SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2002
Commission file number 1-13223
LNR Property Corporation
(Exact name of registrant as specified in its charter)
Delaware 65-0777234
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
760 Northwest 107th Avenue, Miami, Florida 33172
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 485-2000
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 ___
---
Common shares outstanding as of the end of the current fiscal quarter:
Common 24,705,337
Class B Common 9,786,769
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited) (unaudited)
(In thousands, except per share amounts) February 28, November 30,
2002 2001
---------------- -----------------
Assets
------
Cash and cash equivalents $ 8,128 6,578
Restricted cash 58,950 81,955
Investment securities:
Investment securities pledged to creditors which can be repledged or sold by creditors 690,724 719,605
Other investment securities 495,321 495,516
---------------- -----------------
Total investment securities 1,186,045 1,215,121
Mortgage loans, net 339,453 331,517
Operating properties and equipment, net 757,151 719,662
Land held for investment 43,679 42,229
Investments in unconsolidated partnerships 365,007 352,142
Other assets 90,350 87,443
---------------- -----------------
Total assets $ 2,848,763 2,836,647
================ =================
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
Accounts payable $ 10,981 20,914
Accrued expenses and other liabilities 251,164 253,669
Mortgage notes and other debts payable 1,426,901 1,417,207
---------------- -----------------
Total liabilities 1,689,046 1,691,790
---------------- -----------------
Minority interests 25,587 25,688
Commitments and contingent liabilities (Note 3)
Stockholders' equity
Common stock, $.10 par value, 150,000 shares authorized, 24,705 and 24,445
shares issued and outstanding in 2002 and 2001, respectively 2,470 2,444
Class B common stock, $.10 par value, 40,000 shares authorized, 9,787 and 9,949
shares issued and outstanding in 2002 and 2001, respectively 979 995
Additional paid-in capital 514,730 513,977
Retained earnings 432,492 404,611
Unamortized value of restricted stock grants (9,474) (10,273)
Accumulated other comprehensive earnings 192,933 207,415
---------------- -----------------
Total stockholders' equity 1,134,130 1,119,169
---------------- -----------------
Total liabilities and stockholders' equity $ 2,848,763 2,836,647
================ =================
See accompanying notes to unaudited consolidated condensed financial statements.
2
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended
(In thousands, except per share amounts) February 28,
---------------------------------
2002 2001
--------------- ---------------
Revenues
Rental income $ 25,153 30,465
Equity in earnings of unconsolidated partnerships 11,977 17,342
Interest income 45,061 46,184
Gains on sales of:
Real estate 7,701 8,479
Investment securities 1,608 -
Management and servicing fees 10,722 9,176
Other, net 92 (354)
--------------- ---------------
Total revenues 102,314 111,292
--------------- ---------------
Costs and expenses
Cost of rental operations 12,211 15,479
General and administrative 18,553 17,747
Depreciation 6,039 6,825
Minority interests 531 843
--------------- ---------------
Total costs and expenses 37,334 40,894
--------------- ---------------
Operating earnings 64,980 70,398
Interest expense 23,054 30,149
--------------- ---------------
Earnings before income taxes 41,926 40,249
Income taxes 13,626 14,284
--------------- ---------------
Net earnings $ 28,300 25,965
=============== ===============
Weighted average common and common equivalent shares outstanding:
Basic 33,685 33,097
=============== ===============
Diluted 35,086 34,742
=============== ===============
Earnings per share:
Basic $ 0.84 0.78
=============== ===============
Diluted $ 0.81 0.75
=============== ===============
Dividends declared per share:
Common stock $ 0.0125 0.0125
=============== ===============
Class B common stock $ 0.01125 0.01125
=============== ===============
See accompanying notes to unaudited consolidated condensed financial statements.
