	$	—		—	%		—	%	$	—		—	%	$	—		—	%		—	%
Service		7,073		59	%		—		—	%		—	%		11,762		61	%		—		—	%		—	%
Depreciation and amortization		681		6	%		—		—	%		—	%		1,138		6	%		—		—	%		—	%

Total	$	7,754		65	%	$	—		—	%		—	%	$	12,900		67	%	$	—		—	%		—	%

Comparison of Q2 2004 to Q2 2003

Consolidated

We expect our fiscal year 2004 total consolidated cost of revenue to be approximately $167 million to $175 million, which has been revised since Q1 2004; however, pricing changes and more competitive bidding for our customers could cause the actual total consolidated cost of revenue to be higher.

Product Sales and Installations. The decrease in product sales and installations cost of revenue of 6% as a percentage of product sales and installation revenue in Q2 2004 from Q2 2003 was primarily due to higher percentage of Trading System installations sold compared to I.T.S. products sold in Q2 2004. Trading Systems products have a lower cost of revenue than I.T.S. products.

Service. The decrease in service cost of revenue of 1% as a percentage of service revenue in Q2 2004 from Q2 2003 was primarily due to a higher volume of Trading Systems services compared to I.T.S. services. Trading Systems services have a lower cost of revenue than I.T.S. services.

Trading Systems

Product Sales and Installations. The decrease in product sales and installations cost of revenue of 3% as a percentage of product sales and installation revenue in Q2 2004 from Q2 2003 was primarily due to a higher volume of Trading Systems manufactured products sold in Q2 2004 when compared to Q2 2003. Trading Systems manufactured products generally have a lower cost of revenue than products manufactured by third parties. In addition, we realized higher profit margins realized on small installation projects completed in Q2 2004 as compared to Q2 2003.

Service. Service cost of revenue as a percentage of service revenue remained flat in Q2 2004 compared to Q2 2003 primarily due to higher costs of revenue in non-contract MAC services which have greater labor service requirements as opposed to material requirements when re-configuring a trading floor. Labor has a higher cost of revenue than material. This was offset by lower costs of revenue for our contract maintenance services.

I.T.S.

Product Sales and Installations. The decrease in product sales and installations cost of revenue of 3% as a percentage of product sales and installation revenue in Q2 2004 from Q2 2003 was primarily due to a higher profit margin recognized for one large installation project as a result of changes from the original contract order.

Service. The increase in service cost of revenue of 28% as a percentage of service revenue in Q2 2004 from Q2 2003 was primarily due to the loss of a larger service customer in Q1 2004. In addition, competitive market conditions have increased the cost of revenues associated with this offering.

Network Services

Service. Service cost of revenue for our Network Services division as a percentage of service revenue was 59% in Q2 2004. We incurred no cost of revenue from our Network Services division in Q2 2003 as it was created following the acquisition of the Gains US and UK entities in April 2003 and expanded by the acquisition of Gains Asia in January 2004.

Comparison of YTD 2004 to YTD 2003

Consolidated

Product Sales and Installations. The increase in product sales and installations cost of revenue of 1% as a percentage of product sales and installation revenue in YTD 2004 from YTD 2003 was primarily due to a higher percentage of I.T.S. installations and third party products sold compared to Trading System products sold in YTD 2004. I.T.S. and third party products have a higher cost of revenue than Trading Systems products.

Service. The decrease in service cost of revenue of 1% as a percentage of service revenue in YTD 2004 from YTD 2003 was primarily due to increase in contract maintenance services in YTD 2004, which have a lower cost of revenue than non-contract MAC services and I.T.S. services.

Trading Systems

Product Sales and Installations. Product sales and installations cost of revenue as a percentage of product sales and installation revenue remained flat in YTD 2004 compared to YTD 2003 due to consistent costs of revenues for our manufactured products in both periods.

Service. The decrease in service cost of revenue of 1% as a percentage of service revenue in YTD 2004 from YTD 2003 was primarily due to an increase in contract maintenance services in YTD 2004, which have a lower cost of revenue than non-contract MAC services.

I.T.S.

Product Sales and Installations. The decrease in product sales and installations cost of revenue of 3% as a percentage of product sales and installation revenue in YTD 2004 from YTD 2003 was primarily due to higher profit margin recognized for one large installation project as a result of changes from the original contract order.

Service. The increase in service cost of revenue of 40% as a percentage of service revenue in YTD 2004 from YTD 2003 was primarily due to the loss of a large service customer in YTD 2004. In addition, competitive market conditions have increased the cost of revenues associated with this offering.

Network Services

Service. Service cost of revenue for our Network Services division as a percentage of service revenue was 61% in YTD 2004. We incurred no cost of revenue from our Network Services division in YTD 2003 as it was created following the acquisition of the Gains US and UK entities in April 2003 and expanded by the acquisition of Gains Asia in January 2004.

