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 September 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 October 31, 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 nine months ended September 30, 2004 and 2003	1

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

	Condensed Consolidated Statements of Cash Flows For the nine months ended September 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	22

Item 4.	Controls and Procedures	22

PART II	Other Information

Item 6.	Exhibits	23

SIGNATURES		26

PART I

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 September 30, 2004, the related condensed consolidated statements of income for the three-month and nine-month periods ended September 30, 2004 and 2003, and the related condensed consolidated statements of cash flows for the nine-month periods ended September 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.

/s/ KPMG LLP

Pittsburgh, Pennsylvania

October 26, 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 Sept. 30						For the Nine Months Ended Sept. 30
	2004			2003			2004			2003
Operating revenues:
Local network services	$	6,910		$	6,450		$	20,427		$	18,749
Long distance and access services		16,186			16,427			49,401			48,596
Directory advertising, billing & other services		322			368			1,033			956
Telecommunication equipment sales		394			611			1,510			1,655
Other operating revenues		2,983			2,446			8,620			7,667

Total operating revenues		26,795			26,302			80,991			77,623

Operating expenses:
Network and other operating expenses (exclusive of depreciation and amortization shown separately below)		14,167			13,634			42,134			43,291
Depreciation and amortization		4,738			4,829			14,073			14,243
State and local taxes		823			897			2,791			2,932
Telecommunication equipment expenses		262			417			1,049			1,164

Total operating expenses		19,990			19,777			60,047			61,630

Net operating income		6,805			6,525			20,944			15,993

Other income (expense), net:
Interest expense		(466	)		(528	)		(1,436	)		(1,614	)
Interest income		107			42			233			147
Equity income of affiliated companies		1,637			571			3,807			2,284
Sundry expense, net		(47	)		(31	)		(120	)		(114	)

Total other income (expense), net		1,231			54			2,484			703

Income before income taxes		8,036			6,579			23,428			16,696
Provision for income taxes		3,315			2,709			9,662			6,883

Net income	$	4,721		$	3,870		$	13,766		$	9,813

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

Basic and diluted earnings per share	$	.31		$	.26		$	.92		$	.65

Dividends per share	$	.18		$	.17		$	.54		$	.51

See accompanying notes to unaudited condensed consolidated financial statements.

NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Amounts in Thousands)


	(Unaudited) Sept. 30 2004		Dec. 31 2003
ASSETS
Current assets:
Cash and temporary investments	$	36,156	$	32,026
Marketable securities available for sale		482		473
Accounts receivable:
Customer, net of allowance for doubtful accounts of $582 and $686, respectively		6,074		6,015
Access service settlements and other		6,562		7,455
Prepaid expenses		878		886
Inventories		1,577		1,535
Prepaid taxes other than income taxes		206		—
Deferred income taxes		1,525		1,545

Total current assets		53,460		49,935

Property, plant and equipment:
Land		475		475
Buildings		13,942		13,772
Equipment		197,602		191,135
Assets held under capital lease		10,363		10,363

		222,382		215,745

Less accumulated depreciation and amortization		144,275		132,133

		78,107		83,612

Construction in progress		4,027		2,174

Total property, plant and equipment, net		82,134		85,768

Investments		13,464		12,858
Intangible asset		758		758
Other assets		1,316		1,288

Total assets	$	151,132	$	150,625

(Continued)

NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Amounts in Thousands)


	(Unaudited) Sept. 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		1,062			1,072
Accounts payable		5,401			5,436
Dividend payable		2,701			2,551
Other accrued liabilities		4,412			4,656
Federal and state income taxes		702			1,638

Total current liabilities		17,363			18,438

Long-term debt		22,368			24,682
Obligation under capital lease		4,753			5,539
Deferred income taxes		9,705			10,028
Accrued pension and postretirement benefits		11,585			12,207
Other liabilities		551			579

Total liabilities		66,325			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		82,334			76,671
Less cost of treasury stock (35 shares)		(508	)		(508	)
Accumulated other comprehensive loss		(1,584	)		(1,576	)

Total shareholders’ equity		84,807			79,152

Total liabilities and shareholders’ equity	$	151,132		$	150,625

See accompanying notes to unaudited condensed consolidated financial statements.

NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Amounts in Thousands)


	For the Nine Months Ended Sept. 30
	2004			2003
Cash from operating activities:
Net income	$	13,766		$	9,813
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		14,073			14,243
Equity income of affiliated companies		(3,807	)		(2,284	)
Changes in assets and liabilities:
Accounts receivable		834			(544	)
Inventories		(42	)		511
Prepaid expenses and other assets		(20	)		(390	)
Prepaid taxes other than income taxes		(206	)		(248	)

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