3
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE EARNINGS
(Unaudited)
Three Months Ended
February 28,
----------------------------------
(In thousands) 2002 2001
---------------- ---------------
Net earnings $ 28,300 25,965
Other comprehensive earnings (loss), net of tax:
Unrealized gain (loss) on available-for-sale securities, net and other (15,492) 15,007
Unrealized gain (loss) on derivative financial instruments 634 (3,219)
Transition adjustment related to accounting for derivative financial instruments and
hedging activities - 4,388
Reclassification adjustment for (gains) losses included in net earnings 376 (7,095)
---------------- ---------------
Other comprehensive earnings (loss), net of tax (14,482) 9,081
---------------- ---------------
Comprehensive earnings $ 13,818 35,046
================ ===============
See accompanying notes to unaudited consolidated condensed financial statements.
4
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
(In thousands) February 28,
----------------------------------
2002 2001
---------------- ---------------
Cash flows from operating activities:
Net earnings $ 28,300 25,965
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation 6,039 6,825
Minority interests 531 843
Accretion of discount on CMBS and mortgage loans (11,743) (12,299)
Amortization of deferred costs 1,448 1,336
Equity in earnings of unconsolidated partnerships (11,977) (17,342)
Gains on sales of real estate (7,701) (8,479)
Gains on sales of investment securities (1,608) -
(Gains) losses on hedging activities (111) 361
Changes in assets and liabilities:
Decrease in restricted cash 23,005 25,069
Increase in other assets (6,225) (19,972)
Increase in accounts payable and accrued liabilities 2,127 8,579
---------------- ---------------
Net cash provided by operating activities 22,085 10,886
---------------- ---------------
Cash flows from investing activities:
Operating properties and equipment
Additions (45,676) (35,751)
Sales - -
Land held for investment
Additions (23,402) (2,740)
Sales 28,020 18,578
Investments in unconsolidated partnerships (22,103) (33,748)
Proceeds from sales of unconsolidated partnership interests 4,829 -
Distributions from unconsolidated partnerships 18,513 48,177
Purchase of mortgage loans held for investment (20,653) (392)
Proceeds from mortgage loans held for investment 25,855 9,566
Purchase of investment securities (19,791) (52,893)
Proceeds from principal collections on and sales of investment securities 30,065 18,864
Interest received on CMBS in excess of income recognized 6,215 5,957
---------------- ---------------
Net cash used in investing activities (18,128) (24,382)
---------------- ---------------
Cash flows from financing activities:
Proceeds from stock option exercises 888 235
Purchase of treasury stock - (6,150)
Payment of dividends (419) (414)
Net payments under repurchase agreements and revolving credit lines (39,786) (160,371)
Mortgage notes and other debts payable:
Proceeds from borrowings 37,459 225,008
Principal payments (549) (20,253)
---------------- ---------------
Net cash (used in) provided by financing activities (2,407) 38,055
---------------- ---------------
Net increase in cash and cash equivalents 1,550 24,559
Cash and cash equivalents at beginning of period 6,578 1,986
---------------- ---------------
Cash and cash equivalents at end of period $ 8,128 26,545
================ ===============
(Continued)
5
LNR PROPERTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
Three Months Ended
February 28,
----------------------------------
(In thousands) 2002 2001
---------------- ---------------
Supplemental disclosures of non-cash investing and financing activities:
Purchases of mortgage loans financed by seller $ 12,375 -
Purchases of investment securities financed by seller $ - 28,508
Supplemental disclosure of non-cash transfers:
Transfer of other assets to investments in unconsolidated partnerships $ 3,611 -
Transfer of land held for investment to operating properties $ - 2,203
See accompanying notes to unaudited consolidated condensed financial statements.
6
LNR Property Corporation and Subsidiaries
Notes to Unaudited Consolidated Condensed Financial Statements
1. Basis of Presentation and Consolidation
The accompanying unaudited consolidated condensed financial statements include
the accounts of LNR and its wholly-owned subsidiaries (the "Company"). The
assets, liabilities and results of operations of entities (both corporations and
partnerships) in which the Company has a controlling interest have been
consolidated. The ownership interests of noncontrolling owners in such entities
are reflected as minority interests. The Company's investments in partnerships
(and similar entities) in which less than a controlling interest is held or in
which control is shared are accounted for by the equity method (when significant
influence can be exerted by the Company), or the cost method. All significant
intercompany transactions and balances have been eliminated. The financial
statements have been prepared by management without audit by independent public
accountants and should be read in conjunction with the November 30, 2001 audited
financial statements in the Company's Annual Report on Form 10-K for the year
then ended. However, in the opinion of management, all adjustments (consisting
of normal recurring adjustments) necessary for fair presentation of the
accompanying unaudited consolidated condensed financial statements have been
made.