Research and Development Expense


	Consolidated
	Q2		Q2		$		%			YTD		YTD		$		%
(dollars in thousands)	2004		2003		Change		Change			2004		2003		Change		Change
Research and development	$	3,599	$	2,928	$	671		23	%	$	7,008	$	5,663	$	1,345		24	%

Research and development efforts are principally focused on the next generation of the Trading Systems products, applications, and enhancements of our current product lines. We expect our research and development expenses in fiscal year 2004 to be approximately $14 million to $15 million, which has been revised since Q1 2004; however, the actual research and development expenses could be higher.

Comparison of Q2 2004 to Q2 2003 and YTD 2004 to YTD 2003

Research and development expenses increased by $0.7 million in Q2 2004 from Q2 2003 and increased by $1.3 million in YTD 2004 from YTD 2003, reflecting additional resources added to our product development group and development and integration of the Purple Voice product line.

Selling, General and Administrative Expense


	Consolidated
	Q2		Q2		$		%			YTD		YTD		$		%
(dollars in thousands)	2004		2003		Change		Change			2004		2003		Change		Change
Selling, general and administrative	$	15,138	$	10,742	$	4,396		41	%	$	28,426	$	19,472	$	8,954		46	%

We expect our selling, general and administrative expenses in fiscal year 2004 to be approximately $56 million to $58 million, which has been revised since Q1 2004; however the actual selling, general and administrative expenses could be higher. We believe the anticipated increase in

selling, general and administrative expenses for the 2004 fiscal year compared to the 2003 fiscal year will primarily result from the inclusion of our Network Services division for the full fiscal year.

Comparison of Q2 2004 to Q2 2003 and YTD 2004 to YTD 2003

Selling, general and administrative expenses increased by $4.4 million for Q2 2004 from Q2 2003 and increased by $9.0 million for YTD 2004 from YTD 2003, primarily due to increased professional fees, employee related costs (compensation, severance, bonuses and benefits) and for new foreign office locations totaling $1.4 million in Q2 2004 compared to Q2 2003 and $4.1 million in YTD 2004 compared to YTD 2003, as well as the inclusion of expenses for our Network Services division, which totaled $3.0 million in Q2 2004 and $4.9 million in YTD 2004.

Depreciation and Amortization


	Consolidated
	Q2		Q2		$		%			YTD		YTD		$		%
(dollars in thousands)	2004		2003		Change		Change			2004		2003		Change		Change
Depreciation and amortization	$	5,388	$	4,798	$	590		12	%	$	10,555	$	9,529	$	1,026		11	%

Comparison of Q2 2004 to Q2 2003 and YTD 2004 to YTD 2003

Depreciation and amortization expense increased by $0.6 million in Q2 2004 from Q2 2003 and increased by $1.0 million in YTD 2004 from YTD 2003, primarily due to increased capital expenditures in our Trading Systems division as well as the addition of depreciable fixed assets and amortizable assets from our Network Services division in Q2 2004 and YTD 2004.

Interest Expense, net


	Consolidated
	Q2		Q2		$			%			YTD		YTD		$			%
(dollars in thousands)	2004		2003		Change			Change			2004		2003		Change			Change
Interest expense, net	$	5,814	$	6,477	$	(663	)		(10	%)	$	11,336	$	12,682	$	(1,346	)		(11	%)

Comparison of Q1 2004 to Q1 2003 and YTD 2004 to YTD 2003

Interest expense, net decreased by $0.7 million in Q2 2004 from Q2 2003 and decreased by $1.3 million in YTD 2004 from YTD 2003, primarily due to the reduction of principal and a reduction of the interest rate on our outstanding senior secured credit facilities. A voluntary prepayment of $14.0 million was made in March 2003 on our senior secured credit facilities and the interest rate was reduced by approximately 2.4% (from 7.5% to 5.1%) when the senior secured credit facilities were amended and restated in September 2003.

Provision for Income Taxes

Our effective tax rates for YTD 2004 was 80.1% compared to 167.2% for YTD 2003. Our effective tax rates reflect our foreign, federal and state taxes, the non-deductibility of foreign losses for federal tax purposes, the non-deductibility of certain expenses and taxable income at several of our foreign subsidiaries, which, as compared to the absolute amount of pre-tax earnings (or loss), has a significant impact on our effective tax rates.

Net Income (Loss)


	Consolidated
	Q2		Q2			$		%			YTD		YTD			$		%
(dollars in thousands)	2004		2003			Change		Change			2004		2003			Change		Change
Net income (loss)	$	2,805	$	(611	)	$	3,416		559	%	$	1,041	$	(813	)	$	1,854		228	%

We expect to have net income for the entire 2004 fiscal year of approximately $2 million to $4 million, which has been revised since Q1 2004. However, the actual amount may be lower.

