<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, 1998
-------------------------------------------
OR
[ ] 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 0-13716
-------------------------------------------------
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
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
724 443-9600
- --------------------------------------------------------------------------------
(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 (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, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
-------- -------
APPLICABLE ONLY TO CORPORATE USERS:
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 October 23, 1998, the Registrant had 15,005,000 shares of common stock
outstanding, par value $.15625 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 Sept. 30 Ended Sept. 30
--------------------- -------------------
1998 1997 1998 1997
----------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating revenues:
Local network services $ 3,009 $ 2,736 $ 8,817 $ 7,480
Long distance and access services 10,972 10,482 33,769 32,466
Directory advertising, billing & other services 646 526 1,837 1,637
Telecommunication equipment sales 609 738 2,035 2,232
Other operating revenues 1,093 1,452 3,206 6,571
------- ------- ------- -------
Total Operating Revenues 16,329 15,934 49,664 50,386
------- ------- ------- -------
Operating expenses:
Network and other operating expenses 6,767 6,353 19,119 20,929
Depreciation and amortization 2,972 2,660 8,792 7,951
State and local taxes 732 701 2,188 2,190
Telecommunication equipment expenses 576 698 1,920 2,038
------- ------- ------- -------
Total Operating Expenses 11,047 10,412 32,019 33,108
------- ------- ------- -------
Net Operating Revenues 5,282 5,522 17,645 17,278
Other expense (income), net:
Interest expense 453 424 1,372 1,239
Interest income (253) (156) (1,022) (421)
Sundry expense (income), net (336) (543) (1,435) (807)
------- ------- ------- -------
(136) (275) (1,085) 11
------- ------- ------- -------
Earnings before income taxes 5,418 5,797 18,730 17,267
Income taxes 2,214 2,343 7,210 6,904
------- ------- ------- -------
Net earnings $ 3,204 $ 3,454 $11,520 $10,363
======= ======= ======= =======
Weighted average common shares outstanding
15,005 15,005 15,005 15,023
======= ======= ======= =======
Basic and diluted earnings per share of
common stock $.21 $.23 $.77 $.69
======= ======= ======= =======
Dividends per share of common stock $.15 $.14 $.50 $.42
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
ASSETS Sept. 30 Dec. 31
- ------ 1998 (unaudited) 1997
--------------- ----------
<S> <C> <C>
Current Assets:
Cash and temporary investments $ 10,847 $ 15,938
Marketable securities available for sale 13,075 16,847
Accounts receivable:
Customers 3,402 3,401
Access service settlements and other 6,079 5,995
Prepaid Expenses - 25
Inventories of construction and operating materials and
supplies 3,303 3,360
Prepaid taxes 185 -
---------- ---------
Total current assets 36,891 45,566
---------- ---------
Property, plant and equipment
Land 475 475
Buildings 10,887 10,543
Equipment 128,549 122,492
---------- ---------
139,911 133,510
Less accumulated depreciation and amortization 76,265 69,303
---------- ---------
63,646 64,207
Construction in progress 12,380 6,990
---------- ---------
Total property, plant and equipment, net 76,026 71,197
Investments 9,231 7,499
Deferred financing costs 881 954
Prepaid pension cost 765 580
Other assets 1,178 2,037
---------- ---------
$124,972 $ 127,833
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 843 $ 803
Accounts payable 4,947 4,794
Accrued legal settlement - 3,180
Dividend payable 2,251 2,101
Deferred income taxes - 5,289
Other accrued liabilities 2,039 2,304
Federal and state income taxes 1,993 389
---------- ---------
Total current liabilities 12,073 18,860
---------- ---------
Long-term debt 26,400 27,037
Deferred income taxes 7,230 6,560
Postretirement benefits 4,943 4,764
Other liabilities 1,838 2,052
Shareholders' equity:
Capital stock/Common stock 2,350 2,350
Capital in excess of par value 2,215 2,215
Retained earnings 68,518 64,501
Other accumulated comprehensive income (loss) (87) 2
Less cost of treasury stock (1998 and 1997-35,000 shares) (508) (508)
---------- ---------
Total shareholders' equity 72,488 68,560
---------- ---------
$124,972 $ 127,833
========== =========
</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 Sept. 30
-------------------
1998 1997
-------- --------
<S> <C> <C>
Cash from operating activities:
Net earnings $ 11,520 $ 10,363
Adjustments to reconcile net earnings to net cash from
operating activities:
Depreciation and amortization 8,792 7,951
Gain on sale of marketable securities - (90)
Equity (income) losses of affiliated companies (1,145) (659)