2. Earnings Per Share
The following reconciles the numerator and denominator of the basic and
diluted earnings per share calculations for the three months ended February 28,
2002 and 2001:
Three Months Ended
February 28,
-----------------------------
(In thousands, except per share amounts) 2002 2001
------------- -----------
Numerator
Numerator for basic and diluted earnings
per share - net earnings $ 28,300 25,965
============= ===========
Denominator
Denominator for basic earnings per share -
weighted average shares 33,685 33,097
Effect of dilutive securities
Stock option grants and stock purchase plan 619 770
Restricted stock grants 782 875
------------- -----------
Denominator for diluted earnings per share -
adjusted weighted average shares and assumed
conversions 35,086 34,742
============= ===========
Basic earnings per share $ 0.84 0.78
============= ===========
Diluted earnings per share $ 0.81 0.75
============= ===========
7
3. Commitments and Contingencies
The Company is committed under various standby letters of credit or other
agreements to provide certain guarantees which are not otherwise reflected in
the financial statements. Outstanding standby letters of credit, guarantees,
performance bonds and other commercial commitments under these arrangements
totaled approximately $294.3 million at February 28, 2002. They include a letter
of credit of $55.3 million which is collateralized by short-term investment
securities included in restricted cash on the Company's consolidated condensed
balance sheet.
4. New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 requires that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually on a basis set forth in SFAS No. 142, and that
intangible assets with estimatable useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and
reviewed for impairment. SFAS No. 142 is effective for the fiscal year ending
November 2003 and the interim periods within fiscal year 2003. The adoption of
SFAS No. 142 is not expected to have a material effect on the Company's results
of operations or financial position as the Company has no goodwill on its
balance sheet.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," which addresses financial accounting and reporting for legal
obligations associated with the retirement of tangible long-lived assets that
result from the acquisition, construction, development and/or normal use of the
asset, and the associated asset retirement costs. SFAS No. 143 requires that the
fair value of a liability for an asset retirement obligation be recognized in
the period in which it is incurred if a reasonable estimate of fair value can be
made. Upon initial recognition of a liability for an asset retirement
obligation, the Company must capitalize an asset retirement cost by increasing
the carrying amount of the related long-lived asset by the same amount as the
liability. That asset retirement cost is then subsequently allocated to expense
using a systematic and rational method over its useful life. If the obligation
is settled for other than the carrying amount of the liability, the Company will
recognize a gain or loss on settlement. The Company is required and plans to
adopt the provisions of SFAS No. 143 for the quarter ending February 28, 2003.
The adoption of SFAS No. 143 is not expected to have a material effect on the
Company's results of operations or financial position.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This statement
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" and the accounting and reporting
provisions of Accounting Practices Bulletin Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of a Disposal of a Business and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for
the disposal of a segment of a business. This Statement also amends Accounting
Research Bulletin No. 51, "Consolidated Financial Statements," to eliminate the
exception to consolidation for a subsidiary for which control is likely to be
temporary. SFAS No. 144 is effective for the fiscal year ending November 30,
2003, and the interim periods within fiscal 2003, with early application
encouraged. The provisions of this statement generally are to be applied
prospectively. The Company is currently evaluating whether the adoption of SFAS
No. 144 will have a material effect on the Company's results of operations or
financial position.
8
In December 2001, the Accounting Standards Executive Committee issued Statement
of Position ("SOP") 01-6, "Accounting by Certain Entities (Including Entities
With Trade Receivables) That Lend to or Finance the Activities of Others." This
SOP clarifies that accounting and financial reporting practices for lending and
financing activities should be the same regardless of the type of entity
engaging in those activities. Changes in accounting and financial reporting
required by this SOP are to be applied prospectively and will be effective for
the fiscal year ending November 30, 2003, and the interim periods within fiscal
2003. The Company is currently evaluating whether the adoption of SOP 01-6 will
have a material effect on the Company's results of operations or financial
position.
