Back to GetFilings.com

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

x            ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

                For the fiscal year ended December 31, 2002

OR

o            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)

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: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.15625 per share
(Title of Class)

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 o

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.   x

(Cover page continued on next page)

Table of Contents

Based on the average of the bid and asked prices at the close of the market on March 10, 2003, the aggregate market value of the voting stock held by non-affiliates of the registrant is $179,903,000. For purpose of making this calculation only, the registrant has defined affiliates to include all directors and officers (who directly or beneficially owned as a group 1,503,831 shares of Common Stock on March 10, 2003).

The number of shares of the registrant’s Common Stock (par value $.15625 per share) outstanding as of March 10, 2003 was 15,005,000.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
YES x              NO o

Based on the average of the bid and asked prices at the close of the market on June 28, 2002, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting stock held by non-affiliates of the registrant was $216,563,000. For purpose of making this calculation only, the registrant has defined affiliates to include all directors and officers (who directly or beneficially owned as a group 1,549,726 shares of Common Stock on June 28, 2002).

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, 2002.

(End of cover page)

Table of Contents

TABLE OF CONTENTS

Table of Contents

Cautionary Language Concerning Forward-Looking Statements

In addition to historical information, this Annual Report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (Section 27A) and Section 21E of the Securities Exchange Act of 1934 (Section 21E) regarding events, financial trends and critical accounting policies that may affect our future operating results, financial position and cash flows. We intend that such forward-looking statements be subject to the safe harbors within Section 27A and Section 21E as provided by the Private Securities Litigation Act of 1995.

Forward-looking statements are generally accompanied by words such as “believes,” “anticipates,” “expects,” “estimates,” “intends” or similar words or expressions. Such statements are based on our assumptions and estimates and are subject to risks and uncertainties. You should understand that various factors, including (but not limited to) those items discussed below and elsewhere in this document, could cause our actual results to differ materially from the results expressed in or implied by these forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which are current only as of the date of this filing. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

While the below list of risks and uncertainties is not exhaustive, some factors, in addition to those contained throughout this document, that could affect future operating results, financial position and cash flows and could cause actual results to differ materially from those expressed in the forward-looking statements are:

•         a change in economic conditions in the markets in which we operate;

•         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 in which we operate, including the intensity of competitive activity, pricing pressures and new and/or alternative product offerings;

•         our ability to continue to successfully penetrate our edge-out markets.

PART I

Item 1.             Business

General

North Pittsburgh Systems, Inc. (the Registrant, the Company, we, us or our), 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 or PTI) 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), a Competitive Local Exchange Carrier (CLEC)

1

Table of Contents

and an Interexchange Carrier (IXC) and has entered into these businesses. Pinnatech, Inc. (Pinnatech), a wholly-owned subsidiary of the Registrant, formed in 1995, principally provides Internet and broadband related services. The Registrant, North Pittsburgh, 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, 2002.

North Pittsburgh Telephone Company

North Pittsburgh, our incumbent local exchange carrier (ILEC), was founded in 1906 and operates in an approximate 285 square mile territory in Western Pennsylvania, which includes portions of Allegheny, Armstrong, Butler and Westmoreland Counties. North Pittsburgh provides service to approximately 77,000 business and residential access lines in its territory. Over the past decade, North Pittsburgh’s territory has experienced very robust population growth due to the continued expansion of suburban communities into the southern portions of the North Pittsburgh serving area, with the southernmost point of its territory only 12 miles from the City of Pittsburgh. According to the most recent census, the population in North Pittsburgh’s service territory grew 14.3% from 1990 to 2000.

North Pittsburgh operates a 100% digital switching network, comprised of nine central offices and 93 carrier serving areas (CSAs). The core of the network consists of two main host switches, a Nortel DMS 500 and a Nortel DMS 100. The majority of the CSAs were built over the past seven years, as North Pittsburgh recently completed an extensive network modernization plan. The current CSA architecture, in which nearly all loop lengths are kept to 12,000 feet or less, has allowed North Pittsburgh to be able to provide digital subscriber line (DSL) over 99% of its access lines. In addition, fiber has been deployed extensively throughout the network, resulting in a 100% Synchronous Optical Network (SONET) that supports all of the inter-office and host-remote links as well as the majority of business parks within the North Pittsburgh serving area. We believe that North Pittsburgh’s network is built for the future, in which the ability to satisfy the growing customer demand for broadband and multi-megabit services will be a key critical success factor.

