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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
----------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission File Number 0-13716
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North Pittsburgh Systems, Inc.
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1485389
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4008 Gibsonia Road, Gibsonia, Pennsylvania 15044-9311
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Registrant's telephone number, including area code 412/443-9600
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
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None Not Applicable
(Cover page continued on next page)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
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(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, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO _______
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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 ]
AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES
-------------------------------------------------------------
Based on the average of the bid and asked prices on March 15, 1996, the
aggregate market value of the voting stock held by non-affiliates of the
Registrant is $466,240,000. (Includes 855,761 shares beneficially owned by
Directors and Officers as a group.)
OUTSTANDING SHARES OF EACH CLASS OF REGISTRANT'S COMMON STOCK
-------------------------------------------------------------
Class Outstanding at March 15, 1996
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Common Stock, Par Value $.3125 per share 7,520,000 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, 1995.
(End of cover page)
PART I
Item 1. Description of Business
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(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. The principal
business activities of Penn Telecom consist of the sale, rental and servicing of
telecommunication equipment to end users, the resale of bulk billed message toll
services and high capacity intercity facilities. The Registrant, NPTC and Penn
Telecom operate under the provisions of the Pennsylvania Business Corporation
Law. No significant changes in the mode of conducting business by the
Registrant, North Pittsburgh or Penn Telecom have occurred since the beginning
of the fiscal year ended December 31, 1995.
Management Consulting Solutions, Inc. (MCSI) and Pinnatech, Inc. (Pinnatech),
wholly-owned subsidiaries of the Registrant, were formed in 1995. MCSI provides
consulting and computer outsourcing services principally to the healthcare
industry, and Pinnatech provides Internet access services. As both MCSI and
Pinnatech were in the start-up phase of their operations during 1995, they did
not have a material effect on the results of operations for 1995 (see Item 7 of
this report). The business activities of MCSI and Pinnatech are not significant
and are not considered as reportable industry segments of the Registrant.
(b) Financial Information About Industry Segments:
---------------------------------------------
This paragraph is not applicable. The Registrant, through North Pittsburgh
and Penn Telecom, is engaged in the business of providing telecommunication
services and equipment which is not considered separable into industry segments.
(c) Narrative Description of Business:
---------------------------------
(1) Business Done and Intended To Be Done:
-------------------------------------
(i) Principal Services Rendered. The Registrant, through North
---------------------------
Pittsburgh and Penn Telecom, is engaged in providing telecommunication services
and equipment to customers generally located in Western Pennsylvania.
North Pittsburgh furnishes telecommunication services in all or parts of
Allegheny, Armstrong, Butler and Westmoreland Counties subject to the
jurisdiction of the Pennsylvania Public Utility Commission (PA PUC) under the
provisions of the Pennsylvania Public Utility Code which confers upon that
Commission 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.
1
Federal legislation in the form of The Telecommunications Act of 1996 may be
construed to remove some jurisdiction from the PA PUC, but, as to what extent,
it is not certain at this time. North Pittsburgh, prior to July 8, 1998, must
seek approval of an alternative form of regulation from the PA PUC. (See
discussion under Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations).
At January 31, 1996, North Pittsburgh served approximately 57,800 customers
through nine digital fiber-linked central offices (eight exchanges) in its
franchised area.
Telephone service by North Pittsburgh to locations outside of its franchised
telephone service territory but within the Local Access Transport Area (LATA)
(identified in this case as the 412 Numbering Plan Area (NPA)) is furnished
through switched and special access connections with Bell Atlantic -
Pennsylvania, Inc. (BAPA) (formerly known as The Bell Telephone Company of
Pennsylvania), other independent telephone companies and, in some instances,
Interexchange Carriers (IXCs), Competitive Access Providers (CAPs) or resellers.
North Pittsburgh bills toll calls within the LATA to its customers using toll
rates contained in a Pennsylvania Telephone Association (PTA) tariff on file
with the PA PUC. North Pittsburgh retains the revenues for such calls and pays
network access charges to BAPA and other telephone companies for terminating
this toll traffic. Conversely, North Pittsburgh receives network access charge
revenues for terminating the traffic of others.
North Pittsburgh is a participating Issuing Carrier in the National Exchange
Carrier Association (NECA) tariffs which are on file with the Federal
Communications Commission (FCC) in respect to the provision of network access to
IXCs and others for interstate telephone service to areas beyond the LATA. Such
tariffs contain the rates chargeable for interstate switched and special access
to and from North Pittsburgh's telephone facilities. North Pittsburgh is also a
participating Issuing Carrier under authority of a PTA tariff on file with the
PA PUC which contains the rates chargeable for intrastate switched and special
access from North Pittsburgh's telephone facilities to Pennsylvania locations
beyond the LATA and to North Pittsburgh's facilities from such locations. Penn
Telecom, as an IXC, markets intrastate and interstate toll services by reselling
bulk billed message toll services.
North Pittsburgh provides facilities for special circuits (alarms, data
transmission, etc.), mobile telephone and other services and receives revenues
from the sale of advertising space in telephone directories. The respective
amounts of operating revenues contributed by local network services, long
distance and access services, telecommunication equipment sales, directory
advertising and billing and collection services for certain IXCs, including Penn
Telecom, 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.
North Pittsburgh and Alltel Mobile Communications, Inc. are Limited Partners
with a partnership interest of 3.6 percent each and Bell Atlantic Mobile Systems
of Pittsburgh, Inc. 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 FCC.
2
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 United
Telephone Company of Pennsylvania 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.
North Pittsburgh, Centennial and Venus are Limited Partners with partnership
interests of 20.29, 14.29 and 14.29 percent, respectively, and Bell Atlantic
Mobile Systems of Pennsylvania RSA 6(II), Inc. is the General Partner with a
partnership interest of 51.13 percent in Pennsylvania RSA 6(II) Limited
Partnership which provides Cellular Service in a RSA consisting of the Southern
portions of Armstrong and Butler Counties.
(ii) Status of New Products. This paragraph is not applicable. The
----------------------
Registrant, NPTC and Penn Telecom 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 is material.
(iii) Equipment Availability. The Registrant, NPTC and Penn Telecom
----------------------
have not encountered, nor do they anticipate, any difficulty in obtaining a
ready supply of telecommunication equipment from manufacturer suppliers.
Although certain individual suppliers may each supply more than 10 percent of
their equipment requirements, the Registrant, NPTC and Penn Telecom are not
primarily dependent upon any one supplier with alternative suppliers of
telecommunication equipment being readily available.
(iv) 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 contain any burdensome restrictions. While its rights to serve
are not exclusive, prior approval of the PA PUC is required for any other person
or corporation (except a municipal corporation within its municipal limits or a
bona fide cooperative furnishing service to its members on a non-profit basis)
to provide local exchange telephone service in those areas in which North
Pittsburgh is providing such service and at present, there is no such competing
service. However, see subparagraph (c)(l)(x) of this item.
North Pittsburgh has an FCC license to operate a private operational
telephone maintenance radio service station (WIK 838 expiring on March 20,
2001). In addition, North Pittsburgh has an FCC license to operate an Improved
Mobile Telephone System (IMTS) (call sign KGH-862 expiring on July 1, 1998).
Renewal license applications were filed on December 27, 1990 with the FCC for
the continued operation by North Pittsburgh of two point-to-point microwave
systems (call signs KG0-21 and KGN-88). The FCC acknowledged such renewal
applications in a Public Notice dated March 21, 1991 indicating an expiration
date of February 1, 2001. North Pittsburgh also holds a non-commercial private
license (call sign WPCD 845 expiring on April 29, 1998) for its own maintenance
radio service and other purposes. North Pittsburgh has not encountered in the
past, nor does it anticipate in the future, any difficulty in renewing these FCC
licenses.
3
(v) Seasonality of Business. The business of furnishing
-----------------------
telecommunication services is not seasonal.
(vi) 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.)
(vii) Customers. No material part of the overall business of
---------
the Registrant, NPTC and Penn Telecom 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.
