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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
{ X } ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
-----------------------------------------------------
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to ________________________
Commission File Number 0-13716
---------------------------------------------------------
North Pittsburgh Systems, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1485389
- ------------------------------------------ ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4008 Gibsonia Road, Gibsonia, Pennsylvania 15044-9311
- ------------------------------------------ --------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code 724/443-9600
-----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
- --------------------------- -----------------------------------------
None Not Applicable
(Cover page continued on next page)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.15625 per share
- --------------------------------------------------------------------------------
(Title of Class)
SECTION 13 OR 15(d) FILING REQUIREMENTS
---------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- ----
DISCLOSURE PURSUANT TO ITEM 405
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. { }
AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES
-------------------------------------------------------------
Based on the average of the bid and asked prices on March 12, 2002, the
aggregate market value of the voting stock held by non-affiliates of the
Registrant is $221,699,000. (Includes 1,552,710 shares beneficially owned by
Directors and Officers as a group.)
OUTSTANDING SHARES OF EACH CLASS OF REGISTRANT'S COMMON STOCK
-------------------------------------------------------------
Class Outstanding at March 12, 2002
----- -----------------------------
Common Stock, Par Value $.15625 per share 15,005,000 shares
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
The information for Item 10, Directors and Executive Officers of the Registrant;
Item 11, Executive Compensation; Item 12, Security Ownership of Certain
Beneficial Owners and Management; and Item 13, Certain Relationships and Related
Transactions, has been incorporated into Part III of this Form 10-K by reference
to Registrant's Definitive Proxy Statement to be filed pursuant to Regulation
14A within 120 days after December 31, 2001.
(End of cover page)
PART I
Item 1. Description of Business.
- ------- -----------------------
(a) General Development of Business:
-------------------------------
North Pittsburgh Systems, Inc. (the Registrant), organized May 31,
1985, is a holding company and has no operating function. Its predecessor, North
Pittsburgh Telephone Company (North Pittsburgh or NPTC), a telephone public
utility incorporated in 1906, became a wholly-owned subsidiary of the Registrant
on May 31, 1985. Penn Telecom, Inc. (Penn Telecom) became a wholly-owned
subsidiary of the Registrant on January 30, 1988. Prior to this date, Penn
Telecom was a wholly-owned subsidiary of North Pittsburgh. Penn Telecom is
certificated as a Competitive Access Provider (CAP) and a Competitive Local
Exchange Carrier (CLEC) and has entered into these businesses. Other principal
business activities of Penn Telecom consist of the sale, rental and servicing of
telecommunications equipment to end users, the resale of bulk billed message
toll services and high capacity intercity facilities. Pinnatech, Inc.
(Pinnatech), a wholly-owned subsidiary of the Registrant formed in 1995,
provides Internet related services including dial up access, digital subscriber
line (DSL) circuits, Web design and Web hosting. The Registrant, NPTC, Penn
Telecom and Pinnatech operate under the provisions of the Pennsylvania Business
Corporation Law. No significant changes in the mode of conducting business by
the Registrant or its subsidiaries have occurred since the beginning of the
fiscal year ended December 31, 2001.
(b) Financial Information About Industry Segments:
---------------------------------------------
This paragraph is not applicable. The Registrant, through North
Pittsburgh, Penn Telecom and Pinnatech, is engaged in the business of providing
wireline telecommunications services and equipment, which is considered by the
Registrant to be a single segment.
(c) Narrative Description of Business:
---------------------------------
(1) Business Done and Intended To Be Done:
-------------------------------------
(i) Principal Services Rendered.
---------------------------
The Registrant, through North Pittsburgh, Penn Telecom and
Pinnatech, is engaged in providing the following wireline telecommunications
services and equipment to customers generally located in Western Pennsylvania.
North Pittsburgh is an incumbent local exchange carrier (ILEC)
which furnishes wireline telecommunications services to end user customers and
interexchange toll providers, in portions of Allegheny, Armstrong, Butler and
Westmoreland Counties.
Penn Telecom is a CLEC, interexchange carrier (IXC) and CAP
that furnishes wireline telecommunications services throughout Western
Pennsylvania.
1
Pinnatech is an Internet service provider (ISP) which furnishes
Internet access and broadband services throughout Western Pennsylvania.
The principal categories of service rendered by North Pittsburgh,
Penn Telecom and Pinnatech are as follows:
Local Network Services. Both North Pittsburgh and Penn
----------------------
Telecom provide local (dial tone), custom calling features and local private
line services to residential and business customers in their respective service
territories.
Network Access Services. Both North Pittsburgh and Penn
-----------------------
Telecom provide IXCs, cellular mobile radio service (CMRS) providers and other
local exchange carriers (LECs) with access to their switched access facilities
for the completion of interstate and intrastate long distance toll calls and
also extended area service (EAS) calls. In addition, North Pittsburgh and Penn
Telecom provide IXCs, CMRS providers, ISPs, other LECs and end user customers
access to private line network facilities for use in transporting voice and data
services. These private line data services are referred to as special access and
utilize a variety of technologies such as Digital Data Services, Frame Relay,
Asynchronous Transfer Mode (ATM), Synchronous Optical Network (SONET), DS-1,
DS-3, OC-3, etc.
North Pittsburgh, Penn Telecom and Pinnatech all
provide broadband DSL service to end user customers and ISPs on both a wholesale
and retail basis. North Pittsburgh and Penn Telecom utilize their own facilities
to provide DSL service. Pinnatech is engaged in the resale of DSL services
utilizing facilities purchased on a wholesale basis from North Pittsburgh and
Penn Telecom. All companies are in direct competition in the broadband market
with the cable providers in their respective territories and, to a certain
extent, satellite providers. Outside of the North Pittsburgh service territory,
Penn Telecom and Pinnatech are also in competition with other ILECs and CLECs.
Long Distance Toll Service. North Pittsburgh provides
--------------------------
intrastate, intraLATA long distance toll service to residential and business
customers throughout its service area. Penn Telecom provides interstate and
intrastate long distance toll service on a resale basis to residential and
business customers throughout Western Pennsylvania. Both Penn Telecom and North
Pittsburgh are in direct competition with other IXCs and wireless providers in
these markets.
Internet Access Service. Pinnatech provides access to
-----------------------
the Internet to end users utilizing both dial-up and broadband facilities such
as Frame Relay, DSL and ATM which it purchases on a wholesale basis from North
Pittsburgh and Penn Telecom. North Pittsburgh is a reseller of Internet access
over its own broadband DSL facilities to end-users. North Pittsburgh purchases
the Internet access services from Pinnatech on a wholesale basis.
Pinnatech also provides virtual hosting services, web
page design and creation and e-commerce enabling technologies to customers.
Internet access service revenues are classified within other operating revenues
on the Registrant's Consolidated Statement of Earnings.
2
Directory Advertising, Billing and Other Services.
-------------------------------------------------
North Pittsburgh receives revenues from the sale of advertising space in
telephone directories and from billing and collection activities. Directory
advertising is subject to competition from a number of sources and, to date,
efforts to meet such competition have been successful. Billing and collection
services are provided to various IXCs, including Penn Telecom.
Telecommunications Equipment. Penn Telecom sells, rents
----------------------------
and services telecommunications equipment to customers generally in the Western
Pennsylvania area. Penn Telecom has been able to sustain its equipment business
activities in a strong, competitive market.
Operating Revenues. The respective amounts of operating
------------------
revenues contributed by local network services, long distance and access
services, telecommunications equipment sales, directory advertising and billing
and collection services and other operating revenues during each of the last
three fiscal years are set forth in the Financial Statements and Schedules
provided in response to Item 8 and are incorporated herein by reference.
(ii) Other Services.
--------------
Cellular Partnerships. North Pittsburgh and Alltel
---------------------
Cellular Association of South Carolina, L.P. are Limited Partners with a
partnership interest of 3.6 percent each and Cellco Partnership, d.b.a. Verizon
Wireless, is both a General and a Limited Partner with partnership interests of
40.0 and 52.8 percent, respectively, in the Pittsburgh SMSA Limited Partnership,
which provides cellular radio service (Cellular Service) in and around the
Pittsburgh Standard Metropolitan Statistical Area (SMSA) as authorized by the
Federal Communications Commission (FCC).
North Pittsburgh, Centennial Cellular Telephone Company
of Lawrence (Centennial) and Venus Cellular Telephone Company, Inc. (Venus) are
Limited Partners, each with a partnership interest of 14.29 percent, and ALLTEL
Communications, Inc. (Alltel), successor to 360(Degree) Communications Inc., is
the General Partner with a partnership interest of 57.13 percent, in
Pennsylvania RSA 6(I) Limited Partnership, which provides Cellular Service in a
Rural Service Area (RSA) consisting of Clarion and Lawrence Counties and the
Northern portions of Armstrong and Butler Counties. Alltel's proposed sale of
its general partnership interest to Verizon Wireless is presently in litigation,
with Venus attempting to exercise a right of first refusal for the purchase of
Alltel's entire interest. Earlier, North Pittsburgh and Centennial had declined
to exercise their rights of first refusal. North Pittsburgh is not actively
participating in the litigation.
