10-Q 1 np10q.txt 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 March 31, 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) 414,073 SHARES AS OF APRIL 30, 2001 PART I. FINANCIAL INFORMATION Item 1. Financial Statements

NATIONAL PROPERTIES CORPORATION NOTES TO THE FINANCIAL STATEMENTS The balance sheets, statements of income and comprehensive income, and statements of cash flow at March 31, 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 and losses 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 includes interest at 10.0%. Long Term Debt Long term debt consist 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 (7.25% at March 31, 2001). The Company must pay an annual commitment fee of 1/8 of 1% (payable quarterly) on the unused portion of the commitment. All borrowings 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 4/12/01 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 year (5) 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. Operating Results Lease revenues in the first quarter 2001 were $1,190,000 compared to $1,205,000 recorded for the first quarter of 2000. The decrease in lease revenues relative to the first quarter of 2000, was attributable to : (1) a decrease in lease revenues of $44,000 resulting from the sale of its garden center property in Dallas, Texas in July 2000, and two GTE Telephone Services Center properties in March and May of 2000; (2) the acquisition of a restaurant property in September 2000, and a sporting goods store property in March 2001, which added $77,000 to lease revenues; (3) a decrease of $51,000 in contingent rents based on overages and, (4) other scheduled rent increases of $4,000. Investment income in the first quarter of 2001 increased $7,000 over the same period in 2000 primarily due to interest earned on the Company's mortgage note. The Company had no gains from the sale of securities or properties in the first quarter of 2001 compared to a gain of $93,000 from the sale of a GTE Service Center property in March 2000. Operating expenses totaled $515,000 in the first quarter of 2001 compared to $590,000 for the same period a year ago. The decrease in total expenses was attributable to a charitable donation of $135,000 recorded in connection with the sale of a GTE Telephone Service Center in March 2000 as noted above. Total expenses excluding the donation increased $60,000 over the first quarter 2000 primarily as a result of increases in depreciation and interest expense, two key figures for the Company. The acquisition of a restaurant property in September 2000 and a sporting goods store property in March 2001 was the primary reason for the increase in depreciation and interest expense. The Company used its line of credit to fund both acquisitions. The average interest rate on borrowings in the first quarter 2001 was 8.6% compared to 8.9% for the first quarter 2000. Other general and administrative expenses excluding donations increased 20% in the first quarter 2001 over the same period in 2000. The increase came primarily in the areas of compensation cost, franchise and property taxes and legal and accounting fees. Net income decreased 3.6% in the first quarter 2001 from the same period in 2000 after deducting income taxes at the effective rate of 37%. Liquidity As of March 31, 2001, the Company's main sources of liquidity consisted of $270,000 cash, marketable securities having a market value of approximately $1,768,000 and $6,075,000 remaining loan balance available on its revolving credit line with a local bank. In addition, the Company owns unencumbered real estate having an aggregate book value of approximately $19,000,000. Management believes that its cash flow from operations and these other 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 __5/9/01__ By _____/S/__Raymond_Di_Paglia_________ Raymond Di Paglia, President and Chief Executive Officer Date __5/9/01__ By _____/S/__Kristine_M. Fasano________ Kristine M. Fasano, Vice President, Secretary, Treasurer

NATIONAL PROPERTIES CORP 10-Q