10-Q 1 doc1.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 ------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from____________________ to ____________________ Commission file number 1-9876 ------ WEINGARTEN REALTY INVESTORS --------------------------- (Exact name of registrant as specified in its charter) Texas 74-1464203 ---------------------------------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2600 Citadel Plaza Drive, P.O. Box 924133, Houston, Texas 77292-4133 ----------------------------------------------------------- ------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 866-6000 -------------- ____________________________________________ (Former name, former address and former fiscal year, if changed since last report) 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . ---- ---- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes . No . ---- ---- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of August 5, 2002, there were 51,973,522 common shares of beneficial interest of Weingarten Realty Investors, $.03 par value, outstanding. PART 1 FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS WEINGARTEN REALTY INVESTORS STATEMENTS OF CONSOLIDATED INCOME AND COMPREHENSIVE INCOME (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Six Months Ended June 30, June 30, -------------------- ---------------------- 2002 2001 2002 2001 --------- --------- ---------- ---------- Revenues: Rentals . . . . . . . . . . . . . . . . . . . . . . . . . $ 90,338 $ 76,493 $ 174,597 $ 142,392 Interest income . . . . . . . . . . . . . . . . . . . . . 231 349 431 649 Other . . . . . . . . . . . . . . . . . . . . . . . . . . 1,257 1,539 2,018 2,347 --------- --------- ---------- ---------- Total. . . . . . . . . . . . . . . . . . . . . . . . 91,826 78,381 177,046 145,388 --------- --------- ---------- ---------- Expenses: Depreciation and amortization . . . . . . . . . . . . . . 19,291 16,541 37,186 31,976 Interest. . . . . . . . . . . . . . . . . . . . . . . . . 16,532 14,522 31,528 25,395 Operating . . . . . . . . . . . . . . . . . . . . . . . . 13,623 10,749 25,980 20,526 Ad valorem taxes. . . . . . . . . . . . . . . . . . . . . 10,860 9,596 21,141 18,021 General and administrative. . . . . . . . . . . . . . . . 3,398 2,729 6,074 5,104 --------- --------- ---------- ---------- Total. . . . . . . . . . . . . . . . . . . . . . . . 63,704 54,137 121,909 101,022 --------- --------- ---------- ---------- Income Before Equity in Earnings of Joint Ventures, Minority Interest in Income of Partnerships, Gain on Sale of Properties and Discontinued Operations . . . . 28,122 24,244 55,137 44,366 Equity in Earnings of Joint Ventures. . . . . . . . . . . . 965 1,042 2,039 2,047 Minority Interest in Income of Partnerships . . . . . . . . (943) (115) (1,059) (182) Gain on Sale of Properties. . . . . . . . . . . . . . . . . 674 4,984 --------- --------- ---------- ---------- Income Before Discontinued Operations . . . . . . . . . . . 28,144 25,845 56,117 51,215 --------- --------- ---------- ---------- Operating Income from Discontinued Operations . . . . . . . 71 136 294 168 Gain on Sale of Properties. . . . . . . . . . . . . . . . . 3,119 4,340 --------- --------- ---------- ---------- Income From Discontinued Operations. . . . . . . . . 3,190 136 4,634 168 --------- --------- ---------- ---------- Net Income. . . . . . . . . . . . . . . . . . . . . . . . . 31,334 25,981 60,751 51,383 Dividends on Preferred Shares . . . . . . . . . . . . . . . 4,939 5,010 9,878 10,020 --------- --------- ---------- ---------- Net Income Available to Common Shareholders . . . . . . . . $ 26,395 $ 20,971 $ 50,873 $ 41,363 ========= ========= ========== ========== Net Income Per Common Share - Basic: Income Before Discontinued Operations . . . . . . . . . . .45 .44 .89 .89 Income From Discontinued Operations . . . . . . . . . . . .06 .09 --------- --------- ---------- ---------- Net Income. . . . . . . . . . . . . . . . . . . . . . . . $ .51 $ .44 $ .98 $ .89 ========= ========= ========== ========== Net Income Per Common Share - Diluted: Income Before Discontinued Operations . . . . . . . . . . .45 .43 .89 .88 Income From Discontinued Operations . . . . . . . . . . . .06 .09 --------- --------- ---------- ---------- Net Income. . . . . . . . . . . . . . . . . . . . . . . . $ .51 $ .43 $ .98 $ .88 ========= ========= ========== ========== Net Income. . . . . . . . . . . . . . . . . . . . . . . . . $ 31,334 $ 25,981 $ 60,751 $ 51,383 --------- --------- ---------- ---------- Other Comprehensive Income (Loss): Cumulative effect of change in accounting principle (SFAS 133) on other comprehensive loss. . . . . . . . . (1,877) Unrealized derivative gain (loss) on interest rate swaps. (445) 282 (3,735) (987) Unrealized derivative gain (loss) on forward-starting interest rate swaps . . . . . . . . . . . . . . . . . . (39) 3,771 1,441 3,771 --------- --------- ---------- ---------- Other Comprehensive Income (Loss) . . . . . . . . . . . . . (484) 4,053 (2,294) 907 --------- --------- ---------- ---------- Comprehensive Income. . . . . . . . . . . . . . . . . . . . $ 30,850 $ 30,034 $ 58,457 $ 52,290 ========= ========= ========== ==========
See Notes to Consolidated Financial Statements. PAGE 2
WEINGARTEN REALTY INVESTORS CONSOLIDATED BALANCE SHEETS (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) June 30, December 31, 2002 2001 ------------ ------------ ASSETS Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,555,925 $ 2,352,393 Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . (432,619) (402,958) ------------ ------------ Property - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,123,306 1,949,435 Investment in Real Estate Joint Ventures . . . . . . . . . . . . . . . . . . . 30,732 25,742 ------------ ------------ Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,154,038 1,975,177 Notes Receivable from Real Estate Joint Ventures and Partnerships. . . . . . . 6,351 6,068 Unamortized Debt and Lease Costs . . . . . . . . . . . . . . . . . . . . . . . 46,775 42,755 Accrued Rent and Accounts Receivable (net of allowance for doubtful accounts of $3,710 in 2002 and $2,926 in 2001) . . . . . . . . . . . . . . . 26,911 32,382 Cash and Cash Equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . 