North Pittsburgh Systems, Inc. [NASDAQ:NPSI] today announced net
income of $4,366,000, or $.29 per share, on operating revenues of
$24,313,000 for the second quarter of 2007. This compares to net
income of $16,398,000, or $1.09 per share, on operating revenues of
$25,713,000 for the comparable period last year. NPSI�s President,
Harry R. Brown, stated that significant items that were not routine
in nature impacted both the second quarter of 2007 and the second
quarter of 2006. He noted that the results of operations for the
second quarter of 2007 were impacted by $718,000 of strategic
alternatives expenses incurred in connection with the activities
that resulted in the agreement and plan of merger with Consolidated
Communications Holdings, Inc., which, on an after tax basis,
reduced the Company�s net income by $420,000, or $.03 per share.
During the second quarter of 2006, the Company�s North Pittsburgh
Telephone Company (NPTC) subsidiary received a payment of
$19,622,000 from the Rural Telephone Bank (RTB) for the redemption
of NPTC�s RTB stock and recognized a gain on the full amount of the
proceeds received, which, on an after tax basis, contributed
$11,479,000 to the net income recorded during the 2006 second
quarter, or $.76 per share. Mr. Brown reported that operating
revenues decreased $1,400,000, or 5.4%, during second quarter 2007
as compared to second quarter 2006. He noted that the decrease in
revenues was attributable to several sources, including a $948,000
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), NPTC. In addition, revenues were
negatively impacted by a $533,000 decrease in toll revenues due to
competitive pricing pressures experienced on the Company�s toll
offerings and a $457,000 decrease in local dial tone revenues as a
result of a decrease in the Company�s overall number of access
lines, offset partially by a $510,000 increase in combined special
access and broadband revenues. Operating expenses for the second
quarter of 2007 decreased $103,000, or 0.5%, from the comparable
prior year period. The decrease was due to a $1,099,000 decrease in
network and other operating expenses and a $57,000 decrease in
operating taxes, offset partially by a $335,000 increase in
depreciation expense associated with growth in the Company�s
depreciable asset base and the aforementioned $718,000 of strategic
alternatives expenses incurred during the second quarter of 2007.
The decrease in network and other expenses was mainly due to an
approximate $1,300,000 reduction in the Company�s combined labor
and benefit expenses during the second 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 second
quarter of 2007 decreased $19,268,000 from the prior year period
principally due to the aforementioned $19,622,000 gain realized
from the RTB stock redemption in the second quarter of 2006,
partially offset by a $440,000 increase in 2007 in equity income
recorded from the Company�s partnership investments (which consist
primarily of limited partner interests in three wireless
partnerships). For the first six months of 2007, net income
decreased $16,768,000 to $5,216,000 from $21,984,000 for the first
six months of 2006, and earnings per share amounted to $.35 as
compared to $1.47 for the first six months of 2006. In addition,
for the first six months of 2007, operating revenues decreased
$3,701,000, or 7.1%, while operating expenses increased $5,978,000,
or 15.3%, and Other income (net) decreased $18,988,000 as compared
to the first six months of 2006. The factors described above in the
second quarter analysis, including the $718,000 of strategic
alternatives expenses ($420,000 after tax, or $.03 per share)
recorded in the Company�s second quarter of 2007 and the
$19,622,000 gain on the RTB stock redemption ($11,479,000 after
tax, or $.76 per share) recorded in the Company�s second quarter of
2006, were also main contributors to the change in net income for
the first six months of 2007 as compared to the first six months of
2006. In addition, the results of operations for the first six
months of 2007 were impacted by $6,468,000 in curtailment and
special termination benefit expenses associated with a voluntary
early retirement incentive program that extended through March 31,
2007 at the Company�s NPTC subsidiary. 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 NPTC�s defined benefit retirement plan and
$3,599,000 of curtailment and special termination benefits expenses
recorded in association with the re-measurement of NPTC�s
postretirement medical and life insurance plans. On an after tax
basis, the curtailment and special termination benefit expenses
recorded during the first quarter of 2007 had the impact of
reducing the Company�s 2007 year-to-date net income by $3,784,000,
or $.25 per share. Turning to operations, Mr. Brown reported that
as of June 30, 2007, the Company had a total of 60,663 access lines
in its ILEC territory, 66,699 Competitive Local Exchange Carrier
(CLEC) access line equivalents (including 42,250 access lines and
2,286 DSL subscribers) and a total of 16,572 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 twelve-month period ended June 30,
2007. On a sequential quarterly basis, the Company�s ILEC access
line loss totaled 883 during the second quarter of 2007, as
compared to 1,771 lines during the first quarter of 2007 and 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 5.4% and
9.6%, respectively, over that same twelve-month period ended June
30, 2007. North Pittsburgh Systems, Inc. has total assets of $157
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; the Company�s ability to continue to penetrate its
edge-out markets; and risks associated with the proposed merger
with Consolidated Communications Holdings, Inc., including failure
to consummate or a delay in consummating the merger. 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.
