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, 1999 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)
416,853 SHARES AS OF OCTOBER 25, 1999
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
NATIONAL PROPERTIES CORPORATION
BALANCE SHEETS
ASSETS
September 30, December 31,
1999 1998
<S> <C> <C>
CURRENT ASSETS
Cash 249,230 139,993
Other 10,909 16,864
---------- ----------
Total current assets 260,139 156,857
---------- ----------
PROPERTY AND EQUIPMENT, AT COST
Land 4,586,750 4,586,750
Buildings and improvements 27,006,700 27,006,700
Furniture and equipment 98,712 97,088
---------- ----------
31,692,162 31,690,538
Less - accumulated depreciation 10,516,453 9,857,750
---------- ----------
Property and equipment - net 21,175,709 21,832,788
---------- ----------
OTHER ASSETS
Marketable securities 2,072,190 2,279,982
Deferred charges and other assets 17,051 20,914
---------- ----------
Total other assets 2,089,241 2,300,896
---------- ----------
23,525,089 24,290,541
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable 4,904 10,442
Notes payable 1,900,000 2,400,000
Accrued liabilities 257,549 282,749
Current maturities of long-term debt 51,552 418,254
Federal and state income taxes 126,355 59,343
---------- ----------
Total current liabilities 2,340,360 3,170,788
---------- ----------
LONG-TERM DEBT 4,200,000 5,220,877
---------- ----------
DEFERRED INCOME TAXES 987,575 995,882
---------- ----------
STOCKHOLDERS' EQUITY
Common stock - $1 par value
Authorized - 5,000,000 shares
Issued
(1999-417,753 shares; 1998-418,616 shares) 417,753 418,616
Retained earnings 14,702,410 13,481,312
Accumulated other comprehensive income 876,991 1,003,066
---------- ----------
Total stockholders' equity 15,997,154 14,902,994
---------- ----------
23,525,089 24,290,541
========== ==========
</TABLE>
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<TABLE>
<CAPTION>
NATIONAL PROPERTIES CORPORATION
STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
Sept 30, Sept 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Income
Lease rental income 1,024,580 924,286 3,159,657 2,782,346
Interest income 160 49 231 678
Dividend income 21,355 14,977 54,643 50,911
Gain on sale of securities, etc. 234,000 - 280,029 79,798
--------- --------- --------- ---------
Total income 1,280,095 939,312 3,494,560 2,913,733
--------- --------- --------- ---------
Expenses
Depreciation 219,703 216,751 658,703 641,458
Interest 129,920 134,164 408,880 417,553
Salaries and wages 52,627 48,252 158,181 145,419
Property, payroll
and misc. taxes 12,614 (24,787) 44,001 51,979
Other expenses 49,614 41,535 156,725 140,777
--------- --------- --------- ---------
Total expenses 464,478 415,915 1,426,490 1,397,186
--------- --------- --------- ---------
Income before income taxes 815,617 523,397 2,068,070 1,516,547
Federal and State income taxes 302,594 191,600 767,254 555,100
--------- --------- --------- ---------
Net income 513,023 331,797 1,300,816 961,447
--------- --------- --------- ---------
Other comprehensive income (losses):
Unrealized holding gains (losses)
on marketable securities arising
during the period (23,632) (193,563) 81,798 59,556
Less reclassification adjustment
for gains included in net income 234,000 - 280,029 79,798
Less income tax expense related
to unrealized holding gains 93,778 70,456 72,156 7,367
--------- --------- --------- ---------
Other comprehensive income,
net of tax (163,854) (123,107) (126,075) (12,875)
--------- --------- --------- ---------
Comprehensive income 349,169 208,690 1,174,741 948,572
========= ========= ========= =========
Net income per share $1.23 $0.79 $3.11 $2.28
Weighted average shares
outstanding 418,224 422,083 418,072 422,083
Cash dividend paid per share $0.00 $0.00 $0.12 $0.00
<FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL PROPERTIES CORPORATION
STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
1999 1998
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income 1,300,816 961,447
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 664,049 646,804
Deferred income taxes 63,849 62,837
Gain on sale of assets (280,029) (79,798)
Changes in assets and liabilities:
Accounts receivable - 12,451
Prepaid expenses and deferred charges 4,472 4,918
Accounts payable and accrued liabilities (30,737) (139,439)
Federal and State income taxes 67,012 (1,148)
-------- --------
Net cash provided by operations 1,789,432 1,468,072
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Additions to property and equipment (1,624) (1,486,987)
Purchase of securities - (14,138)
Proceeds from sale of securities 289,589 111,758
-------- --------
Net cash provided by (used in) investing activities 287,965 (1,389,367)
-------- -------
CASH FLOW FROM FINANCING ACTIVITIES
Borrowings on credit lines - 1,630,000
Payments on credit line borrowings (1,800,000) (1,255,000)
Principal payments on mortgage notes (87,579) (79,291)
Dividends paid (50,313) -
Purchase of treasury stock (30,268) (375,935)
-------- --------
Net cash used in financing activities (1,968,160) (80,226)
-------- --------
Net increase (decrease) in cash 109,237 (1,521)
Cash at beginning of period 139,993 79,545
-------- --------
Cash at end of period 249,230 78,024
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for
Interest expense 368,486 376,487
Income tax payments 636,393 493,411
</TABLE>
<PAGE>
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, 1999 and 1998 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, which in periods prior to 1998 had been reported as
annual adjustments directly to stockholders' equity.
