North Pittsburgh Systems, Inc. (NASDAQ:NPSI) today announced
earnings for fourth quarter and full year 2005. NPSI's President,
Harry R. Brown, stated that he was pleased to report net income of
$6,873,000, or $.46 per share, for fourth quarter 2005 as compared
to net income of $5,194,000, or $.35 per share, for fourth quarter
2004. For full year 2005, NPSI's net income increased $4,096,000,
or 21.6%, to $23,056,000 from $18,960,000 in 2004 with earnings per
share for 2005 amounting to $1.54 versus $1.26 for 2004, an
increase of $.28 per share. Addressing fourth quarter 2005 first,
Mr. Brown reported that operating revenues increased $823,000, or
3.2%, from $25,945,000 for fourth quarter 2004 to $26,768,000 for
fourth quarter 2005. The increase was partially due to the
Company's ability to continue to effectively penetrate its
Competitive Local Exchange Carrier's (CLEC) edge-out markets and to
the further expansion of broadband service offerings. In addition,
access revenues during the fourth quarter of 2005 benefited from an
increase in revenues, on a comparative basis, recorded from the
National Exchange Carrier Association (NECA) pooling arrangements
in which the Company's Incumbent Local Exchange Carrier (ILEC)
participates. In the fourth quarter of 2005, the ILEC's required
pool settlement contributions for the most recent two-year
monitoring period were determined by NECA to be approximately
$275,000 lower than had been projected and accrued, resulting in a
positive adjustment to settlement revenues. In contrast, the fourth
quarter of 2004 was negatively impacted by an approximately
$300,000 cumulative reduction to estimated settlement revenues
pursuant to the Company's analysis of the Federal Communications
Commission's (FCC) Memorandum Opinion and Order adopted November
30, 2004 concerning the suspension and investigation of the NECA
tariff then currently in effect as well as other matters which had
been recently addressed by the FCC concerning local exchange
carriers' over-earnings refund obligations. Operating expenses for
fourth quarter 2005 decreased $1,469,000, or 7.4%, in relation to
the prior year. Mr. Brown noted that the decrease in operating
expenses was predominantly due to a $1,789,000 decrease in
depreciation expense. During 2005, the Company conducted a
comprehensive review of the useful life estimates of certain main
categories of its ILEC's telephone plant and equipment. Pursuant to
that review, effective October 1, 2005, the Company increased its
useful life estimates for certain classes of its plant and
equipment in order to more closely align the remaining depreciable
lives of these assets with their true economic lives. These changes
in accounting estimates decreased the Company's fourth quarter 2005
depreciation expense by $1,955,000. The overall decrease in
operating expenses was also attributable to the fourth quarter of
2004 being negatively impacted by a $190,000 increase in expenses
recorded pursuant to a dispute with a wireless carrier over
intercarrier compensation covering a two-year period. The foregoing
factors were partially offset by increases in the direct costs
associated with the growth in access lines and access line
equivalents, such as fees paid for leasing unbundled network
elements in the portions of the CLEC edge-out markets that the
Company does not wholly provision over its own facilities, and fees
paid to terminate the increased local, toll and Internet traffic
generated by the Company's growing customer base. Other income
(net) for the fourth quarter of 2005 decreased $164,000 from the
prior year comparable period due primarily to a $581,000 decrease
in equity income recorded from the Company's partnership
investments (which consist primarily of limited partner interests
in three wireless partnerships). The decrease in equity income was
due to adjustments that were made to the wireless partnerships'
financial results of operations as a result of their annual audits
for the year ended December 31, 2004. The adjustments resulted in
the Company recording during its fourth quarter of 2005 a $143,000
reduction in equity income pertaining to the partnerships' results
of operations for 2004 and a $279,000 reduction in equity income
pertaining to the partnerships' results of operations for the first
three quarters of 2005 (which were similarly impacted by the same
cause underlying the partnerships' 2004 adjustments). The
adjustments were not individually significant for any of the seven
quarters which they impacted, and therefore the Company recorded
their cumulative effect in its fourth quarter of 2005, when the
Company learned the amounts of the adjustments. The decrease in
equity income was offset by a $322,000 increase in interest income
earned on the Company's higher cash and temporary investment
balances and a $95,000 decrease in interest expense as a result of
the Company's continued debt reduction. For comparative purposes,
the Company's effective tax rate for fourth quarter 2005 was 36.7%
versus 41.2% for fourth quarter 2004. The decrease in the effective
tax rate was partially a result of the elimination of a valuation
allowance for state net operating loss carryforwards at one of the
Company's subsidiaries pursuant to the subsidiary's current history
of producing state taxable income. The decrease in the effective
tax rate was also impacted by a positive true-up of the Company's
income tax liability during the fourth quarter of 2005. These
factors beneficially impacted income tax expense in the amount of
$510,000 for the fourth quarter of 2005. Addressing full year 2005
results, Mr. Brown stated that the $4,096,000, or 21.6%, increase
in net income was predominately a result of the favorable impact of
a settlement agreement reached with a carrier in the second quarter
of 2005, a decrease in depreciation expense pursuant to changes in
useful life estimates as previously described, an increase in
annual earnings recorded from the Company's investment in three
wireless partnerships and an increase in income recorded from the
Company's temporary investments. The settlement agreement, which
covered the exchange of traffic between the Company's ILEC and the
carrier over a multi-year period of time, resulted in a $1,604,000
increase in revenues and an $800,000 decrease in operating
expenses, or a combined $2,404,000 pre-tax benefit to the Company.