36,143 12,434 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,963 26,931 ------------ ------------ Total. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,299,181 $ 2,095,747 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,220,391 $ 1,070,835 Accounts Payable and Accrued Expenses. . . . . . . . . . . . . . . . . . . . . 74,305 80,412 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,588 19,542 ------------ ------------ Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,317,284 1,170,789 ------------ ------------ Minority Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,718 3,886 ------------ ------------ Commitments and Contingencies Shareholders' Equity: Preferred Shares of Beneficial Interest - par value, $.03 per share; shares authorized: 10,000 7.44% Series A cumulative redeemable preferred shares of beneficial interest; 3,000 shares issued and outstanding; liquidation preference $25 per share . . . . . . . . . . . . . . . . 90 90 7.125% Series B cumulative redeemable preferred shares of beneficial interest; 3,600 shares issued and 3,520 and 3,526 shares outstanding in 2002 and 2001; liquidation preference $25 per share . 106 106 7.0% Series C cumulative redeemable preferred shares of beneficial interest; 2,300 shares issued and 2,255 and 2,256 shares outstanding in 2002 and 2001; liquidation preference $50 per share . 67 67 Common Shares of Beneficial Interest - par value, $.03 per share; shares authorized: 150,000; shares issued and outstanding: 51,970 in 2002 and 51,521 in 2001. . . . . . . . . . . . . . . . . . . . 1,556 1,548 Capital Surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,079,015 1,066,757 Accumulated Dividends in Excess of Net Income. . . . . . . . . . . . . . . . (151,361) (144,560) Accumulated Other Comprehensive Loss . . . . . . . . . . . . . . . . . . . . (2,294) (2,936) ------------ ------------ Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 927,179 921,072 ------------ ------------ Total. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,299,181 $ 2,095,747 ============ ============
See Notes to Consolidated Financial Statements. PAGE 3
WEINGARTEN REALTY INVESTORS STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED) (AMOUNTS IN THOUSANDS) Six Months Ended June 30, -------------------------- 2002 2001 ----------- ----------- Cash Flows from Operating Activities: Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60,751 $ 51,383 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . . . 37,588 32,466 Equity in earnings of joint ventures. . . . . . . . . . . . (2,039) (2,047) Minority interest in income of partnerships . . . . . . . . 1,059 182 Gain on sale of properties. . . . . . . . . . . . . . . . . (4,340) (4,984) Changes in accrued rent and accounts receivable . . . . . . 4,341 2,168 Changes in other assets . . . . . . . . . . . . . . . . . . (10,933) (16,272) Changes in accounts payable and accrued expenses. . . . . . (3,585) (6,215) Other, net. . . . . . . . . . . . . . . . . . . . . . . . . 303 1,007 ----------- ----------- Net cash provided by operating activities . . . . . . . . 83,145 57,688 ----------- ----------- Cash Flows from Investing Activities: Investment in properties. . . . . . . . . . . . . . . . . . . . . (116,312) (288,669) Notes Receivable: Advances. . . . . . . . . . . . . . . . . . . . . . . . . . (653) (1,861) Collections . . . . . . . . . . . . . . . . . . . . . . . . 2,032 158 Proceeds from sales and disposition of property 20,134 6,811 Real estate joint ventures and partnerships: Investments . . . . . . . . . . . . . . . . . . . . . . . . (5,355) (1,010) Distributions . . . . . . . . . . . . . . . . . . . . . . . 2,130 2,414 ----------- ----------- Net cash used in investing activities . . . . . . . . . . (98,024) (282,157) ----------- ----------- Cash Flows from Financing Activities: Proceeds from issuance of: Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,000 166,590 Common shares of beneficial interest. . . . . . . . . . . . 11,886 218,089 Principal payments of debt. . . . . . . . . . . . . . . . . . . . (27,667) (102,155) Common and preferred dividends paid . . . . . . . . . . . . . . . (67,552) (60,574) Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . (79) 554 ----------- ----------- Net cash provided by financing activities . . . . . . . . 38,588 222,504 ----------- ----------- Net increase (decrease) in cash and cash equivalents. . . . . . . . . 23,709 (1,965) Cash and cash equivalents at January 1. . . . . . . . . . . . . . . . 12,434 7,321 ----------- ----------- Cash and cash equivalents at June 30. . . . . . . . . . . . . . . . . $ 36,143 $ 5,356 =========== ===========
See Notes to Consolidated Financial Statements. PAGE 4 WEINGARTEN REALTY INVESTORS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (AMOUNTS IN THOUSANDS) 1. INTERIM FINANCIAL STATEMENTS The consolidated financial statements included in this report are unaudited, however, amounts presented in the balance sheet as of December 31, 2001 are derived from the audited financial statements of the Company at that date. In the opinion of WRI, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted of normal recurring items. Interim results are not necessarily indicative of results for a full year. The consolidated financial statements and notes are presented as permitted by Form 10-Q, and do not contain certain information included in WRI's annual financial statements and notes. Certain reclassifications of prior year's amounts have been made to conform to the current year presentation. 2. NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS On January 1, 2002, WRI adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses accounting and reporting for the impairment or disposal of a segment of a business. More specifically, this Statement broadens the presentation of discontinued operations to include a component of an entity whose operations and cash flows can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. In March 2002, we sold two retail projects located in Houston and San Antonio, Texas. In June 2002, the River Pointe Apartments located in Conroe, Texas were sold. Accordingly, the operating results of the disposed properties have been reclassified and reported as discontinued operations in the Statements of Consolidated Income and Comprehensive Income. Included in the December 31, 2001 Consolidated Balance Sheet was $18.5 million of Property and $2.5 million of Accumulated Depreciation associated with the two shopping centers and the multi-family residential project that were sold. In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations", which is effective for fiscal years beginning after June 15, 2002. