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, 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 ~~September~~June 30, December 31, 2002 2001 ~~2000~~ CURRENT ASSETS Cash ~~125~~139,~~217~~624 95340,~~212~~793 Mortgage receivable, current portion 66- 55,~~650~~978 ~~137~~Receivable - 14,~~747~~126 Other 15,~~547~~902 2349,~~834~~835 ---------- ---------- Total current assets ~~193~~145,~~414~~526 ~~256~~460,~~793~~732 ---------- ---------- PROPERTY AND EQUIPMENT, AT COST Land 5,~~015~~402,~~382~~932 45,~~424~~150,~~679~~932 Buildings and improvements 3237,~~430~~479,~~539~~292 2734,~~200~~231,~~718~~292 Furniture and equipment 115,747 ~~102~~115,~~184~~747 ---------- ---------- 3742,~~561~~997,~~668~~971 3139,~~727~~497,~~581~~971 Less - accumulated depreciation 10,~~194~~800,~~565~~822 910,~~521~~277,~~149~~759 ---------- ---------- Property and equipment - net 2732,~~367~~197,~~103~~149 2229,~~206~~220,~~432~~212 ---------- ---------- OTHER ASSETS Marketable securities 1,~~406~~222,~~619~~005 21,~~016~~438,~~664~~706 Mortgage receivable, long term portion - 100,000 ~~200,000~~ ---------- ---------- Total other assets 1,~~506~~222,~~619~~005 21,~~216~~538,~~664~~706 ---------- ---------- 2933,~~067~~564,~~136~~680 2431,~~679~~219,~~889~~650 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable 76,~~378~~174 2,~~946~~598 ~~Notes~~Accrued ~~payable~~liabilities -244,044 3116,~~000,000~~434 ~~Accrued~~Advance ~~liabilities~~rents ~~206~~61,~~003~~302 ~~151~~283,~~464~~754 Federal and state income taxes 348,~~923~~003 ~~33,976~~- ---------- ---------- Total current liabilities ~~217~~359,~~304~~523 3402,~~188,386~~786 ---------- ---------- LONG-TERM DEBT 911,~~150~~800,000 210,~~600~~250,000 ---------- ---------- DEFERRED INCOME TAXES ~~936~~1,~~418~~058,180 1,~~056~~062,~~274~~478 ---------- ---------- STOCKHOLDERS' EQUITY Common stock - $1 par value Authorized - 5,000,000 shares Issued (~~2001~~2002-~~413~~412,~~573~~423 shares; ~~2000~~2001-~~414~~413,~~373~~073 shares) ~~413~~412,~~573~~423 ~~414~~413,~~373~~073 Retained earnings 1719,~~862~~531,~~422~~644 1618,~~581~~569,~~528~~367 Accumulated other comprehensive income ~~487~~402,~~419~~910 ~~839~~521,~~328~~946 ---------- ---------- Total stockholders' equity 1820,~~763~~346,~~414~~977 1719,~~835~~504,~~229~~386 ---------- ---------- 2933,~~067~~564,~~136~~680 2431,~~679~~219,~~889~~650 ========== ==========