Comparison of Q2 2004 to Q2 2003

For Q2 2004, we had net income of $2.8 million compared to a net loss in Q2 2003 of $0.6 million. This was principally due to the increase in gross profit of $12.4 million offset by the increase in research and development expense of $0.7 million, the increase in selling, general and administrative expense of $4.4 million, the increase in depreciation and amortization of $0.6 million, and the increase in income taxes of $3.0 million. The increase in net income from our Trading Systems division of $2.5 million in Q2 2004 compared to Q2 2003 was the primary reason for the increase in consolidated net income.

Comparison of YTD 2004 to YTD 2003

For YTD 2004, we had net income of $1.0 million compared to a net loss in YTD 2003 of $0.8 million. This was due to the increase in gross profit of $15.0 million offset by the increase in research and development expense of $1.3 million, the increase in selling, general and administrative expense of $9.0 million, the increase in depreciation and amortization of $1.0 million, and

the increase in income taxes of $2.2 million.

Liquidity and Capital Resources

Historically, we have satisfied our operating cash requirements through cash provided by operations, capital loans, financing and bank lines of credit. Our principal uses of cash were to fund working capital requirements, operating losses, capital expenditures and repayment of borrowings.

During YTD 2004, we made three large non-recurring cash payments: (1) a settlement payment totaling $12.3 million in October 2003 which was comprised of the deferred purchase price and earn-out consideration totaling $6.8 million related to the April 2003 acquisition of Gains International (US) and Gains International (Europe) and a $5.5 million advance payment for the acquisition of Gains Asia; (2) a dividend payment of $1.22 per share, or approximately $18.0 million, of which $17.9 million was paid on December 31, 2003; and (3) a payment of $11.7 million for the acquisition of Gains Asia. The acquisition of Gains Asia was partially funded by a $7.0 million draw on our revolving credit facility, which was fully repaid in February 2004.

The YTD 2004 cash uses for the non-recurring Gains related payments and the payment of the special cash dividend, combined with our mandatory interest payment due under our senior subordinated notes of $8.6 million paid on December 15, 2003, which were partially funded by our cash provided by operating activities, reduced the amount of cash on our balance sheet from $25.8 million at September 30, 2003 to $10.9 million at March 31, 2004.

The Senior Secured Credit Facilities

On December 20, 2001, we entered into senior secured credit facilities comprised of a $105.0 million term loan and a $15.0 million revolving credit facility. On September 2, 2003, we amended and restated our senior secured credit facilities. The amended and restated senior secured credit facilities consist of a $25.0 million revolving credit facility and a $55.0 million term loan; provided, however, that we can increase the committed amount under these facilities by up to $25.0 million so long as one or more lenders agrees to provide this incremental commitment and other customary conditions are satisfied. The term loan was borrowed in full at closing. As of March 31, 2004, the amount available for borrowing under the revolving credit facility was $20.7 million, as availability of $25 million was reduced by outstanding letters of credit of $4.3 million. For the three months ended March 31, 2004, the weighted average interest rate for borrowings outstanding under the amended and restated senior secured credit facilities was 5.11%. On April 20, 2004, we completed an agreement to increase the availability under the revolving credit facility by $10.0 million under the increase provisions mentioned above. The total amount available for borrowing under the revolving credit facility after this increase is $30.7 million ($35.0 million reduced by outstanding letters of credit of $4.3 million).

Mandatory prepayments of the amended and restated senior secured credit facilities are required upon the occurrence of certain events, including certain asset sales, equity issuances and debt issuances, as well as 50% of excess cash flow in FY 2004 and thereafter. Excess cash flow is defined in our amended and restated credit agreement, as: (1) the sum of net income, interest expense, provisions for taxes, depreciation expense, amortization expense, other non-cash items affecting net income and to the extent included in calculating net income, expenses incurred by us in connection with an amendment of the then existing credit agreement, certain restructuring expenses and prepayment premiums in connection with prepayment of loans under the then existing credit agreement, plus (2) a working capital adjustment less (3) scheduled repayments of debt, capital expenditures, cash interest expense and provisions for taxes based on income.

As required under the terms of our senior secured credit facilities, we made mandatory excess cash flow repayments of $30.0 million and $0.8 million on September 30, 2002 and December 29, 2002, respectively, based upon 75% of our excess cash flow for the period ended September 30, 2002. On March 3, 2003, we also voluntarily prepaid $14.0 million in debt on our then existing senior secured credit facilities. For the year ended September 30, 2003, we were not required to make a mandatory excess cash flow repayment under the terms of the amended and restated senior secured credit facilities.

