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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, 2002 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)
412,423 SHARES AS OF JUNE 30, 2002
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NATIONAL PROPERTIES CORPORATION
BALANCE SHEETS
ASSETS
June 30, December 31,
2002 2001
CURRENT ASSETS
Cash 139,624 340,793
Mortgage receivable, current portion - 55,978
Receivable - 14,126
Other 5,902 49,835
---------- ----------
Total current assets 145,526 460,732
---------- ----------
PROPERTY AND EQUIPMENT, AT COST
Land 5,402,932 5,150,932
Buildings and improvements 37,479,292 34,231,292
Furniture and equipment 115,747 115,747
---------- ----------
42,997,971 39,497,971
Less - accumulated depreciation 10,800,822 10,277,759
---------- ----------
Property and equipment - net 32,197,149 29,220,212
---------- ----------
OTHER ASSETS
Marketable securities 1,222,005 1,438,706
Mortgage receivable, long term portion - 100,000
---------- ----------
Total other assets 1,222,005 1,538,706
---------- ----------
33,564,680 31,219,650
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 6,174 2,598
Accrued liabilities 244,044 116,434
Advance rents 61,302 283,754
Federal and state income taxes 48,003 -
---------- ----------
Total current liabilities 359,523 402,786
---------- ----------
LONG-TERM DEBT 11,800,000 10,250,000
---------- ----------
DEFERRED INCOME TAXES 1,058,180 1,062,478
---------- ----------
STOCKHOLDERS' EQUITY
Common stock - $1 par value
Authorized - 5,000,000 shares
Issued
(2002-412,423 shares; 2001-413,073 shares) 412,423 413,073
Retained earnings 19,531,644 18,569,367
Accumulated other comprehensive income 402,910 521,946
---------- ----------
Total stockholders' equity 20,346,977 19,504,386
---------- ----------
33,564,680 31,219,650
========== ==========
NATIONAL PROPERTIES CORPORATION
STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
Three Months Ended Six Months
Ended
June 30, June 30,
2002 2001 2002 2001
Income
Lease rental income 1,309,199 1,175,233 2,649,535 2,365,482
Dividend and interest income 15,128 22,351 25,702 41,930
Gain on sale of securities 12,924 65,614 34,348 65,614
--------- --------- --------- ---------
Total income 1,337,251 1,263,198 2,709,585 2,473,026
--------- --------- --------- ---------
Expenses
Depreciation 275,065 223,848 523,063 445,970
Interest 106,738 144,473 203,729 276,996
Salaries and wages 60,004 58,690 123,411 123,320
Property, payroll
and misc. taxes 18,785 14,379 43,044 35,368
Other expenses 64,509 45,678 137,918 120,823
--------- --------- --------- ---------
Total expenses 525,101 487,068 1,031,165 1,002,477
--------- --------- --------- ---------
Income before income taxes 812,150 776,130 1,678,420 1,470,549
Federal and State income taxes 300,495 287,203 621,015 544,103
--------- --------- --------- ---------
Net income 511,655 488,927 1,057,405 926,446
--------- --------- --------- ---------
Other comprehensive income (losses):
Unrealized holding losses
on marketable securities arising
during the period (173,677) (108,426) (187,164)
(356,822)
Less income tax benefit related
to unrealized holding losses 63,218 39,513 68,128 129,883
--------- --------- --------- ---------
Other comprehensive losses
net of tax (110,459) (68,913) (119,036)
(226,939)
--------- --------- --------- ---------
Comprehensive income 401,196 420,014 938,369 699,507
========= ========= ========= =========
Net income per share $1.24 $1.18 $2.56 $2.24
Weighted average shares
outstanding 412,804 413,915 412,661 413,915
Cash Dividends declared per share $0.16 $0.15 $0.16 $0.15
NATIONAL PROPERTIES CORPORATION
STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
2002
2001
CASH FLOW FROM OPERATING ACTIVITIES
Net income 1,057,405
926,446
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 523,063
445,970
Deferred income taxes 63,830
53,059
Gain on sale of securities (34,348)
(65,614)
Changes in assets and liabilities:
Accounts receivable 14,126 -
Prepaid expenses 8,198
19,430
Accounts payable and accrued liabilities 65,198
45,781
Federal and State income taxes 83,739
(25,318)
Advance rents (222,452)
157,029
--------- --------
- -
Net cash provided by operations 1,558,759
1,556,783
--------- --------
- -
CASH FLOW FROM INVESTING ACTIVITIES
Additions to property and equipment (3,500,000)
(4,211,565)
Proceeds from sale of securities 63,885
83,839
Principal received on mortgage note 155,978
164,128
--------- --------
- -
Net cash used in investing activities (3,280,137)
(3,963,598)
--------- --------
- -
CASH FLOW FROM FINANCING ACTIVITIES
Borrowings on credit lines 3,425,000
4,100,000
Repayments - credit line borrowings (1,875,000)
(1,350,000)
Purchase of treasury stock (29,791)
(24,938)
--------- --------
- -
Net cash provided by financing activities 1,520,209
2,725,062
--------- --------
- -
Net increase (decrease) in cash (201,169)
318,247
Cash at beginning of period 340,793
95,212
-------- -------
- -
Cash at end of period 139,624
413,459
=========
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest expense 162,949
276,996
Income tax payments 473,446
516,362
Noncash investing and financing transactions:
cash dividends declared 65,988
62,055
NATIONAL PROPERTIES CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
The balance sheets, statements of income and comprehensive income, and
statements of cash flows at June 30, 2002 and 2001 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.