North Pittsburgh and Venus are Limited Partners with
partnership interests of 23.67 and 16.67 percent, respectively, and Cellco
Partnership, d.b.a. Verizon Wireless, is the General Partner with a partnership
interest of 59.66 percent, in Pennsylvania RSA 6(II) Limited Partnership, which
provides Cellular Service in an RSA consisting of the Southern portions of
Armstrong and Butler Counties. In September of 2000, Centennial, a former
Limited Partner, sold its 14.29 percent partnership interest in a proportionate
manner to North Pittsburgh, Venus and Cellco Partnership. North Pittsburgh paid
$1,003,000 for the additional
3
3.38 percent partnership interest it acquired, which increased North
Pittsburgh's overall partnership interest from 20.29 percent to 23.67 percent.
Boulevard Communications. Boulevard Communications,
------------------------
L.L.P. (Boulevard) is a Pennsylvania Limited Liability Partnership CAP equally
owned by the Registrant and a company in the Armstrong Group. It provides
point-to-point data services to businesses in Western Pennsylvania including
access to Internet Service Providers, connections to interexchange companies and
high-speed data transmission.
(iii) Status of New Products.
----------------------
This paragraph is not applicable. The Registrant and
its subsidiaries have not made public any information concerning new products or
services that would require the investment of a material amount of the assets of
the Registrant or that otherwise would be material.
(iv) Equipment Availability.
----------------------
The Registrant and its subsidiaries have not
encountered, nor do they anticipate, any difficulty in obtaining a ready supply
of telecommunications equipment from manufacturer suppliers. Although certain
individual suppliers may each supply more than 10 percent of their equipment
requirements, the Registrant and its subsidiaries are not primarily dependent
upon any one supplier and alternative suppliers of telecommunications equipment
are readily available.
(v) Certificates, Franchises, Etc. and Licenses.
-------------------------------------------
North Pittsburgh holds valid, continuing and subsisting
rights, certificates, franchises, licenses (other than those mentioned in the
following paragraph) and renewable permits adequate for the conduct of its
business in the territory it serves, none of which contains any burdensome
restrictions. However, see Regulatory Matters under paragraph (c)(3) of Item 7
concerning, inter alia, the impact of the Telecommunications Act of 1996 (the
1996 Act.)
North Pittsburgh has FCC licenses to operate a private
operational telephone maintenance radio service station (WIK 838 expiring on
March 20, 2011) and a non-commercial private license for its own maintenance
radio service and other purposes (call sign WPCD 845 expiring on April 29,
2003). North Pittsburgh has not encountered in the past, nor does it anticipate
in the future, any difficulty in renewing these FCC licenses.
(vi) Seasonality of Business.
-----------------------
None of the business activities of the Registrant or
its subsidiaries are seasonal.
4
(vii) Practices Relating to Working Capital.
-------------------------------------
This paragraph is not applicable. No special practices
relating to working capital have been adopted by the Registrant or its
subsidiaries. (See Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations.)
(viii) Customers.
---------
No material part of the overall business of the
Registrant or its subsidiaries is dependent upon a single customer or a few
customers, the loss of any one or more of whom would have a materially adverse
effect on its business.
(ix) Backlog of Orders.
-----------------
The Registrant and its subsidiaries do not have a
significant backlog of service and installation orders. Improvements and
expansion of their facilities are, to the extent possible, made in anticipation
of demands for service and a reasonable and adequate inventory is maintained to
meet the requirements of customers.
(x) Renegotiation of Profits or Termination of Contracts.
----------------------------------------------------
The Registrant and its subsidiaries do not have a
material portion of their business subject to renegotiation of profits or
termination of contracts or subcontracts at the election of the Government.
(xi) Competition.
-----------
The competitive environment faced by the Registrant in
respect to the services provided by it or by its subsidiaries is fully discussed
under paragraph (c)(1)(i) of this Item 1 and under paragraph (c)(3) of Item 7.
(xii) Research Activities.
-------------------
The Registrant and its subsidiaries do not engage in
any research activities relating to the development of new products or services
or the improvement of existing products or services, and no amounts have been
expended in the past three years for such activities.
(xiii) Environmental Matters.
---------------------
Compliance with federal, state and local provisions
which have been adopted regulating the discharge of materials into the
environment or otherwise relating to the protection of the environment have not
materially affected the capital expenditures, earnings and competitive position
of the Registrant and its subsidiaries.
5
(xiv) Employees.
---------
At December 31, 2001, the Registrant, through all of
its subsidiaries, employed 402 persons.
(d) Financial Information About Geographic Areas. All of the
--------------------------------------------
Registrant's operations are located in the United States. See financial
information provided in Item 14.
Item 2. Properties.
- ------- ----------
The Registrant owns in fee one of the office/warehouse buildings,
which houses the operations of Penn Telecom, and Penn Telecom owns the other.
The materially important physical properties of North Pittsburgh, all
owned in fee (except some rights-of-way) and most of which are held subject to
certain mortgage and security agreements executed in connection with loans
through the Rural Utilities Service, consist generally of any and all property
required to operate a modern telecommunications network and include principally
land, buildings, central office equipment, long distance switching facilities,
transmission facilities, pole lines, aerial cable, underground cable, aerial
wire, buried cable, buried wire, distribution wire, underground conduit,
furniture, office and computer equipment, garage facilities, vehicles and work
equipment. Such facilities are fully utilized except that improvement and
expansion of those facilities are, to the extent possible, made in anticipation
of the demand for service. All of the foregoing properties are located within
Allegheny, Armstrong, Butler and Westmoreland Counties in Western Pennsylvania.
From January 1, 1997 to December 31, 2001, the Registrant made gross
property additions of approximately $99,465,000 (which is about 49.5% of the
original cost of the present telephone plant) and property retirements of
approximately $24,096,000. The Registrant's 2002 construction program, subject
to adjustment for economic conditions, postponements of housing developments,
etc., is projected to approximate 2001 levels, with capital expenditures in the
range of $13.0 million to $14.0 million.
6
Item 3. Legal Proceedings.
- ------- -----------------
As of the date hereof, except for regulatory matters before the
Pennsylvania Public Utility Commission (PA PUC) and FCC, including matters which
could result in the expansion of competition, there were no material pending
legal or governmental proceedings directly involving the Registrant or its
subsidiaries, other than ordinary routine litigation or ordinary routine utility
matters incidental to the business and matters as to which the Registrant and
its subsidiaries are insured.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------ ---------------------------------------------------
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 2001.
7
ADDITIONAL ITEM FOR PART I - EXECUTIVE OFFICERS OF THE REGISTRANT
-----------------------------------------------------------------
Information regarding the Registrant's Executive Officers and
Chairman of the Board of Directors is provided below. In addition to the
positions and business experience related to the Registrant, additional
information related to North Pittsburgh Telephone Company, the Registrant's
predecessor and principal subsidiary, is also presented.
Executive Officers of the Registrant:
- ------------------------------------
Positions and Offices
Name and Business Experience Age with Registrant (1), (2) & (3)
---------------------------- --- -------------------------------
Charles E. Thomas, Jr. 59 Chairman, Board of
Registrant and North Directors
Pittsburgh Telephone Company:
Chairman of the Board of
Directors since 1998;
Director since 1993; Partner
in the law firm of Thomas,
Thomas, Armstrong & Niesen,
Harrisburg, PA, which has been
retained as general counsel
to the Registrant since the
formation of this firm in
1991; Partner in the law firm
of Thomas & Thomas from 1977
to 1990.
Harry R. Brown 65 Director and President
Registrant: Director since
1989; President since 1998;
Vice President from 1992 to
1998. North Pittsburgh
Telephone Company: Director
since 1989; President and
General Manager since 1998;
Vice President - Operations
from 1987 to 1998; Assistant
Vice President - Operations
from 1986 to 1987; Network
Engineering Manager from 1984
to 1986; Equipment Supervisor
from 1975 to 1984.
8
Positions and Offices
Name and Business Experience Age with Registrant (1), (2) & (3)
---------------------------- --- -------------------------------
Allen P. Kimble 55 Director, Vice President
Registrant: Director since and Treasurer
1998; Vice President since
1989; Treasurer since
incorporation in 1985;
Secretary from 1993 to 1998.
North Pittsburgh Telephone
Company: Director since 1998;
Vice President since 1989;
Treasurer since 1979;
Secretary from 1993 to 1998;
Assistant Vice President from
1987 to 1989; Assistant
Secretary from 1977 to 1993.