(viii) Backlog of Orders. The Registrant, NPTC and Penn Telecom
-----------------
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.
(ix) Renegotiation of Profits or Termination of Contracts. The
----------------------------------------------------
Registrant, NPTC and Penn Telecom 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.
(x) Competition. The move towards the replacement of regulatory
------------
control of monopoly based telecommunication services to a competitive
environment culminated with the recent passage of The Telecommunications Act of
1996 (1996 Act). The Federal Communications Commission (FCC) must now issue
regulations that spell out the specifics of the 1996 Act and the Pennsylvania
Public Utility Commission (PA PUC) must choose a course of action to implement
the 1996 Act as enacted, or to the extent possible and permissible, change the
manner in which such regulations are implemented in Pennsylvania before the
impact on North Pittsburgh can be fully understood and measured. However, the
clear intent of the 1996 Act is to open up the local exchange market to
competition. This appears to mandate, among other items, that a Local Exchange
Carrier (LEC) such as North Pittsburgh permit the resale of its service 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.
Toll telecommunication services beyond North Pittsburgh's franchised
telephone service area and within the LATA, hereinafter referred to as
intraLATA, or service within the 412 NPA, are presently provided through
interconnections with BAPA and other telephone companies. IXCs and resellers
have, since 1985, been permitted to also furnish or supply intraLATA
telecommunication services. However, in late 1995, the PA PUC approved
intraLATA Presubscription (also known as equal access) under which a customer
will be able to choose his or her intraLATA toll carrier similar to the choice
currently made for an interLATA toll carrier. IntraLATA Presubscription must be
implemented by North Pittsburgh no later than December 31, 1997. It is not
possible to determine the ultimate impact of intraLATA Presubscription, but it
is expected that it may result in some reduction of revenues.
4
The PA PUC also approved the provision of local exchange service by two
Competitive Local Exchange Carriers (CLECs) in each of the Pittsburgh and
Philadelphia local exchange markets served by BAPA and one CLEC in all of the
area in Pennsylvania served by BAPA. AT&T filed an application with the PA PUC
on February 29, 1996 to begin to offer, render, furnish or supply Competitive
Local Exchange Service throughout Pennsylvania. Thus far, the local exchange
market served by North Pittsburgh has not been affected. North Pittsburgh
currently faces (or will eventually face) competition in respect to switched and
special access service, intraLATA toll service, local exchange services, public
payphone service and directory publishing. The competition in these service
markets will come from IXCs (such as AT&T, MCI, Sprint and LDDS), CLECs (such as
TCG Pittsburgh and MFS Intelenet), Competitive Access Providers (CAPS) (such as
MFS Comm, and Teleport), Cable TV Companies, Cellular Service Providers,
Personal Communications Service (PCS) Providers, VSAT (satellite) channels and
Shared Tenant Service companies.
The 1996 Act, regulatory proceedings in Pennsylvania 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 growth and anticipated usage growth will lessen or offset any reductions in
North Pittsburgh's revenue sources.
Penn Telecom is faced with competition in respect to the sale, rental and
servicing of deregulated telecommunication equipment both within and outside
North Pittsburgh's franchised telephone service area. To date, Penn Telecom has
endeavored to compete with such interconnect companies. As a reseller of both
interstate and intrastate toll services, Penn Telecom is in direct competition
with other IXCs. Penn Telecom is certified by the PA PUC to offer toll resale
services and has a tariff on file with the FCC to provide interstate toll
services.
(xi) Research Activities. The Registrant, NPTC and Penn Telecom 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.
(xii) 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, NPTC and Penn Telecom.
(xiii) Employees. At December 31, 1995, the Registrant, through
---------
all of its subsidiaries, employed 288 persons.
5
(d) Financial Information About Foreign and Domestic Operations and Export
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Sales. This paragraph is not applicable. The Registrant, NPTC and Penn Telecom
- -----
do not engage in any operations in foreign countries.
Item 2. Properties
- ------ ----------
The Registrant owns in fee, an office/warehouse building which houses the
operations of Penn Telecom and MCSI. 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 Mortgage and Security Agreements with the
Rural Telephone Bank, consist principally of 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 and generally any and
all property required to operate a modern telecommunications network. 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, 1991 to December 31, 1995, North Pittsburgh made gross
property additions of approximately $51,133,000 (which is about 45.9% of the
original cost of the present telephone plant) and property retirements of
approximately $19,649,000. North Pittsburgh's 1996 construction program,
subject to adjustment for economic conditions, postponements of housing
developments, etc. is estimated to be in the $16 million to $20 million range
which includes central office equipment additions, distribution lines, etc. to
permit expansion or improvement of North Pittsburgh's telecommunication
services.
Item 3. Legal Proceedings
- ------ -----------------
As of the date hereof, except for regulatory matters before the PA PUC,
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, 1995.
ADDITIONAL ITEM FOR PART I. - Executive Officers of the Registrant
- ------------------------------------------------------------------
Information regarding the Registrant's Executive Officers 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.
6
Executive Officers of the Registrant:
- ------------------------------------
Positions and Offices
----------------------------
Name and Business Experience Age with Registrant (1)
- ---------------------------- --- ----------------------------
Charles E. Thomas, Sr. 82 Chairman, Board of Directors
Registrant: Chairman of the Board of
Directors since incorporation in 1985;
Partner in the law firm of Thomas,
Thomas, Armstrong & Niesen,
Harrisburg, PA, since the formation in
1991 of this firm which is retained as
general counsel to the Registrant;
Partner in the law firm of Thomas &
Thomas from 1977 to 1990. North
Pittsburgh Telephone Company:
Chairman of the Board of Directors
since 1968; Director since 1957. Mr.
Thomas is also a Director of Denver
and Ephrata Telephone and Telegraph
Company, Ephrata, PA.
Gerald A. Gorman 66 Director and President
Registrant: Director since incorporation
in 1985; President since May, 1994;
Executive Vice President from 1992 to
1994; Vice President - Finance from
1985 to 1992; Secretary from 1985 to
1993. North Pittsburgh Telephone
Company: Director since 1979;
President since 1993; General Manager
since 1992; Executive Vice President
from 1992 to 1994; Vice President -
Finance from 1972 to 1992; Assistant
General Manager from 1986 to 1992;
Secretary from 1968 to 1993.
Harry R. Brown 59 Director and Vice President
Registrant: Director since 1989; Vice
President since 1992. North Pittsburgh
Telephone Company: Director since
1989; Vice President - Operations since
1987; Assistant Vice President -
Operations from 1986 to 1987;
Network Engineering Manager from
1984 to 1986; Equipment Supervisor
from 1975 to 1984.
7
Executive Officers of the Registrant:
- ------------------------------------
Positions and Offices
----------------------------
Name and Business Experience Age with Registrant (1)
- ---------------------------- --- ----------------------------
Allen P. Kimble 49 Vice President, Secretary and
Registrant: Secretary since 1993; Treasurer
Vice President since 1989; Treasurer
since incorporation in 1985. North
Pittsburgh Telephone Company: Secretary
since 1993; Vice President since 1989;
Treasurer since 1979; Assistant Vice
President from 1987 to 1989; Assistant
Secretary from 1977 to 1993.
N. William Barthlow 41 Vice President and Assistant
Registrant: Vice President since May, Secretary
1994; Assistant Secretary since 1993;
Assistant Vice President from 1990 to
1994. North Pittsburgh Telephone Company:
Vice President - Marketing and Revenues
since 1994; Assistant Secretary since
1993; Assistant Vice President - Revenue
Requirements from 1989 to 1994; Revenue
Requirements Manager from 1987 to 1989.
(1) Directors. Messrs. Thomas, Gorman and Brown were elected as Directors at
---------
the 1995 Annual Meeting of Shareholders held May 19, 1995 to serve until
the 1996 Annual Meeting of Shareholders. All of these current Directors
will be nominees for reelection as Directors at the Annual Meeting of
Shareholders to be held May 17, 1996.