Gain on sale of MCSI - (292)
Provision for postretirement benefits other than pensions 179 200
Changes in assets and liabilities:
Accounts receivable (85) (1,768)
Inventories of construction and operating materials &
supplies 57 (390)
Prepaid federal and state taxes (185) (127)
Accounts payable 153 2,158
Other accrued liabilities (479) (381)
Federal and state income taxes (2,955) 503
Deferred financing costs, prepaid pension costs
and other assets 747 344
Other, net 63 (98)
-------- --------
Total adjustments 5,142 7,351
-------- --------
Net cash from operating activities 16,662 17,714
-------- --------
Cash used for investing activities:
Expenditures for property and equipment (14,116) (15,233)
Net salvage on retirements 457 286
-------- --------
Net capital additions (13,659) (14,947)
-------- --------
Proceeds from redemption of marketable securities held to
maturity - 250
Purchase of marketable securities available for sale (14,320) (235)
Proceeds from sale of marketable securities available for sale 1,202 445
Proceeds from sale of MCSI, net of cash sold - 3,305
Proceeds from sale of investment 13,561 -
Investments in affiliated entities (630) (1,901)
Distributions from affiliated entities 43 71
-------- --------
Net cash used for investing activities (13,803) (13,012)
-------- --------
Cash used for financing activities:
Cash dividends (7,353) (6,161)
Retirement of debt (597) (512)
Proceeds from issuance of debt - 6,903
Purchase of treasury stock - (508)
Payment on capital lease obligations - (133)
-------- --------
Net cash used for financing activities (7,950) (411)
-------- --------
Net (decrease) increase in cash and temporary investments 5,091 4,291
Cash and temporary investments at beginning of period 15,938 11,313
-------- --------
Cash and temporary investments at end of period $ 10,847 $ 15,604
======== ========
Interest paid $ 1,306 $ 1,170
======== ========
Income taxes paid $ 10,225 $ 6,406
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
NOTES 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 (North
Pittsburgh), Penn Telecom, Inc. (Penn Telecom) and Pinnatech, Inc.
(Pinnatech). Also consolidated is the financial activity of
Management Consulting Solutions, Inc. (MCSI) until its sale on July
31, 1997. 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.
(2) COMPREHENSIVE INCOME
--------------------
In 1998, the Registrant adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"),
which establishes requirements for disclosure of comprehensive
income. The objective of SFAS 130 is to report all changes in equity
that result from transactions and economic events other than
transactions with owners. Comprehensive income is the total of net
income and all other non-owner changes in equity. Adoption of SFAS
130 did not impact the Registrant's consolidated financial position,
results of operations or cash flows for the three months and nine
months ending September 30, 1998 and 1997. The reconciliation of net
income to comprehensive income (loss) is as follows (in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended Sept. 30 Ended Sept. 30
-------------------- -------------------
1998 1997 1998 1997
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Net income $3,204 $3,454 $11,520 $10,363
Unrealized gain (loss) on
marketable securities (87) 14 (89) (7)
------ ------ ------- -------
Comprehensive income $3,117 $3,468 $11,431 $10,356
====== ====== ======= =======
</TABLE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1. Financial Condition
-------------------
(a) General
-------
There were no material changes in the Registrant's consolidated
general financial condition from the end of its preceding fiscal
year on December 31, 1997 to September 30, 1998, the end of the
nine-month period reported herein.
4
<PAGE>
(b) Liquidity and Capital Resources
-------------------------------
Consolidated capital expenditure commitments for the purchase and
installation of communications and other equipment at September
30, 1998 amounted to approximately $1,381,000 with such amount
being part of the 1998 Construction Program of $23 million to $26
million. Funds for financing construction expenditures in the
nine-month period ended September 30, 1998 were generated from
internal sources. Based on its 1998 construction budget and
projected cash flows, the Registrant anticipates cash flows
provided by operating activities and cash reserves in 1998 to
service long-term debt, to pay dividends and to finance
approximately 70% of capital additions. The balance of capital
additions will be financed from debt financing available from the
Rural Utilities Service. At September 30, 1998, construction work
in progress was $12,316,000. An additional $4,622,000 is expected
to be expended to complete these projects.
