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 June 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) 413,698 SHARES AS OF JUNE 30, 2001 PART I. FINANCIAL INFORMATION Item 1. Financial Statements

NATIONAL PROPERTIES CORPORATION BALANCE SHEETS ASSETS ~~March~~June 3130, December 31, 2001 2000 CURRENT ASSETS Cash ~~270~~413,~~044~~459 95,212 Mortgage receivable, current portion ~~131~~73,~~388~~619 137,747 Other 124,~~263~~404 23,834 ---------- ---------- Total current assets ~~413~~491,~~695~~482 256,793 ---------- ---------- PROPERTY AND EQUIPMENT, AT COST Land 4,883,180 4,424,679 Buildings and improvements 30,950,329 27,200,718 Furniture and equipment ~~102~~105,~~184~~636 102,184 ---------- ---------- 35,~~935~~939,~~693~~145 31,727,581 Less - accumulated depreciation 9,~~743~~967,~~271~~120 9,521,149 ---------- ---------- Property and equipment - net 2625,~~192~~972,~~422~~025 22,206,432 ---------- ---------- OTHER ASSETS Marketable securities 1,~~768~~641,~~269~~617 2,016,664 ~~Mortgage~~Deferred ~~receivable,~~charges ~~long~~and ~~term~~other ~~portion~~assets ~~200~~100,000 200,000 ---------- ---------- Total other assets 1,~~968~~741,~~269~~617 2,216,664 ---------- ---------- 28,~~574~~205,~~386~~124 24,679,889 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable 2423,~~454~~470 2,946 Notes payable - 3,000,000 Accrued liabilities ~~307~~395,~~005~~803 151,464 Federal and state income taxes ~~218~~8,~~122~~658 33,976 ---------- ---------- Total current liabilities ~~549~~427,~~581~~931 3,188,386 ---------- ---------- LONG-TERM DEBT 8,~~925~~350,000 2,600,000 ---------- ---------- DEFERRED INCOME TAXES ~~992~~979,~~433~~450 1,056,274 ---------- ---------- STOCKHOLDERS' EQUITY Common stock - $1 par value Authorized - 5,000,000 shares Issued (2001-~~414~~413,~~173~~698 shares; 2000-414,~~353~~373 shares) ~~414~~413,~~173~~698 414,373 Retained earnings 17,~~011~~421,~~897~~657 16,581,528 Accumulated other comprehensive income ~~681~~612,~~302~~388 839,328 ---------- ---------- Total stockholders' equity 18,~~107~~447,~~372~~743 17,835,229 ---------- ---------- 28,~~574~~205,~~386~~124 24,679,889 ========== ==========

NATIONAL PROPERTIES CORPORATION STATEMENTS OF INCOME ~~For~~AND ~~Quarter~~COMPREHENSIVE INCOME Three Months Ended ~~March~~Six 31Months Ended June 30, June 30, 2001 2000 2001 2000 Income Lease rental income 1,~~190~~175,~~249~~233 1,~~204~~038,~~726~~565 2,365,482 2,243,291 Dividend and interest income 1922,~~579~~351 1217,~~399~~754 41,930 30,153 Gain on sale of real estate - 92206,~~861~~896 - 299,757 Gain on sale of securities 65,614 - 65,614 - --------- --------- --------- --------- Total income 1,~~209~~263,~~828~~198 1,~~309~~263,~~986~~215 2,473,026 2,573,201 --------- --------- --------- --------- Expenses Depreciation ~~222~~223,~~122~~848 ~~198~~191,~~837~~392 445,970 390,229 Interest ~~132~~144,~~523~~473 ~~122~~108,~~138~~867 276,996 231,005 Salaries and wages 6458,~~630~~690 5855,~~724~~950 123,320 114,674 Property, payroll and misc. taxes 2014,~~989~~379 1318,~~820~~630 35,368 32,450 Other expenses 7545,~~145~~678 ~~196~~217,~~408~~230 120,823 413,638 --------- --------- --------- --------- Total expenses ~~515~~487,~~409~~068 ~~589~~592,~~927~~069 1,002,477 1,181,996 --------- --------- --------- --------- Income before income taxes ~~694~~776,~~419~~130 ~~720~~671,~~059~~146 1,470,549 1,391,205 Federal and State income taxes ~~256~~287,~~900~~203 ~~266~~248,~~421~~325 544,103 514,746 --------- --------- --------- --------- Net income ~~437~~488,~~519~~927 ~~453~~422,~~638~~821 ~~=======~~926,446 ~~=======~~876,459 --------- --------- --------- --------- Other comprehensive income (~~Losses~~losses): Unrealized holding gains (losses) on marketable securities arising during the period (~~248~~42,~~396~~812) 7,075 (~~221~~291,~~169~~208) (214,093) Less reclassification adjustment for gains included in net income 65,614 - 65,614 - Less income tax expense related to unrealized holding gains 9039,~~370~~513 80(2,~~505~~575) 129,883 77,930 --------- --------- --------- --------- Other comprehensive income, (losses) net of tax (~~158~~68,~~026~~913) 4,500 (~~140~~226,~~664~~939) (136,163) --------- --------- --------- --------- Comprehensive income ~~279~~420,~~493~~014 ~~312~~427,~~974~~321 699,507 740,296 ========= ========= ========= ========= Net income per share ~~of common stock~~ $1.0618 $1.0902 $2.24 $2.11 Weighted average shares outstanding ~~414~~413,~~206~~915 415,~~453~~310 413,915 415,310 Cash Dividends declared per share ~~None~~$0.15 ~~None~~$0.14 $0.15 $0.14

