UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

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

For the Quarterly Period Ended December 31, 2004

or

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.

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 þ     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 þ

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

IPC ACQUISITION CORP.

INDEX

1

Part I – Financial Information:

Item 1. Financial Statements

IPC ACQUISITION CORP.

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

2

IPC ACQUISITION CORP.

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

3

IPC ACQUISITION CORP.

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

4

IPC ACQUISITION CORP.

1. Basis of Presentation

     The accompanying unaudited consolidated financial statements include the accounts of IPC Acquisition Corp. (the “Company”) and its wholly and partially owned subsidiaries. The unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles 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 U.S. generally accepted accounting principles 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, 2004, as filed with the Securities and Exchange Commission.

     These unaudited 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 consolidated financial statements for the three months ended December 31, 2004 and 2003 include the accounts of the Company and its wholly and partially owned subsidiaries. The results of operations of any acquired businesses have been included in the Company’s financial statements from their respective acquisition dates through December 31, 2004. Intercompany balances and transactions have been eliminated.

Summary of Significant Accounting Policies

     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. The cost of providing a warranty on the Company’s equipment is estimated and accrued at the time the equipment is sold. In addition, contracts for annual recurring services are generally billed in advance, and are recorded as revenue ratably (on a monthly basis) over the contractual periods. Revenue from moves, adds 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 network services is generally billed at the beginning of the month and recognized in the same month.

     Revenue from software licenses is recognized in accordance with SOP No. 97-2, “Software Revenue Recognition,” as amended by SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions.” Software revenue is recognized when a customer enters into a non-cancelable contract or license agreement, the software product has been delivered, there are no uncertainties surrounding product acceptance, there are no significant future performance obligations, the contract or license fees are fixed or determinable and collection is considered probable. Amounts received in advance of meeting these criteria are deferred. Revenue from support and maintenance contracts is recognized ratably over the contract period.

     For certain installation contracts, revenue from product installation sales is recognized in accordance with EITF 00-21, “Revenue Arrangements with Multiple Deliverables,” which was adopted in the 2003 fiscal year. Under this pronouncement, products or services sold to the same entity that are entered into at or near the same time are presumed to have been negotiated as a package and are evaluated as a single arrangement when considering whether there are one or more units of accounting. In arrangements when multiple products or services are sold, the delivered items are considered separate units of accounting if the delivered item has value to the customer on a standalone basis and there is objective and reliable evidence of fair value of the undelivered items. Undelivered item revenues are included in the liability section as deferred revenue on the balance sheet at their fair value with the corresponding costs held as an asset in inventory until delivery has occurred and revenue is earned.

     Cash and Cash Equivalents

     The Company maintains cash with several high credit quality financial institutions. Temporary cash investments with original maturities of three months or less are considered cash equivalents. Temporary cash investments are stated at cost, which approximates fair value. These investments are not subject to significant market risk.

5

IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
December 31, 2004 (Unaudited)

     Trade Receivables

     Trade accounts receivable potentially expose the Company to concentrations of credit risk, as a large volume of business is conducted with several major financial institutions, primarily companies in the brokerage, banking and financial services industries. To help reduce this risk, customers are progress-billed prior to the completion of the contract. Uncollected accounts receivable recorded in customer advances amounted to $11.4 million at December 31, 2004 and $12.4 million at September 30, 2004.

     The Company performs periodic credit evaluations of its customers’ financial condition and although the Company does not generally require collateral, it does require cash payments in advance when the assessment of credit risk associated with a customer is substantially higher than normal. Credit losses have consistently been within management’s expectations and are provided for in the consolidated financial statements.

     Allowance for Doubtful Accounts

     The Company evaluates the collectibility of its accounts receivable based on a combination of factors. Where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial obligations to the Company, the Company records a specific allowance against amounts due to it and thereby reduces the net receivable to the amount the Company reasonably believes is likely to be collected. For all other customers, the Company recognizes allowances for doubtful accounts based on the length of time the receivables are outstanding, industry and geographic concentrations, the current business environment and its historical experience. If the financial condition of the Company’s 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.