5. Reclassifications
Certain reclassifications have been made to the prior year consolidated
condensed financial statements to conform to the current year presentation.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS CONTAINS INFORMATION WHICH CONSTITUTES FORWARD LOOKING STATEMENTS.
FORWARD LOOKING STATEMENTS INHERENTLY INVOLVE RISKS AND UNCERTAINTIES. THE
FACTORS, AMONG OTHERS, THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE ANTICIPATED BY THE FORWARD LOOKING STATEMENTS IN THIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS INCLUDE (I) CHANGES IN DEMAND FOR COMMERCIAL REAL ESTATE NATIONALLY,
IN AREAS IN WHICH THE COMPANY OWNS PROPERTIES, OR IN AREAS IN WHICH PROPERTIES
SECURING MORTGAGES DIRECTLY OR INDIRECTLY OWNED BY THE COMPANY ARE LOCATED, (II)
INTERNATIONAL, NATIONAL OR REGIONAL BUSINESS CONDITIONS WHICH AFFECT THE ABILITY
OF MORTGAGE OBLIGORS TO PAY PRINCIPAL OR INTEREST WHEN IT IS DUE, (III) THE
CYCLICAL NATURE OF THE COMMERCIAL REAL ESTATE BUSINESS, (IV) CHANGES IN INTEREST
RATES, (V) CHANGES IN THE MARKET FOR VARIOUS TYPES OF REAL ESTATE BASED
SECURITIES, (VI) CHANGES IN AVAILABILITY OF CAPITAL OR THE TERMS ON WHICH IT IS
AVAILABLE, (VII) CHANGES IN AVAILABILITY OF QUALIFIED PERSONNEL AND (VIII)
CHANGES IN GOVERNMENT REGULATIONS, INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL
REGULATIONS. SEE THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
NOVEMBER 30, 2001, FOR A FURTHER DISCUSSION OF RISKS AND UNCERTAINTIES
APPLICABLE TO THE COMPANY'S BUSINESS.
OVERVIEW
LNR Property Corporation (together with its subsidiaries, the "Company") is a
real estate investment, finance and management company. The Company engages
primarily in (i) acquiring, developing, managing and repositioning commercial
and multi-family residential real estate properties, (ii) investing in high
yielding real estate loans and purchasing at a discount portfolios of loans
backed by real estate and (iii) investing in unrated and non-investment grade
rated commercial mortgage-backed securities ("CMBS") as to which the Company has
the right to be special servicer (i.e., to oversee workouts of underperforming
and non-performing loans). For the following discussion, these businesses are
grouped as follows: (a) real estate properties, (b) real estate loans and (c)
real estate securities.
10
1. RESULTS OF OPERATIONS
The following discussion and analysis presents the significant changes in
results of operations of the Company for the three months ended February 28,
2002 and 2001 after allocating among the core business segments certain non-
corporate general and administrative expenses. The following discussion should
be read in conjunction with the unaudited consolidated condensed financial
statements and notes thereto.
Three Months Ended
February 28,
--------------- -- --------------
(In thousands) 2002 2001
--------------- --------------
Revenues
Real estate properties $ 37,072 44,627
Real estate loans 11,509 19,330
Real estate securities 53,733 47,335
--------------- --------------
Total revenues 102,314 111,292
--------------- --------------
Operating expenses
Real estate properties 25,240 29,944
Real estate loans 1,663 1,771
Real estate securities 4,539 3,573
Corporate and other 5,892 5,606
--------------- --------------
Total operating expenses 37,334 40,894
--------------- --------------
Operating earnings
Real estate properties 11,832 14,683
Real estate loans 9,846 17,559
Real estate securities 49,194 43,762
Corporate and other (5,892) (5,606)
--------------- --------------
Total operating earnings 64,980 70,398
Interest expense 23,054 30,149
Income tax expense 13,626 14,284
--------------- --------------
Net earnings $ 28,300 25,965
=============== ==============
Three months ended February 28, 2002 compared to three months ended February 28,
2001
Net earnings for the quarter ended February 28, 2002 were $28.3 million compared
to $26.0 million for the same period in 2001. The quarter-over-quarter
improvement in net earnings is primarily attributable to (i) an increase in
interest income and servicing fees derived from the Company's growing CMBS
portfolio, (ii) a decrease in interest expense due primarily to lower interest
rates and (iii) a decrease in income tax expense due to a lower overall
effective tax rate. These increases were offset somewhat by (i) a decrease in
interest income and management fees from the Company's loan business, (ii) lower
earnings from the Company's investments in unconsolidated partnerships, and
(iii) a decrease in property net operating income (rental income less cost of
rental operations), primarily due to the timing of stabilized property sales
relative to new properties coming on line.