N. William Barthlow 47 Vice President and
Registrant: Vice President Secretary
since 1994; Secretary since
1998; Assistant Secretary
from 1993 to 1998; Assistant
Vice President from 1990 to
1994. North Pittsburgh
Telephone Company: Vice
President - Marketing and
Revenues since 1994;
Secretary since 1998;
Assistant Secretary from 1993
to 1998; Assistant Vice
President - Revenue
Requirements from 1989 to
1994; Revenue Requirements
Manager from 1987 to 1989.
Kevin J. Albaugh 50 Vice President
Registrant: Vice President
since 1999. North Pittsburgh
Telephone Company: Vice
President - Regulatory
Affairs since 1999; Manager
and Assistant Vice President
- Revenues from 1997 to 1998;
Revenue Requirements
Supervisor from 1993 to 1997.
9
Positions and Offices
Name and Business Experience Age with Registrant (1), (2) & (3)
---------------------------- --- -------------------------------
Frank A. Macefe 53 Vice President
Registrant: Vice President
since 1999. North Pittsburgh
Telephone Company: Vice
President - Sales since 1999;
Assistant Vice President -
Marketing from 1989 to 1998;
Marketing Manager from 1979
to 1989; Marketing Supervisor
from 1978 to 1979.
Albert W. Weigand 43 Vice President
Registrant: Vice President
since 1999. North Pittsburgh
Telephone Company: Vice
President - Operations since
1999; Assistant Vice
President - Operations from
1997 to 1998; Sr. Planning
Engineer from 1995 to 1997;
Planning Engineer from 1986
to 1995; Customer Equipment
Supervisor from 1984 to 1986;
Customer Equipment Engineer
from 1979 to 1984.
(1) Directors. Messrs. Thomas, Brown and Kimble were elected as Directors
---------
at the 2001 Annual Meeting of Shareholders held May 18, 2001 to serve
until the 2002 Annual Meeting of Shareholders. Messrs. Thomas, Brown
and Kimble will be nominees for reelection as Directors at the Annual
Meeting of Shareholders to be held May 17, 2002.
(2) Officers. All of the foregoing officers were elected to their
--------
respective offices at a Board of Directors' Organizational Meeting
which followed the May 18, 2001 Annual Meeting of Shareholders.
Executive employment agreements with Messrs. Brown, Kimble, Barthlow,
Albaugh, Macefe and Weigand set forth the terms and conditions of their
employment.
(3) Arrangements. There are no arrangements or understandings between any
------------
of the above executive officers and any other person pursuant to which
they were elected as an officer.
10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholders Matters.
- ------ ----------------------------------------------------------------------
(a) Market Information:
------------------
The Registrant's Common Stock is registered with the Securities and
Exchange Commission pursuant to Section 12(g) of the Securities Exchange Act of
1934 and, effective January 10, 1997, the Registrant's Common Stock commenced
trading on the Nasdaq National Market tier of the Nasdaq Stock Market under the
Symbol `NPSI'. Prior thereto, the stock was not listed on any Stock Exchange and
was considered as being traded on the OTC (Over-the-Counter) market. The Nasdaq
High and Low sales prices for the Registrant's Common Stock for each quarter of
2001 and 2000 are listed below:
2001 2001 2000 2000
High Low High Low
---- --- ---- ---
First Quarter $ 12.313 $ 9.625 $ 15.063 $ 12.563
Second Quarter 15.990 10.250 14.750 11.750
Third Quarter 15.000 11.430 14.750 12.250
Fourth Quarter 18.970 12.890 14.250 10.563
(b) Approximate Number of Holders of Common Stock:
---------------------------------------------
Calculated on the basis of the number of shareholder accounts, the
Registrant had approximately 2,660 common shareholders on March 12, 2002.
11
(c) Common Stock Dividends:
----------------------
Cash dividends declared per share by the Registrant on the outstanding
shares of Common Stock in 2001 and 2000 were as follows:
2001 2000
---- ----
First Quarter $ .17 $ .16
Second Quarter .17 .17
Third Quarter .17 .17
Fourth Quarter .17 .17
----------- -----------
$ .68 $ .67
=========== ===========
(d) Sale of Equity Securities:
-------------------------
There were no sales of equity securities by the Registrant during the
twelve months ended December 31, 2001.
Item 6. Selected Financial Data (Amounts in Thousands Except Per Share Data).
- ------ --------------------------------------------------------------------
The following summary of Selected Financial Data for the years 2001 -
1997 should be read in conjunction with the consolidated financial statements
and notes included elsewhere in this report.
12
2001 2000 1999 1998 1997
------------ ------------ ------------ ------------ ------------
Operating revenues $ 86,444 $ 77,851 $ 70,322 $ 66,375 $ 65,554
Operating expenses 66,399 65,141 50,837 44,377 44,090
--------- --------- --------- --------- ---------
Net operating revenues 20,045 12,710 19,485 21,998 21,464
Interest expense (3,733) (3,140) (2,263) (1,884) (1,710)
Interest income 1,118 1,367 976 1,308 608
Sundry income, net 406 2,960 3,320 2,360 1,493
Net gain on sale of
investment* -- -- -- -- 14,516
--------- --------- --------- --------- ---------
Earnings before income
taxes 17,836 13,897 21,518 23,782 36,371
Income tax expense 7,474 6,008 8,833 9,264 14,186
--------- --------- --------- --------- ---------
Net earnings $ 10,362 $ 7,889 $ 12,685 $ 14,518 $ 22,185
========= ========= ========= ========= =========
Average common shares
outstanding 15,005 15,005 15,005 15,005 15,019
========= ========= ========= ========= =========
Basic and diluted earnings
per share $ .69 $ .53 $ .85 $ .97 $ 1.48
========= ========= ========= ========= =========
Dividends declared per share
of Common Stock $ .68 $ .67 $ .64 $ .65 $ .56
========= ========= ========= ========= =========
Total assets $ 168,963 $ 160,954 $ 147,792 $ 135,315 $ 127,833
========= ========= ========= ========= =========
Long-term debt $ 47,202 $ 45,377 $ 38,940 $ 32,196 $ 27,037
========= ========= ========= ========= =========
Long-term obligations under
capital lease $ 7,607 $ 7,137 $ -- $ -- $ --
========= ========= ========= ========= =========
*Net gain on sale of investment in 1997 was a result of a gain recognized in
conjunction with the sale of the Registrant's investment in the common stock of
Conquest Telecommunications Services Corporation.
13
30
Item 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (Amounts in Thousands Except Per
----------------------------------------------------------
Share Data and Operating Statistics).
------------------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations and elsewhere in this annual report is forward-looking, such as
information relating to the effects of regulation and competition. Such
forward-looking statements are based on the estimates and assumptions of
management and are subject to risks and uncertainties. The Registrant's actual
results, performance or achievements could differ materially from the results
expressed in or implied by these forward-looking statements.
(a) Results of Operations.
---------------------
Net earnings for 2001 were $10,362, or $.69 per share,
compared to net earnings of $7,889, or $.53 per share for 2000 and $12,685, or
$.85 per share for 1999. These fluctuations were attributable to the following
factors:
(1) Operating Revenues.
------------------
2001/2000
---------
Total operating revenues increased $8,593 (11.0%)
during 2001. This increase was primarily the result of increases in local
network services of $4,710 (30.5%), long distance and access services of $2,064
(3.9%), telecommunications equipment sales of $338 (15.9%) and other operating
revenues of $1,883 (36.3%), offset partially by a decrease in directory
advertising, billing and other services of $402 (14.7%).
Increases in local network service revenues of
$4,710, or 30.5%, were attributable to several factors, one of which was a rate
band reclass at NPTC which received PA PUC approval and became effective in
December of 2000. As the density of customers in NPTC's serving area and
immediate surrounding territories covered by extended area service agreements
increased during the late 1990's and 2000, several of the exchanges in NPTC's
territory grew into the next rate band and qualified for an increase in local
rates, which contributed approximately $1,350 of the $2,219 increase in NPTC's
basic area revenues. The remainder of the increase was due to a higher average
number of lines in service than the prior year as well as NPTC's revenue neutral
Chapter 30 filing, which became effective in December of 2001 and added
approximately $150, with a corresponding decrease in long distance and access
services. Also, Penn Telecom's basic area revenues increased $1,144 due to
continued successful penetration south of NPTC's territory in the city of
Pittsburgh and surrounding areas as well as north of NPTC's territory in the
city of Butler, PA. Penn Telecom's basic access lines installed increased from
3,915 as of December 31, 2000, to 8,912 as of December 31, 2001. In addition,
primary rate interface (PRI) circuits grew from 30 circuits to 151 circuits over
the same period. In addition, vertical feature revenues
14
increased $806 in 2001, due to continued penetration in NPTC's existing
territory as well as growth in the number of customers at Penn Telecom.
The increase in long distance and access service
revenues of $2,064, or 3.9%, was attributable to an increase in high capacity
circuits sold (special access revenues) and an increase in access minutes for
both NPTC and Penn Telecom, offset partially by lower toll revenues. Special
access revenues increased $1,372 at NPTC and $1,118 at Penn Telecom, mostly as a
result of large increases in the number of DS-1 and DS-3 circuits sold.