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The adoption of SFAS No. 143 will not have a material impact on our financial position, results of operations, or cash flows. In April 2002, FASB issued SFAS No. 145, "Rescission of SFAS Statements No. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections." The purpose of this statement is to update, clarify and simplify existing accounting standards. We adopted this statement effective April 30, 2002 and determined that the adoption of this statement did not have a material impact on our financial position, results of operations, or cash flows. 3. DERIVATIVES AND HEDGING On January 1, 2001, WRI adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. SFAS No. 133 establishes accounting and reporting standards for derivative instruments. Specifically, SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and PAGE 5 to measure those instruments at fair value. Additionally, the fair value adjustments will affect either shareholders' equity or net income depending on whether the derivative instruments qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. WRI hedges the future cash flows of debt transactions principally through interest rate swaps with major financial institutions. WRI has four interest rate swap contracts with an aggregate notional amount of $70 million, which are designated as cash flow hedges, and eleven interest rate swap contracts with an aggregate notional amount of $107.5 million, which are designated as fair value hedges. In July 2002, one interest rate swap matured with a notional amount of $25 million. On June 30, 2002, the derivative instruments designated as cash flow hedges were reported at their fair values as Other Liabilities of $3.8 million. The derivative instruments designated as fair value hedges on June 30, 2002 were reported at their fair values as Other Assets and Fixed-Rate Debt of $3.3 million. Within the next twelve months, the Company expects to reclassify to earnings as interest expense approximately $2.6 million of the current balance held in accumulated other comprehensive loss. As of June 30, 2002, the balance in accumulated other comprehensive loss relating to the derivatives was $2.3 million. With respect to fair value hedges, both changes in fair market value of the derivative hedging instrument and changes in the fair value of the hedged item will be recorded in earnings each reporting period. These amounts should completely offset with no impact to earnings, except for the portion of the hedge that proves to be ineffective, if any. 4. PER SHARE DATA Net income per common share - basic is computed using net income available to common shareholders and the weighted average shares outstanding that have been adjusted for the three-for-two share split described in Footnote 9. Net income per common share - diluted includes the effect of potentially dilutive securities for the periods indicated, as follows (in thousands):
Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2002 2001 2002 2001 --------- --------- --------- --------- Numerator: Net income available to common shareholders - basic . . . $ 26,395 $ 20,971 $ 50,873 $ 41,363 Income attributable to operating partnership units. . . . 845 29 875 64 --------- --------- --------- --------- Net income available to common shareholders - diluted . . $ 27,240 $ 21,000 $ 51,748 $ 41,427 ========= ========= ========= ========= Denominator: Weighted average shares outstanding - basic . . . . . . . 51,926 48,135 51,806 46,658 Effect of dilutive securities: Share options and awards. . . . . . . . . . . . . . 396 170 344 142 Operating partnership units . . . . . . . . . . . . 1,432 77 759 77 --------- --------- --------- --------- Weighted average shares outstanding - diluted . . . . . . 53,754 48,382 52,909 46,877 ========= ========= ========= =========
Options to purchase 150 and 1,200 common shares for the second quarter ended June 30, 2002 and 2001, respectively were not included in the calculation of net income per common share - diluted as the exercise prices were greater than the average market price, while 150 and 1,950 common shares have been excluded from the calculation of net income per common share-diluted for the six months ended June 30, 2002 and 2001, respectively. PAGE 6 5. DEBT WRI's debt consists of the following (in thousands):
June 30, December 31, 2002 2001 ------------ ------------ Fixed-rate debt payable to 2030 at 6.0% to 8.75% . . . . . . . . . $ 889,546 $ 796,900 Variable-rate unsecured notes payable. . . . . . . . . . . . . . . 100,000 100,000 Unsecured notes payable under revolving credit agreements. . . . . 191,500 134,500 Obligations under capital leases . . . . . . . . . . . . . . . . . 33,534 33,554 Industrial revenue bonds payable to 2015 at 1.3% to 3.6% . . . . . 5,798 5,868 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 13 ------------ ------------ Total . . . . . . . . . . . . . . . . . . . . . . . . $ 1,220,391 $ 1,070,835 ============ ============
At June 30, 2002, the variable interest rate for notes payable under the $50 million term loan agreement was 2.36%, and the $350 million revolving credit agreement was 2.44%. At June 30, 2002, $18.5 million was outstanding under the $20 million revolving credit agreement at 2.31%. In January 2002, WRI issued $35 million of twelve-year 6.7% fixed-rate, unsecured medium term notes. An additional $30 million of twelve-year 6.525% fixed-rate, unsecured medium term notes were issued in February 2002. Subsequent to quarter-end, the Company issued $62 million of unsecured fixed-rate medium term notes. On July 1, 2002, WRI issued $10 million of five-year 5.29% fixed-rate medium term notes. An additional $42 million was issued on July 15, 2002 consisting of $15 million five-year and $27 million eleven-year fixed-rate medium term notes at 5.14% and 6.11%, respectively. On July 18, 2002, WRI issued an additional $10 million of ten-year 6.00% fixed-rate medium term notes. Proceeds received were used to pay down amounts outstanding under our $350 million revolving credit facility. In March 2001, we filed a $500 million shelf registration statement, of which $336.9 million is currently available. Also, we have a $400 million shelf registration statement, of which $18 million is currently available. WRI's debt can be summarized as follows (in thousands):