Obligations under the amended and restated senior secured credit facilities are secured by a first priority security interest in substantially all of our assets and the assets of our domestic subsidiaries and by a pledge of 100% of the shares of domestic subsidiaries and 65% of the shares of direct foreign subsidiaries. Our domestic subsidiaries have unconditionally guaranteed our obligations under the amended and restated senior secured credit facilities.

The amended and restated senior secured credit facilities contain customary affirmative covenants as well as negative covenants that, among other things, restrict our and our subsidiaries’ ability to: incur additional indebtedness (including guarantees of certain obligations); create liens; engage in mergers, consolidations, liquidations and dissolutions; sell assets; enter

into capital leases; pay dividends or make other payments in respect of capital stock; make acquisitions; make investments, loans and advances; enter into transactions with affiliates; make payments with respect to or modify subordinated debt instruments; enter into sale and leaseback transactions; change the fiscal year or lines of business; and enter into agreements with negative pledge clauses or clauses restricting subsidiary distributions.

The Senior Subordinated Notes

On December 20, 2001, we issued $150.0 million in aggregate principal amount of 11.50% senior subordinated notes to fund a portion of the consideration for the acquisition of IPC Information Systems. Under the terms of the indenture governing the notes, we may, subject to certain restrictions, issue additional notes up to a maximum aggregate principal amount of $250.0 million. The notes mature on December 15, 2009 and are callable, at our option, beginning in December 2005. The notes are general unsecured obligations, are subordinated in right of payment to all existing and future senior debt, including the amended and restated senior secured credit facilities, are pari passu in right of payment with any future senior subordinated indebtedness, and are unconditionally guaranteed by certain of our domestic restricted subsidiaries. Interest on the notes accrue at the rate of 11.50% per annum and is payable semi-annually in arrears on June 15 and December 15, the first of which occurred on June 15, 2002.

The indenture governing the notes contains covenants that impose significant restrictions on us. These restrictions include limitations on our ability to: incur indebtedness or issue preferred shares; pay dividends or make distributions in respect of capital stock or to make other restricted payments; create liens; agree to payment restrictions affecting restricted subsidiaries; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; enter into transactions with affiliates; and designate subsidiaries as unrestricted subsidiaries.

Settlement and Rejection Agreement

On March 13, 2003, we entered into a settlement and rejection agreement with Global Crossing. Pursuant to the settlement and rejection agreement, all of the remaining obligations under the purchase agreement relating to the acquisition of IPC Information Systems were terminated. In addition, we and Global Crossing mutually released each other for all prior claims.

The bankruptcy court entered an order on March 14, 2003 approving the settlement and rejection agreement. Under the terms of the settlement and rejection agreement, we have deposited $5.2 million in an escrow account. Global Crossing received $3.2 million from the escrow account upon the filing of certain tax returns for periods prior to and including the date of the acquisition of IPC Information Systems. Global Crossing will receive the remaining $2.0 million from the escrow account after a $2.0 million irrevocable letter of credit is issued on behalf of us. We will have the right to draw on that letter of credit in the event Global Crossing’s affiliate fails to make any payments due to us pursuant to a sublease for office space at 67-73 Worship Street in London, England.

We believe that all tax returns required to be filed in respect of IPC Information Systems, Inc. and its subsidiaries for periods prior to and including the date of the acquisition of IPC Information Systems have now been filed. These returns consist of consolidated tax returns with Global Crossing, and, where required by law, separate tax returns for IPC Information Systems, Inc. and/or its subsidiaries.

As a result of the termination of the purchase agreement, Global Crossing has been relieved of all of its obligations under the purchase agreement, including, among other things, indemnifying us for tax liabilities that may be imposed upon IPC Information Systems, Inc. and its subsidiaries for periods prior to and including the date of the acquisition of IPC Information Systems. Therefore, in the event that any tax liabilities are imposed, as a result of an audit or otherwise, on IPC Information Systems, Inc. and/or its subsidiaries for these periods prior to and including the date of the acquisition of IPC Information Systems, we may be required to pay those taxes and are no longer able to recover indemnification from Global Crossing. As of March 31, 2004, the aggregate amount of taxes for which we have received notices of taxes due from various jurisdictions and recognized as tax liabilities under purchase accounting is approximately $6.5 million and, as of March 31, 2004, we have made settlement payments in the aggregate of $0.8 million. We estimate that the range of our exposure for additional tax liabilities is from $0.0 to $36.0 million. In computing the estimated range of potential tax liabilities, we took into account tax returns in certain jurisdictions where the statutes of limitations have not yet expired. Under those tax returns as filed, the remaining liability is zero. Although we believe that all those tax returns have been filed correctly, such returns may be audited and additional taxes may be assessed (or refunds may be granted). Payment by us of a significant amount of these potential tax liabilities could have a material adverse

effect on our financial condition and results of operations, requiring us to seek additional financing. In that event, we cannot assure you we will be able to obtain additional financing on commercially reasonable terms, or at all.