     Property, Plant and Equipment

     Property, plant and equipment are stated at cost and depreciated on a straight-line basis over the shorter of their estimated useful lives or related contract terms beginning in the year the asset was placed into service. Normal repair and maintenance costs are expensed as incurred. The useful lives by asset category are as follows:

     Leasehold improvements are amortized over the lesser of the lease term or the estimated useful life of the improvements.

     Impairment of Long-Lived Assets

     The Company reviews 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 the aggregate of estimated undiscounted future cash flows expected to result from the use of the assets and the 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. The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets” (“SFAS No. 142”), effective upon the acquisition of IPC Information Systems and, in accordance with SFAS No. 142, there is no amortization of goodwill and intangible assets that have

6

IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
December 31, 2004 (Unaudited)

indefinite useful lives. However, such assets are tested for impairment annually using the two-step process specifically provided in SFAS No. 142. Other intangible assets are carried at cost. Technology is amortized over estimated useful lives of between 3 to 7 years, customer relationships are amortized over 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 will not be subject to amortization, but instead will be subject to annual impairment tests in accordance with the provisions of SFAS No. 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 its market leading position in the mission-critical voice communications business, 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 assets beyond the foreseeable future.

     The Company completed the required annual fair value test as of July 1, 2004 (the first day of the fourth quarter of 2004), and concluded that there was no impairment to its recorded goodwill or trade name. There have been no indicators of impairment during the first quarter of the 2005 fiscal year. The Company believes the recorded values of goodwill of $92.3 million and trade name of $16.3 million at December 31, 2004 are fully recoverable.

     Deferred Financing Costs

     As part of the acquisition of IPC Information Systems in December 2001, the Company capitalized certain debt issuance costs in the amount of $17.4 million relating to the establishment of the senior secured credit facilities and the issuance of the senior subordinated notes. These costs are being amortized over the respective lives of the debt using the effective interest method. In September 2003 and December 2004, the Company amended and restated its senior secured credit facilities to more favorable terms. Additional debt issuance costs of $1.6 million in September 2003 and $0.1 million in December 2004 were incurred and are also being amortized using the effective interest method according to EITF Issue No. 96-19 “Debtors Accounting for a Modification or Exchange of Debt Instruments”. Amortization expense related to deferred financing costs is included in interest expense in the accompanying consolidated statements of operations and aggregated approximately $0.5 million for each of the three months ended December 31, 2004 and 2003.

     Research and Development

     Research and development expenditures are charged to expense as incurred.

     Income Taxes

     In accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS No. 109”), the Company recognizes 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.

     Use of Estimates

     The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

7

IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
December 31, 2004 (Unaudited)

     Foreign Currency Translation Adjustment

     The balance sheets and statements of operations of the Company’s foreign operations are measured using the local currency as the functional currency except for its subsidiaries in Hong Kong and Singapore, whose functional currency is the U.S. dollar. 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. Gains and losses resulting from foreign currency transactions are recognized in other income (expense), including net gains of approximately $1.2 million for the three months ended December 31, 2004 and $0.1 million for the three months ended December 31, 2003.

     Fair Value of Financial Instruments

     The Company’s financial instruments at December 31, 2004 consist of accounts receivable, accounts payable and debt. As of December 31, 2004, the Company did not have any derivative financial instruments. The Company believes the reported carrying amounts of its accounts receivable and accounts payable approximates fair value, based upon the short term nature of these accounts. The fair value of borrowings under the senior secured credit facilities was $48.1 million at December 31, 2004 as it bears interest at a floating rate. The fair value of the senior subordinated notes was $166.5 million at December 31, 2004, based upon quoted trading prices at such date.

     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) and earnings (loss) per share 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 each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in the following periods:

     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 was $14.49 for the three months ended December 31, 2004 and $4.24 for the three months ended December 31, 2003. The Company’s pro forma net income (loss) for all periods presented is shown below. These amounts may not necessarily be indicative of the pro forma effect of SFAS 123 for future periods in which options may be granted.

     As a result of the dividend paid in December 2003, the fair value of the Company’s common stock was reduced by the amount of the dividend, or $1.22 per share. The exercise price of certain stock option grants was modified to reflect the revised fair value and additional compensation expense has been included in the pro forma disclosure to account for the incremental fair

8

IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
December 31, 2004 (Unaudited)

value of the modified options that have vested. The effect of the modification relating to unvested options will be recognized over the vesting period.

