<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-13716
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NORTH PITTSBURGH SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1485389
- -------------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4008 Gibsonia Road, Gibsonia, Pennsylvania 15044-9311
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(Address of principal executive offices)
(Zip Code)
412 443-9600
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(Registrant's telephone number, including area code)
No Change
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (l) 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, and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock Outstanding
------------------------
At November 1, 1995, the Registrant had 7,520,000 shares of common stock
outstanding, par value $.3125 per share, the only class of such stock issued.
<PAGE>
PART I
ITEM 1
FINANCIAL STATEMENTS
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Thousands - Except Per Share Amounts)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
---------------------- ----------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating revenues:
Local network services $ 1,866 $ 1,759 $ 5,533 $ 5,103
Long distance and access services 9,964 9,298 29,123 27,171
Directory advertising, billing & other services 531 487 1,586 1,456
Telecommunication equipment sales 592 1,206 1,550 2,339
Other operating revenues 490 266 1,197 947
-------- -------- -------- --------
Total Operating Revenues 13,443 13,016 38,989 37,016
-------- -------- -------- --------
Operating expenses:
Depreciation and amortization 2,137 1,750 5,991 5,590
Network and other operating expenses 5,575 4,666 15,752 13,927
State and local taxes 535 512 1,671 1,560
Telecommunication equipment expenses 496 1,073 1,370 2,216
-------- -------- -------- --------
Total Operating Expenses 8,743 8,001 24,784 23,293
-------- -------- -------- --------
Net Operating revenues 4,700 5,015 14,205 13,723
Other expense (income), net:
Interest expense 399 383 1,200 1,155
Interest income (225) (275) (800) (725)
Sundry expense (income), net 72 (9) 150 (127)
-------- -------- -------- --------
246 99 550 303
-------- -------- -------- --------
Earnings before income taxes 4,454 4,916 13,655 13,420
Income taxes:
Current 1,851 1,992 5,542 5,434
Deferred - - - -
-------- -------- -------- --------
1,851 1,992 5,542 5,434
-------- -------- -------- --------
Net earnings $ 2,603 $ 2,924 $ 8,113 $ 7,986
======== ======== ======== ========
Average common shares outstanding 7,520 7,520 7,520 7,520
======== ======== ======== ========
Earnings per share of common stock $ .35 $ .39 $ 1.08 $ 1.06
======== ======== ======== ========
Dividends per share of common stock $ .24 $ .22 $ .72 $ .66
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Thousands of Dollars)
<TABLE>
<CAPTION>
Sept. 30 Dec. 31
ASSETS 1995 1994
------ ---------- ---------
<S> <C> <C>
Current assets:
Cash and temporary investments $ 9,586 $14,779
Marketable securities available for sale 1,550 2,063
Marketable securities held to maturity 6,475 5,640
Accounts receivable:
Customers 3,552 3,169
Access service settlements and other 5,897 4,295
Inventories of construction and operating materials and
supplies 2,175 2,110
Prepaid taxes 130 -
---------- ---------
Total current assets 29,365 32,056
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Property, plant and equipment:
Telephone plant in service:
Land 188 188
Buildings 8,523 8,281
Equipment 92,133 87,711
Miscellaneous physical property 608 36
---------- ---------
101,452 96,216
Less accumulated depreciation and amortization 51,581 47,596
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49,871 48,620
Construction in progress 7,746 2,374
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Total property, plant and equipment, net 57,617 50,994
Investments 3,286 3,480
Prepaid Pension Cost 926 827
Other assets 4,234 4,221
---------- ---------
$ 95,428 $91,578
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current portion of long-term debt $ 690 $ 662
Accounts payable 6,357 5,174
Accrued interest 121 127
Dividend payable 1,805 1,654
Taxes other than income taxes 344 620
Accrued vacation 621 621
Other liabilities 375 283
Federal and state income taxes 591 247
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Total current liabilities 10,904 9,388
---------- ---------
Long term debt 21,876 22,396
Unamortized investment tax credits 508 621
Deferred income taxes 5,725 5,653
Postretirement benefits 4,210 4,065
Other liabilities 1,490 1,544
Shareholders' equity:
Capital stock/Common stock 2,350 2,350
Capital in excess of par value 2,215 2,215
Retained earnings 46,150 43,346
---------- ---------
Total shareholders' equity 50,715 47,911
---------- ---------
$ 95,428 $91,578
========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-2-
<PAGE>
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30
------------------------
1995 1994
---------- --------
<S> <C> <C>
Cash from operating activities:
Net earnings $ 8,113 $ 7,986
Adjustments to reconcile net earnings to net cash from
operating activities:
Depreciation and amortization 5,786 5,590
Equity (income) losses of affiliated companies (41) (99)
Provision for postretirement benefits other than pensions 146 230
Investment tax credit amortization (113) (130)
Deferred income taxes - -
Changes in assets and liabilities:
Accounts receivable (1,985) (1,553)
Inventories of construction and operating materials &
supplies (65) 235
Prepaid federal and state taxes (130) (99)
Accounts payable 1,184 1,164
Taxes other than income taxes (276) (206)
Other liabilities 39 307
Federal and state income taxes 344 (923)
Prepaid Pension Cost (99) (195)
Other, net 7 95
---------- --------
Total adjustments 4,797 4,416
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Net cash from operating activities 12,910 12,402