Prospectus/Proxy Statement This material is not a substitute for
the prospectus/proxy statement Consolidated Communications
Holdings, Inc. and North Pittsburgh Systems, Inc. will file with
the Securities and Exchange Commission. Investors are urged to read
the prospectus/proxy statement, which will contain important
information, including detailed risk factors, when it becomes
available. The prospectus/proxy statement and other documents which
will be filed by Consolidated Communications Holdings, Inc. and
North Pittsburgh Systems, Inc. with the Securities and Exchange
Commission will be available free of charge at the SEC's website,
www.sec.gov, or by directing a request when such a filing is made
to Consolidated Communications, 121 South 17th Street, Mattoon, IL
61938, Attention: Investor Relations; or to North Pittsburgh
Systems, Inc., 4008 Gibsonia Road, Gibsonia, Pennsylvania 15044,
Attention: Investor Relations. The final prospectus/proxy statement
will be mailed to shareholders of North Pittsburgh Systems, Inc.
This communication shall not constitute an offer to sell or the
solicitation of an offer to buy securities, nor shall there be any
sale of securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of such jurisdiction. Proxy
Solicitation Consolidated Communications Holdings, Inc. and North
Pittsburgh Systems, Inc., and certain of their respective
directors, executive officers and other members of management and
employees are participants in the solicitation of proxies in
connection with the proposed transactions. Information about the
directors and executive officers of Consolidated Communications
Holdings, Inc. is set forth in the proxy statement for Consolidated
Communications Holdings, Inc.�s 2007 annual meeting of
shareholders. Information about the directors and executive
officers of North Pittsburgh Systems, Inc. is set forth in the
company�s Annual Report on Form 10-K for the year ended December
31, 2006, as amended. Investors may obtain additional information
regarding the interests of such participants in the proposed
transactions by reading the prospectus/proxy statement for such
proposed transactions when it becomes available. NORTH PITTSBURGH
SYSTEMS, INC. SUMMARIZED FINANCIAL INFORMATION (Unaudited) (Amounts
in Thousands � Except Per Share Data) For the Three MonthsEnded
June 30 For the Six MonthsEnded June 30 2007 2006 2007 2006
Operating revenues: Local network services $ 6,969 $ 7,443 $ 13,930
$ 15,114 Long distance and access services 13,887 14,923 27,940
30,476 Directory advertising, billing and other services 288 385
623 729 Other operating revenues � 3,169 � 2,962 � 6,244 � 6,119 �
Total operating revenues 24,313 25,713 48,737 52,438 � Operating
expenses: Network and other operating expenses (exclusive of
depreciation and amortization shown separately below) 14,626 15,725
29,122 30,916 Depreciation and amortization 3,578 3,243 7,088 6,370
Operating taxes 757 814 1,761 1,893 Strategic alternatives expenses
718 - 718 - Curtailment and special termination benefit expenses �
- � - � 6,468 � - � Total operating expenses � 19,679 � 19,782 �
45,157 � 39,179 � Net operating income 4,634 5,931 3,580 13,259 �
Other income, net � 2,863 � 22,131 � 5,402 � 24,390 � Income from
continuing operations before income taxes 7,497 28,062 8,982 37,649
� Provision for income taxes � 3,131 � 11,670 � 3,766 � 15,671 �
Income from continuing operations � 4,366 � 16,392 � 5,216 � 21,978
� Income from discontinued operations, net of income taxes � - � 6
� - � 6 � Net income $ 4,366 $ 16,398 $ 5,216 $ 21,984 � Weighted
average common shares outstanding � 15,005 � 15,005 � 15,005 �
15,005 � Basic and diluted earnings per share $ .29 $ 1.09 $ .35 $
1.47 � Dividends per share $ .20 $ 1.20 $ .40 $ 1.39 June 30 2007
Dec. 31 2006 � Cash and temporary investments $ 46,825 $ 49,518
Total assets 157,122 157,433 Total debt 16,970 18,512 Total
shareholders� equity 99,708 101,296
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