In January 1998, the Registrant delivered shares of SmarTalk
Teleservices, Inc. ("SmarTalk"), as well as cash, for transfer to
another shareholder of Conquest Telecommunications Services Corp.
("Conquest") in accordance with an agreement reached in 1997 to
settle certain claims. In January 1998, the Registrant also sold
its remaining shares of SmarTalk to Waterton Investment Group II,
L.L.C. ("Waterton") for $14,311,000 in cash pursuant to an option
agreement entered into by the Registrant and Waterton in December
1997.
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 above 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.
(c) Regulatory/Competition
----------------------
North Pittsburgh, as required under Chapter 30 of the Pennsylvania
Public Utility Code, filed a petition on July 31, 1998 with the
Pennsylvania Public Utility Commission ("PA PUC") for approval of
an alternative form of regulation to replace traditional rate
base/rate of return regulation. This petition included a plan
where North Pittsburgh will move to a more streamlined form of
rate regulation under price caps in return for some pricing
flexibility for services that are declared to be competitive. In
addition, North Pittsburgh filed a proposed network modernization
plan in which North Pittsburgh will commit to certain benchmarks
over a number of years to provide broadband services throughout
its service area, if its petition is approved.
North Pittsburgh expects that the filing of this petition for an
alternative form of regulation under price caps will be of
significance to North Pittsburgh. This filing should provide
North Pittsburgh with pricing flexibility to be a more responsive
competitor in the ever-evolving telecommunications market. Under
Chapter 30 rules, the PA PUC must act on the petition within nine
(9) months, or by May 1, 1999. However, it is not possible at
this time to determine the PA PUC's disposition of the filed
petition and plan, or the effect on North Pittsburgh's financial
position or results of operation.
The Federal Communications Commission ("FCC") continues to work on
Rulemakings that will spell out the specifics of the
Telecommunications Act of 1996 ("the 1996 Act") and the PA PUC
must then finalize its course of action to fully implement the
1996 Act, 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 services at wholesale rates, provide number
portability, if feasible, provide
5
<PAGE>
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
Company joined with 17 other rural companies in Pennsylvania to
file a Petition with the PA PUC requesting a temporary suspension
of the interconnection requirements of Section 251 of the 1996 Act
for a two-year period following resolution of the FCC's Universal
Service and Access Reform Orders. The Petition was filed February
20, 1997 and the PA PUC approved the petition on July 10, 1997.
In addition, the PA PUC is currently addressing a number of other
regulatory issues regarding Universal Service, Access Reform, Bell
Atlantic's request to enter the interLATA toll market and
intercompany compensation regarding Internet traffic. The final
outcome of these proceedings is still uncertain at this time, but
it is expected that any major changes that are implemented by the
Commission as a result of the final disposition of these issues
may have some effect on North Pittsburgh's financial position and
results of operations.
The 1996 Act, FCC and PA PUC regulatory proceedings 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 is
expected to lessen or offset any reductions in North Pittsburgh's
revenue sources.
In March, 1998, Penn Telecom received notification from the PA PUC
that its application to provide competitive local exchange service
in the areas presently served by GTE and Bell Atlantic in
Pennsylvania had been approved. Penn Telecom continues to expand
its competitive local exchange operations into the GTE and Bell
Atlantic areas.
2. Results of Operations
---------------------
Total operating revenues decreased $722,000 (1.4%) in the nine-month
period ended September 30, 1998 over the comparable period in 1997.
This change was due to an increase in local network services of
$1,337,000 (17.9%), offset by a decrease in other operating revenues
of $3,365,000 (51.2%). Increased local network service revenues were
attributable to customer growth, growth in second lines and expanded
penetration of enhanced services. The decrease in other operating
revenues is primarily due to the cessation of operations and
subsequent sale of MCSI on July 31, 1997. Long distance and access
services increased only moderately for the nine-month period ended
September 30, 1998 due to the implementation of a toll savings plan
in July, 1997, and rate decreases on interstate switched access
revenues beginning January 1, 1998. The introduction of the toll
savings plan was a proactive step by the Registrant to retain present
customers and thus preserve market share in the newly competitive
intraLATA long distance market.
