SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(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, 2004
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 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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
YES x NO ¨
The number of shares of the registrant’s Common Stock (par value $.15625 per share) outstanding as of May 7, 2004 was 15,005,000.
| PART I |
Financial Information | |||
| Item 1. |
||||
| Independent Auditors’ Review Report |
1 | |||
|
Condensed Consolidated Statements of Income |
2 | |||
|
Condensed Consolidated Balance Sheets |
3 | |||
|
Condensed Consolidated Statements of Cash Flows |
5 | |||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
8 | ||
| Item 3. |
21 | |||
| Item 4. |
21 | |||
| PART II |
Other Information | |||
| Item 6. |
22 | |||
| 24 | ||||
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, 2004 and the related condensed consolidated statements of income and cash flows for the three-month periods ended March 31, 2004 and 2003. 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 procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, 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.
KPMG LLP
Pittsburgh, Pennsylvania
April 20, 2004
PART I
FINANCIAL INFORMATION
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
(Amounts in Thousands – Except Per Share Data)
| For the Three Months Ended March 31 |
||||||||
| 2004 |
2003 |
|||||||
| Operating revenues: |
||||||||
| Local network services |
$ | 6,725 | $ | 5,973 | ||||
| Long distance and access services |
16,577 | 15,751 | ||||||
| Directory advertising, billing and other services |
423 | 248 | ||||||
| Telecommunication equipment sales |
615 | 530 | ||||||
| Other operating revenues |
2,791 | 2,618 | ||||||
| Total operating revenues |
27,131 | 25,120 | ||||||
| Operating expenses: |
||||||||
| Network and other operating expenses |
13,841 | 13,440 | ||||||
| Depreciation and amortization |
4,629 | 4,684 | ||||||
| State and local taxes |
1,118 | 1,079 | ||||||
| Telecommunication equipment expenses |
421 | 366 | ||||||
| Total operating expenses |
20,009 | 19,569 | ||||||
| Net operating income |
7,122 | 5,551 | ||||||
| Other expense (income), net: |
||||||||
| Interest expense |
493 | 548 | ||||||
| Interest income |
(62 | ) | (58 | ) | ||||
| Equity income of affiliated companies |
(804 | ) | (890 | ) | ||||
| Sundry expense, net |
15 | 25 | ||||||
| Total other expense (income), net |
(358 | ) | (375 | ) | ||||
| Income before income taxes |
7,480 | 5,926 | ||||||
| Income taxes |
3,083 | 2,448 | ||||||
| Net income |
$ | 4,397 | $ | 3,478 | ||||
| Weighted average common shares outstanding |
15,005 | 15,005 | ||||||
| Basic and diluted earnings per share |
$ | .29 | $ | .23 | ||||
| Dividends per share |
$ | .18 | $ | .17 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
2
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in Thousands)
| (Unaudited) March 31 2004 |
Dec. 31 2003 | |||||
| ASSETS | ||||||
| Current Assets: |
||||||
| Cash and temporary investments |
$ | 34,066 | $ | 32,026 | ||
| Marketable securities available for sale |
501 | 473 | ||||
| Accounts receivable: |
||||||
| Customers, net of allowance for doubtful accounts of $712 and $686, respectively |
5,960 | 6,015 | ||||
| Access service settlements and other |
6,674 | 7,455 | ||||
| Prepaid expenses |
603 | 886 | ||||
| Inventories |
1,643 | 1,535 | ||||
| Prepaid taxes other than income taxes |
1,161 | — | ||||
| Deferred income taxes |
1,304 | 1,545 | ||||
| Total current assets |
51,912 | 49,935 | ||||
| Property, plant and equipment: |
||||||
| Land |
475 | 475 | ||||
| Buildings |
13,383 | 13,772 | ||||
| Equipment |
193,449 | 191,135 | ||||
| Assets held under capital lease |
10,363 | 10,363 | ||||
| 217,670 | 215,745 | |||||
| Less accumulated depreciation and amortization |
