North Pittsburgh Systems, Inc. (NASDAQ:NPSI) today announced net
income of $6,459,000, or $.43 per share, on operating revenues of
$29,382,000 for the second quarter of 2005. This compares to net
income of $4,648,000, or $.31 per share, on operating revenues of
$27,370,000 for the comparable period last year. NPSI's President,
Harry R. Brown, noted that the current year second quarter was
positively impacted by a settlement agreement reached with a
carrier. The $2,404,000 settlement, which covered the exchange of
traffic between the Company's Incumbent Local Exchange Carrier
(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. On an after tax basis, the settlement
contributed $1,406,000 to the increase in net income, or $.09 per
share. Mr. Brown stated that the remainder of the increase in
second quarter 2005 net income was attributable primarily to
increased investment earnings recorded from the Company's limited
partner interests in three wireless partnerships and an increase in
income earned from the Company's temporary investments. Mr. Brown
reported that operating revenues increased $2,012,000, or 7.4%,
during second quarter 2005 as compared to second quarter 2004. The
increase was principally due to the positive impact of the
aforementioned settlement, which resulted in a $1,604,000 increase
in terminating access revenues realized over that amount which had
been estimated and accrued over a multi-year period. The Company's
ability to continue to effectively penetrate its Competitive Local
Exchange Carrier's (CLEC) edge-out markets and the further
expansion of its broadband service offerings also contributed to
the revenue increase. This ability to grow end-user customer
revenues was offset, though, in large part by decreases in the
Company's access revenues. In this regard, Mr. Brown explained that
access revenues were negatively impacted by the phase down of the
Company's CLEC interstate access rates pursuant to the Federal
Communication Commission's Access Charge Reform Order, decreases in
effective rates charged for wireless traffic and a decrease in
revenues realized from the National Exchange Carrier Association
pooling arrangements in which the Company's ILEC participates.
Operating expenses for the second quarter of 2005 decreased
$337,000, or 1.7%, in relation to the prior year period. Operating
expenses for the second quarter of 2005 were positively impacted by
the aforementioned settlement, which resulted in a cumulative
$800,000 reduction in traffic termination costs from the amount
that was estimated and accrued over a multi-year period. The
$463,000 increase in all other operating expenses was predominately
due to 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. In addition, depreciation expense increased as a
result of a 4.0% increase in the Company's depreciable asset base
over the prior year comparable period. Other income (net) for the
second quarter of 2005 increased $714,000 over the prior year
comparable period due partially to a $359,000 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 $259,000
increase in interest income earned on higher cash and temporary
investment balances and a $61,000 decrease in interest expense as a
result of the Company's continued debt reduction. For the first six
months of 2005, net income increased $2,103,000, or 23.3%, to
$11,148,000 from $9,045,000 for the first six months of 2004, and
earnings per share amounted to $.74 as compared to $.60 for the
first six months of 2004. In addition, for the first six months of
2005, operating revenues increased $2,227,000, or 4.1%, while
operating expenses increased $187,000, or 0.5%, and Other income
(net) increased $1,504,000 as compared to the first six months of
2004. The factors described above in the second quarter analysis,
including the $1,604,000 increase in revenues and $800,000 decrease
in expenses from the aforementioned settlement, were also the main
contributors to the net income increase for the first six months of
2005. Turning to operations, Mr. Brown reported that as of June 30,
2005, the Company had a total of 71,458 access lines in its ILEC
territory, 61,264 CLEC access line equivalents (including 2,406 DSL
subscribers) and a total of 13,335 DSL subscribers across all
subsidiaries. He noted that although ILEC access lines had
decreased 2.7% during the twelve-month period ended June 30, 2005,
total CLEC access line equivalents and consolidated DSL subscribers
had grown 14.7% and 20.9%, respectively, over that same
twelve-month period. Mr. Brown concluded his remarks by stating
that he was pleased with both the financial as well as operational
results of the Company, especially in the area of broadband
services. He noted that the Company has been able to maintain an
impressive level of DSL additions, with success during the last
quarter spurred by the recent introduction of a 128-kilobit DSL
service aimed at consumers in the dial-up Internet market. In
addition, the Company's multi-megabit Ethernet product, which can
deliver speeds from 3 to 20 megabits using next-generation loop
bonding technologies on existing copper plant, has generated sales
and growing interest from the business market. These recent
additions have contributed to the Company's ability to offer a
well-rounded portfolio of services to satisfy the diverse needs of
its expanding residential and business broadband market. North
Pittsburgh Systems, Inc. has total assets of $155 million and
operates an integrated high-technology telecommunications business
in Western Pennsylvania providing competitive and local exchange
services, long distance, business phone systems 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
Quarterly Report on Form 10-Q for the quarterly period ended June
30, 2005. -0- *T NORTH PITTSBURGH SYSTEMS, INC. SUMMARIZED
FINANCIAL INFORMATION (Unaudited) (Amounts in Thousands - Except
Per Share Data) For the Three Months For the Six Months Ended June
30 Ended June 30 -------------------- ------------------- 2005
2004(a) 2005 2004(a) ---------- --------- --------- --------- Total
operating revenues $29,382 $27,370 $57,043 $54,816 Total operating
expenses 20,016 20,353 40,864 40,677 ---------- --------- ---------
--------- Net operating income 9,366 7,017 16,179 14,139 Other
income, net 1,609 895 2,757 1,253 ---------- --------- ---------
--------- Income before income taxes 10,975 7,912 18,936 15,392
Provision for income taxes 4,516 3,264 7,788 6,347 ----------
--------- --------- --------- Net income $6,459 $4,648 $11,148
$9,045 ========== ========= ========= ========= Common shares
outstanding 15,005 15,005 15,005 15,005 ========== =========
========= ========= Basic and diluted earnings per share $.43 $.31
$.74 $.60 ========== ========= ========= ========= Dividends per
share $.19 $.18 $.37 $.36 ========== ========= ========= =========
June 30 Dec. 31 2005 2004 --------- --------- Cash and temporary
investments $ 46,276 $ 42,569 Total assets 155,277 155,500 Total
debt 23,140 24,682 Total shareholders' equity 92,450 86,861 (a)
Certain prior year operating revenues and expenses have been
reclassified to conform to the current year's presentation. These
reclassifications did not affect the net operating income or net
income amounts. *T
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