Penn Telecom

Penn Telecom furnishes telecommunication and broadband services south of North Pittsburgh’s territory to customers in Pittsburgh and its surrounding suburbs as well as north of North Pittsburgh’s territory in the City of Butler and its surrounding areas. Verizon is the ILEC in the Pittsburgh area while Sprint is the ILEC in the City of Butler and its surrounding areas. Penn Telecom’s CLEC operation follows a true “edge-out” strategy, in which it has leveraged North Pittsburgh’s network, human capital skills and reputation in the surrounding markets.

Penn Telecom operates an extensive SONET optical network with over 300 route miles of fiber optic facilities in the metro market. Penn Telecom has physical collocation in 27 Verizon central offices and one Sprint central office and primarily serves its customers using unbundled network element (UNE) loops. Twenty-six of these collocations are connected to Penn Telecom’s SONET using a combination of leased and owned fiber optic facilities. Penn Telecom has also deployed a next-generation switching system to support its rapidly growing Integrated Services Digital Network (ISDN) primary rate interface (PRI) service, achieving significant cost reductions over traditional switching systems. In the Pittsburgh market, a carrier hotel operated by Penn Telecom serves as the hub for the fiber optic network. In addition, Penn Telecom also offers space in the carrier hotel to internet service providers (ISPs), IXCs, other CLECs and other customers who need a carrier-class location to house voice and data equipment as well as gain access to a number of networks, including Penn Telecom’s. In the City of Butler, Penn Telecom has overbuilt a portion of the Sprint distribution plant in the central business district and continues to expand these facilities as it increases its penetration of the Butler area business market.

2

Table of Contents

Penn Telecom’s sales strategy has been to focus on small to mid-sized business customers (defined as 5 to 500 lines), educational institutions and up-scale apartment/townhouse communities (also referred to as multiple dwelling units, or MDUs), offering local and long distance voice services as well as DSL. Due to its extensive facilities based network containing fiber, Penn Telecom is also able to compete against Verizon and other CAPs to offer transport facilities via high capacity special access circuits (from DS-1s up to OC-48s) to IXCs, ISPs and even other CLECs.

In addition to the CLEC operations, Penn Telecom also provides long distance services and maintains an enterprise equipment business providing traditional key and private branch exchange (PBX) systems to business customers. Prior to its CLEC operations, the majority of Penn Telecom’s long distance customers resided in North Pittsburgh’s market. However, with the growth of its CLEC customer base and the effective bundling of toll with local dial tone services, Penn Telecom has been able to greatly expand this service offering.

Pinnatech

Pinnatech, an ISP doing business under the Nauticom name, furnishes Internet access and broadband services in Western Pennsylvania. Pinnatech serves the majority of its DSL and other broadband customers over the North Pittsburgh and Penn Telecom networks. In addition, Pinnatech also provides virtual hosting services, web page design and e-commerce enabling technologies to customers.

Principal Services Rendered

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), SONET, DS-1, DS-3, OC-3 and others.

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.

Internet Access Service. 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 primarily from North Pittsburgh and Penn Telecom.

Pinnatech provides access to the Internet to end users utilizing dial-up, DSL and other broadband facilities such as Frame Relay and ATM which it purchases on a wholesale basis primarily from North Pittsburgh and Penn Telecom. In addition, Pinnatech provides virtual hosting services, web

3

Table of Contents

page design and creation and e-commerce enabling technologies to customers. Internet access service revenues, including revenues recognized by all these operating companies for DSL service, are classified within other operating revenues on the Company’s Consolidated Statement of Earnings.

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. 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.

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.

Other Services

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 wireless 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 Cellco Partnership, d.b.a. Verizon Wireless, is the General Partner with a partnership interest of 57.13 percent, in Pennsylvania RSA 6(I) Limited Partnership, which provides wireless service in a Rural Service Area (RSA) consisting of Clarion and Lawrence Counties and the Northern portions of Armstrong and Butler Counties. Verizon Wireless purchased its 57.13 percent interest from Alltel Communications, Inc. (Alltel) on December 31, 2002. Alltel’s sale of its general partnership interest to Verizon Wireless was litigated, 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. On October 25, 2002, the Court of Common Pleas of Lawrence County, Pennsylvania, ruled that Alltel properly terminated Venus’ right of first refusal and that Alltel and Verizon Wireless were still legally obligated to transfer the partnership interest under the terms of their original purchase agreement. North Pittsburgh did not actively participate 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 wireless 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 3.38 percent partnership interest it thus acquired, which increased North Pittsburgh’s overall partnership interest from 20.29 percent to 23.67 percent.