11
While the Company's business and bottom line profits continued to grow, total
revenues declined 8% as expected, during the first quarter compared to the same
quarter in the prior year. This decrease was primarily due to reduced interest
income on floating-rate assets, the timing of asset sales and a shift in the mix
of the Company's investments. Floating-rate assets are match funded with
floating-rate debt, and therefore lower interest rates had virtually no impact
on net earnings. Asset sales fluctuate from quarter to quarter and come from a
variety of sources including wholly-owned real estate and securities, real
estate assets owned in unconsolidated partnerships and syndication of tax
credits through the sale of affordable housing partnership interests. And
lastly, over the past two years, as the Company has sold stabilized operating
properties, it has applied the net proceeds primarily to acquiring loans and
securities, due to their higher net margins and better risk-adjusted returns.
Real estate properties
Three Months Ended
February 28,
------------------------------------
(In thousands) 2002 2001
---------------- ---------------
Rental income $ 25,153 30,465
Equity in earnings of unconsolidated partnerships 3,164 4,123
Interest income 71 462
Gains on sales of real estate 7,701 8,479
Management fees 983 1,098
---------------- ---------------
Total revenues 37,072 44,627
---------------- ---------------
Cost of rental operations 12,211 15,479
Other operating expenses /(1)/ 6,915 7,633
Depreciation 6,039 6,825
Minority interests 75 7
---------------- ---------------
Total operating expenses /(1)/ 25,240 29,944
---------------- ---------------
Operating earnings $ 11,832 14,683
================ ===============
Balance Sheet data:
Operating properties and equipment, net $ 757,151 842,847
Land held for investment 43,679 41,465
Investments in unconsolidated partnerships 232,837 238,352
Other assets 43,469 55,706
---------------- ---------------
Total segment assets $ 1,077,136 1,178,370
================ ===============
(1) Operating expenses do not include interest expense.
Real estate properties include rental apartment communities (market-rate and
affordable housing communities, substantially all of which qualify for Low-
Income Housing Tax Credits under Section 42 of the Internal Revenue Code),
office buildings, industrial/warehouse facilities, hotels, retail centers and
land that the Company acquires and develops, redevelops or repositions. These
properties may be wholly-owned or owned through partnerships that are either
consolidated or accounted for by the equity method, and therefore reflected on
the Company's balance sheet only as an investment in unconsolidated
partnerships. Real estate properties also include the Company's 50% interest in
Lennar Land Partners ("LLP"), an unconsolidated partnership accounted for under
the equity method which is engaged in the acquisition, development and sale of
land. Total revenues from real estate properties
12
include rental income from consolidated operating properties, equity in earnings
of unconsolidated partnerships that own and operate real estate properties,
gains on sales of properties or interests in those unconsolidated partnerships,
and fees earned from managing partnerships. Operating expenses include the
direct costs of operating the real estate properties, the related depreciation
and the overhead associated with managing the properties and some of the
partnerships.
Consistent with its focus and strategic plan, over the past two years, the
Company has been selling matured stabilized properties and concentrating on
completing the development, repositioning and lease-up of its existing
portfolio, limiting new property acquisitions. Additionally, an increasing share
of the Company's newer development and repositioning property investments have
been through partnerships, most of which are reflected as investments in
unconsolidated partnerships. This has resulted in an overall lower investment in
the property segment for the Company. The Company's existing consolidated
portfolio (including market-rate operating properties and affordable housing
communities) continues to mature and just since year-end, the portion that is
not yet stabilized has decreased from approximately 58% to approximately 49%.
