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 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 PART I. FINANCIAL INFORMATION Item 1. Financial Statements

NATIONAL PROPERTIES CORPORATION BALANCE SHEETS ASSETS ~~June~~September 30, December 31, 2001 2000 CURRENT ASSETS Cash ~~413~~125,~~459~~217 95,212 Mortgage receivable, current portion 7366,~~619~~650 137,747 Other 41,~~404~~547 23,834 ---------- ---------- Total current assets ~~491~~193,~~482~~414 256,793 ---------- ---------- PROPERTY AND EQUIPMENT, AT COST Land 45,~~883~~015,~~180~~382 4,424,679 Buildings and improvements 3032,~~950~~430,~~329~~539 27,200,718 Furniture and equipment ~~105~~115,~~636~~747 102,184 ---------- ---------- 3537,~~939~~561,~~145~~668 31,727,581 Less - accumulated depreciation 910,~~967~~194,~~120~~565 9,521,149 ---------- ---------- Property and equipment - net 2527,~~972~~367,~~025~~103 22,206,432 ---------- ---------- OTHER ASSETS Marketable securities 1,~~641~~406,~~617~~619 2,016,664 ~~Deferred~~Mortgage ~~charges~~receivable, ~~and~~long ~~other~~term ~~assets~~portion 100,000 200,000 ---------- ---------- Total other assets 1,~~741~~506,~~617~~619 2,216,664 ---------- ---------- 2829,~~205~~067,~~124~~136 24,679,889 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable 237,~~470~~378 2,946 Notes payable - 3,000,000 Accrued liabilities ~~395~~206,~~803~~003 151,464 Federal and state income taxes 83,~~658~~923 33,976 ---------- ---------- Total current liabilities ~~427~~217,~~931~~304 3,188,386 ---------- ---------- LONG-TERM DEBT 89,~~350~~150,000 2,600,000 ---------- ---------- DEFERRED INCOME TAXES ~~979~~936,~~450~~418 1,056,274 ---------- ---------- STOCKHOLDERS' EQUITY Common stock - $1 par value Authorized - 5,000,000 shares Issued (2001-413,~~698~~573 shares; 2000-414,373 shares) 413,~~698~~573 414,373 Retained earnings 17,~~421~~862,~~657~~422 16,581,528 Accumulated other comprehensive income ~~612~~487,~~388~~419 839,328 ---------- ---------- Total stockholders' equity 18,~~447~~763,~~743~~414 17,835,229 ---------- ---------- 2829,~~205~~067,~~124~~136 24,679,889 ========== ==========

NATIONAL PROPERTIES CORPORATION STATEMENTS OF INCOME ~~AND COMPREHENSIVE INCOME~~ Three Months Ended ~~Six~~Nine Months Ended ~~June~~Sept 30, ~~June~~Sept 30, 2001 2000 2001 2000 Income Lease rental income 1,~~175~~207,~~233~~804 1,~~038~~023,~~565~~747 23,~~365~~573,~~482~~286 23,~~243~~267,~~291~~038 Dividend and interest income 2214,~~351~~988 1726,~~754~~662 4156,~~930~~918 3056,~~153~~815 Gain (loss) on sale of ~~real~~securities ~~estate~~(10,986) - ~~206~~54,~~896~~628 - ~~299,757~~ Gain on sale of ~~securities~~real ~~65,614~~estate - ~~65,614~~- - 299,757 --------- --------- --------- --------- Total income 1,~~263~~211,~~198~~806 1,~~263~~050,~~215~~409 23,~~473~~684,~~026~~832 23,~~573~~623,~~201~~610 --------- --------- --------- --------- Expenses Depreciation ~~223~~239,~~848~~444 ~~191~~206,~~392~~103 ~~445~~685,~~970~~414 ~~390~~596,~~229~~332 Interest ~~144~~132,~~473~~329 ~~108~~102,~~867~~554 ~~276~~409,~~996~~325 ~~231~~333,~~005~~559 Salaries and wages 5857,~~690~~385 5558,~~950~~434 ~~123~~180,~~320~~705 ~~114~~173,~~674~~108 Property, payroll and misc. taxes 1425,~~379~~145 1817,~~630~~323 3560,~~368~~513 3249,~~450~~773 Other expenses 4550,~~678~~541 ~~217~~50,~~230~~724 ~~120~~171,~~823~~364 ~~413~~464,~~638~~362 --------- --------- --------- --------- Total expenses ~~487~~504,~~068~~844 ~~592~~435,~~069~~138 1,~~002~~507,~~477~~321 1,~~181~~617,~~996~~134 --------- --------- --------- --------- Income before income taxes ~~776~~706,~~130~~962 ~~671~~615,~~146~~271 12,~~470~~177,~~549~~511 12,~~391~~006,~~205~~476 Federal and State income taxes ~~287~~261,~~203~~597 ~~248~~227,~~325~~650 ~~544~~805,~~103~~700 ~~514~~742,~~746~~396 --------- --------- --------- --------- Net income ~~488~~445,~~927~~365 ~~422~~387,~~821~~621 ~~926~~1,~~446~~371,811 ~~876~~1,~~459~~264,080 --------- --------- --------- --------- Other comprehensive income (losses): Unrealized holding gains (losses) on marketable securities arising during the period (42207,~~812~~480) 7197,~~075~~764 (~~291~~498,~~208~~688) (~~214~~16,~~093~~329) Less reclassification adjustment for gains (losses) included in net income 65(10,~~614~~986) - 6554,~~614~~628 - Less income tax (expense) benefit related to unrealized holding gains 3971,~~513~~524 (271,~~575~~986) ~~129~~201,~~883~~407 775,~~930~~944 --------- --------- --------- --------- Other comprehensive income (~~losses~~loss) net of tax (68124,~~913~~970) 4125,~~500~~778 (~~226~~351,~~939~~909) (~~136~~10,~~163~~385) --------- --------- --------- --------- Comprehensive income ~~420~~320,~~014~~395 ~~427~~513,~~321~~399 ~~699~~1,~~507~~019,902 ~~740~~1,~~296~~253,695 ========= ========= ========= ========= Net income per share $1.1808 $10.0293 $23.2432 $23.1105 Weighted average shares outstanding 413,~~915~~823 415,~~310~~069 413,~~915~~732 ~~415~~414,~~310~~970 Cash ~~Dividends~~dividend ~~declared~~paid per share $0.1500 $0.1400 $0.15 $0.14

