FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 2001 Commission file number 0-305
NATIONAL PROPERTIES CORPORATION
(Exact name of registrant as specified in its charter)
Iowa 42-0860581
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4500 Merle Hay Road, Des Moines, Iowa 50310
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (515) 278-1132
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 requirement for the past 90 days.
Yes __X__ No _____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON STOCK (PAR VALUE $1.00)
413,573 SHARES AS OF OCTOBER 17, 2001
<page>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<table>
<caption>
NATIONAL PROPERTIES CORPORATION
BALANCE SHEETS
ASSETS
September 30, December 31,
2001 2000
<s> <c> <c>
CURRENT ASSETS
Cash 125,217 95,212
Mortgage receivable, current portion 66,650 137,747
Other 1,547 23,834
---------- ----------
Total current assets 193,414 256,793
---------- ----------
PROPERTY AND EQUIPMENT, AT COST
Land 5,015,382 4,424,679
Buildings and improvements 32,430,539 27,200,718
Furniture and equipment 115,747 102,184
---------- ----------
37,561,668 31,727,581
Less - accumulated depreciation 10,194,565 9,521,149
---------- ----------
Property and equipment - net 27,367,103 22,206,432
---------- ----------
OTHER ASSETS
Marketable securities 1,406,619 2,016,664
Mortgage receivable, long term portion 100,000 200,000
---------- ----------
Total other assets 1,506,619 2,216,664
---------- ----------
29,067,136 24,679,889
========== ==========
<caption>
LIABILITIES AND STOCKHOLDERS' EQUITY
<s> <c> <c>
CURRENT LIABILITIES
Accounts payable 7,378 2,946
Notes payable - 3,000,000
Accrued liabilities 206,003 151,464
Federal and state income taxes 3,923 33,976
---------- ----------
Total current liabilities 217,304 3,188,386
---------- ----------
LONG-TERM DEBT 9,150,000 2,600,000
---------- ----------
DEFERRED INCOME TAXES 936,418 1,056,274
---------- ---------
STOCKHOLDERS' EQUITY
Common stock - $1 par value
Authorized - 5,000,000 shares
Issued
(2001-413,573 shares; 2000-414,373 shares) 413,573 414,373
Retained earnings 17,862,422 16,581,528
Accumulated other comprehensive income 487,419 839,328
---------- ----------
Total stockholders' equity 18,763,414 17,835,229
---------- ----------
29,067,136 24,679,889
========== ==========
</table>
<page>
<table>
<caption>
NATIONAL PROPERTIES CORPORATION
STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
Sept 30, Sept 30,
2001 2000 2001 2000
<s> <c> <c> <c> <c>
Income
Lease rental income 1,207,804 1,023,747 3,573,286 3,267,038
Dividend and interest income 14,988 26,662 56,918 56,815
Gain (loss) on sale of securities (10,986) - 54,628 -
Gain on sale of real estate - - - 299,757
--------- --------- --------- ---------
Total income 1,211,806 1,050,409 3,684,832 3,623,610
--------- --------- --------- ---------
Expenses
Depreciation 239,444 206,103 685,414 596,332
Interest 132,329 102,554 409,325 333,559
Salaries and wages 57,385 58,434 180,705 173,108
Property, payroll
and misc. taxes 25,145 17,323 60,513 49,773
Other expenses 50,541 50,724 171,364 464,362
--------- --------- --------- ---------
Total expenses 504,844 435,138 1,507,321 1,617,134
--------- --------- --------- ---------
Income before income taxes 706,962 615,271 2,177,511 2,006,476
Federal and State income taxes 261,597 227,650 805,700 742,396
--------- --------- --------- ---------
Net income 445,365 387,621 1,371,811 1,264,080
--------- --------- --------- ---------
Other comprehensive income (losses):
Unrealized holding gains (losses)
on marketable securities arising
during the period (207,480) 197,764 (498,688)
(16,329)
Less reclassification adjustment
for gains (losses) included in
net income (10,986) - 54,628 -
Less income tax (expense) benefit
related to unrealized holding
gains 71,524 (71,986) 201,407 5,944
--------- --------- --------- ---------
Other comprehensive income (loss)
net of tax (124,970) 125,778 (351,909)
(10,385)
--------- --------- --------- ---------
Comprehensive income 320,395 513,399 1,019,902 1,253,695
========= ========= ========= =========
Net income per share $1.08 $0.93 $3.32 $3.05
Weighted average shares
outstanding 413,823 415,069 413,732 414,970
Cash dividend paid per share $0.00 $0.00 $0.15 $0.14
<fn>
</table>
<page>
<table>
<caption>
NATIONAL PROPERTIES CORPORATION
STATEMENTS OF CASH FLOWS
Nine Months
Ended
September 30,
2001
2000
<s> <c> <c>