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 December 1998, the Company executed a letter agreement with QuikTrip
Corporation, the existing tenant, to sell for $1,245,000 three convenience
stores located in Des Moines, Iowa with leases expiring within one to five
years. The Company has agreed to purchase and leaseback for twenty years a
new convenience store for $2,171,650 located in Olathe, Kansas, in a
qualified IRC section 1031 exchange. The sale and purchase are expected to
be completed in December 1999.
At the Company's annual meeting of stockholders held May 21, 1999, the
Company declared a $0.12 per share dividend to be paid July 30, 1999 to
stockholders of record June 30, 1999. The dividend amounts to $50,152.
In July 1999, the Company sold land it had leased to Days Inn in Newton, Iowa
for $350,000. Lease income from the property amounted to $26,048 less
expenses of approximately $3,000 for real estate taxes and maintenance. The
proceeds from the sale will be held in escrow and used in a 1031 exchange for
the purchase of the Olathe, Kansas QuikTrip convenience store.
In August, the Company sold 1.3 acres of land held for development in Ankeny,
Iowa for $576,650. The proceeds from the sale will be held in escrow and
used in a 1031 exchange for the purchase of the Olathe, Kansas QuikTrip
convenience store.
In August the Company executed an agreement to sell 1.7 acres of land held
for development in Ankeny, Iowa for $795,633. The closing shall occur
between October 1, 1999 and June 30, 2000.
In September 1999, the tenant of the Company's two nursery stores located in
Dallas and Arlington, Texas closed both stores. The Company negotiated a
cash settlement of $114,500 for termination of the leases which were to
expire May 31, 2003. Annual rental for the Dallas and Arlington stores were
$77,915 and $180,000 respectively. In October, the Company entered into
leases for the two stores with a new tenant at an annual rental of $216,000.
Operating Results
Lease revenue for the nine month period ended September 30, 1999 amounted to
$3,160,000 compared to $2,782,000 in 1998, an increase of $377,000 or 13.6%.
The addition of a convenience store in February 1998 and a supermarket
building in December 1998 accounted for $375,000 of the increase in lease
revenue for 1999. Contingent rentals based on sales overages also increased
$39,000 in the first nine months of 1999 over the same period in 1998. Lease
revenue from the Company's three garden centers decreased $40,000 in 1999
from their 1998 level after they were released to new tenants effective June
1, 1998.
The Company earned $335,000 in investment income including gains from the
sale of marketable securities during the first nine months of 1999 compared
to $131,000 for the same period in 1998, an increase of $204,000.
General and administrative expenses rose by $38,000 in the first nine months
of 1999 over the same period in 1998, an increase of 3.9%. The dollar
increase reflects an increase in depreciation expense of $17,000 due to
additions of new properties in 1998, an increase in other expenses totaling
$29,000 led by salaries, and a decrease in property taxes of $8,000
representing the effect of non-recurring real estate taxes in 1998 in
connection with the bankruptcy of a former tenant of the Company's three
garden centers.
Interest expense for the nine months ended September 30, 1999 amounted to
$409,000 compared with $418,000 for the same period in 1998. The decrease
was primarily due to the lower effective interest rate of 7.5% in 1999
compared to 8.5% for 1998 on the Company's three lines of credit.
Net income for the nine months ended September 30, 1999 was $1,301,000
compared to $961,000 for the same period in 1998, an increase of $339,000 or
35%.
