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, 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)
417,936 SHARES AS OF JUNE 30, 1999
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
NATIONAL PROPERTIES CORPORATION
BALANCE SHEETS
ASSETS
June 30, December 31,
1999 1998
<S> <C> <C>
CURRENT ASSETS
Cash 209,863 139,993
Accounts receivable 11,301 -
Other 7,647 16,864
---------- ----------
Total current assets 228,811 156,857
---------- ----------
PROPERTY AND EQUIPMENT, AT COST
Land 4,586,750 4,586,750
Buildings and improvements 27,006,700 27,006,700
Furniture and equipment 98,713 97,088
---------- ----------
31,692,163 31,690,538
Less - accumulated depreciation 10,296,750 9,857,750
---------- ----------
Property and equipment - net 21,395,413 21,832,788
---------- ----------
OTHER ASSETS
Marketable securities 2,329,823 2,279,982
Deferred charges and other assets 20,914 20,914
---------- ----------
Total other assets 2,350,737 2,300,896
---------- ----------
23,974,961 24,290,541
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable 7,377 10,442
Notes payable 1,900,000 2,400,000
Accrued liabilities 302,292 282,749
Current maturities of long-term debt 81,474 418,254
Federal and state income taxes 69,014 59,343
---------- ----------
Total current liabilities 2,360,157 3,170,788
---------- ----------
LONG-TERM DEBT 4,900,000 5,220,877
---------- ----------
DEFERRED INCOME TAXES 1,060,070 995,882
---------- ----------
STOCKHOLDERS' EQUITY
Common stock - $1 par value
Authorized - 5,000,000 shares
Issued
(1999-417,936 shares; 1998-418,616 shares) 417,936 418,616
Retained earnings 14,195,973 13,481,312
Accumulated other comprehensive income 1,040,845 1,003,066
---------- ----------
Total stockholders' equity 15,654,734 14,902,994
---------- ----------
23,974,961 24,290,541
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL PROPERTIES CORPORATION
STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Income
Lease rental income 1,005,465 881,451 2,135,077 1,858,060
Interest income 23 110 71 629
Dividend income 16,434 18,648 33,288 35,934
Gain on sale of securities, etc. - 42,101 46,029 79,798
--------- --------- --------- ---------
Total income 1,021,922 942,310 2,214,465 1,974,421
--------- --------- --------- ---------
Expenses
Depreciation 219,703 211,316 439,000 424,707
Interest 134,144 144,378 278,960 283,389
Salaries and wages 53,171 48,741 105,554 97,167
Property, payroll
and misc. taxes 17,563 41,771 31,387 76,766
Other expenses 56,149 54,002 107,111 99,242
--------- --------- --------- ---------
Total expenses 480,730 500,208 962,012 981,271
--------- --------- --------- ---------
Income before income taxes 541,192 442,102 1,252,453 993,150
Federal and State income taxes 201,460 159,610 464,660 363,500
--------- --------- --------- ---------
Net income 339,732 282,492 787,793 629,650
--------- --------- --------- ---------
Other comprehensive income (losses):
Unrealized holding gains (losses)
on marketable securities arising
during the period 166,297 32,917 105,430 253,119
Less reclassification adjustment
for gains included in net income (46,029) (42,101) (46,029) (79,798)
Less income tax expense related
to unrealized holding gains (43,778) 3,343 (21,622) (63,089)
--------- --------- --------- ---------
Other comprehensive income,
net of tax 76,490 (5,841) 37,779 110,232
--------- --------- --------- ---------
Comprehensive income 416,222 276,651 825,572 739,882
========= ========= ========= =========
Net income per share $0.81 $0.67 $1.88 $1.49
Weighted average shares
outstanding 418,476 423,332 418,376 422,083
Cash Dividends declared per share $0.12 $0.00 $0.12 $0.00
<FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NATIONAL PROPERTIES CORPORATION
STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1999 1998
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Comprehensive income 825,572 739,882
Adjustments to reconcile comprehensive income to net
cash provided by operating activities:
Depreciation and amortization 442,564 428,272
Deferred income taxes 42,566 104,643
Unrealized gain on securities ( 37,779) (173,321)
Gain on sale of securities (46,029) (79,798)
Changes in assets and liabilities:
Accounts receivable (11,301) 12,451
Prepaid expenses and deferred charges 5,654 3,230
Accounts payable and accrued expenses (33,675) (4,124)
Federal and State income taxes 9,671 (5,170)
-------- --------
Net cash provided by operations 1,197,243 1,026,065
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Additions to property and equipment (1,625) (1,483,641)
Proceeds - from sale of securities 55,589 111,758
-------- --------
Net cash provided by (used in) investing activities 53,964 (1,371,883)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Borrowings on credit lines - 1,630,000
Repayments - credit line borrowings (1,100,000) (705,000)
Principal payments on mortgage notes (57,657) (52,201)
Purchase of treasury stock (23,680) (375,935)
-------- --------
Net cash provided by (used in) financing activities (1,181,337) 496,864
-------- --------
Net increase (decrease) in cash 69,870 151,046
Cash at beginning of period 139,993 79,545
-------- --------
Cash at end of period 209,863 230,591
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for
Interest expense 279,491 283,389
Income tax payments 412,423 327,889
</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 June 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.
