<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 June 30, 1995
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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.
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(Exact name of registrant as specified in its charter)
Pennsylvania 25-1485389
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
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
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(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 August 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 Six Months
Ended June 30 Ended June 30
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Operating revenues: 1995 1994 1995 1994
------- ------- ------ -------
<S> <C> <C> <C> <C>
Local network services $ 1,928 $ 1,635 $3,667 $ 3,344
Long distance and access services 9,834 8,970 19,159 17,873
Directory advertising, billing & other services 525 487 1,055 969
Telecommunication equipment sales 467 324 958 1,133
Other operating revenues 317 316 707 681
------- ------- ------ -------
Total Operating Revenues 13,071 11,732 25,546 24,000
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Operating expenses:
Depreciation and amortization 1,918 1,886 3,771 3,840
Network and other operating expenses 5,245 4,672 10,259 9,261
State and local taxes 544 494 1,137 1,048
Telecommunication equipment expenses 432 368 874 1,143
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Total Operating Expenses 8,139 7,420 16,041 15,292
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Net Operating revenues 4,932 4,312 9,505 8,708
Other expense (income), net:
Interest expense 397 380 801 772
Interest income (210) (272) (575) (450)
Sundry expense (income), net 14 (167) 78 (118)
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201 (59) 304 204
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Earnings before income taxes 4,731 4,371 9,201 8,504
Income taxes:
Current 1,906 1,762 3,691 3,442
Deferred - - - -
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1,906 1,762 3,691 3,442
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Net earnings $ 2,825 $ 2,609 $5,510 5,062
======= ======= ====== =======
Average common shares outstanding 7,520 7,520 7,520 7,520
======= ======= ====== =======
Earnings per share of common stock $.38 $.35 $.73 $.67
======= ======= ====== =======
Dividends per share of common stock $.24 $.22 $.48 $.44
======= ======= ====== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Thousands of Dollars)
<TABLE>
<CAPTION>
June 30 Dec. 31
ASSETS 1995 1994
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<S> <C> <C>
Current assets:
Cash and temporary investments $10,775 $14,779
Marketable securities available for sale 1,253 2,063
Marketable securities held to maturity 6,493 5,640
Accounts receivable:
Customers 3,158 3,169
Access service settlements and other 4,950 4,295
Inventories of construction and operating materials and
supplies 2,102 2,110
Prepaid taxes 454 -
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Total current assets 29,185 32,056
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Property, plant and equipment:
Telephone plant in service:
Land 188 188
Buildings 8,503 8,281
Equipment 90,260 87,711
Miscellaneous physical property 558 36
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99,509 96,216
Less accumulated depreciation and amortization 50,822 47,596
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48,687 48,620
Construction in progress 7,783 2,374
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Total property, plant and equipment, net 56,470 50,994
Investments 3,495 3,480
Prepaid Pension Cost 1,164 827
Other assets 4,435 4,221
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$94,749 $91,578
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LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current portion of long-term debt $ 680 $ 662
Accounts payable 6,405 5,174
Accrued interest 121 127
Dividend payable 1,805 1,654
Taxes other than income taxes 317 620
Accrued vacation 621 621
Other liabilities 315 283
Federal and state income taxes 672 247
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Total current liabilities 10,936 9,388
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Long term debt 22,051 22,396
Unamortized investment tax credits 545 621
Deferred income taxes 5,653 5,653
Postretirement benefits 4,169 4,065
Other liabilities 1,509 1,544
Shareholders' equity:
Capital stock/Common stock 2,350 2,350
Capital in excess of par value 2,215 2,215
Retained earnings 45,321 43,346
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Total shareholders' equity 49,886 47,911
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$94,749 $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 Six Months
Ended June 30
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1995 1994
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<S> <C> <C>
Cash from operating activities:
Net earnings $ 5,510 $ 5,062
Adjustments to reconcile net earnings to net cash from
operating activities:
Depreciation and amortization 3,773 3,840
Equity (income) losses of affiliated companies 25 (72)
Provision for postretirement benefits other than pensions 104 200
Investment tax credit amortization (76) (87)
Deferred income taxes - -
Changes in assets and liabilities:
Accounts receivable (645) (131)
Inventories of construction and operating materials &
supplies 8 (349)
Prepaid federal and state taxes (454) (410)
Accounts payable 1,231 817
Taxes other than income taxes (304) (236)
Other liabilities 148 288
Federal and state income taxes 425 (1,113)
Prepaid Pension Cost (337) (357)
Other, net (194) 257
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Total adjustments 3,704 2,647
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Net cash from operating activities 9,214 7,709
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Cash used for investing activities:
Expenditures for property and equipment (9,236) (5,745)
Net salvage on retirements 38 (15)
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Net capital additions (9,198) (5,760)
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Purchase of marketable securities held to maturity (3,821) (4,398)
Proceeds from redemption of marketable securites held to maturity 2,967 1,873
Purchase of marketable securities available for sale (352) (806)
Proceeds from sale of marketable securities available for sale 1,163 1,073
Investments in affiliated entities (40) (14)
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Net cash used for investing activities (9,281) (8,032)
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Cash used for financing activities:
Cash dividends (3,610) (3,158)
Retirement of debt (327) (307)
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Net cash used for financing activities (3,937) (3,465)
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Net (decrease) increase in cash and temporary investments (4,004) (3,788)
Cash and temporary investments at beginning of period 14,779 19,045
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Cash and temporary investments at end of period $ 10,775 $15,257
======== =======
Interest paid $ 753 $ 778
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Income taxes paid $ 3,841 $ 4,643
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</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
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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
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(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 June 30, 1995, the end of the six-month period reported herein.