Pursuant to the settlement and rejection agreement, Global Crossing has also paid to us approximately $2.2 million for payroll and federal tax refunds received by it for periods prior to and including the date of the acquisition of IPC Information Systems. Global Crossing is also required to pay us any future tax refunds or credits it receives applicable to IPC Information Systems, Inc. and its subsidiaries for these periods.

Comparison of YTD 2004 to YTD 2003

Cash provided by operating activities was $29.3 million for YTD 2004 compared to $13.3 million for YTD 2003. This increase of $16.0 million is primarily comprised of net income of $1.0 million in YTD 2004 compared to a net loss of $0.8 million in YTD 2003, combined with a decrease in accounts receivable of $4.3 million for YTD 2004 compared to YTD 2003 and an increase of accounts payable and accrued expenses of $5.9 million for YTD 2004 compared to YTD 2003. The decrease in accounts receivable during YTD 2004 was attributable to the collection of amounts due from large jobs completed during our fourth quarter of the 2003 fiscal year. The impact on cash related to changes in inventory, customer advances and deferred revenue essentially offset each other.

Cash used in investing activities was $26.2 million for YTD 2004 compared to cash provided by investing activities of $1.9 million for YTD 2003. YTD 2004 cash used for investing consisted of $4.2 million of capital expenditures and payments of $21.9 million relating to the deferred purchase price and earn-out consideration for Gains US and UK and the cash purchase price of Gains Asia net of cash received. Cash provided by investing activities for YTD 2003 consisted of net proceeds from the Global Crossing settlement of $4.2 million partially offset by capital expenditures of $2.3 million.

Cash used in financing activities was $18.3 million for YTD 2004 compared to $17.5 million for YTD 2003. Cash used in financing activities of $17.5 million for YTD 2003 was primarily for principal payments under our senior secured credit facilities including a voluntary prepayment of $14.0 million in Q2 2003. Principal payments under our credit agreement amounted to $0.3 million for YTD 2004. The remainder of cash used in financing activities for YTD 2004 of $18.0 million related to the special cash dividend of $1.22 per share declared and paid to holders of record on December 31, 2003.

The effect of exchange rate changes on cash represents increases and decreases in various currencies when translated into US dollars. As an international company, we are subjected to currency fluctuation risk, which resulted in an increase of $0.3 million in YTD 2004 compared to a decrease of $0.7 million in YTD 2003. Currently our largest currency exposures are to the British Pound and the Canadian Dollar, although we have additional exposures, to a lesser extent, to the Euro, Australian Dollar, Japanese Yen, Hong Kong Dollar and Singapore Dollar.

Capital Resources and Expenditures

We expect that our capital expenditures for fiscal year 2004 will be approximately $10.0 million; however, actual capital expenditures for the 2004 fiscal year may be greater. We are limited in our capital expenditures in any fiscal year by the capital expenditure covenant in our amended and restated credit agreement. This limits us to capital expenditures in any fiscal year to $12.0 million plus 50% of the unused amount from the immediately preceding fiscal year. For fiscal year 2004, the amount of capital expenditures permitted by this covenant is approximately $12.2 million. We have no off-balance sheet financing arrangements or other relationships with unconsolidated affiliates.

Our primary future uses of cash will be to fund interest expense and principal repayments on our debt, capital expenditures, research and development efforts, working capital and as needed for potential strategic acquisitions and/or alliances. Our primary future sources of cash will be cash flows from operations, primarily the design, manufacture, installation and service of turret systems for the trading operations of investment and commercial banks, foreign exchange and commodity brokers and dealers, market exchanges, mutual and hedge fund companies, asset managers and insurance companies, as well as and voice and data services to the financial community and, if necessary, borrowings under the revolving credit facility.

During the course of the year, our short-term liquidity is impacted by our mandatory payment obligations of principal and interest under both our amended and restated senior secured credit facilities and our senior subordinated notes. The mandatory interest and principal payments under the amended and restated senior secured credit facilities are due at the end of each quarter. The interest payments required by the senior subordinated notes of $8.6 million due in June and December of each year negatively impact our liquidity during those particular months. Additionally, in any such year that we generate excess cash flow, the mandatory prepayment required under our amended and restated senior secured credit facilities must be made within 90 days of our fiscal year end. For the year ended September 30, 2003, we were not required to make a mandatory excess cash flow repayment under the terms of the amended and restated senior secured credit facilities.

As of March 31, 2004, the amount available for borrowing under the revolving credit facility was $20.7 million as availability of $25.0 million was reduced by outstanding letters of credit of $4.3 million. On April 20, 2004, we completed an agreement to increase our availability under the revolving credit facility by $10.0 million under the increase provisions mentioned in Note 6. The total amount available for borrowing under the revolving credit facility after this increase is $30.7 million ($35.0 million reduced by outstanding letters of credit of $4.3 million).