     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 (in thousands):

     Reclassifications

     Certain items in the December 31, 2003 consolidated financial statements have been reclassified from amounts previously reported to conform to the presentation of the December 31, 2004 consolidated financial statements.

     Guarantees

     FASB Interpretation No. 45 (“FIN 45”) requires that upon issuance of a guarantee, the guarantor must disclose and recognize a liability for the fair value of the obligation it assumes under that guarantee. The requirements of FIN 45 are applicable to the Company’s guarantee of a real estate lease for a former affiliate. The Company’s guarantees subject to the recognition and disclosure requirements of FIN 45 were not material as of December 31, 2004 and September 30, 2004.

     The Company provides certain indemnification provisions within its product sales agreements, to protect its customers from any liabilities or damages resulting from a claim of misappropriation or infringement by third parties relating to its software. The Company has never incurred a liability relating to one of these indemnification provisions in the past and management believes that the likelihood of any future payout relating to these provisions is unlikely. Therefore, the Company has not recorded a liability during any period for these indemnification provisions.

     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 except for its subsidiaries in Hong Kong and Singapore, whose functional currency is the U.S. dollar. 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).

     Recent Accounting Pronouncements

     On December 16, 2004, the FASB issued Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The Company will adopt Statement 123(R) on July 1, 2005. Statement 123(R) permits public companies to adopt its requirements using one of two methods:

9

IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
December 31, 2004 (Unaudited)

1) A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of Statement 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of Statement 123 for all awards granted to employees prior to the effective date of Statement 123(R) that remain unvested on the effective date.

2) A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under Statement 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

     The Company will adopt Statement 123(R) on July 1, 2005, however, management is still evaluating which method to adopt.

     As permitted by Statement 123, the company currently accounts for share-based payments to employees using Opinion 25’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of Statement 123(R)’s fair value method will have a significant impact on our result of operations, although it will have no impact on our overall financial position. The impact of adoption of Statement 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net income and earnings per share in Note 1 to our consolidated financial statements. Statement 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. The Company cannot estimate what those amounts will be in the future because they depend on, among other things, when employees exercise stock options.

     In November 2004, the FASB issued FAS 151, “Inventory Costs — an amendment of ARB No. 43, Chapter 4” (“FAS 151”). FAS 151 amends the guidance in Accounting Research Bulletin (ARB) No. 43, Chapter 4, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). FAS 151 requires that these costs be recognized as current period charges regardless of whether they are abnormal. In addition, FAS 151 requires that allocation of fixed production overheads to the costs of manufacturing be based on the normal capacity of the production facilities. The provisions of FAS 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not expect this new standard to have a material effect on its consolidated financial position or results of operations.

2. Acquisitions

Orbacom Acquisition

     On November 30, 2004, IPC Information Systems Holdings, Inc, a subsidiary of the Company, acquired 100% of the common stock of Orbacom Systems, Inc. (“Orbacom”) for a maximum purchase price of $18 million in cash, including up to $7 million in contingent earnout commitments. Orbacom provides specialized radio consoles and computer aided dispatch software for use in command and control communications and serves the mission–critical communications needs of government agencies and corporations responsible for public safety dispatch, management of natural gas and energy infrastructures, air, freight and rail transportation, government command applications including homeland security, and critical industrial communications. The Company will report the operations of Orbacom in its Command and Control segment.

     The following table summarizes preliminary estimates, pending completion of a third-party valuation of acquired intangible assets, of 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 $7.8 million and was preliminarily 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 that this acquisition enables the Company to expand its range of products and services available to industries that address mission-critical command and control operations. The goodwill and intangible assets identified are not amortizable for income tax purposes.

10

IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
December 31, 2004 (Unaudited)

     The acquisition of Orbacom was accounted for using the purchase method of accounting in accordance with SFAS 141 and accordingly the purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their respective fair values. The Company’s consolidated results of operations for the three months ended December 31, 2004 include the operating results of Orbacom from November 30, 2004, the closing date of the acquisition, and is included in the Command and Control segment. The following table represents the preliminary allocation of the excess of the purchase price over the historical cost of the net tangible assets acquired (dollars in thousands):

     The Company is in the process of finalizing its plans for the integration of the Orbacom purchase into the rest of the business. There may be additional accruals for restructuring as the Company evaluates and integrates real estate and leases, personnel, product lines and selling and marketing strategies. Any such adjustments, if incurred, will be reflected in the final purchase price allocation.