Total operating expenses for the nine-month period ended September
30, 1998 decreased $1,089,000 (3.3%) over the preceding year. That
change is principally the result of a decrease in network and other
operating expenses of $1,810,000 (8.7%), offset by an increase in
depreciation and amortization of $841,000 (10.6%). The net decrease
of $1,810,000 in network and other operating expenses consists of a
decrease of $3,715,000 resulting from the sale of MCSI, offset by an
increase of $1,500,000 due to the introduction of a data processing
transition plan, increased marketing efforts and on-going increases
in maintenance, customer service and other administrative expenses.
The increase in depreciation and amortization is the direct result of
the growth in fixed assets to serve current and future customer
needs. The decrease in total operating revenues discussed above
coupled with the
6
<PAGE>
decrease in total operating expenses resulted in net operating
revenues increasing $367,000 (2.1%) between 1998 and 1997.
Interest income increased $601,000 primarily due to increased levels
of investment in temporary instruments. The net increase in Sundry
income (non-operating) of $628,000 is primarily due to an increase in
cellular partnership income in 1998 as compared to 1997 and receipts
from a one-time insurance settlement.
The increase in net operating revenues for the nine-month period ended
September 30, 1998, in conjunction with the increase in Sundry income,
net, resulted in an increase of $1,463,000 (8.5%) in earnings before
income taxes.
Fluctuations in the revenues and expenses for the three-month period
ended September 30, 1998, as compared to the same quarterly period in
1997 are generally attributable to the same reasons above in the year-
to-date comparisons.
3. Adoption of New Accounting Pronouncements
-----------------------------------------
The Registrant will implement SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" in 1998. SFAS No.
131 establishes standards for the way that public enterprises report
information about operating segments in annual and interim financial
statements. Because SFAS No. 131 has a disclosure-only effect on the
notes to the Registrant's financial statements, adoption of SFAS No.
131 has no impact on the Registrant's results of operations or
financial condition. In the year of adoption, the disclosure
requirements of SFAS No. 131 need not be applied to interim financial
statements. The Registrant will implement SFAS No. 131 in its full
year 1998 financial statements.
In June, 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities". The Registrant does not expect this pronouncement to
impact the consolidated financial statements because the Registrant
has not entered into derivative or hedging transactions.
4. Year 2000
---------
(a) State of Readiness
------------------
The Registrant has taken actions to understand the nature and extent
of the work required in order to make its systems and infrastructure
Year 2000 compliant. The Registrant began work last year to prepare
its information technology (IT) and non-information technology (non-
IT) systems, including updating and/or replacing existing legacy
systems. The Registrant has formed a Corporate Year 2000 Task Force
which is responsible for all Year 2000 activities and is being
monitored by senior managment and the Board of Directors.
There are six phases of the Registrant's Year 2000 program: Awareness,
Inventory, Assessment, Renovation, Validation and Implementation. The
Registrant has defined the six phases as follows:
Awareness - Gain the commitment of management and staff to solving the
problem. This phase has been completed.
Inventory - Conduct a thorough inventory of all hardware and software
systems. This phase will run until December, 1999 in order to maintain
the inventory throughout the life of the project.
Assessment and Planning - Decide which systems to retire, repair or
replace. Prepare contingency plans. This phase has been completed.
Renovation - Perform upgrades to hardware and software. This phase is
underway and is scheduled to be completed in April, 1999. The
Registrant has contracted to outsource certain operational support,
billing and accounting systems to a third party vendor. The software
and hardware components of the systems selected have been certified as
Year 2000 compliant.
7
<PAGE>
Validation - Test and certify new and renovated systems. This phase
is underway and is scheduled to be completed in April, 1999.
Implementation and Follow-up - New or renovated systems go into
service. This phase is scheduled to be completed in December, 1999,
and will include the resolution of any outstanding problems. The Year
2000 Project will extend until March, 2000 in order to address the
leap day of February 29, 2000 and to address any outstanding issues.