Interstate and intrastate access revenues increased approximately $400, mostly
as a result of increased access revenues at Penn Telecom due to the growth in
customers producing originating and terminating access revenues. Toll revenues
decreased approximately $825 due to a decrease in intraLATA toll revenues at
NPTC, partially offset by a growth in both intraLATA and interLATA toll revenues
at Penn Telecom. The decrease in intraLATA toll revenues at NPTC was mostly a
result of a decrease in market share and loss of minutes of use to such
competition as cellular and to a decrease in the average billed rate due to the
development of additional calling plans to meet the competitive environment.
This decrease was partially offset by an increase in both intraLATA and
interLATA toll revenues at Penn Telecom due to the successful bundling of toll
with local calling packages. As of December 31, 2001, 75% of Penn Telecom's CLEC
customers subscribed to one of its toll packages.
Telecommunications equipment sales increased
$338, or 15.9%, due to an increase in private branch exchange and additional
equipment sales. The majority of the increase was due to partially depressed
sales for the year ended December 31, 2000, as a result of accelerated purchases
in 1998 and 1999 to address potential Y2K concerns.
The increase in other operating revenues of
$1,883, or 36.3%, was primarily due to the growth in DSL revenues of $1,435 as
combined DSL lines (both wholesale and retail) increased from 2,360 as of
December 31, 2000, to 4,800 as of December 31, 2001. In addition, net
uncollectible revenue charges decreased due to improved cash collection from
both retail customers as well as carriers.
The decrease in directory advertising, billing
and other services of $402, or 14.7%, was mostly due to a decrease of $350 in
carrier billing and collection revenues. NPTC has contracts with several
interexchange carriers and other telecommunications companies in which it earns
fees for performing billing and collection services on behalf of these
companies. NPTC has seen the volume of services and calls billed on behalf of
these companies decrease in the past year, mostly as a result of more companies
bringing these functions in-house.
2000/1999
---------
Total operating revenues increased $7,529 (10.7%)
during 2000. This increase was primarily the result of increases in local
network services of $1,667 (12.1%), long distance and access services of $5,725
(12.3%) and other operating revenues of $940 (22.1%), offset partially by a
decrease in telecommunications equipment sales of $865 (29.0%). Increased local
network service revenues were attributable to customer growth for
15
both NPTC and Penn Telecom, growth in second lines and expanded penetration of
enhanced services. Higher long distance and access services were attributable to
an increase in the number of customers and minutes of use for both NPTC and Penn
Telecom, and an increase in high capacity circuits sold. The increase in other
operating revenues was primarily due to the growth of Internet access customers
and an increase in both wholesale and retail DSL lines. Telecommunications
equipment sales decreased as a result of lower key system, private branch
exchange and additional equipment sales, mostly due to partially depressed sales
as a result of accelerated purchases in 1998 and 1999 to address potential Y2K
concerns.
(2) Operating Expenses and Net Revenues.
-----------------------------------
2001/2000
---------
Total operating expenses for 2001 increased
$1,258 (1.9%) over the preceding year. The change was primarily the result of
increases in network and other operating expenses of $879 (2.0%), depreciation
and amortization expenses of $581 (3.5%) and telecommunications equipment
expenses of $173 (11.1%), offset partially by a decrease in state and local
taxes of $375 (11.8%).
The increase in network and other operating
expenses of $1,258, or 1.9%, was due to increased expenses at Penn Telecom,
partially offset by decreases in expenses at NPTC and Pinnatech. CLEC variable
costs at Penn Telecom, such as the leasing of unbundled network elements (UNEs)
for non-facilities based access lines increased with the overall growth in
access lines and revenue. Collocation costs also increased as Penn Telecom
expanded into additional incumbent central offices during 2001. In addition,
personnel and operating costs grew larger in order to support the revenue growth
and overall growth of the network.
At NPTC, network and other operating expenses for
the year ended December 31, 2001 decreased by approximately $1,600 from the
prior year due to a cost reduction program instituted in the first quarter of
2001. As mentioned under the Regulatory Matters section of this report
(paragraph (c)(3) of this section), the clear intent of the 1996 Act as well as
some current FCC and PA PUC regulatory proceedings is to open up the
telecommunications market to competition. Although NPTC has yet to see any
material impact on its revenues or loss of access lines, it has adopted a pro-
active approach to cost reduction. The cost reduction program involved not only
the elimination of direct external expenses such as a large reduction in the use
of outside contractors, but also involved improving operating procedures.
Internal processes and procedures have been re-engineered to maximize both labor
and material usage as well as inventory levels. In addition, with the recent
completion of the five-year modernization of NPTC's network during 2001,
maintenance expense has decreased from prior year levels as legacy equipment has
been upgraded and/or replaced.
At Pinnatech, network and other operating
expenses for the year ended December 31, 2001 decreased approximately $2,100
from the prior year. The decrease was a result of the cessation of costs related
to the operating activities and eventual shut down of the Nauticom Sports
Network (NSN) in December of 2000.
16
The growth in depreciation and amortization
expenses of $581, or 3.5%, was the direct result of the growth in fixed assets
to service current and future customer needs. The Registrant has made gross
property additions of $99.5 million over the past five years to implement
state-of-the-art switching transmission and transport facilities, an extensive
fiber network, broadband capability via DSL technology to 97% of NPTC's lines
and to support the build-out of the Penn Telecom CLEC operations.
The increase in telecommunications and equipment
expense of $173, or 11.1%, was a direct result of the increase in
telecommunications equipment sales of 15.9%.
The decrease in state and local taxes of $375, or
11.8%, was mostly attributable to a reduction in public utility realty tax
assessment (PURTA) expense in 2001 from a settled prior year overpayment as well
as a decrease in Pennsylvania capital stock tax due to a 17% reduction in
millage rates from the prior year.
Overall, the increase in total operating revenues
of $8,593, coupled with the increase in total operating expenses of $1,258,
resulted in a 57.7% increase in net operating revenues in 2001 as compared to
2000.
2000/1999
---------
Total operating expenses for 2000 increased
$14,304 (28.1%) over the preceding year. The change was primarily the result of
increases in network and other operating expenses of $11,950 (37.7%) and
depreciation and amortization expenses of $3,063 (22.4%), offset partially by a
decrease in telecommunications equipment expenses of $762 (32.8%). The increase
in network and other operating expenses resulted from several factors. First,
there was an increase in personnel and operating costs due to an expansion of
the existing NPTC business to service the needs of its territory which is
located within a growing commercial and residential market. Penn Telecom's
operating expenses also grew larger with an increase in personnel and other
expenses due to start-up activities associated with the growth of its CLEC in
its foothold north of the city of Pittsburgh as well as an expansion into the
city of Pittsburgh and all surrounding areas. This expansion was facilitated
through the implementation of a long-term strategic relationship with an
electric utility to lease fiber optic loops throughout the entire Pittsburgh
region. The operating expenses of Pinnatech also increased as a result of the
expansion of its Internet-related activities and attempted expansion of its NSN.
The NSN was closed in the fourth quarter of 2000 (as discussed in more detail in
paragraph (c)(2) of this section), resulting in a pre-tax restructuring charge
of $972 in network and other operating expenses. Finally, advertising expense
increased approximately $2 million from 1999 as the Registrant promoted the
expansion effort described above for all companies which in turn contributed to
the overall revenue growth of $7,529 (10.7%) in 2000 as compared to revenue
growth of $3,947 (5.9%) in 1999.
The growth in depreciation and amortization
expenses of $3,063, or 22.4%, was the direct result of the growth in fixed
assets to service current and future customer needs. The Registrant made gross
property additions of $103 million during the five-year period from January 1,
1996 through December 31, 2000 for the purpose, inter alia, of implementing
state-of-the-art switching transmission and transport facilities, an extensive
fiber
17
network, broadband capability via DSL technology and to support the build-out of
Penn Telecom's CLEC operations.
The decrease in telecommunications and equipment
expenses of $762 (32.8%) was a direct result of the decrease in
telecommunications equipment sales of 29.0%.
Overall, the increase in total operating revenues
of $7,529, coupled with the increase in total operating expenses of $14,304,
resulted in a 34.8% decrease in net operating revenues in 2000 as compared to
1999.
(3) Other Items.
-----------
2001/2000
---------
Interest expense increased in 2001 by $593 due to
increased debt borrowings. Interest income decreased $249 in 2001 primarily due
to the liquidation of available for sale debt securities and the general
decrease in short term money market rates for temporary investments during 2001.
The net decrease in sundry income of $2,554 was primarily due to a $1,996
decrease in realized gains on the sale of securities as the majority of the
Registrant's available for sale equity portfolio was liquidated in the prior
year, a $70 decrease in dividend income from not holding those equity securities
in 2001, and $213 in non-operating expenses associated with tax adjustments to
prior years cellular parternships' returns.