CASH FLOW FROM OPERATING ACTIVITIES
Net income 1,371,811
1,264,080
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 685,414
600,822
Deferred income taxes 81,551
67,344
Gain on sale of securities (54,628) -
Gain on sale of real estate -
(299,757)
Charitable contributions -
305,000
Changes in assets and liabilities:
Prepaid expenses and deferred charges 22,287
6,575
Accounts payable and accrued liabilities 58,971
(265,963)
Federal and State income taxes (30,053)
(95,403)
-------- -------
-
Net cash provided by operations 2,135,353
1,582,698
-------- -------
-
CASH FLOW FROM INVESTING ACTIVITIES
Additions to property and equipment (5,846,085)
(2,170,094)
Purchase of securities -
(8,794)
Proceeds from sale of securities 111,358 -
Proceeds from sale of real estate -
199,921
Payments received on note receivable 171,097
6,050
-------- -------
-
Net cash used in investing activities (5,563,630)
(1,972,917)
-------- ------
-
CASH FLOW FROM FINANCING ACTIVITIES
Borrowings on credit lines 5,700,000
1,150,000
Payments on credit line borrowings (2,150,000)
(850,000)
Principal payments on mortgage notes -
(10,482)
Dividends paid (62,055)
(58,082)
Purchase of treasury stock (29,663)
(60,941)
-------- -------
-
Net cash provided by financing activities 3,458,282
170,495
-------- -------
-
Net increase (decrease) in cash 30,005
(219,724)
Cash at beginning of period 95,212
287,310
-------- -------
-
Cash at end of period 125,217
67,586
========
========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for
Interest expense 365,116
333,559
Income tax payments 754,202
770,455
</table>
<page>
NATIONAL PROPERTIES CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
The balance sheets, statements of income and comprehensive income and
statements of cash flows at September 30, 2001 and 2000 and the periods
then ended are not audited but reflect all adjustments which are of a
normal recurring nature and are, in the opinion of management, necessary to
a fair statement of the results of the periods shown.
The Company has adopted effective January 1, 1998 the Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income,"
which establishes standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial
statements. The effect of FAS No. 130 on the Company's interim financial
statements is to present in the statement of income, unrealized gains on
marketable securities net of income taxes.
Mortgage Note Receivable
In July 2000, the Company sold real estate for $500,000 receiving $150,000
cash and a promissory note for $350,000. The note provides for interest at
10% and is secured by the real estate. Payments under the note are to be
received as follows: $150,000 on June 30, 2001; $100,000 on June 30, 2002;
and $100,000 on June 30, 2003. The mortgagor is making monthly payments of
$4,918 which incudes interest at 10%, in addition to the principal payments
provided under the note.
Long Term Debt
Long term debt consists of a revolving credit agreement dated February 8,
2001, with Wells Fargo Bank, N.A. The new agreement, which replaces the
three credit lines the Company had with Wells Fargo Bank, permits the
Company to borrow at anytime through April 30, 2002 up to $15,000,000 under
the line of credit at 0.75% below the bank's prime rate of interest (5.25%
at September 30, 2001). The Company must pay an annual commitment fee of
1/8 of 1% (payable quarterly) on the unused portion of the commitment. All
borrowing under the credit line matures on April 30, 2002 and, is to be
renewed annually for an additional one year beginning April 30, 2001 if the
Company is in compliance with the terms of the credit line. Among other
things, the agreement provides that the Company will obtain a minimum free
cash flow of one million eight hundred thousand dollars ($1,800,000) per
year measured as of the end of each fiscal quarter on an annualized basis.
"Free Cash Flow" is defined as (a) net income plus (b) depreciation plus
(c) non-cash expenses minus (a) dividends minus (b) expenditures for
purchases of the Company's stock minus (c) gains on the sale of real
estate. The outstanding indebtedness to the bank at December 31, 2000 was
rolled into and became an advance under the new Line of Credit.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company, an Iowa corporation, is engaged principally in the development
of commercial real estate for lease to qualified tenants.