NATIONAL PROPERTIES CORPORATION STATEMENTS OF CASH FLOWS ~~Six~~Nine Months Ended ~~June~~September 30, 2001 2000 CASH FLOW FROM OPERATING ACTIVITIES Net income ~~926~~1,~~446~~371,811 ~~876~~1,~~459~~264,080 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ~~445~~685,~~970~~414 ~~393~~600,~~222~~822 Deferred income taxes 5381,~~059~~551 4467,~~557~~344 ~~Charitable~~Gain ~~contributions~~on -sale ~~305~~of securities (54,~~000~~628) - Gain on sale of real estate - (299,757) ~~Gain~~Charitable oncontributions ~~sale~~- ~~of securities (65~~305,~~614)~~000 - Changes in assets and liabilities: ~~Accounts~~Prepaid ~~receivable~~expenses -and ~~(500)~~deferred ~~Prepaid~~charges ~~expenses 19~~22,~~430~~287 46,~~151~~575 Accounts payable and accrued ~~expenses~~liabilities ~~202~~58,~~810~~971 (~~258~~265,~~646~~963) Federal and State income taxes (2530,~~318~~053) (8095,~~756~~403) -------- ------- - Net cash provided by operations 12,~~556~~135,~~783~~353 ~~983~~1,~~730~~582,698 -------- ------- - CASH FLOW FROM INVESTING ACTIVITIES ~~Proceeds from the sale of real estate - 199,920~~ Additions to property and equipment (45,~~211~~846,~~565~~085) (2,170,094) Purchase of securities - (8,794) Proceeds from sale of securities 83111,~~839~~358 - ~~Purchased~~Proceeds ~~marketable~~from ~~securities~~sale of real estate - (1199,~~490)~~921 ~~Principal~~Payments ~~payments~~received on ~~mortgage~~ note ~~164~~receivable 171,~~128~~097 -6,050 -------- ------- - Net cash ~~provided by (~~used in) investing activities (35,~~963~~563,~~598~~630) ~~198~~(1,~~430~~972,917) -------- ------- - CASH FLOW FROM FINANCING ACTIVITIES Borrowings on credit lines 45,~~100~~700,000 -1,150,000 ~~Repayments~~Payments -on credit line borrowings (12,~~350~~150,000) (1850,~~350,~~000) Principal payments on mortgage notes - (10,482) Dividends paid (62,055) (58,082) Purchase of treasury stock (2429,~~938~~663) (5360,~~691~~941) -------- ------- - Net cash provided by ~~(used in)~~ financing activities 23,~~725~~458,~~062~~282 (1170,~~414,173)~~495 -------- ------- - Net increase (decrease) in cash ~~318~~30,~~247~~005 (~~232~~219,~~013~~724) Cash at beginning of period 95,212 287,310 -------- ------- - Cash at end of period ~~413~~125,~~459~~217 5567,~~297~~586 ======== ======== SUPPLEMENTAL ~~DISCLOSURES OF~~ CASH FLOW INFORMATION Cash paid during the period for: Interest expense ~~276~~365,~~996~~116 ~~231~~333,~~005~~559 Income tax payments ~~516~~754,~~362~~202 ~~550~~770,~~945 Noncash investing and financing transactions: cash dividends declared 62,055 58,289~~455

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

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