2000/1999
---------
Interest expense increased in 2000 by $877 due to
increased debt borrowings. Interest income increased $391 in 2000 primarily due
to increased investments in temporary fixed income, as opposed to equity,
securities. The net decrease in sundry income of $360 was primarily due to
one-time gains recorded in 1999 from a cellular partnership transaction and the
sale of NPTC's remaining pay phone business, offset in part by higher realized
gains on the sale of available for sale securities in 2000.
(b) Liquidity and Capital Resources.
-------------------------------
December 31,
2001 2000
---------- --------
Cash and temporary investments $35,299 $19,240
Working capital $32,937 $26,569
Long-term debt (including current maturities) $51,327 $48,896
Cash and temporary investments were $35,299 at December 31,
2001 as compared to $19,240 at December 31, 2000. The increase was due to the
strong cash flows from operations of $32,257 (an increase of $9,625 from the
prior year), the liquidation of available for sale securities throughout the
year, with the proceeds being reinvested into
18
temporary investments, and an $11,827 decrease in capital expenditures during
2001. The decrease in capital expenditures was mostly a result of the completion
of a five-year network modernization plan in which North Pittsburgh established
36 new carrier serving areas, installed over 225 route miles of fiber and over
260 route miles of copper and upgraded central office equipment with
state-of-the-art products and technologies. North Pittsburgh, through its
modernization plan, not only improved the quality of the voice services and
enhanced features available to its customers, but also upgraded its network to
provide DSL capability to over 97% of its existing access lines. The year 2001
marked the return to a more normalized level of capital expenditures for North
Pittsburgh, a level that should continue into the foreseeable future.
Temporary excess funds were invested in short-term cash
equivalents with maturity dates scheduled to coincide with tax payment due
dates, debt principal payments, etc. Management expects to continue the
investment of such excess funds in 2002, which should enable the Registrant to
satisfactorily meet all short-term obligations.
Working capital was $32,937 at December 31, 2001 as compared
to $26,569 at December 31, 2000. The increase in working capital was a result of
the increase in cash flows from operating activities and a decrease in capital
expenditures, as described previously in this section, as well as a decrease in
the restructuring liabilities associated with the shut-down of the NSN in
December of 2000.
The increase in long-term debt was a result of $6,253 of funds
advanced to finance capital additions, offset by the scheduled $3,822 of
principal repayments in 2001. In 1996, North Pittsburgh was granted approval for
a loan from the Federal Financing Bank (FFB) guaranteed by the Rural Utilities
Service (RUS) in the maximum principal amount of $75 million. The maximum
principal amount has been and will be advanced periodically over a total six-
year period for qualified capital expenditure projects, as defined in the loan
agreement, to furnish and improve telephone service in rural areas. All advances
have a maturity date of December 31, 2012. The total amount outstanding at
December 31, 2001 to the FFB under this loan was $33,938. As of December 31,
2001, North Pittsburgh had $5,196 of qualified capital expenditures that were
eligible to be drawn against this facility. In addition, North Pittsburgh had
principal payments outstanding of $17,389 at December 31, 2001 from loan
advances from the Rural Telephone Bank (RTB) made from 1977 through 1987. The
advances from the RTB have maturity dates ranging from 2009 through 2019.
The notes payable to the RTB are secured by a supplemental
Mortgage Agreement executed by North Pittsburgh, which provides that
substantially all of the property, plant and equipment of North Pittsburgh,
which approximates a net book value of $77 million, are subject to a lien or a
security interest. Such agreement contains restrictions regarding dividends and
other distributions by North Pittsburgh. Under these restrictions, unless
certain working capital and net worth levels are maintained, North Pittsburgh is
not permitted to pay dividends on its capital stock (other than in shares of
capital stock), or to make any other distributions to its shareholders or
purchase, redeem or retire any of its capital stock or make any investment in
affiliated companies. As a result of these restrictions, $3,997 of North
Pittsburgh's retained earnings were available for dividends to the Registrant as
of December 31, 2001. Taking into consideration the North Pittsburgh
restrictions, consolidated retained
19
earnings of the Registrant of approximately $21,387 were available for dividends
and other distributions to shareholders as of December 31, 2001.
The original six-year advancement period for the RUS loan ends
in November of 2002, at which time North Pittsburgh has the option of executing
a three-year extension of the advancement period through November of 2005. The
unadvanced amount of this facility as of December 31, 2001 was $34,764.
North Pittsburgh also has available through June of 2004 a $10
million line of credit with the Rural Telephone Finance Cooperative at a rate of
prime plus 1 1/2%. No borrowings have taken place against this line of credit.
A summary of the Registrant's significant contractual
obligations and commitments as of December 31, 2001 is as follows:
Debt Principal Capital Lease
-------------- -------------
2002 $ 4,125 $1,592
2003 4,194 1,592
2004 4,268 1,592
2005 4,347 1,450
2006 4,431 1,272
Thereafter 29,962 4,362
Capital expenditure commitments for the purchase and
installation of new equipment at December 31, 2001 amounted to approximately
$1.0 million, with such amount being part of the 2002 construction program,
which is projected to be in the range of $13.0 million to $14.0 million.
Management expects cash flows provided by operating activities
and cash reserves in 2002 to be sufficient to service long-term debt and capital
lease obligations, to pay dividends and to finance all non-RUS qualified
projects. The Registrant has the necessary cash flows from operations and cash
reserves to internally finance 100% of its capital expenditures. However, due to
the low cost financing available through the RUS for qualified North Pittsburgh
capital expenditures, the Registrant may continue to request advancements from
the RUS facility.
(c) Other Information.
-----------------
(1) Critical Accounting Policies.
----------------------------
Certain accounting policies are very important to the
portrayal of the Registrant's financial condition and results of operations and
require management's most subjective or complex judgments. These policies are as
follows:
20
Revenue Recognition
-------------------
Revenues are recognized when local network, long
distance, and access services are provided. Local service and intrastate long
distance and access service revenues are subject to the jurisdiction of the PA
PUC. The Registrant participates in interstate pooling arrangements with other
telephone companies. Such pools are funded by access service charges regulated
by the FCC. Revenue earned through pooling is initially recorded based on
estimates. The Registrant has settled substantially all access service
arrangements through 2000. Revenues from equipment sales are recorded after
equipment has been installed and accepted by the customer.
Nonrefundable up-front activation fees associated
with the provisioning of telephone service, when material, are deferred and
recognized over the expected term of the customer relationship.
Impairment of Long-Lived Assets
-------------------------------
Based upon the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the Registrant
reviews assets for impairment whenever events or changes in circumstances
indicate that the carrying value of the assets may not be recoverable. A
determination of impairment (if any) is made based on estimates of future cash
flows. The Registrant determined that there was no impairment to the carrying
value of such assets in 2001, 2000 or 1999.
Valuation of Accounts Receivable
--------------------------------
Management reviews accounts receivable to
determine which are doubtful of collection. In making the determination of the
appropriate allowance for doubtful accounts, management considers the
Registrant's accounts receivable aging schedules, history of write-offs,
relationships with its customers and the overall credit worthiness of its
customers.
Income Taxes
------------
In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in
making this assessment.
The judgments used in applying the above policies
are based on management's evaluation of the relevant facts and circumstances as
of the date of the financial statements. Actual results may differ from those
estimates. See additional discussions in this Management's Discussion and
Analysis of Financial Condition and Results of Operations.
21
(2) NSN Restructuring.
-----------------
In the fourth quarter of 2000, the Registrant
shutdown the NSN. The sports network division of Pinnatech had been providing
broadcasts of high school and small college sporting events as well as other
sports programming. During 2000, the NSN had expanded its coverage from Western
Pennsylvania into several other states. Although the growth in the popularity of
the site and concept met management's expectations, the revenue generating
model, based mostly on advertising revenues, failed to support the projected
level of continued capital investment and operating expenses.
A pretax charge of $972 was recorded during 2000
in network and other operating expenses to cover the restructuring costs
associated with the shutdown of the NSN. The total charges reduced net income by
$632.
The business restructuring charge of $972
included restructuring liabilities of $671 and asset impairments of $301. The
restructuring liabilities consisted of $432 for employee severance payments and
related taxes for 30 people who were involuntarily terminated, $122 for future
operating lease expense associated with a leased facility under contract which
will no longer be used and $117 for other charges associated with the
restructuring. As of December 31, 2000, all employees had been terminated and
all severance payments and related taxes had been paid.
During 2001, the Registrant satisfied all
remaining obligations with the exception of the remaining future operating lease
payments. Total net cash expenditures during 2001 totaled $331. An additional
net $277 was recorded as expense in 2001, due primarily to the settlement of a
contract for satellite equipment and airtime above the Registrant's original
estimate and the inability to generate the estimated sub-lease contracts for the
facility under lease, offset partially by the sale of NSN fixed assets with a
net book value of $31 for a gain. As of December 31, 2001, the remaining
restructuring accrual liability was $154.