135,855 | 132,133 | ||||
| 81,815 | 83,612 | |||||
| Construction in progress |
2,366 | 2,174 | ||||
| Total property, plant and equipment, net |
84,181 | 85,786 | ||||
| Investments |
13,065 | 12,858 | ||||
| Intangible asset |
758 | 758 | ||||
| Other assets |
1,295 | 1,288 | ||||
| Total assets |
$ | 151,211 | $ | 150,625 | ||
(Continued)
3
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Amounts in Thousands)
| (Unaudited) March 31 2004 |
Dec. 31 2003 |
|||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Current portion of long-term debt |
$ | 3,085 | $ | 3,085 | ||||
| Obligation under capital lease |
1,092 | 1,072 | ||||||
| Accounts payable |
5,211 | 5,436 | ||||||
| Dividend payable |
2,701 | 2,551 | ||||||
| Other accrued liabilities |
4,440 | 4,656 | ||||||
| Federal and state income taxes |
2,865 | 1,638 | ||||||
| Total current liabilities |
19,394 | 18,438 | ||||||
| Long-term debt |
23,911 | 24,682 | ||||||
| Obligation under capital lease |
5,258 | 5,539 | ||||||
| Deferred income taxes |
9,538 | 10,028 | ||||||
| Accrued pension and postretirement benefits |
11,692 | 12,207 | ||||||
| Other liabilities |
567 | 579 | ||||||
| Total liabilities |
70,360 | 71,473 | ||||||
| Shareholders’ equity: |
||||||||
| Capital stock: authorized 50,000 shares: |
||||||||
| Common stock, par value $.15625; issued 15,040 shares and outstanding 15,005 shares |
2,350 | 2,350 | ||||||
| Preferred stock, par value $1.00; none issued |
— | — | ||||||
| Capital in excess of par value |
2,215 | 2,215 | ||||||
| Retained earnings |
78,367 | 76,671 | ||||||
| Less cost of treasury stock (35 shares) |
(508 | ) | (508 | ) | ||||
| Accumulated other comprehensive loss |
(1,573 | ) | (1,576 | ) | ||||
| Total shareholders’ equity |
80,851 | 79,152 | ||||||
| Total liabilities and shareholders’ equity |
$ | 151,211 | $ | 150,625 | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Amounts in Thousands)
| For the Three Months Ended March 31 |
||||||||
| 2004 |
2003 |
|||||||
| Cash from operating activities: |
||||||||
| Net income |
$ | 4,397 | $ | 3,478 | ||||
| Adjustments to reconcile net income to net cash from operating activities: |
||||||||
| Depreciation and amortization |
4,629 | 4,684 | ||||||
| Equity income of affiliated companies |
(804 | ) | (890 | ) | ||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
836 | (73 | ) | |||||
| Inventories |
(108 | ) | 79 | |||||
| Prepaid expenses and other assets |
276 | 160 | ||||||
| Prepaid taxes |
(1,161 | ) | (1,009 | ) | ||||
| Accounts payable |
(225 | ) | (102 | ) | ||||
| Other accrued liabilities |
(228 | ) | (1,679 | ) | ||||
| Accrued pension and postretirement benefits |
(515 | ) | (455 | ) | ||||
| Federal and state income taxes |
1,227 | 609 | ||||||
| Deferred income taxes |
(250 | ) | 1 | |||||
| Other, net |
25 | 45 | ||||||
| Total adjustments |
3,702 | 1,370 | ||||||
| Net cash from operating activities |
8,099 | 4,848 | ||||||
| Cash used for investing activities: |
||||||||
| Expenditures for property and equipment |
(3,048 | ) | (2,621 | ) | ||||
| Purchase of marketable securities available for sale |
(25 | ) | — | |||||
| Investments in affiliated companies |
— | (937 | ) | |||||
| Distributions from affiliated companies |
597 | 540 | ||||||
| Net cash used for investing activities |
(2,476 | ) | (3,018 | ) | ||||
| Cash used for financing activities: |
||||||||
| Cash dividends |
(2,551 | ) | (2,551 | ) | ||||
| Payments of capital lease obligation |
(261 | ) | (242 | ) | ||||
| Retirement of debt |
(771 | ) | (771 | ) | ||||
| Net cash used for financing activities |
(3,583 | ) | (3,564 | ) | ||||
| Net increase (decrease) in cash and temporary investments |
2,040 | (1,734 | ) | |||||
| Cash and temporary investments at beginning of period |
32,026 | 22,244 | ||||||
| Cash and temporary investments at end of period |
$ | 34,066 | $ | 20,510 | ||||