June 30, December 31, 2002 2001 ------------ ------------ As to interest rate (including the effects of interest rate swaps): Fixed-rate debt . . . . . . . . . . . $ 873,132 $ 780,500 Variable-rate debt. . . . . . . . . . 347,259 290,335 ------------ ------------ Total . . . . . . . . . . . . . . . . $ 1,220,391 $ 1,070,835 ============ ============ As to collateralization: Unsecured debt. . . . . . . . . . . . $ 897,849 $ 798,524 Secured debt. . . . . . . . . . . . . 322,542 272,311 ------------ ------------ Total . . . . . . . . . . . . . . . . $ 1,220,391 $ 1,070,835 ============ ============
PAGE 7 In July 2001, we sold $200 million of unsecured notes with a coupon of 7%. Net proceeds from the offering totaled $198.3 million and were used to pay down amounts outstanding under our $350 revolving credit facility. Concurrent with the sale of the 7% notes, we settled our $188.7 million forward-starting interest rate swap contracts, resulting in a gain of $1.6 million that was recorded in the caption Accumulated Other Comprehensive Loss. This gain is being amortized to earnings over the life of the 7% notes. Also, in July 2001, we entered into eleven interest rate swaps with an aggregate notional amount of $107.5 million that convert fixed interest payments to variable interest payments at rates from 6.35% to 7.35%. These interest rate swaps have been designated as fair value hedges. We have determined that these contracts will be highly effective in limiting our risk of changes in the fair value of the fixed-rate notes attributable to changes in variable interest rates. WRI has two interest rate swap contracts with an aggregate notional amount of $20 million that serve as a hedge against changes in interest rates on a like amount of our $350 million variable-rate revolving credit facility. Such contracts, which expire in 2004, have been outstanding since their purchase in 1992 and fix the interest rate at 7.7%. We also entered into two additional interest rate swaps for a notional amount of $25 million each which serve as hedges against changes in interest rates on two separate $25 million variable-rate medium term notes. These swaps fix the interest rates on the medium term notes at 7.0% and 6.8%, respectively. Subsequent to quarter-end, one interest rate swap with a notional of $25 million matured in July 2002 with the remaining interest rate swap of $25 million maturing in July 2003. 6. PROPERTY WRI's property consists of the following (in thousands):
June 30, December 31, 2002 2001 ------------ ------------ Land . . . . . . . . . . . . . . $ 474,609 $ 439,332 Land held for development. . . . 22,957 24,131 Land under development . . . . . 53,861 56,414 Buildings and improvements . . . 1,906,057 1,750,059 Construction in-progress 98,441 82,457 ------------ ------------ Total. . . . . . . . . . . . . . $ 2,555,925 $ 2,352,393 ============ ============
Interest and ad valorem taxes capitalized to land under development or buildings under construction was $2.5 million for the quarters ended June 30, 2002 and 2001, respectively, and $5.1 million and $4.5 million for the six months ended June 30, 2002 and 2001, respectively. PAGE 8 7. INVESTMENTS IN REAL ESTATE JOINT VENTURES WRI owns interests in 16 joint ventures or limited partnerships where we do not exercise financial and operating control. These partnerships are accounted for under the equity method since WRI exercises significant influence. Our interests in these joint ventures and limited partnerships range from 20% to 75% and, with the exception of one partnership, which owns seven industrial properties, each venture owns a single real estate asset. Combined condensed financial information of these ventures (at 100%) is summarized as follows (in thousands):
June 30, December 31, 2002 2001 ------------ ------------ Combined Balance Sheets Property. . . . . . . . . . . . . . $ 181,771 $ 171,344 Accumulated Depreciation. . . . . . (27,038) (24,941) ------------ ------------ Property - net . . . . . . . . . 154,733 146,403 Other Assets. . . . . . . . . . . . 10,539 11,373 ------------ ------------ Total . . . . . . . . . . $ 165,272 $ 157,776 ============ ============ Debt. . . . . . . . . . . . . . . . $ 76,292 $ 76,635 Amounts Payable to WRI. . . . . . . 9,239 9,270 Other liabilities . . . . . . . . . 3,223 4,705 Accumulated Equity. . . . . . . . . 76,518 67,166 ------------ ------------ Total . . . . . . . . . . $ 165,272 $ 157,776 ============ ============
Combined Statements of Income Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2002 2001 2002 2001 --------- --------- --------- --------- Revenues. . . . . . . . . . . . . . . . $ 6,281 $ 6,442 $ 12,702 $ 12,763 --------- --------- --------- --------- Expenses: Depreciation and amortization . . . . 1,319 1,143 2,483 2,246 Operating . . . . . . . . . . . . . . 848 899 1,708 1,793 Interest. . . . . . . . . . . . . . . 1,629 1,828 3,263 3,679 Ad valorem taxes. . . . . . . . . . . 796 783 1,593 1,592 General and administrative. . . . . . 13 28 28 44 --------- --------- --------- --------- Total . . . . . . . . . . . . . 4,605 4,681 9,075 9,354 --------- --------- --------- --------- Net Income. . . . . . . . . . . . . . . $ 1,676 $ 1,761 $ 3,627 $ 3,409 ========= ========= ========= =========