(3) Regulatory Matters.
------------------
Both North Pittsburgh and Penn Telecom are subject to
regulatory oversight by the PA PUC for intrastate services and the FCC for
interstate services. The PA PUC and the FCC have broad powers of supervision and
regulation over public utilities with respect to service and facilities, rates
and charges, securities, the encumbering or disposition of public utility
properties, accounting and various other matters.
In 1996, Congress passed the 1996 Act, which has the
goal of opening the telecommunications industry to further competition for all
services. The 1996 Act prohibits state legislative or regulatory restrictions or
barriers to entry regarding the provision of local telephone service. It also
requires most incumbent local exchange carriers to interconnect with the
networks of other telecommunications carriers, unbundle their services into
network elements, offer their telecommunications services at wholesale rates to
allow the resale of such services and allow other telecommunications
22
carriers to locate equipment on their premises. Local exchange telephone
carriers are also required to compensate each other for the transport and
termination of calls.
The FCC has issued a number of Rulemakings that
continue to implement the requirements of the 1996 Act. The clear intent of the
1996 Act was to open up the local exchange market to competition. The 1996 Act
appears to mandate, among other items, that North Pittsburgh, at some point in
time, permit the resale of its services at wholesale rates, provide number
portability, if feasible, provide dialing parity, provide interconnection to any
requesting carrier for the transmission and routing of telephone exchange
service and exchange access and provide access to network elements.
North Pittsburgh's wireline operations are considered
Rural under the 1996 Act and are exempt from certain of the foregoing
obligations unless, in response to a bona fide request for interconnection, the
PA PUC removes that exemption. North Pittsburgh along with 17 other rural
companies in Pennsylvania was granted a temporary suspension to July 10, 2002 of
certain interconnection requirements in the 1996 Act applicable to incumbent
local exchange carriers as they relate to non-facilities based competition.
The provision of interstate toll and access services by
North Pittsburgh and Penn Telecom is subject to the regulatory scrutiny of the
FCC. Terms, conditions and rates for interstate toll and access services are
filed in interstate tariffs for review and approval by the FCC. However,
effective August 1, 2001, the FCC no longer requires non-dominant interstate
toll providers, including Penn Telecom, to file tariffs for their interstate
toll services. Penn Telecom now informs its toll customers of the rates, terms
and conditions through written notice to its customers.
In October of 2001, the FCC adopted an Order referred
to as the Multi Association Group, or MAG Order, that modified the interstate
access charge rules and universal service support system for rate-of-return
(ROR) incumbent LECs. North Pittsburgh is subject to this Order. According to
the FCC, the new rules, which went into effect January 1, 2002, are intended to
accomplish the following three (3) goals: 1) align the interstate access rate
structure more closely with the manner in which costs for access are incurred;
2) replace implicit support for universal service with explicit support that is
portable to all eligible telecommunications carriers on a competitively neutral
basis; and 3) provide certainty and stability for small and mid-sized local
telephone companies serving rural and high-cost areas by permitting these
carriers to continue to set rates based on a ROR of 11.25%, thereby encouraging
investment in rural America.
The MAG Order had the following effects: 1) increased
flat rate charges referred to as Subscriber Line Charges (SLCs) that are billed
to residential and business customers; and 2) decreased per minute of use
switched access charges billed to interexchange toll providers that originate
and terminate traffic on the LECs network.
The MAG Order also created a new universal service
support mechanism, Interstate Common Line Support (ICLS). The ICLS will replace
the Carrier Common Line (CCL) charge, which was previously billed to
interexchange toll providers. The ICLS will be phased in beginning July of 2002
and the CCL will be eliminated as of July of 2003. The initial
23
effect of the implementation of the MAG Order on North Pittsburgh is expected to
be revenue neutral. A number of parties have filed Petitions for Reconsideration
regarding certain issues contained in the MAG Order. The outcome of these
Petitions is unknown at this time. Because the outcome of these proceedings is
uncertain at this time, North Pittsburgh is unable to predict the specific
long-term effect that the MAG Order will have on its revenues and operations.
Penn Telecom, as a CLEC, was not directly affected by
the MAG Order, as it does not currently offer services in the areas served by
incumbent LECs that were subject to the Order.
At the same time the MAG Order was adopted, the FCC
also issued a Further Notice of Proposed Rulemaking seeking comment on an
incentive regulation plan for incumbent LECs which are now under ROR regulation
in the interstate jurisdiction. Because the outcome of this proceeding is not
yet known, North Pittsburgh is not able to predict the specific effect that it
will have on its operations and revenues.
In February of 2002, the FCC issued a Notice of
Proposed Rulemaking (NPRM) regarding the possible classification of wireline
broadband Internet access as an information service rather than a
telecommunications service. Should the FCC adopt this finding, it may remove
network based broadband offerings such as DSL services from regulation under the
FCC Act. Such deregulation of broadband services would generally be viewed as
favorable to North Pittsburgh in that these broadband services would not have to
be offered to competing CLECs on an unbundled basis. However, in the NPRM, the
FCC also asked whether it should extend universal service fund (USF)
requirements to not only facilities based wireline Broadband Internet Service
Providers (BISPs), but also wireless, cable TV and satellite BISPs.
Should the FCC extend a USF contribution requirement to
all BISPs, both North Pittsburgh and Penn Telecom would be affected. Because the
outcome of this proceeding is unknown at this time, neither North Pittsburgh nor
Penn Telecom is able to determine the specific effect such action would have on
their operations and revenues.
In February of 2002, the FCC issued a Further Notice of
Proposed Rulemaking regarding the possible reformation of the system for
assessing and recovering USF funds. In addition to asking whether BISPs should
contribute as described above, the FCC has also asked for comment on whether it
should assess carrier contributions based on the number and capacity of
connections that contributing carriers provide to customers, rather than on the
current method which is based on the interstate revenues they earn.
Should the FCC move to reform the current system for
assessing and recovering USF funds, both North Pittsburgh and Penn Telecom would
be affected by the change. Because the outcome of this proceeding is unknown at
this time, neither North Pittsburgh nor Penn Telecom is able to determine the
specific effect such action would have on their operations and revenues.
24
Effective January 22, 2001, North Pittsburgh moved from
ROR regulation in the intrastate jurisdiction to an alternative form of
regulation, which is a price cap plan. Under North Pittsburgh's price cap plan,
rates for non-competitive intrastate services are allowed to increase based on
an index that measures economy wide price increases less a productivity offset.
There is no limitation on earnings under this plan. The terms of the plan also
allow North Pittsburgh to rebalance rates once each year in order to allow North
Pittsburgh to gradually realign its intrastate rate structure on a more rational
basis in order to meet future competition. In addition, as competition develops
in the future, North Pittsburgh may file with the PA PUC to declare certain
services competitive and thereby be freed from all rate regulation for those
services. In return for approval of the alternative form of regulation, North
Pittsburgh has committed to continue to upgrade its network in the future to
ensure that all its customers will have access to broadband services. While
there is no immediate impact to North Pittsburgh's operations and revenues under
the price cap plan, it is North Pittsburgh's view that the plan as approved will
aid North Pittsburgh in meeting competition in the future.
Historically, North Pittsburgh's wireline operations
have not experienced significant competition in its franchised service area.
However, as a result of the passage of the 1996 Act, North Pittsburgh's local
wireline operations are experiencing increased competition from various sources,
including, but not limited to, large end users installing their own networks,
IXCs, satellite transmission services, cellular communications providers, cable
television companies, radio-based personal communications companies, CAPs and
other systems capable of completely or partially bypassing local telephone
facilities.
Specifically, the PA PUC, in an order entered April 10,
2001, granted AT&T Communications and its affiliate, TCG Pittsburgh, (AT&T/TCG)
authority to provide local dial tone services as a facilities-based CLEC in the
service areas of eight (8) telephone companies in Western Pennsylvania,
including North Pittsburgh, utilizing cable TV facilities. However, due to
changes in business plans and a corporate reorganization, AT&T/TCG in January of
2002 determined not to pursue their request for authority as a CLEC in those
rural service areas.
Although North Pittsburgh cannot predict the specific
effects of competition on its local telephone business, it is intent on taking
advantage of the various opportunities that competition should provide. North
Pittsburgh is currently addressing potential competition by focusing on improved
customer satisfaction, reducing costs, increasing efficiency, restructuring
rates and examining new product offerings and new markets for entry.
At the same time, Penn Telecom is actively expanding
its CLEC operations outside of North Pittsburgh's service territory, with
customers having been added in Verizon's (formerly Bell Atlantic) and Sprint's
traditional service territories.
The provisions of intrastate toll and access services
are subject to regulatory scrutiny of the PA PUC. Terms, conditions and rates
for intrastate toll and access services are filed in intrastate tariffs for
review and approval by the PA PUC.