     On a proforma basis, the Orbacom acquisition did not have a material impact on the Company’s consolidated results of operations for the three months ended December 31, 2004 and 2003.

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 advance payment of $5.5 million made in October 2003, an $11.7 million payment at closing, and a $0.2 million payment in April 2004. 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, the Company expanded its private global voice and data network into the Asia Pacific region.

     The following table summarizes the carryover basis of the assets acquired and the liabilities assumed at the date of the acquisition. The Company paid approximately $5.5 million in excess of the carryover basis of the net assets acquired to GSCP 2000 and other private equity funds affiliated with Goldman, Sachs & Co. This excess payment has been treated as a distribution and the assets and liabilities have been recorded at carryover basis based on the amount GSCP 2000 paid for them. The intangible assets are not amortizable for income tax purposes.

11

IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
December 31, 2004 (Unaudited)

     Set forth below is the unaudited pro forma consolidated results of operations of the Company for the three months ended December 31, 2003, assuming the acquisition of Gains Asia 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 consolidated results of operations of the Company for the period described above had the Gains Asia acquisition occurred as of the beginning of the period, or to project the results for any future period.

3. Discontinued Operations

     In May 2004, the Board of Directors of the Company approved a formal plan to sell certain assets related to its Information Transport Systems (“I.T.S.”) segment to a group of private investors. The I.T.S. segment was a low margin business that no longer fit into the Company’s long-term growth plans. The sale closed in July 2004.

     Under the terms of the sale agreement and the transition services agreement, the Company agreed to continue funding payroll and material procurement through October 31, 2004. Such amounts are due to the Company by the new company (“Newco”) and are secured by the billings on such work to the customer as well as all the assets sold to Newco. The Company has agreed to provide billing and collection services and the collection of amounts due to the Company by Newco is through the right of offset of collections on Newco customer billings. The Company has also agreed to allow Newco to obtain labor through the Company’s labor pooling agreement with Kleinknecht Electric Company–New York (“KEC-NY”) and Kleinknecht Electric Company–New Jersey (“KEC-NJ”) for one year and has obtained consent from KEC-NY and KEC-NJ for such use.

     As of December 31, 2004, the amount outstanding due to the Company from Newco and collectible by the right of offset through Newco’s billings and collections is $5.0 million.

     In accordance with FASB Statement No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company has reported the results of operations of this business as income (loss) from discontinued operations. All prior periods

12

IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
December 31, 2004 (Unaudited)

have been restated to conform to this presentation. As a result, the assets and liabilities of this discontinued operation have been reclassified on the balance sheet from the historical classifications and presented under the captions “assets of discontinued operations” and “liabilities of discontinued operations,” respectively.

     The assets and liabilities of discontinued operations as of December 31, 2004 and September 30, 2004 are as follows (dollars in thousands):

     The results of operations related to discontinued operations for the three months ended December 31, 2004 and 2003 are as follows (dollars in thousands):

4. Inventories (dollars in thousands)

5. Goodwill and Intangible Assets (dollars in thousands)

     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. The following table reflects the changes in goodwill for the three months ended December 31, 2004:

     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:

13

IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
December 31, 2004 (Unaudited)

     Amortization expense for those intangible assets required to be amortized under SFAS 142 was $4.0 million for the three months ended December 31, 2004 and $3.8 million for the three months ended December 31, 2003.