PAGE 9 Our investment in real estate joint ventures, as reported on the balance sheets, differs from our proportionate share of the joint ventures' underlying net assets due to basis differentials, which arose upon the transfer of assets from WRI to the joint ventures. This basis differential, which totaled $4.8 million and $5.0 million at June 30, 2002 and December 31, 2001, respectively, is depreciated over the useful lives of the related assets. Fees earned by WRI for the management of these joint ventures totaled: $.1 million for the quarters ended June 30, 2002 and 2001, respectively, and $.3 million and $.2 million for the six months ended June 30, 2002 and 2001, respectively. In December 1999, WRI sold seven industrial properties totaling 2.0 million square feet to a limited partnership in which we retained 20% ownership. WRI serves as general partner. WRI loaned $41.4 million to the partnership until August of 2000, at which time the loan was replaced with a ten-year non-recourse third party mortgage with an interest rate of 8.1%. In 2000, three shopping centers were acquired through joint ventures with an institutional investor. WRI loaned these three partnerships an aggregate of $32.0 million, which was replaced with ten-year non-recourse third party mortgages with a weighted average rate of 7.8%. In August of 2001, WRI sold its interest in two joint ventures, which owned mini-storage warehouses resulting in a gain of $2.9 million. In May of 2002, a 50% owned joint venture commenced construction on Tropicana Beltway Center, a 660,000 square foot center in Las Vegas, Nevada, which will include a corporate-owned WalMart of 224,000 square feet and a corporate-owned Lowe's of 170,000 square feet. 8. SEGMENT INFORMATION The operating segments presented are the segments of WRI for which separate financial information is available, and operating performance is evaluated regularly by senior management in deciding how to allocate resources and in assessing performance. WRI evaluates the performance of its operating segments based on net operating income that is defined as total revenues less operating expenses and ad valorem taxes. The shopping center segment is engaged in the acquisition, development and management of real estate, primarily anchored neighborhood and community shopping centers located in Texas, California, Louisiana, Arizona, Nevada, Arkansas, New Mexico, Oklahoma, Tennessee, Kansas, Colorado, Missouri, Illinois, Florida, Mississippi, North Carolina and Maine. The customer base includes supermarkets, discount retailers, drugstores and other retailers who generally sell basic necessity-type commodities. The industrial segment is engaged in the acquisition, development and management of bulk warehouses and office/service centers. Its properties are located in Texas, Nevada, Georgia, Florida and Tennessee, and the customer base is diverse. Included in "Other" are corporate-related items, insignificant operations and costs that are not allocated to the reportable segments. PAGE 10 Information concerning WRI's reportable segments is as follows (in thousands):
SHOPPING CENTER INDUSTRIAL OTHER TOTAL ------------ ---------- ---------- ------------ Three Months Ended June 30, 2002: Revenues . . . . . . . . . . . . . . . . . . . $ 82,205 $ 9,234 $ 387 $ 91,826 Net operating income . . . . . . . . . . . . . 60,518 6,376 449 67,343 Equity in earnings of joint ventures . . . . . 921 59 (15) 965 Investment in real estate joint ventures . . . 29,881 851 30,732 Total assets . . . . . . . . . . . . . . . . . 1,962,078 222,027 115,076 2,299,181 Three Months Ended June 30, 2001: Revenues . . . . . . . . . . . . . . . . . . . $ 69,648 $ 7,981 $ 752 $ 78,381 Net operating income . . . . . . . . . . . . . 51,368 5,628 1,040 58,036 Equity in earnings of joint ventures . . . . . 930 135 (23) 1,042 Investment in real estate joint ventures . . . 25,131 1,187 26,318 Total assets . . . . . . . . . . . . . . . . . 1,639,061 184,560 93,337 1,916,958 Six Months Ended June 30, 2002: Revenues . . . . . . . . . . . . . . . . . . . $ 157,813 $ 18,300 $ 933 $ 177,046 Net operating income . . . . . . . . . . . . . 116,164 12,635 1,126 129,925 Equity in earnings of joint ventures . . . . . 1,908 155 (24) 2,039 Six Months Ended June 30, 2001: Revenues . . . . . . . . . . . . . . . . . . . $ 128,248 $ 15,643 $ 1,497 $ 145,388 Net operating income . . . . . . . . . . . . . 94,019 11,071 1,751 106,841 Equity in earnings of joint ventures . . . . . 1,847 260 (60) 2,047
Net operating income reconciles to income before discontinued operations as shown on the Statements of Consolidated Income and Comprehensive Income as follows (in thousands):
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ----------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Total segment net operating income . . . . . . . . . $ 67,343 $ 58,036 $ 129,925 $ 106,841 Less: Depreciation and amortization . . . . . . . . . 19,291 16,541 37,186 31,976 Interest. . . . . . . . . . . . . . . . . . . . 16,532 14,522 31,528 25,395 General and administrative. . . . . . . . . . . 3,398 2,729 6,074 5,104 Minority interest in income of partnerships . . 943 115 1,059 182 Equity in earnings of joint ventures. . . . . . (965) (1,042) (2,039) (2,047) Gain on sale of properties. . . . . . . . . . . (674) (4,984) ---------- ---------- ---------- ---------- Income Before Discontinued Operations. . . . . . . . $ 28,144 $ 25,845 $ 56,117 $ 51,215 ========== ========== ========== ==========
PAGE 11 9. COMMON SHARES OF BENEFICIAL INTEREST In February 2002, a three-for-two share split, affected in the form of a 50% share dividend, was declared for shareholders of record on April 1, 2002, payable April 15, 2002. We issued 17.3 million common shares of beneficial interest as a result of the share split. All references to the number of shares and per share amounts have been restated to reflect the share split, and an amount equal to the par value of the number of common shares issued have been reclassified to common stock from retained earnings. In February 2002, we completed the sale of .3 million common shares of beneficial interest. Net proceeds to WRI totaled $9.5 million based on a price of $33.65 per share and were used to pay down amounts outstanding under our $350 million revolving credit facility. On January 29, 2001, we issued 6.8 million common shares of beneficial interest in a secondary public offering. In February 2001, the underwriters exercised their over-allotment option and purchased an additional 300,000 shares. Net proceeds to WRI totaled $188.1 million based on a price of $28.13 per share. In May 2001, we issued 1.0 million common shares of beneficial interest in a secondary public offering. Net proceeds of $27.9 million were based on a price of $28.57 per share. In November 2001, we issued 2.7 million common shares of beneficial interest in a secondary public offering. Net proceeds of $86.0 million were based on a price of $33.47 per share. Proceeds from these offerings were used to pay down amounts outstanding under our $350 million revolving credit facility. 