North Pittsburgh Systems, Inc. Reports First Quarter 2007 Earnings
11 May 2007 - 4:32AM
Business Wire
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�
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