Our ability to make payments on our indebtedness, including the senior subordinated notes, and to fund planned capital expenditures, research and development efforts and payment of dividends to our shareholders will depend on our ability to generate cash in the future, which is subject, in part, to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

Since the acquisition of IPC Information Systems, our cash generated from the operations of the business and borrowings under our revolving credit facility have been sufficient to meet substantially all of our cash needs. Based on our forecasts, we believe that this trend will continue and our cash flow from operations, available cash and available borrowings under our revolving credit facility will be adequate to meet our current and long-term liquidity needs for at least the next few years. We cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under the revolving credit facility in an amount sufficient to enable us to pay our indebtedness, including the notes, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness, including the notes, on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness, including the notes, on commercially reasonable terms, or at all.

Contractual Obligations and Other Commercial Commitments

The following summarizes our contractual obligations at March 31, 2004, and the effect such obligations are expected to have on our liquidity and cash flow in future periods.


	Payments Due by Period
			Less than		1-3		4-5		After 5
(dollars in thousands)	Total		1 year		years		years		years
Contractual Obligations:
Deferred Compensation Agreements	$	5,044	$	746	$	1,024	$	918	$	2,356
Network Carrier Commitments		9,333		6,633		2,700		—		—
Long-Term Debt		204,725		550		1,100		53,075		150,000
Operating Leases		35,740		6,596		11,627		9,310		8,207

Total Contractual Cash Obligations	$	254,842	$	14,525	$	16,451	$	63,303	$	160,563


	Amount of Commitment Expiration Per Period
	Total Amounts Committed		Less than 1 year		1-3 years		4-5 years		After 5 years
Other Commercial Commitments:
Line of Credit	$	—	$	—	$	—	$	—	$	—
Standby Letters of Credit		4,250		4,250		—		—		—
Guaranties for Global Crossing Affiliates		3,537		1,930		1,607		—		—

Total Commercial Commitments	$	7,787	$	6,180	$	1,607	$	—	$	—

Recent Accounting Pronouncements

In December 2003, the FASB issued FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities an Interpretation of ARB No. 51” (“FIN 46R”). This Interpretation, which replaces FASB Interpretation No. 46 “Consolidation of Variable Interest Entities”, clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements” (“ARB 51”), to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. Application of FIN 46R was required for us for the second quarter of our 2004 fiscal year. We have determined that our investment in Purple Voice meets the criteria of a variable interest entity requiring consolidation under FIN 46R. However, because we have voting control over Purple Voice, we have been consolidating Purple Voice in accordance with the requirements of ARB 51. Accordingly, there was no further impact upon the consolidated financial statements resulting from the adoption of FIN 46R.

Summary of Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we continually evaluate our estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements.

Revenue Recognition

Allowance for Doubtful Accounts

We evaluate the collectibility of our accounts receivable based on a combination of factors. Where we are aware of circumstances that may impair a specific customer’s ability to meet its financial obligations to us, we record a specific allowance against amounts due to us and thereby reduce the net receivable to the amount we reasonably believe is likely to be collected. For all other customers, we recognize allowances for doubtful accounts based on the length of time the receivables are outstanding, industry and geographic concentrations, the current business environment and our historical experience. If the financial condition of our customers deteriorates or if economic conditions worsen, additional allowances may be required.

Inventories

Inventories are stated at the lower of FIFO (first in, first out) cost or market but not in excess of net realizable value. Inventory costs include all direct manufacturing costs and applied overhead. Allowances are established based on management’s estimate of inventory on hand that is potentially obsolete or for which its market value is below cost.

Impairment of Long-Lived Assets

We review long-lived assets, including property, plant and equipment and definite lived intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the assets and its eventual disposition is less than its carrying amount. Impairment, if any, is assessed using discounted cash flows. No impairments have occurred to date.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the cost over the net of the fair value of the identifiable tangible and intangible assets acquired and the fair value of liabilities assumed in acquisitions.

We adopted SFAS 142 effective upon the acquisition of IPC Information Systems and, in accordance with SFAS 142, there is no amortization of goodwill and intangible assets that have indefinite useful lives. However, goodwill is tested for impairment annually using the two-step process specifically provided in SFAS 142. Other intangible assets are carried at cost. Technology is amortized over its estimated useful life of between 3 to 7 years, customer relationships are amortized over their estimated useful lives of 8 to 20 years, and proprietary software is amortized over its estimated useful life of 7 years. Trade name has been deemed to have an indefinite life and is not subject to amortization expense, but instead will be subject to annual impairment tests in accordance with the provisions of SFAS 142. In determining that the trade name has an indefinite life, we considered the following factors: the ongoing active use of our trade name, which is directly associated with our leading position in turret solutions, the lack of any legal, regulatory or contractual provisions that may limit the useful life of the trade name, the lack of any substantial costs to maintain the asset, the positive impact on our trade name generated by our other ongoing business activities (including marketing and development of new technology and new products) and our commitment to products branded with our trade name over our 30 year history.