Certain prior amounts have been reclassified to conform to the current
period presentation.
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. The note was paid in full in June, 2002.
Long Term Debt
The Company has a revolving credit agreement dated February 8, 2001 with
Wells Fargo Bank, N.A. The new credit facility permits the Company to
borrow up to $15,000,000 through April 30, 2004. At June 30, 2002,
$11,800,000 was outstanding under the agreement which was used to fund
property acquisitions. The revolving period of the agreement provides for
annual extensions each April 30th at the mutual agreement of the bank and
the Company. It is the Company's intention to request an extension of the
revolving period, as provided by the agreement. Advances under the credit
facility bear interest at 0.75% below the bank's base rate. At June 30,
2002, the outstanding balance accrued interest at 4.00%. In addition, the
agreement requires the Company to pay an annual commitment fee of 1/8 of 1%
(payable quarterly) on the unused portion of the line of credit commitment.
The credit agreement contains various covenants, including limitations on
additional borrowings and maintaining a minimum free cash flow, as defined
in the agreement, of $1,800,000 per year measured as of the end of each
fiscal quarter on an annualized basis. The line of credit is secured by
first mortgages on ten properties.
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.
In May 2002, the Company completed the purchase of a property in College
Station, Texas at a cost of $3,500,000. 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 May 15, 2002.
The lease provides for annual rents of $327,250 during the first ten years
and $359,975 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 17, 2002, the
Company declared a $0.16 per share dividend to be paid July 31, 2002 to
stockholders of record on June 28, 2002. The dividend amounts to $65,988.
Operating Results
Lease revenues in the first half of 2002 were $2,650,000 compared to
$2,365,000 for the same period in 2001, an increase of $285,000 or 12%.
The increase in lease revenues relative to the first six months of 2001,
was attributable to: (1) The acquisition of two convenience store
properties and a sporting goods property in 2001, and a sporting goods
property in May, 2002, which added $307,000 to lease revenue, (2) a
decrease in lease revenue of $23,000 resulting from the sale of the GTech
property in December 2001, (3) a decrease of $21,000 in contingent rents
based on sales overages, and (4) other scheduled rent increases of $22,000.
A decrease in interest income on the Company's mortgage note receivable was
the primary reason for the decline in investment income over the same
period in 2001. In addition the Company realized capital gains of $34,000
from the sale of securities in 2002 compared to $66,000 in 2001.
Operating expenses totaled $1,031,000 in the first half of 2002 compared to
$1,002,000 for the same period in 2001, an increase of $29,000.
Depreciation expense increased $77,000 in the first half of 2002 over the
same period in 2001 as a result of the property acquisitions in 2002 and
2001, referred to above.
Interest expense for the first six months of 2002 totaled $204,000 compared
to $277,000 for the same period in 2001, a decrease of $73,000. During the
first half of 2002, the Company borrowed $3,425,000 on its credit line and
repaid $1,875,000, resulting in an increase of $1,550,000 in debt at June
30, 2002. The average outstanding debt in the first six month of 2002 was
$10,186,000 compared to $7,229,000 for the same period in 2001. Offsetting
the higher average debt was lower interest rates paid by the Company as
rates fell from 9% at the beginning of 2001 to 4% at December 31, 2001.
The average rate paid by the Company in 2002 was 4% compared to 7.7% for
the first six months of 2001.
Other general and administrative expenses increased $25,000 in 2002 over
2001 due primarily to increase in real estate taxes, employee benefits,
repairs and insurance expenses.
Net income increased 14% in the first half of 2002 from the same period in
2001, after deducting income taxes at the effective rate of 37%.
Liquidity
As of June 30, 2002, the Company's main sources of liquidity consisted of
$140,000 cash, marketable securities having a market value of approximately
$1,222,000 and $3,200,000 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 __7/31/02__ By _____/S/__Raymond_Di_Paglia_________
Raymond Di Paglia, President and
Chief Executive Officer
Date __7/31/02__ By _____/S/__Kristine_M._Fasano________
Kristine M. Fasano, Vice President,
Secretary, and Treasurer