The Registrant's Year 2000 issues related to third parties can be
broken into two categories: third party vendors who supply products
to the Registrant, and other telecommunications companies who provide
joint service to our customers. The third party vendors have been
providing the Registrant with Year 2000 solutions on an on-going
basis. Year 2000 upgrades, repairs and testing are being performed as
per vendor specifications. Other telecommunications service providers
are implementing Year 2000 programs in much the same fashion as the
Registrant and industry testing is being performed on an on-going
basis.
(b) Cost to Address Year 2000 Issues
--------------------------------
Expenditures related to Year 2000 remediation are not expected to
exceed $3.5 million. These expenditures include costs related to the
data processing transition plan, license fees for purchase of
software and training and implementation costs. A portion of these
costs are being capitalized and will be amortized over the estimated
useful life of the asset beginning in approximately the second
quarter of 1999, the anticipated completion date of the project. The
remainder of these costs will be expensed as incurred.
(c) Risks of Year 2000 Issues
-------------------------
The most reasonably likely worst case scenario is loss of services to
other interconnecting companies who have not attained Year 2000
compliance. This is unlikely to occur since the interconnecting
companies realize their responsibility to comply. However, should
this worst case scenario occur, the Registrant will give customers
the option of rerouting service to a working carrier.
(d) Contingency Plan
----------------
The Registrant has developed a Corporate Year 2000 Contingency Plan
to cover its primary business activities. This plan outlines the key
areas of business, and the manner in which they will be supported in
the event of a Year 2000 failure. This plan has been developed as a
result of research into United States Telephone Association member
telephone company responses to hurricanes, tornadoes, ice storms and
other disasters. The Registrant has studied and modified these plans
to cover operations during potential Year 2000 related failures. The
Registrant has also updated and revised the existing Emergency
Response Plan. The Registrant's Emergency Response Plan will form the
core of our Contingency Plan if a major service outage should occur.
Key components of the Contingency Plan are the preparations to revert
to a manual operation, stockpiling and conservation of materials,
increased staffing levels, data storage for processing at a later
date, isolation of harmful network elements and positioning key
personnel in areas where they will be most effective. Should there be
a serious service affecting problem, the Emergency Response Plan will
be activated until all services are restored. Events which could
trigger activation of the Emergency Response Plan include widespread
loss of gas or electric service, failures at various interconnecting
companies or failure of internal switching or transmission systems.
8
<PAGE>
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
1. This item is not applicable.
9
<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 5, 1998 /s/ H. R. Brown
---------------- -----------------------------------------------
H. R. Brown, President
Date November 5, 1998 /s/ A. P. Kimble
---------------- -----------------------------------------------
A. P. Kimble, Vice President & Treasurer
10
<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) (i) Articles of Incorporation Provided in Quarterly Report
on Form 10-Q for the quarter
ended June 30, 1996 and
Incorporated Herein by
Reference.
(3) (ii) By-Laws Provided in Quarterly Report
on Form 10-Q for the quarter
ended March 31, 1998 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, 1998.
11
<PAGE>
Exhibit 11
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Statement - computation of per share earnings
Statement of Computations of Earnings per Share
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended Sept. 30 Ended June 30
------------------------ --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net Earnings $ 3,204,000 $ 3,454,000 $11,520,000 $10,363,000
=========== =========== =========== =============
Weighted average common
shares outstanding 15,005,000 15,005,000 15,005,000 15,023,000
=========== =========== =========== =============
Basic and diluted earnings per
share of common stock $ .21 $ .23 $ .77 $ .69
=========== =========== =========== =============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
30, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 10,847
<SECURITIES> 13,075
<RECEIVABLES> 9,481
<ALLOWANCES> 0
<INVENTORY> 3,303
<CURRENT-ASSETS> 36,891
<PP&E> 152,291
<DEPRECIATION> 76,265
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<CURRENT-LIABILITIES> 12,073
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0
0
<COMMON> 2,350
<OTHER-SE> 70,138
<TOTAL-LIABILITY-AND-EQUITY> 124,972
<SALES> 2,035
<TOTAL-REVENUES> 49,664
<CGS> 1,920
<TOTAL-COSTS> 32,019
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> 18,730
<INCOME-TAX> 7,210
<INCOME-CONTINUING> 11,520
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,520
<EPS-PRIMARY> .77
<EPS-DILUTED> .77
</TABLE>