On February 8, 2001, the Company entered into a new financing agreement
with Wells Fargo Bank, N.A. that permits the Company to borrow at anytime
through April 30, 2002 (amended April 12, 2001 to April 30, 2003) up to
$15,000,000 under the line of credit at 0.75% below the bank's prime rate
of interest. The Company must pay an annual commitment fee of 1/8 of 1%
(payable quarterly) on the unused portion of the commitment.
In March 2001, the Company completed the purchase of a property in Franklin
( Nashville) Tennessee at a cost of $4,208,000. The property is leased to
Academy LTD, (a Texas limited partnership) a full-line sporting goods
retailer on a net lease basis for a term of twenty years, that commenced
December 1999, with four (4), five (5) year renewal options. The lease
provides for annual rents of $386,386 during the first ten years and
$425,025 during the last ten years of the lease term. Funds required for
the purchase were drawn on the Company's bank credit line.
At the Company's annual meeting of stockholders held May 18, 2001, the
Company declared a $0.15 per share dividend to be paid July 31, 2001 to
stockholders of record June 30, 2001. The dividend amounted to $62,055.
In August 2001, the Company completed the purchase of a convenience store
property located in Rocky Mount, North Carolina at a price of $1,612,000.
The property was purchased from and leased back to Gate Petroleum Company
under a net lease arrangement for an initial term of twenty years with four
(4) five (5) year renewal options. Annual rents range from $161,220 for
the first five years to $185,403 for the last five years of the initial
term. Funds required for the purchase were drawn on the Company's bank
credit line.
Operating Results
Lease revenues for the first nine months of 2001, were $3,573,000 compared
to $3,267,000 for the same period in 2000, an increase of $306,000 or 9.4%.
The increase in lease revenues in the current period relative to the first
nine months of 2000, was attributable to: (1) the acquisition of a
restaurant property in September 2000, a sporting goods property in March
2001 and a convenience store property in August 2001, all of which added
$408,000 to lease revenues, (2) a decrease in lease revenues of $66,000
resulting from the sale of two telephone buildings and a garden center in
2000, (3) a decrease of $51,000 in contingent rents based on sales
overages, and (4) other scheduled rent increases of $15,000.
The Company realized capital gains of $55,000 from the sale of securities
in 2001 compared to no gains or losses in 2000. The Company had no real
estate sales in the first nine months of 2001 compared to gains of $300,000
in 2000 from the sale of two GTE Telephone Service Center properties and
the sale of a garden center property.
Operating expenses were $1,507,000 for the first nine months of 2001
compared to $1,617,000 for the same period in 2000. The decrease was
attributed to donations of $305,000 recorded in connection with the
sale/donations of the Company's two GTE Telephone properties in 2000.
Total expenses excluding donations increased $195,000 over the same nine
month period in 2000, primarily as a result of increases in depreciation
and interest expense, two key figures for the Company. The acquisition of
the three properties noted above was the primary reason for the increase in
depreciation ands interest expense. The average interest rate paid on
borrowings in the first nine months of 2001 was 7.12% compared to 8.73% for
the first nine months of 2000.
Other general and administrative expenses excluding donations increased
$30,000 in the first nine months of 2001 over the same period in 2000. The
increase came primarily in the areas of compensation cost, property taxes
on the Company's Ankeny, Iowa property and professional fees.
Net income increased 8.5% in the first nine months of 2001 from the same
period in 2000 after deducting income taxes at the effective rate of 37%.
Liquidity
As of September 30, 2001 the Company's main source of liquidity consisted
of $125,000 in cash, marketable securities having a market value of
approximately $1,407,000 and remaining loan balance available on
its revolving credit line with a local bank of $5,850,000. In addition,
the Company owns unencumbered real estate having an aggregate depreciated
cost of approximately $19,000,000. Management believes that its cash flow
from operations which totaled $2,135,000 for the nine months ended
September 30, 2001 coupled with the above potential sources of cash will be
sufficient to finance current and projected operations.
PART II. OTHER INFORMATION.
No applicable items.
SIGNATURES
Pursuant to the requirements 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.
NATIONAL PROPERTIES CORPORATION
Date __11/5/01__ By _____/S/__Raymond_Di_Paglia_________
Raymond Di Paglia, President and
Chief Executive Officer
Date __11/5/01__ By _____/S/__Kristine_M._Fasano________
Kristine M. Fasano, Vice President,
Secretary, and Treasurer