10. BANKRUPTCY REMOTE PROPERTIES On April 2, 2001, we purchased 19 supermarket-anchored shopping centers, aggregating 2.5 million square feet, in California. The purchase price for the properties was $277.5 million, including the assumption of approximately $132 million in debt secured by all 19 properties. These 19 properties, having a net book value of approximately $272.7 million at June 30, 2002 (collectively the "Bankruptcy Remote Properties", and each a "Bankruptcy Remote Property"), are wholly owned by various "Bankruptcy Remote Entities". Each Bankruptcy Remote Entity is an indirect subsidiary of the Company. The assets of each Bankruptcy Remote Entity, including the respective Bankruptcy Remote Property or Properties owned by each, are owned by that Bankruptcy Remote Entity alone and are not available to satisfy claims that any creditor may have against the Company, its affiliates, or any other person or entity. No Bankruptcy Remote Entity has agreed to pay or make its assets available to pay creditors of the Company, any of its affiliates, or any other person or entity. Neither the Company nor any of its affiliates has agreed to pay or make its assets available to pay creditors of any Bankruptcy Remote Entity (other than any agreement by a Bankruptcy Remote Entity to pay its own creditors). No affiliate of any Bankruptcy Remote Entity has agreed to pay or make its assets available to pay creditors of any Bankruptcy Remote Entity. The accounts of the Bankruptcy Remote Entities are included in WRI's consolidated financial statements, as WRI owns, indirectly, 100% of each of the entities. Additionally, WRI, through its wholly owned subsidiaries, makes all day to day operating and financial decisions with respect to these properties, subject to approval by the loan servicing agent for the certain significant transactions. WRI has the right to prepay the loan at any time, which would eliminate all encumbrances and restrictions. PAGE 12 PART I FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the consolidated financial statements and notes thereto and the comparative summary of selected financial data appearing elsewhere in this report. Historical results and trends which might appear should not be taken as indicative of future operations. Weingarten Realty Investors owned and operated 239 anchored shopping centers, 57 industrial properties and one office building at June 30, 2002. Of WRI's 297 developed properties, 178 are located in Texas (including 93 in Houston and Harris County). Our remaining properties are located in California (19), Louisiana (15), Arizona (13), Florida (11), Nevada (10), Tennessee (8), Colorado (8), North Carolina (8), Arkansas (6), New Mexico (6), Kansas (5), Oklahoma (4), Missouri (2), Illinois (1), Mississippi (1), Georgia (1) and Maine (1). WRI has 5,600 leases and 4,400 different tenants. Leases for our properties range from less than a year for smaller spaces to over 25 years for larger tenants; leases generally include minimum lease payments and contingent rentals for payment of taxes, insurance and maintenance and for an amount based on a percentage of the tenants' sales. The majority of our anchor tenants are supermarkets, value-oriented apparel and discount stores and other retailers, which generally sell basic necessity-type items. CAPITAL RESOURCES AND LIQUIDITY WRI anticipates that cash flows from operating activities will continue to provide adequate capital for all dividend payments in accordance with REIT requirements. Cash on hand, borrowings under our existing credit facilities, issuance of unsecured debt and the use of project financing, as well as other debt and equity alternatives, will provide the necessary capital to achieve growth. Cash flow from operating activities as reported in the Statements of Consolidated Cash Flows was $83.1 million for the first six months of 2002 as compared to $57.7 million for the same period of 2001. The increase was due primarily to WRI's acquisition and new development programs and improvements in the performance of its existing portfolio of properties. Our Board of Trust Managers approved a quarterly dividend of $.555 per common share for the second quarter of 2002. Our dividend payout ratio on common equity for the second quarter of 2002 and 2001 was 68% and 69%, respectively, based on funds from operations for the applicable period. WRI invested $125.8 million for the acquisition of ten shopping centers during the second quarter. On April 4, 2002, the Company completed the acquisition of seven supermarket-anchored shopping centers in the Raleigh-Durham market totaling 1.15 million square feet from Bob Hughes and Associates and related partnerships. This transaction utilized a DownREIT structure whereby we issued operating partnership units that are convertible into WRI common shares and will be included in the consolidated financial statements of WRI as we exercise financial and operating control. On April 8, 2002, we also acquired Pitman Corners, a supermarket-anchored center located in Plano, Texas (a Dallas suburb), containing a total of 189,800 square feet. PAGE 13 On June 21, 2002, Westminster Plaza, a 91,300 square foot center located in Westminster, Colorado, was acquired through a 50% joint venture with our Denver-based development partner. This joint venture will be included in the consolidated financial statements of WRI as we exercise financial and operating control. On June 28, 2002, we acquired Lake Washington Square, an 112,000 square foot center located in Melbourne, Florida. In May 2002, a 50% owned joint venture commenced construction on Tropicana Beltway Center, a 660,000 square foot center in Las Vegas, Nevada, which will include a corporate-owned WalMart of 224,000 square feet and a corporate-owned Lowe's of 170,000 square feet. This joint venture will be accounted for using the equity method of accounting, as WRI has the ability to exercise significant influence, but does not have financial or operating control. With respect to new development, we had 17 projects at various stages of construction. These projects, upon completion, will represent an investment of approximately $228 million and will add 1.8 million square feet to the portfolio. We