Mr. Brown further reported that operating revenues for 2005
increased $3,722,000, or 3.5%, over 2004. As noted above, the
impact from the aforementioned settlement agreement contributed
$1,604,000 to this increase. Revenues from all other sources
increased $2,118,000, or 2.0%, in 2005. The majority of this growth
was attributable to the Company's continued penetration into its
edge-out markets and to the further expansion of its broadband
service offerings. This ability to grow end-user revenues was
partially offset by decreases in the Company's access revenues.
Full year operating expenses for 2005 decreased $637,000, or 0.8%,
from 2004. Operating expenses were positively impacted by a
$1,161,000 decrease in depreciation expense for full year 2005. In
addition, 2005 benefited from the $800,000 cumulative reduction to
operating expenses associated with the aforementioned carrier
settlement agreement. Those items were partially offset by
increases in the direct costs associated with the growth in access
lines and access line equivalents. In addition, combined labor and
benefit expenses increased approximately $800,000, or 3.0%, during
2005. Other income (net) for full year 2005 increased $1,775,000
over the prior year due partially to a $1,051,000 increase in
interest income earned on the Company's higher cash and temporary
investment balances. In addition, the Company benefited from a
$292,000 decrease in interest expense as a result of the Company's
continued debt reduction and a $379,000 increase in equity income
recorded from the Company's partnership investments. For
comparative purposes, the Company's effective tax rate for full
year 2005 was 39.9% versus 41.2% for full year 2004. The decrease
in the annual effective tax rate was a result of the previously
mentioned elimination of a valuation allowance for state net
operating loss carryforwards and positive true-up of the Company's
income tax liability, both of which occurred in the fourth quarter
of 2005. Turning to operations, Mr. Brown reported that as of
December 31, 2005, the Company had a total of 70,409 access lines
in its ILEC territory, 60,578 CLEC access line equivalents
(including 2,152 DSL subscribers) and a total of 14,386 DSL
subscribers across all subsidiaries. He noted that although ILEC
access lines had decreased 2.6% during 2005, total CLEC access line
equivalents and consolidated DSL subscribers had grown 3.6% and
19.3%, respectively, during 2005. Mr. Brown concluded his remarks
by commenting that he was pleased with the Company's strong results
for 2005. Looking forward, he noted that 2006 would be an exciting
year for the Company, as it will be celebrating its 100th year
anniversary. Mr. Brown stated that the century-long perseverance of
the Company, which has been successfully guided through many
significant transformations in the technological and regulatory
environments in which it operates, is a strong testament to the
hard work and dedication of both the Company's past and current
employees. North Pittsburgh Systems, Inc. has total assets of $159
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. (d/b/a 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
Annual Report on Form 10-K for the year ended December 31, 2005.
-0- *T NORTH PITTSBURGH SYSTEMS, INC. SUMMARIZED FINANCIAL
INFORMATION (Unaudited) (Amounts in Thousands - Except Per Share
Data) For the Three Months For the Twelve Months Ended December 31
Ended December 31 --------------------- --------------------- 2005
2004(a) 2005 2004(a) ---------- ---------- ---------- ----------
Total operating revenues $26,768 $25,945 $109,804 $106,082 Total
operating expenses 18,346 19,815 78,066 78,703 ----------
---------- ---------- ---------- Net operating income 8,422 6,130
31,738 27,379 Other income, net 2,488 2,652 6,911 5,136 ----------
---------- ---------- ---------- Income from continuing operations
before income taxes 10,910 8,782 38,649 32,515 Provision for income
taxes 4,002 3,620 15,407 13,408 ---------- ---------- ----------
---------- Income from continuing operations 6,908 5,162 23,242
19,107 Gain (loss) from discontinued operations(a) (35) 32 (186)
(147) ---------- ---------- ---------- ---------- Net income $6,873
$5,194 $23,056 $18,960 ========== ========== ========== ==========
Common shares outstanding 15,005 15,005 15,005 15,005 ==========
========== ========== ========== Basic and diluted earnings per
share $.46 $.35 $1.54 $1.26 ========== ========== ==========
========== Dividends per share $.19 $.18 $.75 $.72 ==========
========== ========== ========== December 31 December 31 2005 2004
----------- ----------- Cash and temporary investments $55,567
$42,569 Total assets 159,200 155,500 Total debt 21,597 24,682 Total
shareholders' equity 99,517 86,861 (a) During the fourth quarter of
2005, the Company sold its business telecommunications equipment
operations, which engaged primarily in selling and maintaining
Nortel key systems and private branch exchanges. The results of
these operations have been classified as discontinued operations,
with prior year period amounts reclassified to conform to the
current year's presentation. These reclassifications did not affect
net income amounts. *T
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