<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 March 31, 1996
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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.
- --------------------------------------------------------------------------------
(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 May 1, 1996, 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
Ended March 31
--------------------
1996 1995
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<S> <C> <C>
Operating revenues:
Local network services $ 2,114 $ 1,801
Long distance and access services 10,465 9,263
Directory advertising, billing & other services 548 530
Telecommunication equipment sales 721 490
Other operating revenues 1,017 390
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Total Operating Revenues 14,865 12,474
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Operating expenses:
Depreciation and amortization 2,307 1,853
Network and other operating expenses 5,966 5,015
State and local taxes 664 592
Telecommunication equipment expenses 671 442
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Total Operating Expenses 9,608 7,902
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Net Operating Revenues 5,257 4,572
Other expense (income), net:
Interest expense 395 403
Interest income (197) (365)
Sundry (income) expense, net (8) 64
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190 102
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Earnings before income taxes 5,067 4,470
Income taxes:
Current 2,011 1,785
Deferred - -
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2,011 1,785
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Net earnings $ 3,056 $ 2,685
======= =======
Average common shares outstanding 7,520 7,520
======= =======
Earnings per share of common stock $ .41 $ .36
======= =======
Dividends per share of common stock $ .26 $ .24
======= =======
</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>
March 31 Dec. 31
ASSETS 1996 1995
------ -------- --------
<S> <C> <C>
Current assets:
Cash and temporary investments $ 12,043 $ 9,359
Marketable securities available for sale 1,081 1,593
Marketable securities held to maturity 5,344 6,569
Accounts receivable:
Customers 3,759 3,725
Access service settlements and other 5,453 5,120
Inventories of construction and operating
materials and supplies 2,049 2,381
Prepaid taxes 642 --
-------- --------
Total current assets 30,371 28,747
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Property, plant and equipment:
Telephone plant in service:
Land 461 461
Buildings 8,943 8,943
Equipment 99,612 97,334
Miscellaneous physical property 48 48
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109,064 106,786
Less accumulated depreciation and amortization 54,792 52,675
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54,272 54,111
Construction in progress 4,677 4,505
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Total property, plant and equipment, net 58,949 58,616
Investments 3,876 3,876
Deferred financing costs 1,133 1,159
Prepaid pension cost 1,302 689
Other assets 1,492 3,069
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$ 97,123 $ 96,156
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LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current portion of long-term debt $ 721 $ 702
Accounts payable 5,090 6,337
Accrued interest 122 123
Dividend payable 1,955 1,805
Taxes other than income taxes 481 610
Accrued vacation 673 673
Other liabilities 316 404
Federal and state income taxes 1,812 291
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Total current liabilities 11,170 10,945
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Long-term debt 21,501 21,694
Unamortized investment tax credits 445 470
Deferred income taxes 5,603 5,670
Postretirement benefits 4,306 4,250
Other liabilities 1,567 1,600
Shareholders' equity:
Capital stock/Common stock 2,350 2,350
Capital in excess of par value 2,215 2,215
Retained earnings 47,915 46,814
Unrealized gain (loss) on available for
sale securities, net 51 148
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Total shareholders' equity 52,531 51,527
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$ 97,123 $ 96,156
======== ========
</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 Three Months
Ended March 31
--------------------
1996 1995
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<S> <C> <C>
Cash from operating activities:
Net earnings $ 3,056 $ 2,685
Adjustments to reconcile net earnings
to net cash from operating activities:
Depreciation and amortization 2,310 1,853
Equity (income) losses of affiliated
companies -- 13
Provision for postretirement benefits
other than pensions 56 65
Investment tax credit amortization (25) (38)
Deferred income taxes -- --
Changes in assets and liabilities:
Accounts receivable (367) (445)
Inventories of construction and operating
materials & supplies 331 159
Prepaid federal and state taxes (642) (632)
Accounts payable (1,247) 357
Taxes other than income taxes (129) (179)
Other liabilities and accrued interest (122) (55)
Federal and state income taxes 1,521 1,351
Deferred financing costs, prepaid pension
costs and other assets 990 (543)
Other, net (71) --
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Total adjustments 2,605 1,906
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Net cash from operating activities 5,661 4,591
======= =======
Cash used for investing activities:
Expenditures for property and equipment (2,665) (3,875)
Net salvage on retirements 22 (23)
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Net capital additions (2,643) (3,898)
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Purchase of marketable securities held to maturity -- (1,275)
Proceeds from redemption of marketable securites
held to maturity 1,200 1,021
Purchase of marketable securities available for sale (65) (158)
Proceeds from sale of marketable securities
available for sale 510 1,095
Investments in affiliated entities -- (40)
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Net cash used for investing activities (998) (3,255)
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Cash used for financing activities:
Cash dividends (1,805) (1,654)
Retirement of debt (174) (167)
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Net cash used for financing
activities (1,979) (1,821)
======= =======
Net (decrease) increase in cash and temporary
investments 2,684 (485)
Cash and temporary investments at
beginning of period 9,359 14,779
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Cash and temporary investments
at end of period $12,043 $14,294
======= =======
Interest paid $ 371 $ 378
======= =======
Income taxes paid $ 557 $ 472
======= =======
</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 (North Pittsburgh), Penn Telecom, Inc.,
Pinnatech, Inc. (Pinnatech) and Management Consulting Solutions, Inc.
(MCSI). 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, 1995 to March 31, 1996, the end of the three-month period reported
herein.