(2) Officers. Messrs. Thomas, Gorman, Brown, Kimble and Barthlow were
--------
elected to their respective offices at a Board of Directors'
Organizational Meeting which followed the May 19, 1995 Annual Meeting of
Shareholders. All officers will hold their offices until the first
meeting of the Board following the 1996 Annual Meeting of Shareholders.
(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.
8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- ------ ---------------------------------------------------------------------
(a) Principal Markets and Market Price:
----------------------------------
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.
The stock is not listed on any Stock Exchange and is considered as being traded
on the OTC (Over-the-Counter) market. The Registrant's Common Stock was not
actively traded or routinely quoted in 1994 and for most of 1995. However,
beginning on October 31, 1995, a brokerage firm in Pittsburgh has been making an
effort to establish a market for the Registrant's Common Stock. Quotations
provided solely by such brokerage firm are published five times a week in the
financial pages of the Pittsburgh Post-Gazette. The principal market for such
stock appears to be present shareholders, telephone service subscribers and
other persons, generally residents of Pennsylvania. To the best of the
Registrant's knowledge based on information secured by the Registrant directly
from parties involved in buy-sell transactions during 1995 and 1994, the market
price ranges were $35.00 to $56.00 per share and $29.25 to $35.00 per share,
respectively. The price range for 1995 includes the market-maker activities of
the brokerage firm discussed above. The Registrant acknowledges that, from time
to time and without its direct knowledge, shares of its Common Stock may trade
through brokerage firms at prices different than the market ranges given herein.
(b) Approximate Number of Holders of Common Stock:
---------------------------------------------
Calculated on the basis of the number of shareholder accounts, the
Registrant had approximately 2,845 common shareholders on March 15, 1996.
(c) Common Stock Dividends:
----------------------
Cash dividends declared per share by the Registrant on the outstanding
shares of Common Stock in 1995 and 1994 were as follows:
1995 1994
----- ----
First Quarter $ .24 $.22
Second Quarter .24 .22
Third Quarter .24 .22
Fourth Quarter .24 .22
----- ----
$ .96 $.88
===== ====
Item 6. Selected Financial Data (Thousands Except Per Share Data)
- ------ --------------------------------------------------------
The following summary of Selected Financial Data for the years 1995-1991
(adjusted for a two-for-one stock split effective October 30, 1992) should be
read in conjunction with the consolidated financial statements and notes
included elsewhere in this report.
9
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
Operating revenues $52,757 $49,188 $44,241 $41,993 $40,238
Operating expenses 33,748 31,728 28,367 28,004 27,952
------- ------- ------- ------- -------
Net operating revenues 19,009 17,460 15,874 13,989 12,286
Interest expense 1,596 1,645 1,573 1,605 1,637
Interest income 1,066 772 878 967 1,422
Sundry expense (income), net 738 (202) 558 (23) 73
------- ------- ------- ------- -------
Earnings before income taxes,
cumulative effect of change in
accounting method and
minority interest 17,741 16,789 14,621 13,374 11,998
Income tax expense 7,054 6,885 5,906 5,292 4,737
------- ------- ------- ------- -------
Earnings before cumulative
effect of change in accounting
method and minority interest 10,687 9,904 8,715 8,082 7,261
Minority interest -- -- -- 18 36
Cumulative effect of change in
accounting method -- -- 450 -- --
------- ------- ------- ------- -------
Net earnings $10,687 $ 9,904 $ 9,165 $ 8,064 $ 7,225
======= ======= ======= ======= =======
Average common shares outstanding 7,520 7,520 7,520 7,520 7,520*
======= ======= ======= ======= =======
Earnings per share before cumulative
effect of change in accounting
method $ 1.42 $ 1.32 $ 1.16 $ 1.07 $ .96*
======= ======= ======= ======= =======
Earnings per share of common stock $ 1.42 $ 1.32 $ 1.22 $ 1.07 $ .96*
======= ======= ======= ======= =======
Dividends declared per share of
common stock $ .96 $ .88 $ .80 $ .72 $ .69*
======= ======= ======= ======= =======
Total assets $96,156 $91,578 $88,771 $84,574 $82,261
======= ======= ======= ======= =======
Long-term debt $21,694 $22,396 $23,058 $23,683 $24,265
======= ======= ======= ======= =======
*Adjusted for a two-for-one stock split effective October 30, 1992
10
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------ -----------------------------------------------------------------------
of Operations
-------------
Results of Operations
- ---------------------
Net earnings for 1995 were $10,687,000, an increase of $783,000 (7.9%) over
1994 net earnings of $9,904,000. The 1994 net earnings represented an increase
of $739,000 (8.1%) as compared to 1993. These fluctuations were attributable to
the following factors:
Total operating revenues increased $3,569,000 (7.3%) during 1995. This
change was principally due to increases in long distance and access services of
$2,662,000 (7.3%), local network services of $651,000 (9.5%), and to a lesser
extent, advertising and other of $153,000 (7.7%), offset by a decrease in
telecommunication equipment sales of $668,000 (23.1%). Higher long distance and
access service revenues were generally the result of an increase in the number
of customers and in minutes of use. Increased local network service revenues
were attributable to customer growth. The decrease in telecommunication
equipment sales reflects a decrease in the number of systems sold in 1995 as
compared to 1994. Other operating revenues increased $771,000 (64.4%) as the
direct result of start-up business activities of the Registrant's two new
subsidiaries.
Operating revenues increased $4,947,000 (11.2%) in 1994 over 1993. This
change was due to increases in long distance and access services of $3,488,000
(10.7%), local network services of $425,000 (6.6%), and telecommunication
equipment sales of $1,052,000 (56.9%). Higher long distance and access service
revenues were generally the result of an increase in the number of customers and
in minutes of use. Increased local network service revenues were attributable
to customer growth and accelerating customer acceptance of advanced custom
calling features. The additional revenues from telecommunication equipment
sales reflected an increase in the number of systems sold including a large sale
recorded in the third quarter.
Total operating expenses increased $2,020,000 (6.4%) during 1995. That
change is principally the result of an increase in depreciation and amortization
of $818,000 (10.9%), network and other operating expenses of $1,832,000 (9.5%)
offset by a decrease in telecommunication equipment expenses of $827,000
(29.2%). Approximately $593,000 of the increase in depreciation and
amortization resulted from a reduction in useful lives of certain
telecommunication equipment and approximately $1,000,000 of the increase in
network and other operating expenses was attributable to the activities of
start-up businesses mentioned previously. The remainder of the increase is the
result of expanded operations to serve customer growth as noted above. The
decrease in telecommunication equipment expenses is related to the decrease in
equipment sales discussed above. The increase in total operating revenues
discussed above coupled with the increase in total operating expenses resulted
in a 8.9% increase in net operating revenues in 1995 as compared to 1994.
Operating expenses for 1994 increased $3,361,000 (11.8%) over the preceding
year. That change was principally the result of increases in network and other
operating expenses of $2,455,000 (14.6%) and telecommunication equipment
expenses of $958,000 (51.2%). The increase in telecommunication equipment
expenses was related to the equipment sales
11
discussed above. The increase in network and other operating expenses was the
result of expanded operations to serve the customer growth noted above. The
increase in total operating revenues discussed above coupled with the increase
in total operating expenses resulted in a 10.0% increase in net operating
revenues in 1994 as compared to 1993.
Interest income increased by $294,000 in 1995 as compared to 1994 and
decreased by $106,000 in 1994 versus 1993 as a result of fluctuating interest
rates available on both temporary investments and marketable securities and
differing levels of investment in these instruments.
The composition and amounts of sundry expense (income), net, differ each
year. In 1995 and 1993, as compared to 1994, there was a significant change due
primarily to retroactive settlement charges from the National Exchange Carrier
Association. Also included in 1995 is approximately $567,000 of non-recurring
charges related to costs of start-up businesses.
The cumulative effect of adoption of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", by the Registrant effective
January 1, 1993, was a reduction in deferred income tax liabilities of
approximately $450,000 presented as an extraordinary credit in the 1993
Statement of Earnings.