     Estimated annual amortization expense for fiscal year 2005 and each of the four succeeding fiscal years for identifiable intangible assets required to be amortized under SFAS 142 are as follows:

6. Accrued Expenses and Other Current Liabilities (in thousands)

7. Long Term Debt

Senior Secured Credit Facilities

     On December 20, 2001, the Company entered into the 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 consisted of a $25.0 million revolving credit facility and a $55.0 million term loan. The term loan was borrowed in full at closing. On April 20, 2004, the Company completed an agreement to increase the availability under the revolving credit facility by $10.0 million. As of December 31, 2004 the total amount available for borrowing and letters of credit under the revolving credit facility is $35.0 million, of which $30.7 million was available as of December 31, 2004, after taking into account $4.3 million of outstanding letters of credit, provided, however, that the Company can increase the committed amount under these facilities by up to $15.0 million so long as one or more lenders agrees to provide this incremental commitment and other customary conditions are satisfied. The Company’s senior secured credit facilities mature on September 2, 2008. For the three months ended December 31, 2004, the weighted average interest rate for borrowings outstanding under the senior secured credit facilities was 5.54%. The senior secured credit facilities and related interest expense is recorded on the Company’s Financial Services segment with no allocation of interest expense made to the Command and Control segment. The Company is also required to pay a commitment fee equal to 0.50% per annum of the average daily unused amount of the committed amount of the revolving credit facility, a fronting fee in an amount not to exceed 0.50% per annum of the average aggregate daily amount available to be drawn under all letters of credit issued under the Company’s senior secured credit facilities and customary administrative agent and letter of credit charges.

14

IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
December 31, 2004 (Unaudited)

     Borrowings under the Company’s senior secured credit facilities bear interest, at the Company’s election, either based on a prime rate index plus the applicable margin or a LIBOR rate index plus the applicable margin. The applicable margin is: based on the Company’s senior secured leverage ratio, as defined in the senior secured credit facilities. If the senior secured leverage ratio is greater than 1.00:1.00, the allocable margin is with respect to LIBOR rate loans, 4.00% per annum and with respect to prime rate loans, 3.00% per annum, and if the Company’s senior secured leverage ratio is less than 1.00:1.00, with respect to LIBOR rate loans, 3.50% per annum and with respect to prime rate loans, 2.50% per annum.

     Mandatory prepayments of the 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, as defined in the senior secured credit facilities, in 2005 and thereafter. Excess cash flow is defined in the Company’s 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 acquisitions and certain investments, cash interest expense and provisions for taxes based on income. As required, the Company made the mandatory excess cash flow payment of $6.6 million for the fiscal year ended September 30, 2004, of which $5.0 million was paid at September 30, 2004 and $1.6 million was paid on December 29, 2004.

     Obligations under the 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 senior secured credit facilities.

     The 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 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. At December 31, 2004, the Company was in compliance with all requirements of the senior secured credit facilities.

     As of December 31, 2004, remaining annual principal repayments required under the term loan are as follows (in thousands):

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. The senior subordinated notes and related interest expense is recorded on the Company’s Financial Services segment with no allocation of interest expense made to the Command and Control segment.

     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. 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

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IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
December 31, 2004 (Unaudited)

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 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 its assets; enter into transactions with affiliates; and designate subsidiaries as unrestricted subsidiaries.

8. Commitments and Contingencies

Warranties

     The Company records a reserve for future warranty costs based on current segment sales, historical experience and management’s judgment regarding anticipated rates of warranty claims and cost per claim. The adequacy of the recorded warranty liability 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:

Litigation

     Except for the lawsuits described below, of which the first two involve the Company’s former I.T.S. segment, the Company is not a party to any pending legal proceedings other than claims and lawsuits arising in the normal course of business. Under the terms of the sale agreement, the Company remains liable for all pre-closing liabilities relating to the I.T.S. segment, including the two lawsuits described below. Management believes the 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.

     On December 3, 2003, Hamilton County Emergency Communications District sued a former affiliate of Orbacom in the United States Court for the Eastern District of Tennessee at Chattanooga. The complaint asserts claims for breach of contract in connection with the installation of public safety communications systems and the provision of services to Hamilton County. The complaint seeks damages of approximately $600,000.

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IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
December 31, 2004 (Unaudited)

     The Company acquired Orbacom on November 30, 2004. On January 6, 2005, Hamilton amended its complaint to add IPC Information Systems, LLC as a defendant. The amended complaint alleges new claims against IPC Information Systems, LLC for violations of the Uniform Fraudulent Transfer Act by entering into a concerted plan to take actions to place the assets of an affiliate of Orbacom beyond the reach of the court.