(b) Liquidity and Capital Resources
-------------------------------
Consolidated capital expenditure commitments for the purchase and
installation of communications and other equipment at March 31, 1996
amounted to approximately $1,597,022 with such amount being part of the
1996 Construction Program. Funds for financing construction expenditures in
the three-month period ended March 31, 1996 were generated from internal
sources. In the foreseeable future, based on projected construction budgets
and cash flows, North Pittsburgh anticipates financing all telephone plant
construction from cash reserves and internally generated funds. At March
31, 1996, construction work in progress is $4,676,558. An additional
$6,540,776 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/Competition
----------------------
The Federal Communications Commission (FCC) is presently working on
Rulemakings that spell out the specifics of the Telecommunications Act of
1996 (1996 Act) and the Pennsylvania Public Utility Commission (PA PUC)
must choose a course of action to implement the 1996 Act as enacted, or to
the extent possible and permissible, change the manner in which such
regulations are implemented in Pennsylvania before the impact on North
Pittsburgh, a Rural Telephone Company under the 1996 Act, can be fully
understood and measured. However, the clear intent of the 1996 Act is to
open up the local exchange market to competition. This appears to mandate,
among other items, that North Pittsburgh, at some point in time, permit the
resale of its service at wholesale rates, provide number portability if
feasible, provide dialing parity, provide interconnection to any requesting
carrier for the transmission and routing of telephone exchange service and
exchange access and provide access to network elements.
The 1996 Act, regulatory proceedings in Pennsylvania, and the thrust
towards a fully competitive marketplace have created some uncertainty in
respect to the levels of North Pittsburgh's revenue growth in the future.
However, its unique location in a growing commercial/residential suburban
traffic corridor to the north of the City of Pittsburgh, its state-of-the-
art switching transmission and transport facilities and its extensive fiber
network place North Pittsburgh in a solid position to meet competition and
minimize any loss of revenues. In addition, North Pittsburgh continues to
make its network flexible and responsive to the needs of its customers to
meet competitive threats. New services, access line growth and anticipated
usage growth will lessen or offset any reductions in North Pittsburgh's
revenue sources.
2. Results of Operations
---------------------
Total operating revenues increased $2,391,000 (19.2%) in the three-month
period ended March 31, 1996 over the comparable period in 1995. This change
was due to increases in long distance and access services of $1,203,000
(13.0%), local network services of $313,000 (17.4%), telecommunication
equipment sales of $231,000 (47.1%) and other operating revenues of $626,000
(160.5%). Higher long distance and access service revenues were generally
the result of an increase in the number of customers and in minutes of use.
Increased local network service revenues were attributable to customer
growth. The increase in telecommunication equipment sales reflects an
increase in the number of systems sold in 1996 as compared to 1995. The
increase in other operating revenues is the direct result of start-up
business activities of Pinnatech and MCSI.
Total operating expenses for the three-month period ended March 31, 1996,
increased $1,706,000 (21.6%) over the preceding year. That change is
principally the result of an increase in network and other operating
expenses of $951,000 (19.0%), an increase in depreciation and amortization
of $454,000 (24.5%), and an increase in telecommunication equipment expenses
of $229,000 (51.8%). The increase in network and other operating expenses is
the result of expanded operations to serve customer growth as noted above.
The increase in depreciation and amortization is due to a change in the
lives of equipment and asset growth. The increase in telecommunication
equipment expenses is related to the increase in equipment sales discussed
above. The increase in total operating revenues discussed above coupled with
the increase in total operating expenses resulted in a 15.0% increase in net
operating revenues in 1996 as compared to the same period in 1995.
Interest income decreased $165,000 primarily due to decreased interest rates
available on marketable securities, as well as decreased levels of
investment in such instruments. Net sundry income increased $72,000 due to a
one time recording of realized gains on sale of investments.
The increase in net operating revenues for the three-month period ended
March 31, 1996, in conjunction with the increase in other expense (income),
net, resulted in an increase of $597,000 (13.4%) in earnings before income
taxes.
5
<PAGE>
PART II
OTHER INFORMATION
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
- ------- ------- -------------
<C> <S> <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 March 31, 1996.
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)
May 14, 1996 /s/ G. A. Gorman
Date______________________ _________________________________________
G. A. Gorman, President
May 14, 1996 /s/ A. P. Kimble
Date______________________ _________________________________________
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
Ended March 31
--------------------
1996 1995
------ ------
<S> <C> <C>
Net earnings $3,056,000 $2,685,000
========== ==========
Average common shares outstanding 7,520,000 7,520,000
========== ==========
Earnings per share of common stock $ .41 $ .36
========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM March 31, 1996 Quarterly Report AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 12,043
<SECURITIES> 6,425
<RECEIVABLES> 9,212
<ALLOWANCES> 0
<INVENTORY> 2,049
<CURRENT-ASSETS> 30,371
<PP&E> 113,741
<DEPRECIATION> 54,792
<TOTAL-ASSETS> 97,123
<CURRENT-LIABILITIES> 11,170
<BONDS> 21,501
<COMMON> 2,350
0
0
<OTHER-SE> 50,181
<TOTAL-LIABILITY-AND-EQUITY> 97,123
<SALES> 721
<TOTAL-REVENUES> 14,865
<CGS> 671
<TOTAL-COSTS> 9,608
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 395
<INCOME-PRETAX> 5,067
<INCOME-TAX> 2,011
<INCOME-CONTINUING> 3,056
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,056
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