(b) Liquidity and Capital Resources
-------------------------------
Consolidated capital expenditure commitments for the purchase and
installation of communications and other equipment at June 30, 1995
amounted to approximately $1,285,059 with such amount being part of the
1995 Construction Program. Funds for financing construction expenditures
in the six-month period ended June 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 June 30, 1995, construction work
in progress is $7,783,171. An additional $6,021,481 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 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>
2. Results of Operations
---------------------
Total operating revenues increased $1,546,000 (6.4%) in the six-month
period ended June 30, 1995, over the comparable period in 1994. This
change was due to increases in long distance and access services of
$1,286,000 (7.2%), local network services of $323,000 (9.7%) offset by a
decrease in telecommunications equipment sales of $175,000 (15.5%).
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 six-month period ended June 30, 1995,
increased $749,000 (4.9%) over the preceding year. That change is
principally the result of an increase in network and other operating
expenses of $998,000 (10.8%) offset by a decrease in telecommunication
equipment expenses of $269,000 (23.5%). The increase in network and other
operating expenses is the result of expanded operations to serve customer
growth as noted above. In addition, increased computer software
expenditures related to call processing and increased marketing expenses
associated with the expansion of the optional calling plan discussed
above, along with 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 a smaller increase in total operating expenses resulted in a 9%
increase in net operating revenues in 1995 as compared to the same period
in 1994.
Interest income increased $125,000 due to the recording of unrealized
losses on marketable securities in 1994.
Net sundry expense of $78,000 is recorded in the first six months of 1995
versus net sundry income of $118,000 during the same period in 1994.
Approximately $136,000 of the total difference of $196,000 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 six-month period ended June
30, 1995, in conjunction with the increase in other expense (income), net,
resulted in an increase of $697,000 (8.2%) in earnings before income
taxes.
Fluctuations in the revenues and expenses for the three-month period ended
June 30, 1995, as compared to the same quarterly period in 1994 are
generally attributable to the same reasons above in the year-to-date
comparisons.
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
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(a) The 1995 Annual Meeting of Shareholders was held on May 19, 1995.
5
<PAGE>
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders (cont.)
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(c) The only matter voted upon at the Annual Meeting was the election of
Directors. The vote tabulation in respect to the Directors elected at
such meeting to serve until the 1996 Annual Meeting of Shareholders and
until their successors are elected is shown in the following table:
<TABLE>
<CAPTION>
Number of Number
Shares of
Name Voted In Favor Shares
Withheld
- ---------------------------------------------------
<S> <C> <C>
Harry R. Brown 6,825,843 59,762
Dr. Charles E. Cole 6,863,796 21,809
Gerald A. Gorman 6,882,845 2,760
Richard R. Kauffman 6,838,316 47,289
Frank D. Reese 6,862,114 23,491
Jay L. Sedwick 6,870,042 15,563
Charles E. Thomas, Sr. 6,871,914 13,691
Charles E. Thomas, Jr. 6,876,645 8,960
Barton B. Williams 6,882,245 3,360
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits - Exhibit Index for Quarterly Reports on Form 10-Q.
--------
<TABLE>
<CAPTION>
Exhibit
Number Subject Applicability
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<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 share Attached Hereto
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
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Subject Applicability
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<S> <C> <C>
(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 June 30, 1995.
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 Aug 08 1995 /s/ G. A. GORMAN
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G. A. Gorman, President
Date Aug 08 1995 /s/ A. P. KIMBLE
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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 Six Months
Ended June 30 Ended June 30
---------------------- -----------------------
1995 1994 1995 1994
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net earnings $2,825,000 $2,609,000 $5,510,000 $5,062,000
========== ========== ========== ==========
Average common shares outstanding 7,520,000 7,520,000 7,520,000 7,520,000
========== ========== ========== ==========
Earnings per share of common stock $ .38 $ .35 $ .73 $ .67
========== ========== ========== ==========
</TABLE>
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1995 QUARTERLY REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 10,775
<SECURITIES> 7,746
<RECEIVABLES> 8,108
<ALLOWANCES> 0
<INVENTORY> 2,102
<CURRENT-ASSETS> 29,185
<PP&E> 107,292
<DEPRECIATION> 50,822
<TOTAL-ASSETS> 94,749
<CURRENT-LIABILITIES> 10,936
<BONDS> 22,051
<COMMON> 2,350
0
0
<OTHER-SE> 49,886
<TOTAL-LIABILITY-AND-EQUITY> 94,749
<SALES> 467
<TOTAL-REVENUES> 13,071
<CGS> 432
<TOTAL-COSTS> 8,139
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 397
<INCOME-PRETAX> 4,731
<INCOME-TAX> 1,908
<INCOME-CONTINUING> 2,825
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,825
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