     The Company is fully indemnified by the selling Orbacom shareholders for all costs incurred by the Company in the action and have held back $3 million of the purchase price payable to the former Orbacom shareholders. On January 7, 2005, the Company served the Orbacom shareholder representative notice of its request for indemnification under the Stock Purchase Agreement, dated as of October 1, 2004, among the Company, IPC Information Systems Holdings, Inc. and Orbacom and each of the sellers listed therein.

     On December 15, 2004, IPC Information Systems, LLC commenced two lawsuits arising out of the unauthorized copying of its proprietary software. The first action was filed in the Southern District of New York against The Odyssey Group, Inc. doing business as The O&R Group, Inc. The complaint alleges that the Odyssey Group infringed the Company’s copyrights by soliciting and obtaining an unauthorized copy of its proprietary software from Advanced Business Communications Ltd. (‘ABC”), a Canadian company. The Company’s complaint seeks recovery of the software, injunctive relief and unspecified damages from the defendants. The Odyssey Group has asserted counterclaims against us seeking aggregate damages of approximately $3 million for injurious falsehood, slander per se and interference with prospective economic advantage. The Company believes the counterclaims are without merit and intends to vigorously defend against them.

     The second action was filed in the Alberta Court of Queen’s Bench against ABC and its two principals. The statement of claim against ABC alleges misappropriation of the Company’s software, breach of contract, breach of fiduciary and common law duties and conversion and seeks injunctive relief and monetary damages. ABC has asserted counterclaims against the Company seeking aggregate damages of approximately $450,000 for breach of contract. The Company believes the counterclaims are without merit and intends to vigorously defend against them.

9. Income Taxes

     The Company’s effective tax rate for the three months ended December 31, 2004 was 42.1% and was 29.9% for the three months ended December 31, 2003. The Company’s effective tax rate reflects 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, for the three months ended December 31, 2003, taxable income at several of the Company’s foreign subsidiaries.

     The Company has U.S. federal net operating loss carryforwards of approximately $16.9 million at September 30, 2004, which expire through September 30, 2022. As of September 30, 2004, the Company has recognized deferred tax assets related to its US federal and state net operating loss carryforwards of approximately $6.8 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 (which, as a result of the Internal Revenue Code Section 338(h)(10) tax election, jointly made by the Company and Global Crossing, also generated 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 December 31, 2004, no circumstances have arisen that would require the Company to change such conclusion.

     The aggregate amount of taxes for which the Company has received notices of taxes due and estimated amounts for probable assessments from various jurisdictions and recognized as tax liabilities under purchase accounting is approximately $6.5 million and, as of December 31, 2004, the Company has made settlement payments aggregating $1.9 million, including a $1.1 million payment made to one jurisdiction in May 2004. The Company estimates that its exposure for additional tax liabilities relating to periods prior to the acquisition in excess of amounts accrued is zero, which has been reduced from an original range of zero to $36.0 million as a result of the Company’s settlement negotiations. In computing its estimated 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 should not have a material adverse effect on the Company’s financial condition and results of operations.

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IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
December 31, 2004 (Unaudited)

10. Business Segment Information

     The Company, headquartered in New York, provides mission-critical voice communications solutions to the financial services trading industry as well as the command and control operations including power, energy, utility and transportation companies, public safety organizations and government and military agencies.

     Through September 30, 2004, the Company’s operations included three segments named Trading Systems, I.T.S. and Network Services. The I.T.S. segment was sold in June 2004 and is reported as discontinued operations for all periods presented. With the sale of I.T.S. and the acquisition of Orbacom, the Company has now realigned its operations and has two segments named Financial Services and Command and Control. Both the Financial Services and Command and Control segments report revenue as follows:

	•	sales of equipment to distributors and direct sales and installations of turret systems, radio consoles and computer aided dispatch software as “Product sales and installations”; and
	•	revenue from equipment maintenance, including annual and multi-year service contracts, sales of network voice and data services and from MACs to existing equipment installations 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.

     The following tables represent business segment information for the Company’s two operating segments, Financial Services and Command and Control, for the three months ended December 31, 2004 and 2003 (in thousands):

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IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
December 31, 2004 (Unaudited)

11. 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):

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IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
December 31, 2004 (Unaudited)

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IPC ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
December 31, 2004 (Unaudited)