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.
Inflation over the three-year period ended December 31, 1995 had little
effect on operating expenses. It is the opinion of management that any future
impact that inflation might have on operating expenses will be at least
partially offset by customer growth and, over the long run, by general or other
rate increases to the extent necessary to maintain reasonable earnings.
North Pittsburgh, under Chapter 30 of the Pennsylvania Public Utility Code,
must, prior to July 8, 1998, file a petition with the PA PUC for approval of an
alternative form of regulation to replace traditional rate base/rate of return
regulation. The petition must include a proposed network modernization plan.
Although North Pittsburgh has not determined the form and content of its
petition, the ultimate filing of such petition is expected to be of some
significance to North Pittsburgh. However, it is not possible at this time to
determine the PA PUC's disposition of any petition filed or the effect on North
Pittsburgh's financial position or results of operations.
Liquidity and Capital Resources
- -------------------------------
The Registrant and its subsidiaries have financed capital expenditures, debt
service and dividend payments from internal sources since 1987.
12
In 1987, North Pittsburgh exhausted the remaining unborrowed funds which had
first become available from the Rural Telephone Bank (RTB) in 1977. However,
the Rural Utilities Service (RUS), successor to the Rural Electrification
Administration (REA), has advised North Pittsburgh that there is nothing in the
RUS policy which would preclude North Pittsburgh from applying for, and if
feasible, receiving an additional RUS or RTB loan. Information relating to
long-term debt is included in Note 2 to the Consolidated Financial Statements.
North Pittsburgh established a line of credit in 1994 in the amount of $10
million with the Rural Telephone Finance Cooperative that is available for
general business purposes. No borrowings have taken place against the line of
credit.
Capital expenditure commitments for the purchase and installation of new
equipment at December 31, 1995 amounted to approximately $755,000, with such
amount being part of a 1996 construction program of $16 million to $20 million.
Management expects cash flows provided by operating activities and cash reserves
to be adequate in 1996 to finance capital additions, service long-term debt and
to pay dividends. It is anticipated that future payments to RTB for servicing
long-term debt will be made from the same sources of internally generated funds.
In 1995, the Financial Accounting Standards Board issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" (SFAS 121). SFAS 121 requires that long-lived assets and
certain identifiable intangibles held and used by an entity be reviewed for
impairment when events or changes in circumstances indicated that the carrying
amount of an asset may not be recoverable. The adoption of this standard in
1996 is not expected to materially affect the Registrant's financial condition,
earnings or cash flows.
Temporary excess funds are 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 the excess
funds in 1996 which will satisfactorily meet all short-term obligations.
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.
13
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------- --------------------------------------------------
and
Item 11. Executive Compensation
- ------- ----------------------
and
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.
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, 1995 and 1994
Consolidated Statements of Earnings for each of the years in the three-
year period ended December 31, 1995
Consolidated Statements of Shareholders' Equity for each of the years
in the three-year period ended December 31, 1995
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 1995
Notes to Consolidated Financial Statements
14
2. Financial Statement Schedules:
-----------------------------
Condensed Financial Information of Registrant for each of the years in
the three-year period ended December 31, 1995
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
--------
applicable Exhibits are reported in this report under the caption OTHER
INFORMATION.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
-------------------
quarter ended December 31, 1995.
(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.
OTHER INFORMATION
Exhibit Index for Annual Reports on Form 10-K
---------------------------------------------
Exhibit No Subject Applicability
- ---------- ------- -------------
(2) Plan of acquisition, re- Not applicable
organization, arrangement,
liquidation or succession
(3) Articles of incorporation Provided in Annual Report
on Form 10-K for the year
ended December 31, 1993
and Incorporated Herein
by Reference.
(3) By-Laws Provided in Annual Report
on Form 10-K for the year
ended December 31, 1993
and Incorporated Herein
by Reference.
15
Exhibit No. Subject Applicability
- ---------- ------- -------------
(4) Instruments defining the Provided in Registration
rights of security holders, of Securities of Certain
including indentures Successor Issuers on Form
8-B filed on June 25,
1985 and Incorporated
Herein by Reference
(9) Voting trust agreement Not Applicable
(10) Material contracts Not Applicable
(11) Statement re computation of Attached Hereto
per share earnings
(12) Statement re computation of Not Applicable
ratios
(13) Annual report to security Not Applicable
holders, Form 10-Q or
quarterly report to
security holders
(16) Letter re change in Not Applicable
certifying accountant
(18) Letter re change in Not Applicable
accounting principles
(21) Subsidiaries of the Attached Hereto
Registrant
(22) Published report regarding Not Applicable
matters submitted to vote
of security holders
(23) Consent of experts and Not Applicable
counsel
(24) Power of attorney Not Applicable
(27) Financial data schedule Attached Hereto
(28) Information from reports Not Applicable
furnished to state
insurance regulatory
authorities
(99) Additional Exhibits Not Applicable
16
NORTH PITTSBURGH SYSTEMS, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
and Schedule (Form 10-K)
December 31, 1995, 1994 and 1993
(With Independent Auditors' Report Thereon)
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedule
December 31, 1995, 1994 and 1993
Page
----
Independent Auditors' Report 1
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1994 2 - 3
Consolidated Statements of Earnings for Each of the Years in the
Three-Year Period Ended December 31, 1995 4
Consolidated Statements of Shareholders' Equity for Each of the
Years in the Three-Year Period Ended December 31, 1995 5
Consolidated Statements of Cash Flows for Each of the Years in the
Three-Year Period Ended December 31, 1995 6 - 7
Notes to Consolidated Financial Statements 8 - 18
Consolidated Financial Statement Schedule:
I. Condensed Financial Information of Registrant for Each of the
Years in the Three-Year Period Ended December 31, 1995 19 - 22
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
index. In connection with our audits of the consolidated financial statements,
we also have audited the financial statement schedule as listed in the
accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
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.
As discussed in notes 1 and 5 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993 to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
March 8, 1996
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
1995 1994
------------- ----------
Assets
------
Current assets:
Cash and temporary investments $ 9,359,003 14,778,600
Marketable securities available for sale (note 7) 1,593,250 2,063,373
Marketable securities held to maturity (note 7) 6,569,581 5,639,979
Accounts receivable:
Customers 3,724,969 3,169,303
Access service settlements and other 5,120,006 4,294,605
Inventories of construction and operating
materials and supplies 2,380,582 2,110,310
------------ ----------
Total current assets 28,747,391 32,056,170
Property, plant and equipment (note 2):
Telephone plant in service:
Land 460,920 187,980
Buildings 8,943,298 8,280,579
Equipment 97,334,240 87,710,907
Miscellaneous physical property 48,129 36,429
------------ ----------
106,786,587 96,215,895
Less accumulated depreciation and amortization 52,674,793 47,596,379
------------ ----------
54,111,794 48,619,516
Construction in progress 4,504,597 2,374,561
------------ ----------
Total property, plant and equipment, net 58,616,391 50,994,077
Investments (note 6) 3,875,808 3,479,804
Deferred financing cost 1,159,019 1,266,286
Prepaid pension cost (note 3) 688,892 826,838
Other assets 3,068,561 2,954,724
------------ ----------
$ 96,156,062 91,577,899
============ ==========
(Continued)
20
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
1995 1994
----------- ----------
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt (note 2) $ 701,792 661,891
Accounts payable 6,336,747 5,173,575
Accrued interest 123,638 127,291
Dividend payable 1,804,800 1,654,400
Taxes other than income taxes 610,181 619,948
Accrued vacation 672,997 621,063
Other liabilities 403,721 283,012
Federal and state income taxes (note 5) 290,751 247,255
----------- ----------
Total current liabilities 10,944,627 9,388,435
Long-term debt (note 2) 21,694,133 22,395,925
Unamortized investment tax credits (note 5) 470,183 620,786
Deferred income taxes (note 5) 5,669,661 5,653,000
Postretirement benefits (note 4) 4,250,013 4,064,516
Other liabilities 1,600,049 1,544,118
Shareholders' equity:
Capital stock - common stock, par value $.3125;
authorized 10,000,000 shares; issued and
outstanding 7,520,000 shares 2,350,000 2,350,000
Capital in excess of par value 2,214,781 2,214,781
Retained earnings (note 2) 46,813,839 43,346,338
Unrealized gain on available for sale securities,
net (notes 5 and 7) 148,776 -
----------- ----------
Total shareholders' equity 51,527,396 47,911,119
----------- ----------
$96,156,062 91,577,899
=========== ==========
See accompanying notes to consolidated financial statements.
