NORTH PITTSBURGH SYSTEMS INC - 10-Q Quarterly Report

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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, 2003

OR

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

For the transition period from __________ to __________

Commission File Number 0-13716

NORTH PITTSBURGH SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Pennsylvania		25-1485389

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES x

NO o

The number of shares of the registrant’s Common Stock (par value $.15625 per share) outstanding as of April 30, 2003 was 15,005,000.

TABLE OF CONTENTS

			Page

PART I	Financial Information

Item 1.	Financial Statements		1

		Independent Auditors’ Review Report	1

		Condensed Consolidated Statements of Earnings For the three months ended March 31, 2003 and 2002	2

		Condensed Consolidated Balance Sheets March 31, 2003 and December 31, 2002	3-4

		Condensed Consolidated Statements of Cash Flows For the three months ended March 31, 2003 and 2002	5

		Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		8

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		18

Item 4.	Controls and Procedures		18


PART II	Other Information

Item 6.	Exhibits and Reports on Form 8-K		19

SIGNATURES			21

CERTIFICATIONS			22-23

PART I

FINANCIAL INFORMATION

Independent Auditors’ Review Report

The Board of Directors
North Pittsburgh Systems, Inc:

We have reviewed the accompanying condensed consolidated balance sheet of North Pittsburgh Systems, Inc. and subsidiaries as of March 31, 2003, and the related condensed consolidated statements of earnings and cash flows for the three-month periods ended March 31, 2003 and 2002. These condensed consolidated financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical review procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of North Pittsburgh Systems, Inc. and subsidiaries as of December 31, 2002 and the related consolidated statements of earnings, stockholders’ equity and comprehensive income, and cash flows for the year then ended (not presented herein); and in our report dated February 21, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2002 is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

KPMG LLP

Pittsburgh, Pennsylvania
April 28 , 2003

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Earnings (Unaudited)
(Amounts in Thousands – Except Per Share Data)

	For the Three Months Ended March 31

	2003			2002

Operating revenues:
Local network services	$	5,973		$	5,345
Long distance and access services		15,751			14,524
Directory advertising, billing and other services		248			352
Telecommunication equipment sales		530			607
Other operating revenues		2,618			2,326

Total operating revenues		25,120			23,154
Operating expenses:
Network and other operating expenses		13,440			11,511
Depreciation and amortization		4,684			4,389
State and local taxes		1,079			859
Telecommunication equipment expenses		366			400

Total operating expenses		19,569			17,159

Net operating income		5,551			5,995
Other expense (income), net:
Interest expense		548			914
Interest income		(58	)		(153	)
Sundry income, net		(865	)		(298	)

		(375	)		463

Earnings before income taxes		5,926			5,532
Provision for income taxes		2,448			2,286

Net earnings	$	3,478		$	3,246

Weighted average common shares outstanding		15,005			15,005

Basic and diluted earnings per share	$	.23		$	.22

Dividends per share	$	.17		$	.17

See accompanying notes to condensed consolidated financial statements.

NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets
(Amounts in Thousands)

	(Unaudited) March 31 2003		Dec. 31 2002

ASSETS
Current Assets:
Cash and temporary investments	$	20,510	$	22,244
Marketable securities available for sale		354		361
Accounts receivable:
Customers, net of allowance for doubtful accounts of $451 and $470, respectively		5,388		5,274
Access service settlements and other		7,688		7,729
Prepaid expenses		524		644
Inventories of construction and operating materials and supplies		2,081		2,160
Prepaid taxes other than income taxes		1,009		—
Deferred income taxes		1,668		1,882

Total current assets		39,222		40,294

Property, plant and equipment:
Land		475		475
Buildings		13,709		13,697
Equipment		183,557		181,294
Assets held under capital lease		10,363		10,363

		208,104		205,829
Less accumulated depreciation and amortization		119,166		114,721

		88,938		91,108
Construction-in-progress		3,193		3,131

Total property, plant and equipment, net		92,131		94,239

Investments		14,813		13,526
Intangible asset		1,039		1,039
Other assets		1,265		1,305

Total assets	$	148,470	$	150,403

(Continued)

NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets
(Amounts in Thousands)

	(Unaudited) March 31 2003			Dec. 31 2002

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	3,085		$	3,085
Obligation under capital lease		1,015			996
Accounts payable		7,113			7,215
Dividend payable		2,551			2,551
Other accrued liabilities		2,272			2,950
Federal and state income taxes		2,369			1,760

Total current liabilities		18,405			18,557

Long-term debt		26,996			27,767
Obligation under capital lease		6,350			6,611
Deferred income taxes		9,760			9,974
Accrued pension and postretirement benefits		10,464			10,919
Other liabilities		682			1,683

Total liabilities		72,657			75,511

Shareholders’ equity:
Capital stock-common stock, par value $.15625; authorized 50,000 shares; issued 15,040 shares and outstanding 15,005 shares		2,350			2,350
Capital in excess of par value		2,215			2,215
Retained earnings		73,184			72,257
Less cost of treasury stock (35 shares)		(508	)		(508	)
Accumulated other comprehensive loss		(1,428	)		(1,422	)

Total shareholders’ equity		75,813			74,892

Total liabilities and shareholders’ equity	$	148,470		$	150,403

See accompanying notes to condensed consolidated financial statements.

NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)
(Amounts in Thousands)

	For the Three Months Ended March 31

	2003			2002

Cash from operating activities:
Net earnings	$	3,478		$	3,246
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		4,684			4,389
Equity income of affiliated companies		(890	)		(688	)
Changes in assets and liabilities:
Accounts receivable		(73	)		(79

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