Boulevard Communications, L.L.P. (Boulevard) is a Pennsylvania Limited Liability Partnership CAP equally owned by the Company and a company in the Armstrong Holdings, Inc. group of companies (Armstrong Group). It provides point-to-point data services to businesses in Western Pennsylvania including access to ISPs, connections to IXCs and high-speed data transmission.

4

Table of Contents

Competitive Environment

Since the passage of the Telecommunications Act of 1996 (the 1996 Act), the telecommunications industry has undergone significant change. The goal of the 1996 Act was to encourage the rapid development of new telecommunications technologies and to promote new competition in the hope that customers would benefit from lower prices, higher quality services and greater choices of services and providers.

North Pittsburgh

More specifically, the 1996 Act includes requirements that ILECs negotiate rates, terms and conditions with carriers regarding interconnection, the provisioning of UNEs, compensation terms for local calls, the resale of telecommunication services and the physical collocation of competitor’s equipment in the ILEC’s facilities. As described in greater detail in the Regulatory Matters section of Item 7, North Pittsburgh’s designation as a Rural carrier under the 1996 Act had initially exempted it from many of the above mentioned provisions, and North Pittsburgh was granted a temporary suspension of certain interconnection requirements with non-facilities based carriers. However, the exemption and suspension are subject to the jurisdiction of the Pennsylvania Public Utility Commission (PA PUC), and the PA PUC denied North Pittsburgh’s request for a further extension of its suspension on January 15, 2003. Although the denial for a further extension of North Pittsburgh's suspension is currently under legal challenge and North Pittsburgh's rural exemption has yet to be lifted, there is a reasonable risk that some of the barriers to competitor’s entry into North Pittsburgh’s territory will be either limited or removed in the future.

North Pittsburgh’s local wireline operations have already been experiencing increased competition over the past several years from various sources, including, but not limited to, larger end users installing their own networks, IXCs, satellite transmission services, wireless communication providers, cable companies, radio-based personal communications companies, CAPs, ISPs and other systems capable of completely or partially bypassing local telephone facilities.

North Pittsburgh is currently addressing potential competition by focusing on customer satisfaction, reducing costs, increasing efficiency, restructuring rates and examining new and bundled product offerings.

Penn Telecom

At the same time, the 1996 Act has enabled us to expand outside of the North Pittsburgh franchised territory through our Penn Telecom CLEC operations. With North Pittsburgh’s territory being adjacent to the greater Pittsburgh metropolitan area, we have been able to selectively enter attractive markets through a CLEC edge-out strategy. As of December 31, 2002, Penn Telecom served 17,137 dial tone access lines and 14,713 access line equivalents¹, for a grand total of 31,850 equivalent access lines² served.

______________

       ¹    Access line equivalents represent a conversion of data circuits to an access line basis and is presented for comparability purposes. Equivalents are calculated by converting data circuits (basic rate interface (BRI), PRI, DSL, DS-1 and DS-3) and SONET-based (optical) services (OC-3) to the equivalent of an access line. While the revenues generated by access line equivalents have a directional relationship with these counts, growth rates cannot be compared on an equivalent basis.

       ²    Equivalent access lines include dial tone access lines and access line equivalents.

5

Table of Contents

The telecommunications market within Pittsburgh and its surrounding areas is very competitive, with Penn Telecom competing against not only the area ILEC (Verizon) but also many of the larger national and regional CLECs. The market north of North Pittsburgh’s territory in the City of Butler and its surrounding areas is currently relatively less competitive, as Penn Telecom’s only main competitor is the ILEC (Sprint). This region, due to the higher Sprint UNE charges and lack of proximity to the physical points of presence of many CLECs, is currently more isolated from competition. Penn Telecom has been able to effectively compete in this region by leveraging North Pittsburgh’s reputation and network to reduce the overall cost of providing service, thereby attracting several of the largest business and municipal facilities. Due to its success in the area, Penn Telecom is in the process of overbuilding a portion of the Sprint distribution plant, which will further increase Penn Telecom’s competitive advantage as well as decrease the long-term cost of providing service.