NATIONAL PROPERTIES CORPORATION STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Three Months Ended ~~Nine~~Six Months Ended ~~Sept~~June 30, ~~Sept~~June 30, 2002 2001 ~~2000~~2002 2001 ~~2000~~ Income Lease rental income 1,~~207~~309,~~804~~199 1,~~023~~175,~~747~~233 32,~~573~~649,~~286~~535 32,~~267~~365,~~038~~482 Dividend and interest income 1415,~~988~~128 2622,~~662~~351 5625,~~918~~702 5641,~~815~~930 Gain ~~(loss)~~ on sale of securities ~~(10~~12,~~986)~~924 -65,614 5434,~~628~~348 ~~- Gain on sale of real estate - - - 299~~65,~~757~~614 --------- --------- --------- --------- Total income 1,~~211~~337,~~806~~251 1,~~050~~263,~~409~~198 32,~~684~~709,~~832~~585 32,~~623~~473,~~610~~026 --------- --------- --------- --------- Expenses Depreciation ~~239~~275,~~444~~065 ~~206~~223,~~103~~848 ~~685~~523,~~414~~063 ~~596~~445,~~332~~970 Interest ~~132~~106,~~329~~738 ~~102~~144,~~554~~473 ~~409~~203,~~325~~729 ~~333~~276,~~559~~996 Salaries and wages 5760,~~385~~004 58,~~434~~690 ~~180~~123,~~705~~411 ~~173~~123,~~108~~320 Property, payroll and misc. taxes 2518,~~145~~785 1714,~~323~~379 6043,~~513~~044 4935,~~773~~368 Other expenses 5064,~~541~~509 5045,~~724~~678 ~~171~~137,~~364~~918 ~~464~~120,~~362~~823 --------- --------- --------- --------- Total expenses ~~504~~525,~~844~~101 ~~435~~487,~~138~~068 1,~~507~~031,~~321~~165 1,~~617~~002,~~134~~477 --------- --------- --------- --------- Income before income taxes ~~706~~812,~~962~~150 ~~615~~776,~~271~~130 21,~~177~~678,~~511~~420 21,~~006~~470,~~476~~549 Federal and State income taxes ~~261~~300,~~597~~495 ~~227~~287,~~650~~203 ~~805~~621,~~700~~015 ~~742~~544,~~396~~103 --------- --------- --------- --------- Net income ~~445~~511,~~365~~655 ~~387~~488,~~621~~927 1,~~371~~057,~~811~~405 1926,~~264,080~~446 --------- --------- --------- --------- Other comprehensive income (losses): Unrealized holding ~~gains (~~losses) on marketable securities arising during the period (~~207~~173,~~480~~677) ~~197,764~~ (~~498~~108,~~688~~426) (16187,~~329~~164) ~~Less reclassification adjustment for gains~~ (~~losses) included in net income (10~~356,~~986~~822) ~~- 54,628 -~~ Less income tax ~~(expense)~~ benefit related to unrealized holding ~~gains~~losses 7163,~~524~~218 ~~(71~~39,~~986)~~513 ~~201~~68,~~407~~128 5129,~~944~~883 --------- --------- --------- --------- Other comprehensive ~~income~~losses ~~(loss)~~ net of tax (~~124~~110,~~970~~459) ~~125~~(68,~~778~~913) (~~351~~119,~~909~~036) (10226,~~385~~939) --------- --------- --------- --------- Comprehensive income ~~320~~401,~~395~~196 ~~513~~420,~~399~~014 1938,~~019,902~~369 1699,~~253,695~~507 ========= ========= ========= ========= Net income per share $1.0824 $01.9318 $32.3256 $32.0524 Weighted average shares outstanding 412,804 413,~~823~~915 ~~415~~412,~~069~~661 413,~~732~~915 ~~414,970~~ Cash ~~dividend~~Dividends ~~paid~~declared per share $0.0016 $0.0015 $0.1516 $0.1415

NATIONAL PROPERTIES CORPORATION STATEMENTS OF CASH FLOWS ~~Nine~~Six Months Ended ~~September~~June 30, 2002 2001 ~~2000~~ CASH FLOW FROM OPERATING ACTIVITIES Net income 1,~~371~~057,~~811~~405 1926,~~264,080~~446 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ~~685~~523,~~414~~063 ~~600~~445,~~822~~970 Deferred income taxes 8163,~~551~~830 6753,~~344~~059 Gain on sale of securities (5434,~~628~~348) ~~- Gain on sale of real estate -~~ (~~299~~65,~~757~~614) ~~Charitable contributions - 305,000~~ Changes in assets and liabilities: ~~Prepaid~~Accounts ~~expenses~~receivable ~~and~~14,126 ~~deferred~~- ~~charges~~Prepaid 22expenses 8,~~287~~198 619,~~575~~430 Accounts payable and accrued liabilities 5865,~~971~~198 ~~(265~~45,~~963)~~781 Federal and State income taxes 83,739 (3025,~~053~~318) Advance rents (95222,~~403~~452) 157,029 --------- -------- - Net cash provided by operations 21,~~135~~558,~~353~~759 1,~~582~~556,~~698~~783 --------- -------- - CASH FLOW FROM INVESTING ACTIVITIES Additions to property and equipment (53,~~846~~500,~~085~~000) (24,~~170~~211,~~094~~565) ~~Purchase of securities - (8,794)~~ Proceeds from sale of securities ~~111~~63,~~358~~885 ~~- Proceeds from sale of real estate - 199~~83,~~921~~839 ~~Payments~~Principal received on mortgage note ~~receivable 171~~155,~~097~~978 6164,~~050~~128 --------- -------- - Net cash used in investing activities (53,~~563~~280,~~630~~137) (13,~~972~~963,~~917~~598) --------- -------- - CASH FLOW FROM FINANCING ACTIVITIES Borrowings on credit lines 53,~~700~~425,000 14,~~150~~100,000 ~~Payments~~Repayments on- credit line borrowings (21,~~150~~875,000) (~~850~~1,350,000) ~~Principal payments on mortgage notes - (10,482) Dividends paid (62,055) (58,082)~~ Purchase of treasury stock (29,~~663~~791) (6024,~~941~~938) --------- -------- - Net cash provided by financing activities 31,~~458~~520,~~282~~209 ~~170~~2,~~495~~725,062 --------- -------- - Net increase (decrease) in cash ~~30,005~~ (~~219~~201,~~724~~169) 318,247 Cash at beginning of period 340,793 95,212 ~~287,310~~ -------- ------- - Cash at end of period ~~125~~139,~~217~~624 67413,~~586~~459 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest expense ~~365~~162,~~116~~949 ~~333~~276,~~559~~996 Income tax payments ~~754~~473,~~202~~446 ~~770~~516,~~455~~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

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