21
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
------------- ----------- -----------
Operating revenues:
Local network services $ 7,524,302 6,873,784 6,448,499
Long distance and access services 38,896,534 36,234,435 32,746,051
Directory advertising, billing
and other services 2,139,237 1,985,775 2,053,946
Telecommunication equipment sales 2,229,721 2,897,890 1,846,390
Other operating revenues 1,966,876 1,196,343 1,145,813
----------- ---------- ----------
52,756,670 49,188,227 44,240,699
Operating expenses:
Depreciation and amortization (note 1) 8,344,634 7,526,832 7,664,370
Network and other operating expenses 21,134,653 19,303,142 16,848,453
State and local taxes 2,267,111 2,068,915 1,983,381
Telecommunication equipment expenses 2,001,478 2,828,840 1,870,858
----------- ---------- ----------
33,747,876 31,727,729 28,367,062
----------- ---------- ----------
Net operating revenues 19,008,794 17,460,498 15,873,637
Other expense (income), net:
Interest expense 1,596,005 1,645,287 1,573,090
Interest income (1,065,788) (771,945) (878,366)
Sundry expense (income), net 737,676 (201,999) 558,036
----------- ---------- ----------
1,267,893 671,343 1,252,760
----------- ---------- ----------
Earnings before income taxes, cumulative effect
of change in accounting method 17,740,901 16,789,155 14,620,877
Provision for income taxes (note 5) 7,054,200 6,884,790 5,906,211
----------- ---------- ----------
Earnings before cumulative effect of
change in accounting method 10,686,701 9,904,365 8,714,666
Cumulative effect at January 1, 1993,
of change in accounting for income taxes (note 5) _ _ 450,000
----------- ---------- ----------
Net earnings $10,686,701 9,904,365 9,164,666
=========== ========== ==========
Average common shares outstanding 7,520,000 7,520,000 7,520,000
=========== ========== ==========
Earnings per share before cumulative
effect of change in accounting method $1.42 1.32 1.16
Cumulative effect at January 1, 1993,
of change in accounting for income taxes (note 5) - - .06
----------- ---------- ----------
Earnings per share of common stock $1.42 1.32 1.22
=========== ========== ==========
Dividends per share of common stock $.96 .88 .80
=========== ========== ==========
See accompanying notes to consolidated financial statements.
22
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
------------ ---------- ----------
Capital stock - common stock:
Amount at beginning and end of year $ 2,350,000 2,350,000 2,350,000
=========== ========== ==========
Capital in excess of par value:
Amount at beginning and end of year $ 2,214,781 2,214,781 2,214,781
=========== ========== ==========
Retained earnings:
Amount at beginning of year 43,346,338 40,059,573 36,910,907
Net earnings for year 10,686,701 9,904,365 9,164,666
----------- ---------- ----------
54,033,039 49,963,938 46,075,573
Dividends on common stock 7,219,200 6,617,600 6,016,000
----------- ---------- ----------
Amount at end of year $46,813,839 43,346,338 40,059,573
=========== ========== ==========
Unrealized gain on available for sale
securities:
Amount at beginning of year - - -
Change during year 148,776 - -
----------- ---------- ----------
Amount at end of year $ 148,776 - -
=========== ========== ==========
See accompanying notes to consolidated financial statements.
23
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
------------ ----------- -----------
Cash from operating activities:
Net earnings $10,686,701 9,904,365 9,164,666
Adjustments to reconcile net earnings
to net cash from operating activities:
Depreciation and amortization 8,344,634 7,526,832 7,664,370
Equity income of affiliated companies (474,223) (106,655) (33,911)
Provision for postretirement benefits
other than pensions 185,497 223,133 242,717
Investment tax credit amortization (150,603) (173,441) (205,063)
Deferred income taxes (85,000) (42,000) (527,334)
Cumulative effect of change in
accounting for income taxes - - (450,000)
Changes in assets and liabilities:
Accounts receivable (1,381,067) (600,867) (441,130)
Inventories of construction and
operating materials and supplies (270,272) 404,095 (512,612)
Deferred financing costs, prepaid
pension costs and other assets 131,376 115,837 203,651
Accounts payable 1,163,172 994,345 1,699,213
Taxes other than income taxes (9,767) (28,473) 166,787
Other liabilities, accrued
interest and accrued vacation 224,921 444,011 315,613
Federal and state income taxes 43,496 (1,277,095) 388,939
Other, net 20,930 19,484 50,479
----------- ---------- ----------
Total adjustments 7,743,094 7,499,206 8,561,719
----------- ---------- ----------
Net cash from operating
activities 18,429,795 17,403,571 17,726,385
----------- ---------- ----------
(Continued)
24
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
1995 1994 1993
-------------- ------------ -----------
Cash used for investing activities:
Expenditures for property and equipment $(15,818,353) (10,943,039) (8,111,338)
Net (cost of removal) salvage on retirements (148,595) 48,540 (42,338)
------------ ----------- ----------
Net capital additions (15,966,948) (10,894,499) (8,153,676)
Purchase of marketable securities held to maturity (7,381,157) (6,514,080) -
Proceeds from redemption of marketable securities
held to maturity 6,376,650 4,476,598 -
Purchase of marketable securities available for sale (908,813) (1,053,358) -
Proceeds from sale of marketable securities
available for sale 1,683,348 1,245,315 -
Purchase of marketable securities - - (7,708,439)
Sale of marketable securities - - 9,082,683
Investments in affiliated entities (282,942) (1,691,751) (86,718)
Distributions from affiliated entities 361,161 - -
------------ ----------- ----------
Net cash used for investing activities (16,118,701) (14,431,775) (6,866,150)
Cash used for financing activities:
Cash dividends (7,068,800) (6,617,600) (6,016,000)
Retirement of debt (661,891) (620,561) (582,294)
------------ ----------- ----------
Net cash used for financing activities (7,730,691) (7,238,161) (6,598,294)
------------ ----------- ----------
Net increase (decrease) in cash and
temporary investments (5,419,597) (4,266,365) 4,261,941
Cash and temporary investments at
beginning of year 14,778,600 19,044,965 14,783,024
------------ ----------- ----------
Cash and temporary investments at
end of year $ 9,359,003 14,778,600 19,044,965
============ =========== ==========
Interest paid $ 1,492,232 1,538,454 1,575,939
============ =========== ==========
Income taxes paid $ 6,994,043 7,277,000 6,249,272
============ =========== ==========
See accompanying notes to consolidated financial statements.
25
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(1) Summary of Significant Accounting Policies
------------------------------------------
Basis of Presentation and Consolidation
---------------------------------------
The consolidated financial statements include the accounts of North
Pittsburgh Systems, Inc. (the Company) and its subsidiaries, North
Pittsburgh Telephone Company (NPTC), Penn Telecom, Inc. (PTI), Pinnatech,
Inc. and Management Consulting Solutions, Inc. The Company, through NPTC
and PTI, is primarily engaged in providing telecommunications equipment
and services to its customers generally located in western Pennsylvania.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and disclosure of contingent assets
and liabilities. The estimates and assumptions used in the accompanying
consolidated financial statements are based upon management's evaluation
of the relevant facts and circumstances as of the date of the financial
statements. Actual results may differ from the estimates and assumptions
used in preparing the accompanying consolidated financial statements.