Because more properties came on line, net operating income increased 23% in the
first quarter of 2002 over the fourth quarter of 2001. The majority of these
properties that are not yet stabilized are pre-leased, so the Company
anticipates that these properties will contribute to net operating income as
they come on line and tenants begin to pay rent.
Three months ended February 28, 2002 compared to three months ended February 28,
2001
Overall operating earnings from real estate properties were $11.8 million for
the quarter ended February 28, 2002 compared to $14.7 million for the same
period in 2001. This decrease was attributable to a reduced portfolio of
stabilized properties, which resulted in lower net operating income, lower gains
on sales of operating properties and lower equity in earnings of unconsolidated
partnerships. These decreases were partially offset by lower depreciation
expense.
Total rental income and cost of rental operations decreased to $25.2 million and
$12.2 million, respectively, for the three-month period ended February 28, 2002
compared to $30.5 million and $15.5 million, respectively, for the same period
in 2001. The timing of sales of stabilized properties relative to new stabilized
properties coming on line is the primary factor contributing to the decrease in
property net operating income (rental income less cost of rental operations).
The Company had 5.1 million square feet of rentable commercial space and 1,531
units of rentable apartments in its stabilized portfolio at February 28, 2002,
compared to 7.9 million square feet and 2,082 units at February 28, 2001.
Gains on sales of real estate were $7.7 million for the quarter ended February
28, 2002 compared to $8.5 million in the same period in 2001. Gains on sales of
real estate fluctuate from period to period based on the timing of asset sales.
Equity in earnings of unconsolidated partnerships decreased by $1.0 million for
the quarter ended February 28, 2002 compared to the same period in 2001. This
decrease is primarily due to the sale of single-assets by two unconsolidated
partnerships in 2001.
Depreciation expense decreased to $6.0 million for the quarter ended February
28, 2002 from $6.8 million for the same period in 2001. The fact that the
Company has not been replacing stabilized properties as quickly as they have
been sold has resulted in a lower investment in stabilized operating properties
and a corresponding lower depreciation expense.
13
The net book value of operating properties and equipment at February 28, 2002
and the annualized net operating income for the three-month period ended on that
date with regard to various types of property owned by the Company were as
follows:
Annualized Annualized
Net Operating NOI as a %
Net Book Occupancy Income of Net Book
(In thousands, except percentages) Value Rate (1) (NOI) (2) Value
--------------- ----------------------------------------------
Market-rate operating properties
Stabilized operating properties
Office $ 249,574 93% $ 30,663 12%
Retail 15,680 93% 2,230 14%
Industrial / warehouse 49,013 100% 6,609 13%
Ground leases 11,119 100% 2,153 19%
--------------- ------------- ---------------- ------------
Commercial 325,386 97% 41,655 13%
Hotel 15,520 56% 1,094 7%
--------------- ---------------- ------------
340,906 42,749 13%
--------------- ----------------
Under development or repositioning
Office 206,084 7,577
Retail 33,197 2,829
--------------- ----------------
Commercial 239,281 10,406
Multi-family 79,022 1,734
Hotel 29,366 753
--------------- ----------------
347,669 12,893
--------------- ----------------
Total market-rate operating properties 688,575 55,642
--------------- ----------------
Affordable housing communities
Stabilized 40,423 93% 4,611
Development 22,667 -
--------------- ----------------
Total affordable housing communities 63,090 4,611
--------------- ----------------
Furniture, fixtures and equipment 5,486 -
--------------- ----------------
$ 757,151 $ 60,253
Total =============== ================
(1) Occupancy rate at February 28, 2002.
(2) Annualized NOI for purposes of this schedule is rental income less cost of
rental operations before commissions and non-operating expenses during the
quarter, multiplied by four.
As of February 28, 2002, approximately 50% of the Company's market-rate
operating properties, based on net book value, had reached stabilized occupancy
levels and were yielding in total 13% on net book cost. The anticipated earnings
from the not yet stabilized market-rate operating properties are not expected to
be recognized until future periods.
