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 March 31, 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)
418,536 SHARES AS OF APRIL 30, 1999
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
NATIONAL PROPERTIES CORPORATION
BALANCE SHEETS
ASSETS
March 31, December 31,
1999 1998
<S> <C> <C>
CURRENT ASSETS
Cash 262,249 139,993
Accounts receivable 2,704 -
Other 11,656 16,864
---------- ----------
Total current assets 276,609 156,857
---------- ----------
PROPERTY AND EQUIPMENT, AT COST
Land 4,586,750 4,586,750
Buildings and improvements 27,006,700 27,006,700
Furniture and equipment 97,088 97,088
---------- ----------
31,690,538 31,690,538
Less - accumulated depreciation 10,077,047 9,857,750
---------- ----------
Property and equipment - net 21,613,491 21,832,788
---------- ----------
OTHER ASSETS
Marketable securities 2,209,554 2,279,982
Deferred charges and other assets 20,914 20,914
---------- ----------
Total other assets 2,230,468 2,300,896
---------- ----------
24,120,568 24,290,541
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable 20,763 10,442
Notes payable 1,900,000 2,400,000
Accrued liabilities 274,662 282,749
Current maturities of long-term debt 310,661 418,254
Federal and state income taxes 209,807 59,343
---------- ----------
Total current liabilities 2,715,893 3,170,788
---------- ----------
LONG-TERM DEBT 5,100,000 5,220,877
---------- ----------
DEFERRED INCOME TAXES 995,009 995,882
---------- ----------
STOCKHOLDERS' EQUITY
Common stock - $1 par value
Authorized - 5,000,000 shares
Issued
(1999-418,536 shares; 1998-418,616 shares) 418,536 418,616
Retained earnings 13,926,775 13,481,312
Accumulated other comprehensive income 964,355 1,003,066
---------- ----------
Total stockholders' equity 15,309,666 14,902,994
---------- ----------
24,120,568 24,290,541
========== ==========
</TABLE>
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<TABLE>
<CAPTION>
NATIONAL PROPERTIES CORPORATION
STATEMENTS OF INCOME
For Quarter Ended
March 31,
1999 1998
<S> <C> <C>
Income
Lease rental income 1,129,612 976,609
Interest income 48 519
Dividend income 16,854 17,286
Gain on sale of securities 46,029 37,697
------- -------
Total income 1,192,543 1,032,111
------- -------
Expenses
Depreciation 219,297 213,391
Interest 144,816 139,011
Salaries and wages 52,383 48,426
Property, payroll
and misc. taxes 13,824 34,995
Other expenses 50,961 45,240
------- -------
Total expenses 481,281 481,063
------- -------
Income before income taxes 711,262 551,048
Federal and State income taxes 263,200 203,890
------- -------
Net income 448,062 347,158
======= =======
Other comprehensive income:
Unrealized holding gains (losses) on
marketable securities arising
during the period (14,838) 220,202
Less reclassification adjustment for
gains included in net income (46,029) (37,697)
Less income tax expense related
to unrealized holding gains 22,156 (66,432)
------- -------
Other comprehensive income, net of tax (38,711) 116,073
------- -------
Comprehensive income 409,351 463,231
======= =======
Net income per share of common stock $1.07 $0.82
Weighted average shares
outstanding 418,536 424,581
Dividends per share None None
<FN>
</TABLE>
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<TABLE>
<CAPTION>
NATIONAL PROPERTIES CORPORATION
STATEMENTS OF CASH FLOWS
For Quarter Ended
March 31,
1999 1998
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Comprehensive income 409,351 463,231
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 221,079 215,173
Deferred income taxes 21,283 87,714
Unrealized (gain) loss on securities 38,711 (182,505)
Gain on sale of securities (46,029) (37,697)
Changes in assets and liabilities:
Accounts receivable (2,704) 12,451
Prepaid expenses and deferred charges 3,426 1,500
Accounts payable and accrued expenses 2,234 10,155
Federal and State income taxes 150,464 119,509
-------- --------
Net cash provided by operations 797,815 689,531
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Additions to property and equipment - (1,483,641)
Proceeds from sale of securities 55,591 53,677
-------- --------
Net cash provided by (used in) investing activities 55,591 (1,429,964)
-------- -------
CASH FLOW FROM FINANCING ACTIVITIES
Borrowings on credit lines - 1,580,000
Repayments - credit line borrowings (700,000) (405,000)
Principal payments on mortgage notes (28,470) (25,776)
Purchase of treasury stock (2,680) (210,685)
-------- --------
Net cash provided by (used in) financing activities(731,150) 938,539
-------- --------
Net increase in cash 122,256 198,106
Cash at beginning of period 139,993 79,545
-------- --------
Cash at end of period 262,249 277,651
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for
Interest expense 98,124 104,689
Income tax payments 91,453 63,591
</TABLE>
<PAGE>
NATIONAL PROPERTIES CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
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 adjustment directly to stockholders' equity.