Revenue Recognition
-------------------
Revenues are recognized when earned. Local service and intralata long
distance revenues are subject to the jurisdiction of the PUC. The Company
participates in interstate pooling arrangements with other telephone
companies. Such pools are funded by access service charges regulated by
the Federal Communications Commission. Revenue earned through pooling is
initially recorded based on estimates. The Company has settled
substantially all access service settlements through 1994.
Marketable Securities
---------------------
Effective December 31, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (SFAS 115). All
marketable equity securities are considered available for sale, and debt
securities are classified either as available for sale or held to
maturity. Marketable securities available for sale are recorded at fair
value, based on quoted market prices. Significant changes in value of
available for sale securities are included as a separate component of
shareholders' equity. Marketable securities held to maturity are recorded
at amortized cost. A decline in the fair value of any marketable
investment security below cost, that is deemed other than temporary, is
charged to earnings resulting in a new cost basis for the security. Costs
of investments sold are determined on the basis of specific
identification.
Investments
-----------
The Company's investments in three cellular limited partnerships are
carried at cost plus equity in accumulated net profits or losses. Other
investments in nonmarketable securities are carried either at cost or at
equity as the circumstances warrant.
(Continued)
26
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Property, Plant and Equipment
-----------------------------
Telephone plant in service is recorded at cost. Retirements relating to
replacements of telephone plant and equipment are accounted for in
accordance with applicable regulations of the PUC. Accordingly, the
original costs of facilities retired, plus costs of removal, net of
salvage or other credits, are charged to accumulated depreciation.
Depreciation on telephone plant in service is provided on a straight-line
basis over estimated useful lives of 10 to 30 years for buildings and 5
to 20 years for equipment. In 1995, the Company reduced estimated useful
lives of cable and central office equipment due to technological and
competitive changes in the telecommunications industry, resulting in a
1995 charge of $593,000 ($357,200 after income taxes, $.05 per share).
Depreciation as a percentage of average depreciable plant in service
amounted to 8.2%, 8.0% and 8.6% in 1995, 1994 and 1993, respectively. The
average remaining life of plant in service as of December 31, 1995, is
approximately 6.5 years.
Included in 1994 and 1993 depreciation expense are charges of approximately
$586,247 ($335,371 after income taxes, $.04 per share) and $1,046,271
($604,000 after income taxes, $.08 per share), respectively, to recognize
the reduction in useful lives of various central office
telecommunications equipment to coincide with the Company's planned
replacement of such equipment completed in 1994 and 1995.
On construction projects lasting twelve months or more, interest costs
incurred on the related funds expended during the construction period are
capitalized as part of the project cost in accordance with regulatory
requirements. No interest was capitalized during 1995, 1994 or 1993.
Expenditures for maintenance, repairs and renewals are charged to
operations as incurred.
Inventories
-----------
Inventories consist of telecommunication equipment and parts to provide
service to, or to make sales to, the Company's customers. Inventories are
valued at the lower of cost (using the moving average method) or market.
Accounts Receivable
-------------------
The Company provides telecommunication services to customers (business and
residential) located in western Pennsylvania and access connectivity to
interexchange carriers. Access service settlements and other, represent,
for the most part, amounts due from interexchange carriers.
The Company employs the direct write-off method for bad debts. Uncollected
accounts receivable are expensed approximately ninety days after
telephone service to such customer has been disconnected.
(Continued)
27
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Income Taxes
------------
In February 1992, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109). SFAS 109 requires a change from the deferred
method of accounting for income taxes previously followed under
Accounting Principles Board Opinion No. 11 (APB 11) to the asset and
liability method of accounting for income taxes. Under the asset and
liability method of SFAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Effective January 1, 1993, the Company adopted SFAS 109 and has reported
the cumulative effect of the change in accounting for income taxes in the
1993 consolidated statement of earnings.
Investment tax credits applicable to assets acquired or committed for by
January 1, 1986, are being amortized over the average useful lives of the
assets to which they relate.
The Company and its subsidiaries file a consolidated federal income tax
return.
Statements of Cash Flows
------------------------
For purposes of the consolidated statements of cash flows, the Company
considers all temporary investments with a maturity of three months or
less to be cash equivalents.
Postretirement Benefits
-----------------------
The Company provides pension and other postretirement benefits to
substantially all of its employees and eligible retirees. Benefits
provided by these plans are expensed over the estimated working lives of
employees.
Accounting Standards to be Adopted in 1996
------------------------------------------
In 1995, the FASB issued Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of," (SFAS 121). SFAS 121 requires that long-
lived assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment when events or changes in circumstances
indicated that the carrying amount of an asset may not be recoverable.
The adoption of this standard in 1996 is not expected to materially
affect the Company's financial condition, earnings or cash flows.
(Continued)
28
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Reclassification of Prior Years' Financial Statements
-----------------------------------------------------
Certain items previously reported have been reclassified to conform with
the current year's classification.
(2) Long-Term Debt
--------------
Long-term debt as of December 31, 1995 and 1994, was as follows:
1995 1994
----------- ----------
6-1/2% notes payable to Rural Telephone
Bank, maturing in 2019 $22,395,925 23,057,816
Less current portion of long-term debt 701,792 661,891
----------- ----------
Long-term debt $21,694,133 22,395,925
=========== ==========
Pursuant to Telephone Loan Contracts (Contracts) and related amendments
thereto between NPTC and the Rural Telephone Bank (Bank), the Bank agreed
to loan to NPTC amounts not in excess of approximately $28,945,000 for
the purpose of furnishing or improving telephone service in rural areas.
In 1987, NPTC drew down the remaining unborrowed funds available to NPTC
from the Bank under currently approved loans. However, the Rural
Utilities Service (RUS), successor to the Rural Electrification
Administration (REA), has advised NPTC that there is nothing in the RUS
policy which would preclude NPTC from applying for and, if feasible,
receiving an additional RUS or Bank loan.
Principal payments required over the next five years calculated on the
outstanding indebtedness at December 31, 1995, are $701,792 in 1996,
$756,273 in 1997, $803,420 in 1998, $856,598 in 1999 and $913,649 in
2000.
The notes are secured by a supplemental Mortgage Agreement executed by NPTC
which provides that substantially all of the property, plant and
equipment of NPTC are subject to a lien or a security interest. Such
agreement contains restrictions regarding dividends and other
distributions. Under these restrictions, unless certain working capital
and net worth levels are maintained, NPTC 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 shareholder, or purchase,
redeem or retire any of its capital stock or make any investment in
affiliated companies. As of December 31, 1995, consolidated retained
earnings of the Company of approximately $20,800,000 were available for
dividends and other distributions.
Based on borrowing rates currently available to the Company for loans with
similar terms and maturities, the estimated fair value of long-term debt
as of December 31, 1995, is $22,535,500.
During 1994, NPTC established a $10 million line of credit at a rate of
prime plus 1-1/2% with the Rural Telephone Finance Cooperative. The line
of credit was not used in 1995 or 1994.
(Continued)
29
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Retirement Plan
---------------
Substantially all employees of the Company are covered by a
noncontributory, defined benefit retirement plan. The benefits are based
on each employee's years of service and compensation. The Company's
funding policy is to contribute an amount annually that satisfies at
least the minimum funding required under the Employee Retirement Income
Security Act of 1974. The assets of the plan are held in a trust and are
invested in a variety of equity and fixed income securities.