Pre-tax operating margins for the affordable housing communities are generally
lower than for market-rate rentals. However, the Company receives its desired
yield from these investments after adding in (i) the impact of lower income
taxes as a result of the tax credits and other related tax deductions and (ii)
profits from sales of tax credits to others.
14
The net investment in the Company's affordable housing communities at February
28, 2002 was as follows:
(In thousands)
Operating properties $ 63,090
Investments in unconsolidated partnerships 78,533
Debt and other (48,821)
---------------
Net investment in affordable housing communities $ 92,802
===============
As of February 28, 2002, the Company had been awarded and held rights to
approximately $140 million in gross tax credits, with approximately 64% relating
to apartment communities that have not yet reached stabilized occupancy levels.
At the time of the acquisition of the Affordable Housing Group ("AHG") in 1998,
the Company's strategy was to retain the tax credits generated through owning
the majority of the partnership interests in the affordable housing communities
and then using those credits to reduce the Company's overall effective tax rate.
However, the demand for credits has since increased significantly and the
Company found it could generate higher returns on its investment by selling the
credits than by using them. The Company has shifted its strategy away from
owning the majority of the partnership interests in the affordable housing
communities toward syndicating those interests. After such syndications, the
Company continues to hold small interests (typically ranging from 1% to 10%) in
these partnerships and continues to manage the communities, for which it earns
management fees. The Company expects to generate fee income and gains in future
years from such syndications. As a result, the Company expects its investment in
affordable housing communities, as well as the amount of tax credits it holds
and utilizes to reduce its tax rate, to decline during the remainder of 2002.
15
Real estate loans
Three Months Ended
February 28,
-----------------------------------
(In thousands) 2002 2001
--------------- ---------------
Interest income $ 9,706 15,531
Equity in earnings of unconsolidated partnerships 1,115 1,373
Management fees 707 2,419
Other, net (19) 7
--------------- ---------------
Total revenues 11,509 19,330
--------------- ---------------
Operating expenses (1) 1,222 1,131
Minority interests 441 640
--------------- ---------------
Total operating expenses (1) 1,663 1,771
--------------- ---------------
Operating earnings $ 9,846 17,559
=============== ===============
Balance sheet data:
Mortgage loans, net $ 339,453 240,399
Investments in unconsolidated partnerships 8,768 15,372
Other investments 55,332 52,413
Other assets 2,253 5,954
--------------- ---------------
Total segment assets $ 405,806 314,138
=============== ===============
(1) Operating expenses do not include interest expense.
Real estate loans include the Company's direct investments in high yielding
loans, as well as its discount loan portfolio investments, owned primarily
through unconsolidated partnerships, and related loan workout operations. Total
revenues include interest income, equity in earnings of unconsolidated
partnerships and management fees earned from those partnerships. Operating
expenses include the overhead associated with servicing the loans and managing
the partnerships.
Three months ended February 28, 2002 compared to three months ended February 28,
2001
Overall, operating earnings from real estate loans decreased to $9.8 million for
the quarter ended February 28, 2002 from $17.6 million for the same period in
2001. This decrease is primarily attributable to lower interest income and
management fees, in spite of a larger average real estate loan portfolio.
Interest income decreased to $9.7 million for the quarter ended February 28,
2002 from $15.5 million for the same period in 2001. This decrease was primarily
due to $4.2 million of interest income recognized in the first quarter of 2001
resulting from the payoff of two loan investments which had been acquired at a
discount, and the impact of lower interest rates on the Company's floating-rate
loans. The majority of the Company's interest income from its real estate loan
segment is earned on investments in structured junior participations in high-
quality short- to medium-term real estate loans ("B-notes"). Because these
floating-rate loans are match-funded with floating-rate debt, the reduction in
interest income due to declining interest rates has virtually no impact on net
earnings. During the quarter ended February 28, 2002, the Company funded one
additional B-note investment for $16.5 million, bringing the total B-note
principal balance to $260.4 million at February 28, 2002.