expect to invest approximately $80.1 million in these properties during 2002. These projects will continue to come on-line during the remainder of 2002 through 2003. In January 2002, WRI issued $35 million of twelve-year 6.7% fixed-rate, unsecured medium term notes. An additional $30 million of twelve-year 6.525% fixed-rate, unsecured medium term notes were issued in February 2002. Subsequent to quarter-end, the Company issued $62 million of unsecured fixed-rate medium term notes. On July 1, 2002, WRI issued $10 million of five-year 5.29% fixed-rate medium term notes. An additional $42 million was issued on July 15, 2002 consisting of $15 million five-year and $27 million eleven-year fixed-rate medium term notes at 5.14% and 6.11%, respectively. On July 18, 2002, WRI issued an additional $10 million of ten-year 6.00% fixed-rate medium term notes. Proceeds received were used to pay down amounts outstanding under our $350 million revolving credit facility. Total debt outstanding increased $149.6 million to $1.2 billion at June 30, 2002. This increase was primarily due to the funding of the Company's acquisitions and ongoing development and redevelopment efforts. Included in total debt outstanding of $1.2 billion at June 30, 2002 is variable-rate debt of $347.3 million, after recognizing the net effect of $177.5 million of interest rate swaps. In March 2001, we filed a $500 million shelf registration statement, of which $336.9 million is currently available. Also, we have a $400 million shelf registration statement, of which $18 million is currently available. In February 2002, a three-for-two share split, affected in the form of a 50% share dividend, was declared for shareholders of record on April 1, 2002, payable April 15, 2002. We issued 17.3 million common shares of beneficial interest as a result of the share split. In February 2002, we completed the sale of .3 million common shares of beneficial interest. Net proceeds to WRI totaled $9.5 million based on a price of $33.65 per share and were used to pay down amounts outstanding under our $350 million revolving credit facility. FUNDS FROM OPERATIONS The Board of Governors of the National Association of Real Estate Investment Trusts defines funds from operations (FFO) as net income (loss) computed in accordance with generally accepted accounting principles, excluding gains or losses from sales of property, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. In addition, NAREIT recommends that extraordinary items not be considered in arriving at FFO. We calculate FFO in a manner consistent with the NAREIT definition. Most industry analysts and equity REITS, including Weingarten, believe FFO is an appropriate measure of performance relative to other REITs. FFO provides investors with an understanding of our ability to incur and service debt, make capital expenditures and pay common share PAGE 14 dividends. There can be no assurance that FFO presented by Weingarten is comparable to similarly titled measures of other REITs. FFO should not be considered as an alternative to net income or other measurements under GAAP as an indicator of our operating performance or to cash flows from operating, investing, or financing activities as a measure of liquidity. FFO does not reflect working capital changes, cash expenditures for capital improvements, or principal payments on indebtedness. Funds from operations - diluted for the three and six months ended June 30, 2002 and 2001 is calculated as follows:
Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- 2002 2001 2002 2001 --------- --------- --------- --------- Net income available to common shareholders . . . . . . $ 26,395 $ 20,971 $ 50,873 $ 41,363 Depreciation and amortization . . . . . . . . . . . . . 18,754 16,235 36,230 31,446 Depreciation and amortization of unconsolidated joint ventures. . . . . . . . . . . . . . . . . . . . 543 479 1,018 941 Gain on sale of properties. . . . . . . . . . . . . . . (3,119) (674) (4,340) (4,984) --------- --------- --------- --------- Funds from operations . . . . . . . . . . 42,573 37,011 83,781 68,766 Funds from operations attributable to operating partnership units . . . . . . . . . . . . . . . . . . 1,144 53 1,199 113 --------- --------- --------- --------- Funds from operations assuming conversion of OP units. . . . . . . . . $ 43,717 $ 37,064 $ 84,980 $ 68,879 ========= ========= ========= ========= Weighted average shares outstanding - basic . . . . . . 51,926 48,135 51,806 46,658 Effect of dilutive securities: Share options and awards. . . . . . . . . . . . . 396 170 344 142 Operating partnership units . . . . . . . . . . . 1,432 77 759 77 --------- --------- --------- --------- Weighted average shares outstanding - diluted . . . . . 53,754 48,382 52,909 46,877 ========= ========= ========= =========
RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2002 AND 2001 Net income available to common shareholders increased to $26.4 million, or $.51 per diluted share, from $21.0 million, or $.43 per diluted share for the second quarter of 2002 as compared with the same quarter of 2001. The increase in net income available to common shareholders is due primarily from growth in the portfolio from acquisitions and new development, and the $3.1 million gain on the sale of the multi-family residential project. Rental revenues were $90.3 million in 2002, as compared to $76.5 million in 2001, representing an increase of approximately $13.8 million or 18.1%. Of these increases, property acquisitions and new development contributed $11.8 million in 2002, as compared to $16.8 million for the same period of 2001. The remaining portion of these increases is due to activity at our existing properties. Occupancy of the total portfolio was 91.3% at June 30, 2002 as compared to 92.7% last year. The occupancy of the retail portfolio was down slightly at 91.9% as compared to 92.8% at June 30,2001, while the occupancy of the industrial portfolio decreased to 89.0% from 92.1% in the prior year. The decrease in the retail portfolio is due to three K-Mart and two Service Merchandise stores that were vacated during the second quarter, representing approximately 370,000 square feet. During the first six months of 2002, WRI completed 584 renewals or new leases comprising 2.3 million square feet at an average rental rate