We completed the required annual impairment test as of July 1, 2003 (the first day of the fourth quarter of the 2003 fiscal year), and concluded that there was no impairment to our recorded goodwill or trade name. There have been no indicators of impairment during the six months ended March 31, 2004 that would require us to perform an impairment test for this period. We believe the recorded values of goodwill and trade name in the amounts of $95.3 million and $18.0 million, respectively, at March 31, 2004 are fully recoverable.

Stock–Based Compensation

As permitted by SFAS 123, we have elected to follow APB Opinion 25 and related interpretations in accounting for our employee option plans. Under APB 25, no compensation expense is recognized at the time of an option grant if the exercise price of the employee stock option is fixed and equals or exceeds the fair market value of the underlying common stock on the date of the grant and the number of shares to be issued pursuant to the exercise of such options are fixed on the date of the grant.

Income Taxes

In accordance with SFAS No. 109, “Accounting for Income Taxes”, or SFAS 109, we recognize deferred income taxes for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount that is “more likely than not” to be realized. The provision for income taxes is the tax payable for the period and the change during the period in deferred tax assets and liabilities. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets will be realized. Additionally, deferred tax liabilities are regularly reviewed to confirm that the amounts recorded are appropriately stated. All such evaluations require significant management judgments.

Business Combinations

During the 2004 and 2003 fiscal years, the acquisition of Gains Asia, Gains US and UK and our investment in Purple Voice required certain estimates and judgments related to the fair value of assets acquired and liabilities assumed. Certain of the liabilities are subjective in nature. These liabilities have been reflected in the purchase accounting based upon the most recent information available, and principally include Federal and state payroll taxes, state sales taxes, state income taxes, value added tax, or VAT, and income taxes in several foreign countries. The ultimate settlement of such liabilities may be for amounts which are different from the amounts presently recorded.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

We do not have any off balance sheet financial arrangements.

Market risks relating to our operations result primarily from changes in interest rates and changes in foreign exchange rates. We monitor our interest rate and foreign exchange rate exposures on an ongoing basis. We have not entered into any interest rate or foreign currency hedging contracts.

The following table provides information about our financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates.


			Future Principal Payments
	Fair Value on
(Dollars in millions)	March 31, 2004		2004		2005		2006		2007		2008		Thereafter		Total
Long-Term Debt:
Fixed Rate
Senior Subordinated Notes, interest payable at 11.5%, maturing 2009	$	159.0	$	—	$	—	$	—	$	—	$	—	$	150.0	$	150.0

Variable Rate
Senior Secured Credit Facilities – Term Loan (interest payable at 5.1% at March 31, 2004)	$	55.3	$	0.3	$	0.5	$	0.5	$	0.6	$	52.8	$	—	$	54.7

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the SEC and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

As of the end of the period covered by this report, the Company performed an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and 15d-15(e). The evaluation was performed under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer. Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective in ensuring that material information relating to the Company (including its consolidated subsidiaries) was made known to them by others within the Company’s consolidated group during the period in which this report was being prepared and that the information required to be included in the report has been recorded, processed, summarized and reported on a timely basis.

During the Company’s most recent fiscal quarter, there have been no significant changes in the Company’s internal controls that have materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

Part II – Other Information:

Item 1. Legal Proceedings

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K

(A) EXHIBITS

31.1 Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(B) REPORTS ON FORM 8-K

The Company filed a report on Form 8-K on January 7, 2004. The Form 8-K was for the purpose of announcing that on January 6, 2004, IPC Acquisition Corp., through its subsidiary IPC Information Systems, LLC, announced it acquired Gains International Asia Holdings Limited from GS Capital Partners 2000, L.P. and other private equity funds affiliated with Goldman, Sachs & Co. for a total purchase price of $15.5 million in cash and debt assumption.

The Company filed a report on Form 8-K on January 5, 2004. The Form 8-K was for the purpose of announcing that on December 31, 2003, IPC Acquisition Corp. announced that its Board of Directors declared a special cash dividend totaling approximately $18 million, or $1.22 per share.


	IPC Acquisition Corp.