---------- --------
Cash used for investing activities:
Expenditures for property and equipment (12,348) (7,615)
Net salvage on retirements 87 116
---------- --------
Net capital additions (12,261) (7,499)
---------- --------
Purchase of marketable securities held to maturity (5,211) (5,236)
Proceeds from redemption of marketable securites held to maturity 4,376 2,842
Purchase of marketable securities available for sale (732) (950)
Proceeds from sale of marketable securities available for sale 1,245 1,073
Investments in affiliated entities 235 (150)
---------- --------
Net cash used for investing activities (12,348) (9,920)
---------- --------
Cash used for financing activities:
Cash dividends (5,264) (4,813)
Retirement of debt (491) (461)
---------- --------
Net cash used for financing activities (5,755) (5,274)
---------- --------
Net (decrease) increase in cash and temporary investments (5,193) (2,792)
Cash and temporary investments at beginning of period 14,779 19,045
---------- --------
Cash and temporary investments at end of period $ 9,586 $16,253
========== ========
Interest paid $ 1,150 $ 1,161
========== ========
Income taxes paid $ 5,813 $ 6,489
========== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE>
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
-------
The condensed consolidated financial statements included herein have been
prepared by the Registrant, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Consolidated herein
are the financial results of the Registrant's wholly-owned subsidiaries,
North Pittsburgh Telephone Company, Penn Telecom, Inc., Pinnatech, Inc. and
Management Consulting Solutions, Inc. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. Nevertheless,
the Registrant believes that its disclosures herein are adequate to make
the information presented not misleading and, in the opinion of management,
all adjustments (which consisted only of normal recurring accruals)
necessary to present fairly the results of operations for the interim
periods have been reflected. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and the notes thereto included in the Registrant's latest annual
report to the Securities and Exchange Commission on Form 10-K.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1. Financial Condition
-------------------
(a) General
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There were no material changes in the Registrant's consolidated general
financial condition from the end of its preceding fiscal year on December
31, 1994 to September 30, 1995, the end of the nine-month period reported
herein.
(b) Liquidity and Capital Resources
-------------------------------
Consolidated capital expenditure commitments for the purchase and
installation of communications and other equipment at September 30, 1995
amounted to approximately $1,603,074 with such amount being part of the
1995 Construction Program. Funds for financing construction expenditures in
the nine-month period ended September 30, 1995 were generated from internal
sources. In the foreseeable future, based on projected construction budgets
and cash flows, North Pittsburgh Telephone Company anticipates financing
all telephone plant construction from cash reserves and internally
generated funds. At September 30, 1995, construction work in progress is
$7,745,618. An additional $6,778,970 will be expended to complete these
projects.
The Registrant and its subsidiaries have not experienced any difficulty in
the past meeting either long-term or short-term cash commitments. Cash flow
generated through regular operations has been adequate to not only finance
a significant portion of the capital requirements of the Registrant as
discussed in the previous paragraph but also to meet principal and interest
payments on long-term debt and all working capital requirements. It is
anticipated that future long-term interest and principal payments will be
made from the same source of internally generated funds.
-4-
<PAGE>
(c) Regulatory
----------
On August 4, 1995, the U.S. House of Representatives passed a bill which
includes provisions that could lead to the opening of the Registrant's
telephone subsidiary's local exchange market to competitors and would
permit local exchange carriers, such as the Registrant's subsidiary to
provide interLATA services. The Senate passed a similar bill in June, 1995.
A conference committee will attempt to work through the differences between
the two bills prior to year end. There are a number of on-going PA PUC
proceedings in respect to intraLATA presubscription, new competitive local
exchange carriers in Pittsburgh and Philadelphia and universal service. No
definitive predictions can be made as to whether or when such legislation
or proceedings will be enacted or effective, the provisions thereof, or the
impact on the business or financial condition of the Registrant.
2. Results of Operations
---------------------
Total operating revenues increased $1,973,000 (5.3%) in the nine-month
period ended September 30, 1995, over the comparable period in 1994. This
change was due to increases in long distance and access services of
$1,952,000 (7.2%), local network services of $430,000 (8.4%) offset by a
decrease in telecommunications equipment sales of $789,000 (33.8%). Higher
long distance and access service revenues were generally the result of an
increase in the number of customers and in minutes of use. However, the
rate of growth of revenues slowed in 1995 as compared to 1994 due to the
expansion in the first quarter of 1995 of an optional flat rated calling
plan to meet customer calling needs. Increased local network service
revenues were attributable to customer growth. The decrease in
telecommunications equipment sales reflects a decrease in the number of
systems sold in 1995 as compared to 1994.