NATIONAL PROPERTIES CORPORATION STATEMENTS OF CASH FLOWS ~~For~~Six ~~Quarter~~Months Ended ~~March~~June 3130, 2001 2000 CASH FLOW FROM OPERATING ACTIVITIES Net income ~~437~~926,~~519~~446 ~~453~~876,~~638~~459 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ~~222,122~~and ~~198~~amortization 445,~~837~~970 ~~Charitable contributions - 135~~393,~~000~~222 Deferred income taxes 2653,~~529~~059 2244,~~279~~557 Charitable contributions - 305,000 Gain on sale of real estate - (92299,~~861~~757) Gain on sale of securities (65,614) - Changes in assets and liabilities: Accounts receivable - (~~5,003~~500) - Prepaid expenses ~~and deferred charges 16~~19,~~574~~430 24,~~243~~151 Accounts payable and accrued expenses ~~177~~202,~~048~~810 (83258,~~241~~646) Federal and State income taxes ~~184~~(25,~~146~~318) ~~132~~(80,~~217~~756) -------- ------- - Net cash provided by operations 1,~~058~~556,~~935~~783 ~~768~~983,~~112~~730 -------- ------- - CASH FLOW FROM INVESTING ACTIVITIES ~~Purchase~~Proceeds from the sale of real estate - 199,920 Additions to property and equipment (4,~~208~~211,~~112~~565) - Proceeds from sale of ~~real~~securities ~~estate~~83,839 - ~~49,921~~ Purchased marketable securities - (1,490) Principal payments on mortgage note 6164,~~359~~128 - -------- ------- - Net cash provided by (used in) investing activities (43,~~201~~963,~~753~~598) 48198,~~431~~430 -------- ------- - CASH FLOW FROM FINANCING ACTIVITIES Borrowings on credit lines 4,100,000 - ~~Payments~~Repayments on- credit line borrowings (~~775~~1,350,000) (~~825~~1,350,000) Principal payments on mortgage notes - (10,482) Purchase of treasury stock (724,~~350~~938) (3853,~~062~~691) -------- ------- - Net cash provided by (used in) financing activities 32,~~317~~725,~~650~~062 (~~873~~1,~~544~~414,173) -------- ------- - Net ~~change~~increase (decrease) in cash ~~174~~318,~~832~~247 (57232,~~001~~013) Cash at beginning of period 95,212 287,310 -------- ------- - Cash at end of period ~~270~~413,~~044~~459 ~~230~~55,~~309~~297 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest expense ~~132~~276,~~523~~996 ~~122~~231,~~138~~005 Income tax payments 46516,~~225~~362 ~~111~~550,~~925~~945 Noncash investing and financing transactions: cash dividends declared 62,055 58,289

NATIONAL PROPERTIES CORPORATION NOTES TO THE FINANCIAL STATEMENTS The balance sheets, statements of income and comprehensive income, and statements of cash flow at June 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 includes interest at 10.0%, in addition to the principal payments provided under the note. 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 (6.0% at June 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 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. 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 on June 30, 2001. The dividend amounts to $62,055. In June 2001, the Company entered into a contract with Gate petroleum Company, a Florida corporation, to purchase and leaseback a convenience store property located in Rocky Mount, North Carolina for a price of $1,612,000. The closing date for the purchase is set for August 1, 2001. Gate Petroleum Company will lease the property for an initial term of twenty years with four additional option terms of five years each. Operating Results Lease revenues in the first half of 2001 were $2,365,000 compared to $2,243,000 for the same period in 2000, an increase of $122,000 or 5.4%. The increase in lease revenues relative to the first six months of 2001, was attributable to: (1) the acquisition of a restaurant property in September 2000 and a sporting goods property in March 2001 which added $232,000 to lease revenue, (2) a decrease in lease revenue 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 overages, and (4) other scheduled rent increases of $7,000. Interest income on the Company's mortgage note receivable was the primary reason for the increase in investment income in 2001 over the same period in 2000. In addition the Company realized a capital gain of $66,000 from the sale of securities. The Company had no real estate sales in the first six months of 2001 compared to gains of $300,000 in 2000 from the sale/donation of two GTE Telephone Service Center properties and the sale of a garden center property. Operating expenses totaled $1,002,000 in the first half of 2001 compared to $1,182,000 for the same period in 2000. The decrease was attributable to donations of $305,000 recorded in connection with the sale of the Company's two GTE Telephone Service Centers during the first six months of 2000. Total expenses excluding donations, increased $125,000 over the same six 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 restaurant and sporting goods' properties noted above 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 paid on borrowings in the first six months of 2001 was 7.71% compared to 8.875% for the first six months of 2000. Other general and administrative expenses excluding donations increased $24,000 in the first six months of 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 expenses. Net income increased 5.7% in the first half of 2001 from the same period in 2000 after deducting income taxes at the effective rate of 37%. Liquidity As of June 30, 2001, the Company's main sources of liquidity consisted of $413,000 cash, marketable securities having a market value of approximately $1,642,000 and $6,650,000 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 __7/31/01__ By _____/S/__Raymond_Di_Paglia_________ Raymond Di Paglia, President and Chief Executive Officer Date __7/31/01__ By _____/S/__Kristine_M._Fasano________ Kristine M. Fasano, Vice President, Secretary, and Treasurer

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