Other Products/Services

The toll market is very competitive, as all the major IXCs are present in the North Pittsburgh territory and markets served by Penn Telecom. Wireless carriers also pose a competitive threat to our toll services, especially for those customers who are heavy users and have the flexibility to adapt their calling patterns to take advantage of the bundled packages offered by many of the wireless carriers. In addition, those cable companies that offer cable service in North Pittsburgh’s service area are updating their facilities, with some cable companies outside of North Pittsburgh’s territory already providing local dial tone and toll services. North Pittsburgh has developed over the last few years, and continues to modify, toll calling plans to best meet the competitive market. In addition, we have been able to expand our customer base through Penn Telecom’s overall growth and success in bundling toll with local dial tone. As of December 31, 2002, 84% of Penn Telecom’s CLEC customers subscribed to one of its toll packages.

The market for Internet and broadband services is also highly competitive. Our DSL product experiences competition from cable modem services, other ILECs and CLECs (for the provisioning of DSL outside of North Pittsburgh’s territory) and, to a lesser extent, wireless and satellite broadband products. Pinnatech, our ISP, also faces competition in the dial-up market from most of the national and regional competitors. Many of our broadband and dial-up competitors have significantly greater market presence, advertising budgets and brand recognition. We compete based on our knowledge of the local area, the quality of our product and the quality of service that we provide, especially our responsiveness to the needs of small to medium sized businesses.

We also derive a small percentage of our revenues from directory advertising, telecommunications equipment sales, virtual hosting, web page design, e-commerce enabling technologies and several other services, all of which are competitive in nature.

Employees

At December 31, 2002, the Company, through all of its subsidiaries, employed 391 persons.

Other Matters

The majority of the services we provide are repetitive and recurring in nature and, as a result, backlog orders and seasonality are not significant factors. In addition, there are no specific special practices relating to working capital.

No material part of our overall business is dependent upon a single or few end user customers, the loss of any one or more of whom would have a materially adverse effect on our business. North Pittsburgh and Penn Telecom do provide access services to major IXCs, with revenues received from several carriers individually exceeding five percent of consolidated revenues. Although we are subject to short term revenue risks, such as in the event of bankruptcy of our carrier customers in which pre-

6

Table of Contents

petition receivables (which may represent several months of revenue) are subject to unsecured creditor recovery (if any), these carriers do not present potential long term revenue risk as access traffic for any potentially insolvent carrier will most likely migrate to the remaining solvent carriers.

We have not encountered, nor do we 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 our equipment requirements, we are not primarily dependent upon any one supplier and alternative suppliers of telecommunications equipment are readily available.

North Pittsburgh holds valid, continuing and subsisting rights, certificates, franchises, licenses and renewable permits adequate for the conduct of its business in the territory it serves, none of which contains any burdensome restrictions. North Pittsburgh also has FCC licenses to operate a private operational telephone maintenance radio service station (call sign 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 maintaining or renewing these licenses.

Available Information

We maintain a website with the address www.northpittsburgh.com. We are not including the information contained on our website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission.

Item 2.             Properties

The Registrant owns in fee an office building, which houses a portion of the operations of Penn Telecom. Penn Telecom also owns an office/warehouse building.

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 (RUS), 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.

7

Table of Contents

Item 3.             Legal Proceedings

As of the date hereof, except for regulatory matters before the 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 Company or its subsidiaries, other than ordinary routine litigation or ordinary routine utility matters incidental to the business and matters as to which we 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, 2002.

8

Table of Contents

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:

9

Table of Contents

10

Table of Contents

(1)       Directors. Messrs. Thomas, Brown and Kimble were elected as Directors at the 2002 Annual Meeting of Shareholders held May 17, 2002 to serve until the 2003 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 16, 2003.

(2)       Officers. All of the foregoing officers were elected to their respective offices at a Board of Directors’ Organizational Meeting which followed the May 17, 2002 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.

PART II

Item 5.             Market for Registrant’s Common Equity and Related Stockholder Matters

The Company’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 Company’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 Company’s Common Stock for each quarter of 2002 and 2001 are listed below:

Calculated on the basis of the number of shareholder accounts, the Company had approximately 2,604 common shareholders on March 10, 2003.

11

Table of Contents

Cash dividends declared per share by the Company on the outstanding shares of Common Stock in 2002 and 2001 were as follows:

Item 6.             Selected Financial Data (Amounts in Thousands Except Per Share Data)

The following summary of Selected Financial Data for the years 2002 – 1998 should be read in conjunction with the consolidated financial statements and notes included elsewhere in this report.

12

Table of Contents