On September 30, 1999, the PA PUC issued an Order
dealing with a variety of issues impacting LECs in Pennsylvania. Referred to as
the Global Proceeding, the Order dealt with certain issues that affected North
Pittsburgh. Specifically, the
25
Order allowed North Pittsburgh to rebalance and lower access charges in order to
prepare North Pittsburgh to meet competition in its serving area. The reduction
in access charges was offset in part by reimbursements from an interim state USF
that is funded by all telecommunications providers (excluding wireless) in the
state. Because the rebalancing and reduction of access charges was offset by
reimbursement from the fund, North Pittsburgh has not experienced any
significant impact on operations or revenues as a result of the Global Order.
The PA PUC, in the Global Order, indicated that it would commence another
proceeding on or after January 2, 2001 to examine further changes to the USF and
possible additional access charge reform. By Secretarial Letter dated February
1, 2002, the PA PUC granted a coalition of telephone companies, including North
Pittsburgh, a ninety (90) day extension until April 15, 2002 in which to submit
a proposal to the PA PUC outlining proposed changes in access charges and the
fund along with a timeline for these changes.
The 1996 Act, FCC and PA PUC regulatory proceedings and
the thrust towards a fully competitive marketplace have created some uncertainty
in respect to the levels of North Pittsburgh's revenue growth in the future.
However, its unique location in a growing commercial/residential suburban
traffic corridor to the north of the City of Pittsburgh, its state-of-the-art
switching transmission and transport facilities and its extensive fiber network
place North Pittsburgh in a solid position to meet competition and minimize any
loss of revenues. In addition, North Pittsburgh continues to make its network
flexible and responsive to the needs of its customers to meet competitive
threats. New services, access line and DSL growth and anticipated usage growth
are expected to lessen or offset any reductions in North Pittsburgh's revenue
sources. At the same time, Penn Telecom continues its CLEC edge-out strategy in
the Pittsburgh metropolitan area and the city of Butler, PA, while taking
advantage of the opportunities afforded by the 1996 Act and the introduction of
competition into the toll, local wireline and broadband markets.
(4) Transactions with Related Parties.
---------------------------------
In 1998, the Registrant entered into an agreement to
outsource certain data processing functions to a third party processor
(Processor). The Registrant and the Processor are related by a common
shareholder and director. Payments to the Processor under this agreement were
$3,196, $2,807 and $2,553 in 2001, 2000 and 1999, respectively. During 2001,
2000 and 1999, the Registrant paid approximately $42, $106 and $101,
respectively, to the law firm of a member of the Board of Directors for
various legal services. As of December 31, 2001, the Registrant had amounts
outstanding of $241 and $275 to the Processor and law firm, respectively.
(5) Inflation and Changing Prices.
-----------------------------
During the three most recent fiscal years, inflation
and changing prices did not have a significant impact on net sales and on income
from continuing operations.
26
(6) Regulatory Assets.
-----------------
Management does not believe that the Registrant has any
significant regulatory assets or liabilities under Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation". Historically, the Registrant has monitored closely the economic
lives of plant in service and has adjusted depreciable lives as necessary to
conform to generally accepted accounting principles.
(7) New Accounting Pronouncements.
-----------------------------
In July, 2001, the Financial Accounting Standards Board
issued SFAS No. 142, "Goodwill and Other Intangible Assets". The pronouncement
is effective for the Registrant's year beginning January 1, 2002. As of December
31, 2001, the Registrant had a net book value of $561 in equity method goodwill
(recorded under "Investments") as the result of the purchase of additional
interest in the Pennsylvania RSA 6(II) Limited Partnership in September, 2000.
SFAS No. 142 discontinues the amortization of equity method goodwill and
prescribes that the Registrant continue to test for impairment in accordance
with Accounting Principles Board (APB) Opinion 18. As the annual amortization of
the goodwill was only $30, the Registrant does not believe that this
pronouncement will have a significant impact on the consolidated financial
statements.
In June, 2001, the Financial Accounting Standards Board
issued SFAS No. 143, "Accounting for Asset Retirement Obligations". The
pronouncement is effective for the Registrant's year beginning January 1, 2003.
The Registrant does not expect this pronouncement will have a significant impact
on the consolidated financial statements.
In August, 2001, the Financial Accounting Standards
Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets". The pronouncement is effective for the Registrant's year
beginning January 1, 2002. The Registrant does not expect that this
pronouncement will have a significant impact on the consolidated financial
statements.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
- -------- ---------------------------------------------------------
(Amounts in Thousands).
----------------------
The Registrant's limited exposure to market risk for changes
in interest rates relates primarily to the Registrant's long-term debt
obligations. The Registrant primarily enters into debt obligations to support
capital expenditures. The Registrant currently has no cash flow exposure due to
rate changes for long-term debt obligations, as all obligations contain fixed
rates. As of December 31, 2001, the Registrant had debt obligations of $51,327
with an average interest rate of 5.81%. Based on borrowing rates currently
available to the Registrant for loans with similar terms and maturities, the
estimated fair value of long-term debt as of
27
December 31, 2001 was $51,526. The only exposure to market risk for changes in
interest rates would be in the event that the Registrant prepays its debt, at
which time a debt premium or discount would be calculated based on current RUS
borrowing rates.
The Registrant does not use derivative financial instruments
in its investment portfolio or for any other purpose.
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
Financial statements meeting the requirements of Regulation
S-X and the supplementary financial information specified by Item 302 of
Regulation S-K are attached to this document.
Item 9. Changes in and Disagreements with Accountants on Accounting
- ------- -----------------------------------------------------------
and Financial Disclosure.
------------------------
This paragraph is not applicable. There has not been a change
of accountants in the past 24 months nor has any disagreement on any matter of
accounting principles or practices been reported on Form 8-K during the same
time period.
PART III
Item 10. Directors and Executive Officers of the Registrant.
- -------- --------------------------------------------------
and
Item 11. Executive Compensation.
- -------- ----------------------
and
28
Item 12. Security Ownership of Certain Beneficial Owners and
- ------- ---------------------------------------------------
Management.
----------
and
Item 13. Certain Relationships and Related Transactions.
- ------- ----------------------------------------------
Information in respect to executive officers of the Registrant
is included herein as a separate Additional Item for Part I under the caption
"Executive Officers of the Registrant" and follows Item 4. The other information
required by Items 10, 11, 12 and 13 has been omitted from this report since the
Registrant expects to file a Definitive Proxy Statement pursuant to Regulation
14A involving, inter alia, the election of Directors not later than 120 days
after the end of the fiscal year covered by this report and such information is
incorporated into Part III of this Form 10-K by reference thereto.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
- ------- ------------------------------------------------------
Form 8-K.
--------
(a) The following documents of the Registrant and its
subsidiaries are filed as part of this report:
1. Financial Statements:
--------------------
Consolidated Balance Sheets as of December 31, 2001 and
2000
Consolidated Statements of Earnings for the Years Ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Shareholders' Equity and
Comprehensive Income for the Years Ended December 31,
2001, 2000 and 1999
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
29
2. Financial Statement Schedules:
-----------------------------
Condensed Financial Information of Registrant for the
Years Ended December 31, 2001, 2000 and 1999
Valuation and Qualifying Accounts and Reserves Years
Ended December 31, 2001, 2000 and 1999
All schedules other than those listed above have been
omitted because the information is either not required
or is set forth in the financial statements or notes
thereto.
3. Exhibits:
---------
The Exhibit Index for Annual Reports on Form 10-K and
the applicable Exhibits for this report may be found
under the caption OTHER INFORMATION, which follows the
signature pages.
(b) Reports on Form 8-K. No reports on Form 8-K were filed
-------------------
during the quarter ended December 31, 2001.
(c) Exhibits Required by Item 601 of Regulation S-K. See
-----------------------------------------------------
(a)(3) above.
(d) Financial Statement Schedules. The financial statement
-----------------------------
schedules listed in Item 14(a)(2) are hereby filed as part of this Form 10-K.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NORTH PITTSBURGH SYSTEMS, INC.
------------------------------
Registrant
By /s/ H. R. Brown By /s/ C. E. Thomas, Jr.
------------------------------- ---------------------------
H. R. Brown C. E. Thomas, Jr.
President, Director, and Chairman of the Board
Principal Executive Officer
Date March 28, 2002 Date March 28, 2002
----------------------------- -------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By /s/ A. P. Kimble
---------------------------------------------
A. P. Kimble
Director, Vice President, Treasurer and
Principal Financial and Accounting Officer
Date March 28, 2002
---------------------------------------------
By /s/ C. E. Cole
---------------------------------------------
C. E. Cole
Director
Date March 28, 2002
---------------------------------------------
OTHER INFORMATION
Exhibit Index for Annual Reports on Form 10-K
---------------------------------------------
Exhibit No. Subject Applicability
- ----------- ------- -------------
(2) Plan of acquisition, reorganization, Not Applicable
arrangement, liquidation or
succession
(3)(i) Articles of Incorporation Provided in Quarterly Report on Form
10-Q for the quarter ended June 30, 1996
and Incorporated Herein by Reference.