The balance sheets, statements of income and comprehensive income,
and statements of cash flow at March 31, 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.
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 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 $1,950,000 located in
Olathe, Kansas, in a qualified IRC section 1031 exchange. The
sale and purchase are expected to be completed in August 1999.
Operating Results
Lease revenues in the first quarter were $1,129,000 up $153,000 or
15.7% over the first quarter of 1998. The addition of a
convenience store in February 1998 and a supermarket building in
December 1998 added $137,000 to lease revenues in the first
quarter of 1999. Contingent rentals based on sales overages also
increased $38,000 in the first quarter of 1999 over a year
earlier. The Company experienced a decrease in rental income of
$27,000 on its three garden centers over a year earlier as a
result of releasing the properties in April 1998 after the former
tenant (Sunbelt Nurseries) declared bankruptcy.
The Company realized gains of $46,000 from the sale of securities
during the first quarter of 1999, up from $38,000 in the same
period in 1998.
Total expenses of $481,000 for the first quarter of 1999 increased
only slightly over the same quarter in 1998. Depreciation and
interest each increased approximately $6,000 due to property
acquisitions referred to above. Salaries and other expenses
increased a total of $9,700 in the first quarter 1999 over the
first quarter 1998. Offsetting these increases was a decrease in
the real estate taxes of approximately $21,000 on the Company's
three garden centers from a year earlier.
Net income was $448,000 for the first quarter 1999 as compared to
$347,000 for the same quarter in 1998, an increase of $101,000 or
29.1%.
Liquidity
As of March 31, 1999, the Company's main sources of liquidity
consisted of $262,000 in cash, marketable securities having a
market value of approximately $2,209,000 and a $1,900,000
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"). During 1999 the
Company expects to complete 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 not yet completed 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 is assessing 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 is requesting
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 March 31, 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 is
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 expects to give consideration to the development of
contingency plans during the first half of 1999 as the results of
the Company's monitoring of the progress of material other parties
become available. Such contingency plans may 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, are expected to be completed by 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 __5/13/99__ By _____/S/__Raymond_Di_Paglia_________
Raymond Di Paglia, President and
Chief Executive Officer
Date __5/13/99__ By _____/S/__Kristine_M. Fasano________
Kristine M. Fasano, Vice President,
Secretary, Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 262,249
<SECURITIES> 2,209,554
<RECEIVABLES> 2,704
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 276,609
<PP&E> 31,690,538
<DEPRECIATION> 10,077,047
<TOTAL-ASSETS> 24,120,568
<CURRENT-LIABILITIES> 2,715,893
<BONDS> 0
<COMMON> 418,536
0
0
<OTHER-SE> 14,891,130
<TOTAL-LIABILITY-AND-EQUITY> 24,120,568
<SALES> 0
<TOTAL-REVENUES> 1,192,543
<CGS> 0
<TOTAL-COSTS> 481,281
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144,816
<INCOME-PRETAX> 711,262
<INCOME-TAX> 263,200
<INCOME-CONTINUING> 448,062
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 448,062
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
</TABLE>