Net periodic pension cost includes the following components:
1995 1994 1993
----------- --------- ----------
Service cost $ 779,541 708,749 706,069
Interest cost on projected
benefit obligation 1,490,713 1,309,010 1,234,559
Return on assets (1,975,890) (653,046) (2,139,265)
Net amortization and deferral 655,887 (718,682) 1,034,791
----------- --------- ----------
Net periodic pension cost $ 950,251 646,031 836,154
=========== ========= ==========
Assumptions used in the calculation of net periodic pension cost are:
1995 1994 1993
---- ---- ----
Discount rate 7.00% 7.00 7.00
Salary increases 6.00 6.00 6.00
Expected long-term rate of return 7.50 7.50 7.50
(Continued)
30
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheets at December 31,
1995 and 1994:
1995 1994
------------ -----------
Actuarial present value of benefit obligations:
Vested benefit obligation $(15,627,438) (14,487,108)
============ ===========
Accumulated benefit obligation $(16,339,933) (15,157,798)
============ ===========
Projected benefit obligation (23,177,890) (21,660,062)
Plan assets at fair value 20,844,145 18,759,690
------------ -----------
Plan assets less than projected benefit obligation (2,333,745) (2,900,372)
Unrecognized net asset at transition (1,528,890) (1,681,780)
Unrecognized prior service cost 1,924,374 2,110,135
Unrecognized net loss 2,627,153 3,298,855
------------ -----------
Prepaid pension cost $ 688,892 826,838
============ ===========
Assumptions used in the calculation of the
actuarial present value of benefit obligations:
Discount rate % 7.00 7.00
Salary increases 6.00 6.00
(4) Other Postretirement Benefit Plans
----------------------------------
Eligible retirees are provided healthcare and life insurance benefits until
the retiree reaches 65 years of age under an unfunded plan.
The following table presents the plan's funded status reconciled with
amounts recognized in the Company's consolidated balance sheets at
December 31, 1995 and 1994:
1995 1994
---------- ---------
Accumulated postretirement benefit obligation:
Retirees $ 812,760 553,941
Fully eligible active plan participants 1,228,137 1,410,611
Other active plan participants 1,942,435 1,960,714
---------- ---------
Accumulated postretirement benefit
obligation 3,983,332 3,925,266
Unrecognized net gain 266,681 139,250
---------- ---------
Accrued postretirement benefit cost $4,250,013 4,064,516
========== =========
(Continued)
31
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Net periodic postretirement benefit cost includes the following components:
1995 1994 1993
-------- ------- -------
Service cost $151,501 144,761 142,946
Interest cost 266,949 255,212 246,348
-------- ------- -------
Net periodic postretirement
benefit cost $418,450 399,973 389,294
======== ======= =======
For measurement purposes, the annual rate of increase in the per capita
cost of covered benefits (i.e., healthcare cost trend rate) for 1995 was
11.4 percent for participants whose coverage included Major Medical
insurance and 9.7 percent for participants who have Blue Cross/Blue
Shield coverage only; the rates were assumed to decrease gradually to 5
percent by the year 2007 and remain at that level thereafter. The
healthcare cost trend rate assumption has a significant effect on the
amounts reported. For example, increasing the assumed healthcare cost
trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1995, by
$434,000 and the aggregate of the service and interest cost components of
net periodic postretirement benefit cost for the year ended December 31,
1995, by $61,000.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7 percent at December 31, 1995 and
1994. Salaries were assumed to increase at a rate of 6 percent per year
for current active employees for life insurance benefit projections.
(5) Income Taxes
------------
As discussed in note 1, the Company adopted SFAS 109 as of January 1, 1993.
The cumulative effect of this change in accounting for income taxes of
$450,000 is determined as of January 1, 1993, and is reported separately
in the 1993 consolidated statement of earnings.
The components of income tax expense are:
1995 1994 1993
---------- --------- ---------
Current:
Federal $5,446,067 5,134,762 4,879,828
State 1,843,736 1,965,469 1,758,780
---------- --------- ---------
7,289,803 7,100,231 6,638,608
---------- --------- ---------
Deferred:
Federal (85,000) (37,700) (500,644)
State - (4,300) (26,690)
---------- --------- ---------
(85,000) (42,000) (527,334)
---------- --------- ---------
Deferred investment tax credit (150,603) (173,441) (205,063)
---------- --------- ---------
$7,054,200 6,884,790 5,906,211
========== ========= =========
(Continued)
32
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The Company's income tax expense differs from income tax expense computed
at the federal statutory rate of 35 percent due to the following factors:
1995 1994 1993
---------- --------- ---------
Statutory federal income tax $6,209,315 5,876,206 5,117,307
State taxes on income (net of
federal income tax benefit) 1,152,005 1,322,985 1,176,981
Federal benefit of phase-in of 1% surtax (30,173) (100,000) (100,000)
Change in beginning of year
valuation allowance 57,387 107,000 5,000
Investment tax credit (150,603) (173,441) (205,063)
Adjustment to deferred tax assets
and liabilities for enacted
changes in tax rates - - 33,000
Tax-exempt interest (143,504) (204,163) (88,013)
Other (40,227) 56,203 (33,001)
---------- --------- ---------
Income tax expense $7,054,200 6,884,790 5,906,211
========== ========= =========
The significant components of deferred income tax expense attributable to
income from operations are as follows:
1995 1994 1993
---------- --------- ---------
Deferred tax expense (exclusive of the
effects of the other components below) $ (142,387) (149,000) (565,334)
Adjustment to deferred tax assets and
liabilities for enacted changes in tax rates - - 33,000
Increase in beginning of year valuation allowance 57,387 107,000 5,000
---------- -------- --------
$ (85,000) (42,000) (527,334)
========== ======== ========
An additional deferred tax charge for the year ended December 31, 1995, of
$101,661 was included in shareholders' equity in relation to an
unrealized gain on marketable securities classified as available for sale
(note 7).
(Continued)
33
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1995 and 1994, are presented below:
1995 1994
------------ -----------
Deferred tax assets:
Postretirement benefits $(1,736,701) (1,714,291)
Deferred compensation (404,872) (394,655)
Compensated absences, principally due
to accrual for financial reporting
purposes (217,716) (207,489)
Capital loss carryforward (697,235) (664,626)
Goodwill (216,337) -
Other (502,688) (555,939)
---------- ----------
Total gross deferred tax assets (3,775,549) (3,537,000)
Less valuation allowance 1,188,387 1,131,000
---------- ----------
Net deferred tax assets (2,587,162) (2,406,000)
Deferred tax liabilities:
Plant and equipment, principally due
to differences in depreciation 7,216,555 7,162,755
Pension 639,011 706,687
Net unrealized gain on available for 101,661 -
sale securities
Other 299,596 189,558
----------- ----------
Total gross deferred tax liability 8,256,823 8,059,000
----------- ----------
Net deferred tax liability $ 5,669,661 5,653,000
=========== ==========
Unamortized ITC $ 470,183 620,786
=========== ==========
The valuation allowance for deferred tax assets relates to capital loss
carryforwards, state loss carryforwards of subsidiaries and impairment
write-downs. The valuation allowance as of January 1, 1994, was
$1,024,000. The net changes in the total valuation allowance for the
years ended December 31, 1995 and 1994, were increases of $57,387 and
$107,000, respectively.
(6) Investments
-----------
The Company's investments at December 31, 1995 and 1994, consist of the
following:
1995 1994
----------- ---------
Investments at equity:
Investments in cellular limited
partnerships $3,327,803 3,079,799
Conquest Telecommunication
Services Corp. 548,005 400,005
---------- ---------
Total investments $3,875,808 3,479,804
========== =========
(Continued)
34
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
In 1995 and 1994, the Company had capital calls amounting to $282,942 and
$1,691,752, respectively, to maintain its ownership percentages in its
cellular limited partnership investments.
(7) Marketable Securities
---------------------
Information about marketable investment securities at December 31, 1995 and
1994, is as follows:
1995
-----------------------------------------------
Amortized Unrealized Unrealized Market
cost gains losses value
---------- ---------- ---------- ---------
Available for sale:
Equity securities $ 842,813 254,750 (4,313) 1,093,250
Municipal bond mutual fund 500,000 - - 500,000
---------- -------- ------- ---------
Total available for sale securities $1,342,813 254,750 (4,313) 1,593,250
========== ======== ======= =========
Held to maturity:
Debt securities of states and their
political subdivisions $6,569,581 11,820 (1,421) 6,579,980
========== ======== ======= =========
1994
-----------------------------------------------
Amortized Unrealized Unrealized Market
cost gains losses value
---------- ---------- ---------- ---------
Available for sale:
Equity securities $2,105,589 7,617 (49,833) 2,063,373
========== ======== ======== =========
Held to maturity:
Debt securities of states and their
political subdivisions $5,639,979 2,992 (33,495) 5,609,476
========== ======== ======== =========
The carrying values of debt securities at December 31, 1995 and 1994, by
contractual maturity, are shown below:
1995 1994
---------- ----------
Due in one year or less $6,569,581 5,639,979
========== =========
Realized gains and losses in each of the three years ended December 31,
1995, were not significant.