(3)(ii) By-Laws Provided in Annual Report on Form 10-K
for the year ended December 31, 1998 and
Incorporated Herein by Reference.
(4) Instruments defining the rights Provided in Registration of Securities of
of security holders, including Certain Successor Issuers on Form 8-B filed
indentures June 25, 1985 and Incorporated Herein by
Reference
(9) Voting trust agreement Not Applicable
(10) Material contracts Provided in Quarterly Report on Form
10-Q for the quarter ended September 30,
1999 and Incorporated Herein by Reference.
(11) Statement re computation of per Attached Hereto
share earnings
(12) Statement re computation of ratios Not Applicable
(13) Annual report to security holders, Not Applicable
Form 10-Q or quarterly report to
security holders
Exhibit No. Subject Applicability
- ------------- ------- -------------
(16) Letter re change in certifying Not Applicable
accountant
(18) Letter re change in accounting Not Applicable
principles
(21) Subsidiaries of the Registrant Attached Hereto
(22) Published report regarding matters Not Applicable
submitted to vote of security
holders
(23) Consent of experts and counsel Not Applicable
(24) Power of attorney Not Applicable
(99) Additional Exhibits Not Applicable
NORTH PITTSBURGH SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
and Schedule (Form 10-K)
December 31, 2001, 2000 and 1999
(With Independent Auditors' Report Thereon)
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Table of Contents
Page
Independent Auditors' Report 1
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2001 and 2000 2
Consolidated Statements of Earnings for the Years Ended
December 31, 2001, 2000 and 1999 4
Consolidated Statements of Shareholders' Equity and Comprehensive
Income for the Years Ended December 31, 2001, 2000 and 1999 5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999 7
Notes to Consolidated Financial Statements 9
Consolidated Financial Statement Schedules:
I Condensed Financial Information of Registrant for the
Years Ended December 31, 2001, 2000 and 1999 25
II Schedule II - Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 2001, 2000 and 1999 30
Independent Auditors' Report
The Board of Directors
North Pittsburgh Systems, Inc.:
We have audited the consolidated financial statements of North Pittsburgh
Systems, Inc. and subsidiaries (the Company) as listed in the accompanying table
of contents. In connection with our audits of the consolidated financial
statements, we also have audited the financial statement schedules as listed in
the accompanying table of contents. These consolidated financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of North Pittsburgh
Systems, Inc. and subsidiaries at December 31, 2001 and 2000, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/ KPMG LLP
Pittsburgh, Pennsylvania
February 22, 2002
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2001 and 2000
(Amounts in Thousands)
Assets 2001 2000
-------- -------
Current assets:
Cash and temporary investments $ 35,299 19,240
Marketable securities available for sale (note 2) 244 5,026
Accounts receivable:
Customers, net of allowance for doubtful accounts
of $415 and $559, respectively 5,404 5,077
Access service settlements and other 8,606 8,159
Prepaid expenses 496 462
Inventories of construction and operating
materials and supplies 2,548 4,783
Federal and state income taxes (note 7) -- 16
Deferred income taxes (note 7) 1,249 933
-------- -------
Total current assets 53,846 43,696
Property, plant and equipment (note 4):
Land 475 475
Buildings 13,531 13,071
Equipment 173,714 173,293
Assets held under capital lease (note 5) 10,363 8,875
-------- -------
198,083 195,714
Less accumulated depreciation and amortization 99,660 99,176
-------- -------
98,423 96,538
Construction-in-progress 2,875 7,540
-------- -------
Total property, plant and equipment, net 101,298 104,078
Investments (note 3) 11,891 11,170
Deferred financing cost 590 675
Other assets 1,338 1,335
-------- -------
$168,963 160,954
======== =======
2 (Continued)
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2001 and 2000
(Amounts in Thousands)
Liabilities and Shareholders' Equity 2001 2000
--------- -------
Current liabilities:
Current portion of long-term debt (note 4) $ 4,125 3,519
Obligation under capital lease (note 5) 926 747
Accounts payable 7,764 6,992
Dividend payable 2,551 2,551
Other accrued liabilities 3,938 3,318
Federal and state income taxes (note 7) 1,605 --
--------- -------
Total current liabilities 20,909 17,127
Long-term debt (note 4) 47,202 45,377
Obligation under capital lease (note 5) 7,607 7,137
Deferred income taxes (note 7) 10,483 9,645
Accrued pension and postretirement benefits (note 6) 6,476 5,781
Other liabilities 1,944 1,693
--------- -------
Total liabilities 94,621 86,760
Shareholders' equity:
Capital stock - common stock, par value $.15625;
authorized 50,000 shares;
issued 15,040 shares and
outstanding 15,005 shares 2,350 2,350
Capital in excess of par value 2,215 2,215
Retained earnings (note 4) 70,342 70,183
Less cost of treasury stock (35 shares) (508) (508)
Accumulated other comprehensive income - unrealized
loss on available for sale securities, net (notes 2 and 7) (57) (46)
--------- -------
Total shareholders' equity 74,342 74,194
--------- -------
$ 168,963 160,954
========= =======
See accompanying notes to consolidated financial statements.
3
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended December 31, 2001, 2000 and 1999
(Amounts in Thousands, Except Per Share Data)
2001 2000 1999
-------- ------ ------
Operating revenues:
Local network services $ 20,142 15,432 13,765
Long distance and access services 54,452 52,388 46,663
Directory advertising, billing
and other services 2,324 2,726 2,664
Telecommunication equipment sales 2,458 2,120 2,985
Other operating revenues 7,068 5,185 4,245
-------- ------ ------
86,444 77,851 70,322
Operating expenses:
Network and other operating expenses (note 8) 44,516 43,637 31,687
Depreciation and amortization (note 1) 17,335 16,754 13,691
State and local taxes 2,815 3,190 3,137
Telecommunication equipment expenses 1,733 1,560 2,322
-------- ------ ------
66,399 65,141 50,837
-------- ------ ------
Net operating revenues 20,045 12,710 19,485
Other expense (income), net:
Interest expense 3,733 3,140 2,263
Interest income (1,118) (1,367) (976)
Sundry income, net (406) (2,960) (3,320)
-------- ------ ------
2,209 (1,187) (2,033)
-------- ------ ------
Earnings before income taxes 17,836 13,897 21,518
Provision for income taxes (note 7) 7,474 6,008 8,833
-------- ------ ------
Net earnings $ 10,362 7,889 12,685
======== ====== ======
Average common shares outstanding 15,005 15,005 15,005
======== ====== ======
Basic and diluted earnings per share $ .69 .53 .85
======== ====== ======
Dividends per share $ .68 .67 .64
======== ====== ======
See accompanying notes to consolidated financial statements.
4
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity and Comprehensive Income
Years ended December 31, 2001, 2000 and 1999
(Amounts in Thousands)
Accumulated
Capital in other Total
Common excess of Retained Treasury comprehensive shareholders'
stock par value earnings stock income equity
-------- --------- -------- ------- ------------- -------------
Balances at December 31, 1998 $ 2,350 2,215 69,265 (508) 484 73,806
Comprehensive income:
Net income -- -- 12,685 -- -- 12,685
Other comprehensive income:
Unrealized holding gains (losses) arising
during the period 484
Less: Reclassification adjustments for
net gains included in net income (125)
------
Net unrealized change in investment
securities, net of tax effect of $267 359 359
------
Comprehensive income 13,044
Dividends declared on common stock -- -- (9,603) -- -- (9,603)
-------- ----- ------ ---- --- ------
Balances at December 31, 1999 2,350 2,215 72,347 (508) 843 77,247
Comprehensive income:
Net income $ -- -- 7,889 -- -- 7,889
Other comprehensive income:
Unrealized holding gains (losses) arising
during the period 344
Less: Reclassification adjustments for
net gains included in net income (1,233)
Net unrealized change in investment ------
securities, net of tax effect of $(631) (889) (889)
-------
Comprehensive income 7,000
Dividends declared on common stock -- -- (10,053) -- -- (10,053)
-------- ----- ------ ---- --- -------
Balances at December 31, 2000 2,350 2,215 70,183 (508) (46) 74,194
5 (Continued)
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity and Comprehensive Income
Years ended December 31, 2001, 2000 and 1999
(Amounts in Thousands)
Accumulated
Capital in other Total
Common excess of Retained Treasury comprehensive shareholders'
stock par value earnings stock income equity
-------- ----------- -------- -------- ------------- -------------
Comprehensive income:
Net income $ -- -- 10,362 -- -- 10,362
Other comprehensive income:
Unrealized holding gains (losses) arising
during the period 24
Less: Reclassification adjustments for
net gains included in net income (35)
------