increase of 9.9%. Net of the amortized portion of capital costs for tenant improvements, the increase averaged 8.1%. Gross interest costs, before capitalization of interest, increased by $2.0 million from $16.9 million in the second quarter of 2001 to $18.9 million for the second quarter of 2002. The increase is due primarily to an increase in the average debt outstanding between periods of $962.6 in 2001 to $1.2 billion in 2002. The average interest rate decreased from 7.0% in 2001 to 6.4% in 2002. The amount of interest capitalized during the period was $2.3 million and $2.4 million in 2002 and 2001, respectively. General and administrative expenses increased by $.7 million to $3.4 million in the second quarter of 2002 from $2.7 million for the same quarter of 2001. The increase is due primarily to an increase in staffing necessitated by the growth in the portfolio from acquisitions and new development. The increases in depreciation and amortization, operating expenses and ad valorem taxes were primarily the result of WRI's acquisitions and new development programs. RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2002 AND 2001 Net income available to common shareholders increased to $50.9 million, or $.98 per diluted share, from $41.4 million, or $.88 per diluted share for the six months of 2002 as compared with the same period of 2001. The increase in net income available to common shareholders is due primarily from growth in the portfolio from acquisitions and new development. Rental revenues were $174.6 million in 2002, as compared to $142.4 million in 2001, representing an increase of approximately $32.2 million or 22.6%. Of these increases, property acquisitions and new development contributed $30.1 million in 2002, as compared to $23.1 million for the same period of 2001. The remaining portion of these increases is due to activity at our existing properties. Gross interest costs, before capitalization of interest, increased by $6.5 million from $29.7 million for the six months of 2001 to $36.3 million for the six months of 2002. The increase is due primarily to an increase in the average debt outstanding between periods of $829.1 million in 2001 to $1.1 billion in 2002. The average interest rate decreased from 7.2% in 2001 to 6.4% in 2002. The amount of interest capitalized during the period was $4.7 million and $4.3 million in 2002 and 2001, respectively. PAGE 15 General and administrative expenses increased by $1.0 million to $6.1 million for the six months of 2002 from $5.1 million for the same period of 2001. The increase is due primarily to an increase in staffing necessitated by the growth in the portfolio from acquisitions and new development. The increases in depreciation and amortization, operating expenses and ad valorem taxes were primarily the result of WRI's acquisitions and new development programs. NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS On January 1, 2002, WRI adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses accounting and reporting for the impairment or disposal of a segment of a business. More specifically, this Statement broadens the presentation of discontinued operations to include a component of an entity whose operations and cash flows can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. In March 2002, we sold two retail projects located in Houston and San Antonio, Texas. In June 2002, the River Pointe Apartments located in Conroe, Texas were sold. Accordingly, the operating results of the disposed properties have been reclassified and reported as discontinued operations in the Statements of Consolidated Income and Comprehensive Income. Included in the December 31, 2001 Consolidated Balance Sheet was $18.5 million of Property and $2.5 million of Accumulated Depreciation associated with the two shopping centers and the multi-family residential project that were sold. In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations", which is effective for fiscal years beginning after June 15, 2002. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The adoption of SFAS No. 143 will not have a material impact on our financial position, results of operations, or cash flows. PAGE 16 In April 2002, FASB issued SFAS No. 145, "Rescission of SFAS Statements No. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections." The purpose of this statement is to update, clarify and simplify existing accounting standards. We adopted this statement effective April 30, 2002 and determined that the adoption of this statement did not have a material impact on our financial position, results of operations, or cash flows. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK WRI uses fixed and floating-rate debt to finance its capital requirements. These transactions expose WRI to market risk related to changes in interest rates. Derivative financial instruments are used to manage a portion of this risk, primarily interest rate swap agreements with major financial institutions. These swap agreements expose WRI to credit risk in the event of non-performance by the counter-parties to the swaps. We do not engage in the trading of derivative financial instruments in the normal course of business. At June 30, 2002, WRI had fixed-rate debt of $873.1 million and variable-rate debt of $347.3 million, after adjusting for the net effect of $177.5 million of interest rate swaps. PAGE 17 PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (numbered in accordance with Item 601 of Regulation S-K) (12) A statement of computation of ratios of earnings and funds from operations to combined fixed charges and preferred dividends. (99.1) Certification certificate for Chief Executive Officer. (99.2) Certification certificate for Chief Financial Officer. (b) Reports on Form 8-K A Form 8-K, dated April 9, 2002, was filed in response to Item 2., Acquisition of Disposition of Assets. PAGE 18 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. WEINGARTEN REALTY INVESTORS ----------------------------- (Registrant) BY: /s/ Andrew M. Alexander -------------------------- Andrew M. Alexander President/Chief Executive Officer (Principal Executive Officer) BY: /s/ Joe D. Shafer -------------------------- Joe D. Shafer Vice President/Controller (Principal Accounting Officer) DATE: August 13, 2002 ----------------- PAGE 19