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
$2,150,000 located in Olathe, Kansas, in a qualified IRC section 1031
exchange. The sale and purchase are expected to be completed in September
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
expense 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 that will generate $35,000 net
income annually.
Operating Results
Lease revenue for the six month period ended June 30, 1999 amounted to
$2,135,000 compared to $1,858,000 in 1998, an increase of $277,000 or 14.9%.
The addition of a convenience store in February 1998 and a supermarket
building in December 1998 accounted for $256,000 of the increase in lease
revenues for 1999. Contingent rentals based on sales overages also increased
lease revenues $38,000 in the first six months of 1999 over the same period
in 1998. Lease revenue from the Company's three garden centers decreased
$15,000 in 1999 from their 1998 level after they were released to new tenants
effective June 1, 1998.
The Company earned $79,000 in investment income including gains from the sale
of its marketable securities during the first six months of 1999 compared to
$116,000 for the same period in 1998, a decrease of $37,000.
General and administrative expenses for the six month period ended June 30,
1999 amounted to $962,000 compared to $981,000 for the same period in 1998, a
decrease of $19,000 or 2.0%. This decrease represents the effect of non-
recurring real estate taxes from 1998 accrued in connection with the
bankruptcy of a former tenant of the Company's three garden centers.
Depreciation expense increased $14,000 during the six months ended June 30,
1999 over the same period in 1998 due to the property acquisitions in 1998
referred to above. Other expenses led by Salaries increased $16,000 in 1999
over the same period in 1998.
Interest expense for the six months ended June 30 ,1999 amounted to $279,000
compared to $283,000 in 1998. The decrease is 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 six months ended June 30, 1999 was $788,000 compared to
$630,000 for the same period in 1998, an increase of $158,000 or 25.1%.
Liquidity
As of June 30, 1999 the Company's main source of liquidity consisted of
$210,000 in cash, marketable securities having a market value of
approximately $2,330,000 and a $2,300,000 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 June 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 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 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 __8/5/99__ By _____/S/__Raymond_Di_Paglia_________
Raymond Di Paglia, President and
Chief Executive Officer
Date __8/5/99__ By _____/S/__Kristine_M._Fasano________
Kristine M. Fasano, Vice President,
Secretary, and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1999
<CASH> 209,863
<SECURITIES> 2,329,823
<RECEIVABLES> 11,301
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 228,811
<PP&E> 31,692,163
<DEPRECIATION> 10,296,750
<TOTAL-ASSETS> 23,974,961
<CURRENT-LIABILITIES> 2,360,157
<BONDS> 0
<COMMON> 417,936
0
0
<OTHER-SE> 15,236,818
<TOTAL-LIABILITY-AND-EQUITY> 23,974,961
<SALES> 0
<TOTAL-REVENUES> 2,214,465
<CGS> 0
<TOTAL-COSTS> 962,012
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 278,960
<INCOME-PRETAX> 1,252,453
<INCOME-TAX> 464,660
<INCOME-CONTINUING> 787,793
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 787,793
<EPS-BASIC> 1.88
<EPS-DILUTED> 1.88
</TABLE>