Liquidity
As of September 30, 1999 the Company's main source of liquidity consisted of
$249,000 in cash, marketable securities having a market value of
approximately $2,072,000 and a $3,000,000 remaining loan balance available on
three lines of credit with a local bank. In addition, the Company owns
unencumbered real estate having an aggregate depreciated cost of
approximately $14,000,000.
Year 2000
During 1998 the Company began an effort to identify and address the problem
of the inability of some computer hardware and software to recognize and
correctly process information after December 31, 1999 (the "Year 2000
problem"). As of September 30, 1999 the Company completed work on the Year
2000 problem, which involves identification and assessment of such problems,
remediation and testing and the development of contingency plans. The
Company believes that the nature of its business, the nature of its
properties and the terms of the leases of its properties limit its direct
exposure to the Year 2000 problem to some extent. The Company does not
expect its business activities to create any material Year 2000 problem
liabilities.
The Company has determined it is near completion of its assessment of the
possible effects of the Year 2000 problem on the Company. The Company has
obtained clear evidence of readiness, including written assurances from each
of the Vendors of the Company's principal computer system dealing with
financial information, that its principal computer system is Year 2000
compliant. The Company has completed testing of the software used in its
principal computer system which showed such software to be Year 2000
compliant.
The Company will continue to assess the progress of material other parties
(vendors, suppliers and tenants) in their efforts to become Year 2000
compliant. These other parties include, but are not limited to; the tenants
of the Company's properties, the U.S. Postal Service, financial institutions
and utilities. The Company has mailed questionnaires to material other
parties and has requested copies of their Year 2000 plans and will monitor
their performance against these plans. Most of the material other parties
have responded to the Company's questionnaires.
Through September 30, 1999, the amount spent by the Company to address Year
2000 issues has not been material to the Company's operations. Total costs
to address Year 2000 issues are currently estimated not to involve an amount
that will be material to the Company's operations. Funds for these costs are
expected to be provided by the operating cash flows of the Company.
The Company could be faced with adverse consequences if Year 2000 issues are
not identified and resolved in a timely manner by the Company and material
other parties. The most reasonably likely case scenario would result in the
short term interruption of revenue from leased properties caused by
unresolved Year 2000 issues of material other parties. This would result in
delayed or lost revenues; however, the amount would be dependent on the
length and nature of the disruption, which cannot be predicted or estimated.
In light of the possible consequences, the Company continues devoting the
resources needed to address Year 2000 issues in a timely manner. While
management expects a successful resolution of these issues, there can be no
guarantee that material other parties, on which the Company relies, will
address all Year 2000 issues on a timely basis or that their failure to
successfully address all issues would not have an adverse effect on the
Company.
The Company has developed contingency plans as the results of the Company's
monitoring of the progress of material other parties. Such contingency plans
include a determination to increase the liquidity of the Company's assets to
avoid any interruption in payment of the Company's obligations in the event
of a temporary disruption in the flow of revenue to the Company. Contingency
plans, to the extent management considers them to be necessary, were complete
as of September, 30, 1999.
The foregoing discussion of the Year 2000 problem contains certain forward-
looking statements that are subject to risks and uncertainties. These
statements are based on management's current knowledge and estimates of
factors affecting the Company's operations. Actual results may differ
materially from those currently anticipated. Factors which could adversely
affect future results include, but are not limited to, the effects of any
unexpected increase in the Company's costs to address the Year 2000 problem
and the effects of any unexpectedly severe or lengthy disruptions in the
business of material other parties.
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 __11/5/99__ By _____/S/__Raymond_Di_Paglia_________
Raymond Di Paglia, President and
Chief Executive Officer
Date __11/5/99__ By _____/S/__Kristine_M._Fasano________
Kristine M. Fasano, Vice President,
Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1999
<CASH> 249,230
<SECURITIES> 2,072,190
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 260,139
<PP&E> 31,692,162
<DEPRECIATION> 10,516,453
<TOTAL-ASSETS> 23,525,089
<CURRENT-LIABILITIES> 2,340,360
<BONDS> 0
<COMMON> 417,753
0
0
<OTHER-SE> 15,997,154
<TOTAL-LIABILITY-AND-EQUITY> 23,525,089
<SALES> 0
<TOTAL-REVENUES> 3,494,560
<CGS> 0
<TOTAL-COSTS> 1,426,490
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 408,880
<INCOME-PRETAX> 2,068,070
<INCOME-TAX> 767,254
<INCOME-CONTINUING> 1,300,816
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,300,816
<EPS-BASIC> 3.11
<EPS-DILUTED> 3.11
</TABLE>