Dated: May 12, 2004	By:	/s/ TIMOTHY WHELAN

		Timothy Whelan
		Chief Financial Officer
		(Principal Financial and Accounting
		Officer and Duly Authorized Officer)

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	Page
*Part I. Financial Information:*
Item 1. Financial Statements
A) Condensed Consolidated Balance Sheets as of March 31, 2004 and September 30, 2003		1
B) Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2004 and 2003		2
C) Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2004 and 2003		3
D) Notes to Condensed Consolidated Financial Statements		4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3. Quantitative and Qualitative Disclosure About Market Risk		34
Item 4. Controls and Procedures		35
*Part II. Other Information:*
Item 1. Legal Proceedings		36
Item 2. Changes in Securities and Use of Proceeds		36
Item 3. Defaults Upon Senior Securities		36
Item 4. Submission of Matters to a Vote of Security Holders		36
Item 5. Other Information		36
Item 6. Exhibits and Reports on Form 8-K		36
Signature		37
Exhibit 31.1-CEO CERTIFICATION
Exhibit 31.2-CFO CERTIFICATION
Exhibit 32.1-CEO CERTIFICATION
Exhibit 32.2-CFO CERTIFICATION

	•		IPC UK acquired approximately 40% of the currently outstanding common shares (calculated on a non-diluted basis) of Purple Voice together with a warrant for additional shares from certain minority shareholders of Purple Voice for approximately $120,000;

	•		IPC UK invested $1.0 million in a 7% secured convertible note, due September 2007, issued by Purple Voice, which is convertible into 49% of Purple Voice’s share capital on a fully diluted basis;

	•		The remaining shareholders of Purple Voice granted a call option to IPC UK, which permits IPC UK to acquire the remaining issued share capital of Purple Voice for an aggregate amount of $0.8 million, plus an earn-out of up to $9.0 million, dependent on certain revenue targets being met; and

	•		IPC Information Systems, Inc. and Purple Voice entered into an agreement under which IPC Information Systems, Inc. has been appointed Purple Voice’s exclusive reseller worldwide.

	•		*Providing voice, data and video communications.* The introduction of our IQMX product with expansion modules provides the ability to communicate by exchanging text (such as Chat and Instant Messaging programs) and video (such as popular desktop video conferencing systems) as quickly and easily as the communications systems currently allow traders to do so with voice. By creating a communications system that utilizes IP to deliver communications, and by combining this delivery methodology with the expansion modules that support exchanging text and video in addition to voice, we eliminate the need for our customers to purchase stand-alone equipment to deliver these solutions and leverage opportunities to sell additional solutions to our established customers.

	•		*Developing applications.* Application integration and development is driven by the need to create a seamless and efficient work environment in much the same way that increasingly sophisticated call centers were developed in the mid-1990s. We have demonstrated our capability in this market through sales of our Computer Telephony Integration, or CTI, products which allow telephony devices to communicate with computers.

	•		*Increasing our penetration of disaster recovery and contingency planning sales.* We intend to further penetrate the growing demand for disaster recovery and business continuity solutions. We believe we can effectively capitalize on our strong track record and customer relationships to drive future business in this area from both existing customers and emerging third-party providers.

	•		*Penetrating middle office support positions.* In June 2002, we released the ICMX, a VoIP intercom module, and a member of our IQMX family of turret products. The ICMX extends intercom functionality by providing hands-free communication between sites, a unified numbering plan, group calls and all calls and support for hoot and holler applications, an open broadcast system that allows a trader to communicate with a large group of traders located around the world. Compact in size and with features designed specifically for support functions of a trading floor, we believe the ICMX positions us to penetrate a large number of trading support positions.

	•		*Increase our product offerings.* With the acquisition of Gains US and UK, and Gains Asia, we created a new business division called Network Services. Our Network Services division provides network voice and data services that connect traders across six continents. In addition, in June 2003, we launched a suite of services under the name Managed Services. Managed Services are a set of premium, specialized services that deliver fully managed connectivity to trading floors worldwide. We believe we can provide these services to customers in combination with sales of our turrets. In February 2004, we launched Advanced Fault Management, or AFM, which is a proactive, real-time monitoring service designed to optimize trader voice system availability from the trading desk to the carrier network and Total Circuit Management, or TCM, which is for customers that seek a partner to manage their entire circuit provisioning and maintenance process. With several different service products being offered, we

	31.1		Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2		Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.1		Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	32.2		Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	(B)		REPORTS ON FORM 8-K

			The Company filed a report on Form 8-K on January 7, 2004. The Form 8-K was for the purpose of announcing that on January 6, 2004, IPC Acquisition Corp., through its subsidiary IPC Information Systems, LLC, announced it acquired Gains International Asia Holdings Limited from GS Capital Partners 2000, L.P. and other private equity funds affiliated with Goldman, Sachs & Co. for a total purchase price of $15.5 million in cash and debt assumption.

			The Company filed a report on Form 8-K on January 5, 2004. The Form 8-K was for the purpose of announcing that on December 31, 2003, IPC Acquisition Corp. announced that its Board of Directors declared a special cash dividend totaling approximately $18 million, or $1.22 per share.