(Continued)
35
NORTH PITTSBURGH SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) Unaudited Quarterly Financial Data for 1995 and 1994
----------------------------------------------------
The following are summaries of quarterly financial data for the years ended
December 31, 1995 and 1994, as reported by the Company:
Unaudited (in thousands except per share data)
----------------------------------------------
First Second Third Fourth
quarter quarter quarter quarter
----------- ---------- ---------- ---------
1995:
Operating revenues $12,474 13,071 13,443 13,769
Net operating revenues 4,572 4,932 4,700 4,805
Net earnings 2,685 2,825 2,603 2,574
Earnings per common share:
Net earnings .36 .38 .35 .34
1994:
Operating revenues $12,268 11,732 13,016 12,172
Net operating revenues 4,396 4,312 5,015 3,737
Net earnings 2,453 2,609 2,924 1,918
Earnings per common share:
Net earnings .32 .35 .39 .26
The 1995 fourth quarter reflects the $593,000 effect of changes in useful
lives of cable and central office equipment described in note 1. The
1994 fourth quarter financial information reflects a loss on inventory
obsolescence of $495,832 and an adjustment to depreciation expense of
$150,000 to recognize the reduction in useful lives described in note 1.
36
Schedule I
----------
NORTH PITTSBURGH SYSTEMS, INC. (Parent Company)
Condensed Financial Information of Registrant
Condensed Balance Sheets
December 31, 1995 and 1994
1995 1994
----------- ----------
Assets
------
Current assets:
Cash and temporary investments $ 1,435,504 3,911,531
Marketable securities held to maturity 1,024,741 942,825
Dividend receivable from subsidiary 4,000,640 1,654,400
Accounts receivable - other 172,344 23,242
----------- ----------
Total current assets 6,633,229 6,531,998
Property, plant and equipment:
Land 150,000 -
Buildings 413,938 -
----------- ----------
563,938 -
Less accumulated depreciation and 8,233 -
amortization ----------- ----------
555,705 -
Other assets 1,486,922 1,449,968
Investment in subsidiaries 42,618,419 41,215,910
Investments - other 548,005 400,005
Notes receivable - subsidiaries 1,672,780 -
----------- ----------
$53,515,060 49,597,881
=========== ==========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Dividend payable 1,804,800 1,654,400
Taxes other than income taxes 11,308 12,964
Other liabilities 171,556 19,398
----------- ----------
Total current liabilities 1,987,664 1,686,762
Shareholders' equity:
Common stock 2,350,000 2,350,000
Capital in excess of par value 2,214,781 2,214,781
Retained earnings 46,962,615 43,346,338
----------- ----------
51,527,396 47,911,119
----------- ----------
$53,515,060 49,597,881
=========== ==========
(Continued)
37
Schedule I, Continued
---------------------
NORTH PITTSBURGH SYSTEMS, INC. (Parent Company)
Condensed Financial Information of Registrant
Condensed Statements of Operations
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
----------- --------- ---------
Revenues:
Dividends from subsidiaries $ 9,415,040 6,768,000 6,166,400
Interest income 287,872 88,792 252,865
Nonoperating income 112,678 - -
Investment losses (7,977) (29,717) (19,728)
----------- --------- ---------
9,807,613 6,827,075 6,399,537
----------- --------- ---------
Expenses:
General office salaries and expenses 292,007 117,015 104,430
State taxes 65,259 68,700 68,602
----------- --------- ---------
357,266 185,715 173,032
----------- --------- ---------
Earnings before income taxes
and equity earnings 9,450,347 6,641,360 6,226,505
Income taxes (benefit) (22,621) (88,305) (31,079)
---------- --------- ---------
Earnings before equity earnings 9,472,968 6,729,665 6,257,584
Equity in undistributed net
earnings of subsidiaries 1,213,733 3,174,700 2,907,082
---------- --------- ---------
Net earnings $10,686,701 9,904,365 9,164,666
=========== ========= =========
(Continued)
38
Schedule I, Continued
---------------------
NORTH PITTSBURGH SYSTEMS, INC. (Parent Company)
Condensed Financial Information of Registrant
Condensed Statements of Cash Flows
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
----------- ---------- ----------
Cash from operating activities:
Net earnings $10,686,701 9,904,365 9,164,666
Adjustments to reconcile net earnings
to net cash from operating activities:
Depreciation 8,233 - -
Equity in undistributed earnings
of affiliates (1,213,733) (3,174,700) (2,907,082)
Decrease (increase) in cash surrender
value of life insurance policy (36,954) 104,460 (91,977)
Loss on sale of investments 11,320 - -
Equity in earnings of investee (148,000) - -
Changes in assets and liabilities:
Receivables (149,102) (19,589) 58,581
Dividend receivable (2,346,240) (150,400) (150,400)
Taxes other than income taxes (1,656) 9,389 (2,006)
Other liabilities 152,158 (74,221) (16,315)
----------- ---------- ----------
Total adjustments (3,723,974) (3,305,061) (3,109,199)
----------- ---------- ----------
Net cash provided by operating activities 6,962,727 6,599,304 6,055,467
----------- ---------- ----------
Cash provided by (used for) investing activities:
Expenditures for property and equipment (563,938) - -
Investment in affiliates (40,000) - -
Proceeds from sales of available for sale
securities - 366,342 -
Purchase of marketable securities held to
maturity (1,237,386) (1,063,368) -
Proceeds from maturity of marketable
securities held to maturity 1,144,150 1,244,551 -
Purchase of marketable securities - - (1,976,006)
Proceeds from sale of marketable securities - - 1,240,000
Payment on note receivable - - 400,000
Notes receivable - subsidiaries (1,672,780) - -
----------- ---------- ----------
Net cash provided by (used for) (2,369,954) 547,525 (336,006)
investing activities ----------- ---------- ----------
Cash used for financing activities:
Cash dividends (7,068,800) (6,617,600) (6,016,000)
----------- ---------- ----------
Net cash used for financing activities (7,068,800) (6,617,600) (6,016,000)
----------- ---------- ----------
(Continued)
39
Schedule I, Continued
---------------------
NORTH PITTSBURGH SYSTEMS, INC. (Parent Company)
Condensed Financial Information of Registrant
Condensed Statements of Cash Flows, Continued
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
----------- --------- ---------
Net (decrease) increase in cash and
temporary investments $(2,476,027) 529,229 (296,539)
Cash and temporary investments at
beginning of year 3,911,531 3,382,302 3,678,841
----------- --------- ---------
Cash and temporary investments at
end of year $ 1,435,504 3,911,531 3,382,302
=========== ========= =========
Interest paid $ - - -
----------- --------- ---------
Income taxes paid $ - - -
----------- --------- ---------
40
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/ G. A. Gorman By /s/ C. E. Thomas, Sr.
------------------------ -------------------------
G. A. Gorman C. E. Thomas, Sr.
President and Director Chairman of the Board
Date March 29, 1996 Date March 29, 1996
---------------------- -----------------------
41
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
Vice President, Secretary and Treasurer
Date March 29, 1996
-----------------------------
Directors:
By /s/ F. D. Reese By /s/ Barton B. Williams
------------------------------- --------------------------
F. D. Reese Barton B. Williams
Date March 29, 1996 Date March 29, 1996
----------------------------- ------------------------
By /s/ Charles E. Cole
-------------------------------
Charles E. Cole
Date March 29, 1996
-----------------------------
42