NORTH PITTSBURGH SYSTEMS INC - 10-Q Quarterly Report

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 June 30, 2004

¨	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 July 30, 2004 was 15,005,000.

TABLE OF CONTENTS



PART I	Financial Information

	Report of Independent Registered Public Accounting Firm

Item 1.	Financial Statements

	Condensed Consolidated Statements of Income For the three and six months ended June 30, 2004 and 2003	1

	Condensed Consolidated Balance Sheets June 30, 2004 and December 31, 2003	2

	Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2004 and 2003	4

	Notes to Condensed Consolidated Financial Statements	5

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

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21

Item 4.	Controls and Procedures	21

PART II	Other Information

Item 4.	Submission of Matters to a Vote of Security Holders	22

Item 6.	Exhibits and Reports on Form 8-K	22

SIGNATURES		24

PART 1

FINANCIAL INFORMATION

Report of Independent Registered Public Accounting Firm

The Board of Directors

North Pittsburgh Systems, Inc.:

We have reviewed the condensed consolidated balance sheet of North Pittsburgh Systems, Inc. and subsidiaries as of June 30, 2004, the related condensed consolidated statements of income for the three-month and six-month periods ended June 30, 2004 and 2003, and the related condensed consolidated statements of cash flows for the six-month periods ended June 30, 2004 and 2003. These condensed consolidated financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 the standards of the Public Company Accounting Oversight Board (United States), 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 standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of North Pittsburgh Systems, Inc. and subsidiaries as of December 31, 2003 and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for the year then ended (not presented herein); and in our report dated February 20, 2004, 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, 2003 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Pittsburgh, Pennsylvania

July 22, 2004

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Unaudited)

(Amounts in Thousands – Except Per Share Data)


	For the Three Months Ended June 30						For the Six Months Ended June 30
	2004			2003			2004			2003
Operating revenues:
Local network services	$	6,793		$	6,326		$	13,517		$	12,299
Long distance and access services		16,573			16,401			33,215			32,168
Directory advertising, billing & other services		353			356			711			588
Telecommunication equipment sales		501			514			1,116			1,044
Other operating revenues		2,846			2,604			5,637			5,222

Total operating revenues		27,066			26,201			54,196			51,321
Operating expenses:
Network and other operating expenses (exclusive of depreciation and amortization shown separately below)		14,126			16,217			27,966			29,657
Depreciation and amortization		4,705			4,729			9,335			9,413
State and local taxes		851			956			1,969			2,035
Telecommunication equipment expenses		367			382			787			748

Total operating expenses		20,049			22,284			40,057			41,853

Net operating income		7,017			3,917			14,139			9,468
Other expense (income), net:
Interest expense		477			538			970			1,086
Interest income		(64	)		(47	)		(126	)		(105	)
Equity income of affiliated companies		(1,366	)		(823	)		(2,170	)		(1,713	)
Sundry expense, net		58			58			73			83

Total other expense (income), net		(895	)		(274	)		(1,253	)		(649	)

Income before income taxes		7,912			4,191			15,392			10,117
Provision for income taxes		3,264			1,726			6,347			4,174

Net income	$	4,648		$	2,465		$	9,045		$	5,943

Weighted average common shares outstanding		15,005			15,005			15,005			15,005

Basic and diluted earnings per share	$	.31		$	.16		$	.60		$	.40

Dividends per share	$	.18		$	.17		$	.36		$	.34

See accompanying notes to condensed consolidated financial statements.

NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Amounts in Thousands)


	(Unaudited) June 30 2004		Dec. 31 2003
ASSETS
Current assets:
Cash and temporary investments	$	33,511	$	32,026
Marketable securities available for sale		489		473
Accounts receivable:
Customers, net of allowance for doubtful accounts of $669 and $686, respectively		6,140		6,015
Access service settlements and other		6,724		7,455
Prepaid expenses		589		886
Inventories		1,525		1,535
Prepaid taxes other than income taxes		688		—
Deferred income taxes		1,599		1,545

Total current assets		51,265		49,935

Property, plant and equipment:
Land		475		475
Buildings		13,428		13,772
Equipment		195,336		191,135
Assets held under capital lease		10,363		10,363

		219,602		215,745
Less accumulated depreciation and amortization		140,181		132,133

		79,421		83,612
Construction in progress		2,809		2,174

Total property, plant and equipment, net		82,230		85,786

Investments		13,245		12,858
Intangible asset		758		758
Other assets		1,306		1,288

Total assets	$	148,804	$	150,625

(Continued)

NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Amounts in Thousands)


	(Unaudited) June 30 2004			Dec. 31 2003
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	3,085		$	3,085
Obligation under capital lease		1,112			1,072
Accounts payable		4,927			5,436
Dividend payable		2,701			2,551
Other accrued liabilities		4,404			4,656
Federal and state income taxes		312			1,638

Total current liabilities		16,541			18,438

Long-term debt		23,140			24,682
Obligation under capital lease		4,972			5,539
Deferred income taxes		9,839			10,028
Accrued pension and postretirement benefits		10,965			12,207
Other liabilities		556			579

Total liabilities		66,013			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		80,314			76,671
Less cost of treasury stock (35 shares)		(508	)		(508	)
Accumulated other comprehensive loss		(1,580	)		(1,576	)

Total shareholders’ equity		82,791			79,152

Total liabilities and shareholders’ equity	$	148,804		$	150,625

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 Six Months Ended June 30
	2004			2003
Cash from operating activities:
Net income	$	9,045		$	5,943
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		9,335			9,413
Equity income of affiliated companies		(2,170	)		(1,713	)
Changes in assets and liabilities:
Accounts receivable		606			(439	)
Inventories		10

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents