North Pittsburgh Systems (MM) (NASDAQ:NPSI)
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North Pittsburgh Systems, Inc. (NASDAQ:NPSI) today announced net income
of $850,000, or $.06 per share, on operating revenues of $24,423,000 for
the first quarter of 2007. This compares to net income of $5,586,000, or
$.37 per share, on operating revenues of $26,723,000 for the comparable
period last year. NPSI’s President, Harry R.
Brown, stated that the results of operations for the first quarter of
2007 were significantly impacted by $6,468,000 in curtailment and
special termination benefit expenses associated with a voluntary early
retirement incentive program, as discussed in more detail below. On an
after tax basis, the curtailment and special termination benefit
expenses had the impact of reducing the Company’s
net income by $3,784,000, or $.25 per share.
Mr. Brown reported that operating revenues decreased $2,300,000, or
8.6%, during first quarter 2007 as compared to first quarter 2006. He
noted that the decrease in revenues was attributable to several sources,
including a $1,073,000 decrease in access revenues, mostly due to a
decrease in overall access minutes of use on the Company’s
network and unfavorable changes in the National Exchange Carrier
Association average schedule formulas applicable to the Company’s
Incumbent Local Exchange Carrier (ILEC), North Pittsburgh Telephone
Company (NPTC). In addition, revenues were negatively impacted by a
$489,000 decrease in toll revenues due to competitive pricing pressures
experienced on the Company’s toll offerings, a
$437,000 decrease in local dial tone revenues as a result of a decrease
in the Company’s overall number of access
lines, a $124,000 decrease in enhanced feature revenues primarily due to
competitive pricing pressures and by a $79,000 decline in revenue
generated from Primary Rate Interface circuits provisioned to Internet
Service Providers.
Operating expenses for first quarter 2007 increased $6,082,000, or
31.4%, from the comparable prior year period. The increase in operating
expenses was predominantly due to $6,468,000 of curtailment and special
termination benefit expenses associated with the aforementioned
voluntary early retirement incentive program that extended through March
31, 2007 at the Company’s NPTC subsidiary. Mr.
Brown noted that the incentive program provided for an enhanced
retirement benefit calculation and a supplement to the calculation to
determine early retirement eligibility for qualifying employees who
participate in NPTC’s defined benefit
retirement plan (Pension Plan). In total, 40 employees elected to retire
and receive the enhanced benefits, which resulted in $2,869,000 of
special termination benefit expenses recorded upon the re-measurement of
the Pension Plan. In addition, curtailment and special termination
benefits expenses of $3,599,000 were recorded in association with the
re-measurement of NPTC’s postretirement
medical and life insurance plans; these charges primarily reflected the
shift in the Company’s costs for these
benefits from current operating expenses to obligations of the
postretirement plans. Cash flows from operations were not impacted by
these charges during the first quarter of 2007 because there were no
cash severance or lump sum benefit options or enhancements associated
with the voluntary early retirement incentive program. Mr. Brown
reported that the Company estimates immediate ongoing annual cost
savings of approximately $2,600,000 as a result of this program and
corresponding reduction in personnel, with an ultimate annual cost
savings of approximately $3,300,000 once fully phased-in. The difference
between the immediate cost savings and the fully phased-in cost savings
reflects the Company’s anticipation of
incurring some costs for temporary part-time help, outside contractors
and overtime during a transition in which the Company restructures to
absorb the workload associated with those 40 employees who retired as
part of the voluntary early retirement incentive program.
Operating expenses for the first quarter of 2007 were also impacted by a
$383,000 increase in depreciation expense associated with growth in the
Company’s depreciable asset base, a $695,000
decrease in network and other operating expenses and a $74,000 decrease
in state and local operating taxes. The decrease in network and other
operating expenses was mainly due to an $800,000 reduction in the Company’s
combined labor and benefit expenses during the first quarter of 2007 as
a result of the restructuring of employee benefit plans and a decrease
in the overall employee base.
Other income (net) for the first quarter of 2007 improved $279,000 from
the prior year period due principally to a $193,000 increase in equity
income recorded from the Company’s
partnership investments (which consist primarily of limited partner
interests in three wireless partnerships). In addition, the Company
benefited from a $26,000 increase in interest earned from higher
interest rates on invested cash and a $49,000 decrease in interest
expense as a result of the Company’s
continued debt reduction.
Turning to operations, Mr. Brown reported that as of March 31, 2007, the
Company had a total of 61,546 access lines in its ILEC territory, 66,254
Competitive Local Exchange Carrier (CLEC) access line equivalents
(including 42,855 access lines and 2,324 DSL subscribers) and a total of
16,260 DSL subscribers across all subsidiaries. He stated that with the
introduction during 2006 of telephony competition from the two main
cable companies whose service areas overlap the majority of the Company’s
ILEC territory, ILEC access line losses have increased from their
historical levels; the Company experienced an 11.0% decrease in access
lines in its ILEC territory over the past twelve-month period ended
March 31, 2007. On a sequential quarterly basis, the Company’s
ILEC access line loss totaled 1,771 lines during the first quarter of
2007 as compared to 3,030 lines during the fourth quarter of 2006, which
was the first full quarter in which the Company’s
cable competitors had local number portability. Mr. Brown further noted
that total CLEC access line equivalents and consolidated DSL subscribers
had grown 7.3% and 9.5%, respectively, over that same twelve-month
period ended March 31, 2007.
North Pittsburgh Systems, Inc. has total assets of $160 million and
operates an integrated high-technology telecommunications business in
Western Pennsylvania providing competitive and local exchange services,
long distance and Internet services through its subsidiaries, North
Pittsburgh Telephone Company, Penn Telecom, Inc. and Pinnatech, Inc.
(Nauticom).
In addition to historical information, this information may contain
forward-looking statements regarding events, performance, financial
trends and accounting policies that may affect the Company’s
future operating results, financial position or cash flows. Such
forward-looking statements are based on assumptions and estimates and
involve risks and uncertainties. Various factors could affect future
results and could cause actual results to differ materially from those
expressed in or implied by the forward-looking statements. Factors that
could cause such a difference include, but are not limited to: a change
in economic conditions; government and regulatory policies (at both the
federal and state levels); unanticipated higher capital spending for, or
delays in, the deployment of new technologies; the pricing and
availability of equipment, materials and inventories; changes in the
competitive environment; and the Company’s
ability to continue to penetrate its edge-out markets. This information
should be read in conjunction with the Company’s
periodic reports filed with the Securities and Exchange Commission, the
most recent of which is the Company’s
Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2007.
NORTH PITTSBURGH SYSTEMS, INC.
SUMMARIZED FINANCIAL INFORMATION
(Unaudited)
(Amounts in Thousands - Except Per Share Data)
For the Three Months
Ended March 31
2007
2006
Operating revenues:
Local network services
$ 6,961
$ 7,671
Long distance and access services
14,053
15,553
Directory advertising, billing and other services
334
343
Other operating revenues
3,075
3,156
Total operating revenues
24,423
26,723
Operating expenses:
Network and other operating expenses (exclusive of depreciation
and amortization shown separately below)
14,496
15,191
Depreciation and amortization
3,509
3,126
State and local taxes
1,004
1,078
Curtailment and special termination benefit expenses
6,468
-
Total operating expenses
25,477
19,395
Net operating income (loss)
(1,054)
7,328
Other income, net
2,539
2,260
Income before income taxes
1,485
9,588
Provision for income taxes
635
4,002
Net income
$ 850
$ 5,586
Weighted average common shares outstanding
15,005
15,005
Basic and diluted earnings per share
$ .06
$ .37
Dividends per share
$ .20
$ .19
March 31
2007
Dec. 31
2006
Cash and temporary investments
$ 51,171
$ 49,518
Total assets
160,374
157,433
Total debt
17,741
18,512
Total shareholders’ equity
98,272
101,296