Total operating expenses for the nine-month period ended September 30,
1995, increased $1,491,000 (6.4%) over the preceding year. That change is
principally the result of an increase in network and other operating
expenses of $1,835,000 (13.1%) offset by a decrease in telecommunication
equipment expenses of $846,000 (38.2%). The increase in network and other
operating expenses is the result of expanded operations to serve customer
growth as noted above. In addition, increased marketing expenses associated
with the expansion of the optional calling plan discussed above and
increased community awareness advertising campaigns account for the overall
increases. The decrease in telecommunication equipment expenses is related
to the decrease in equipment sales discussed above. The increase in total
operating revenues discussed above coupled with the increase in total
operating expenses resulted in a 3.5% increase in net operating revenues in
1995 as compared to the same period in 1994.
Net sundry expense of $150,000 is recorded in the first nine months of 1995
versus net sundry income of $127,000 during the same period in 1994.
Approximately $215,000 of the total difference of $277,000 in the
categories between years is attributable to retroactive telephone industry
settlements recorded in both 1995 and 1994.
The increase in net operating revenues for the nine-month period ended
September 30, 1995, in conjunction with the increase in other expense
(income), net, resulted in an increase of $235,000 (1.8%) in earnings
before income taxes.
The same reasons for fluctuations in the revenues and expenses stated above
for the year-to-date comparisons generally apply to the three-month period
ended September 30, 1995 compared to the same quarterly period in 1994. The
third quarter figures and the year-to-date figures of 1995 also include
expenses of approximately $525,000 associated with the start-up business
activities of the Registrant to eventually supplement its revenue sources
or to replace possible future reductions in its telephone revenues. Such
expenses are recorded in depreciation and amortization and network and
other operating expense captions on the Consolidated Statements of
Earnings. Associated revenues were approximately 50% of expenses and are
projected to gradually exceed expenses in two years or less.
-5-
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibits - Exhibit Index for Quarterly Reports on Form 10-Q.
--------
<TABLE>
<CAPTION>
Exhibit
Number Subject Applicability
- ------- ------- -------------
<S> <C> <C>
(2) Plan of acquisition, reorganization, Not Applicable
arrangement, liquidation or
succession
(3) Articles of Incorporation Provided in Annual Report on Form
10-K for the year ended December
31, 1993 and Incorporated Herein by
Reference.
(3) By-Laws Provided in Annual Report on Form
10-K for the year ended December
31, 1993 and Incorporated Herein by
Reference.
(4) Instruments defining the rights of Provided in Registration of
security holders including indentures Securities of Certain Successor
Issuers on Form 8-B filed on
June 25, 1985 and Incorporated
Herein by Reference.
(10) Material Contracts Not Applicable
(11) Statement re computation of per Attached Hereto
share earnings
(15) Letter re unaudited interim financial Not Applicable
information
(18) Letter re change in accounting Not Applicable
principles
(19) Report furnished to security holders Not Applicable
(22) Published report regarding matters Not Applicable
submitted to a vote of security holders
(23) Consents of experts and counsel Not Applicable
(24) Power of attorney Not Applicable
(27) Financial Data Schedule Attached Hereto
(99) Additional exhibits Not Applicable
</TABLE>
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the quarter
-------------------
ended September 30, 1995.
-6-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTH PITTSBURGH SYSTEMS, INC.
------------------------------
(Registrant)
Date November 13, 1995 /s/ G. A. Gorman
----------------------- -----------------------------------------
G. A. Gorman, President
Date November 13, 1995 /s/ A. P. Kimble
----------------------- -----------------------------------------
A. P. Kimble, Vice President, Secretary &
Treasurer
-7-
<PAGE>
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Exhibit No. (11) - Statement - computation of per share earnings
Statement of Computations of Earnings per Share
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
------------------------ ------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net earnings $2,603,000 $2,924,000 $8,113,000 $7,986,000
=========== =========== =========== ===========
Average common shares
outstanding 7,520,000 7,520,000 7,520,000 7,520,000
=========== =========== =========== ===========
Earnings per share of common
stock $ .35 $ .39 $ 1.08 $ 1.06
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM September
30, 1995 Quarterly Report AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 9,586
<SECURITIES> 8,025
<RECEIVABLES> 9,449
<ALLOWANCES> 0
<INVENTORY> 2,175
<CURRENT-ASSETS> 29,365
<PP&E> 109,198
<DEPRECIATION> 51,581
<TOTAL-ASSETS> 95,428
<CURRENT-LIABILITIES> 10,904
<BONDS> 21,876
<COMMON> 2,350
0
0
<OTHER-SE> 50,715
<TOTAL-LIABILITY-AND-EQUITY> 95,428
<SALES> 1,550
<TOTAL-REVENUES> 38,989
<CGS> 1,370
<TOTAL-COSTS> 24,784
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,200
<INCOME-PRETAX> 13,655
<INCOME-TAX> 5,542
<INCOME-CONTINUING> 8,113
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,113
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.08
</TABLE>