16
Management fees decreased to $0.7 million for the quarter ended February 28,
2002 from $2.4 million for the same period in 2001, primarily due to fees earned
in 2001 from the disposition of certain assets in one of the Company's domestic
discount loan portfolios.
Real estate securities
Three Months Ended
February 28,
------------------------------------
(In thousands) 2002 2001
---------------- ---------------
Interest income $ 35,284 30,191
Equity in earnings of unconsolidated partnerships 7,698 11,846
Gains on sales of investment securities 1,608 -
Management and servicing fees 9,032 5,659
Other, net 111 (361)
---------------- ----------------
Total revenues 53,733 47,335
---------------- ---------------
Operating expenses (1) 4,524 3,377
Minority interests 15 196
---------------- ---------------
Total operating expenses (1) 4,539 3,573
---------------- ---------------
Operating earnings $ 49,194 43,762
================ ===============
Balance sheet data:
Investment securities $ 1,186,045 790,853
Investments in unconsolidated partnerships 123,402 103,050
Other assets 27,504 37,851
---------------- ---------------
Total segment assets $ 1,336,951 931,754
================ ===============
(1) Operating expenses do not include interest expense.
Real estate securities include unrated and non-investment grade rated
subordinated CMBS which are collateralized by pools of mortgage loans on
commercial and multi-family residential real estate properties. It also includes
the Company's investment in Madison Square Company LLC ("Madison"), a limited
liability company that invests primarily in CMBS, as well as investments in
entities in related businesses. Total revenues from real estate securities
include interest income, equity in the earnings of Madison, gains on sales of
investment securities, servicing fees from acting as special servicer for CMBS
transactions and fees earned from managing Madison. Operating expenses include
the overhead associated with managing the investments and Madison, and costs of
the special servicing responsibilities.
Three months ended February 28, 2002 compared to three months ended February 28,
2001
Overall operating earnings from real estate securities increased to $49.2
million for the quarter ended February 28, 2002 from $43.8 million for the same
period in 2001. Earnings were higher primarily due to (i) increased interest
income and fees associated with the growth of the Company's CMBS portfolio, (ii)
greater recognition of earnings due to actual CMBS performance continuing to
exceed original expectations, and (iii) an increase in gains on sales of
investment securities. These increases were offset by (i) a decrease in earnings
from the Company's investment in Madison, and (ii) an increase in operating
expenses.
17
In recording CMBS interest income, the Company recognizes the amount by which
cash flows over the life of a security are expected to exceed the Company's
initial investment as interest income to achieve a level yield over the life of
the security. To date, this has resulted in less recognition of interest income
than the amount of interest actually received. The excess interest received is
applied to reduce the Company's CMBS investment. The Company's initial and
ongoing estimates of cash flows from CMBS investments are based on a number of
assumptions that are subject to business and economic conditions, the most
significant of which is the timing and magnitude of credit losses on the
underlying mortgages.
The Company is currently receiving principal payments from 11 of its CMBS
securities, and an additional 20 have reached economic maturity either through
the collection of principal, liquidation of the trust, or sale. Actual loss
experience to date, particularly for older transactions (3 to 8 years in age),
is significantly lower than originally underwritten by the Company. Therefore,
changes to original estimated yields have resulted, and the Company believes
they should continue to result, in improved earnings from these transactions.
The Company believes these improvements resulted primarily from its success in
managing and working out the underlying loans and stable real estate
fundamentals. However, the positive experience on these older transactions will
not necessarily translate into yield improvements on newer investments.
During the quarter ended February 28, 2002, the Company acquired $47.1 million
face amount of fixed-rate CMBS for $18.0 million. The following is a summary of
the CMBS portfolio held by the Company at February 28, 2002:
Weighted Weighted Weighted
Average Average Average
Face Interest Book % of Face Cash Book
Amount Rate Value Amount Yield (1) Yield (2)
------------------------------------------------------------------------------
(In thousands, except percentages)
Fixed-rate
BB rated or above $ 368,211 6.67% $ 262,390 71.3% 9.4% 11.9%
B rated 524,759 6.54% 277,068 52.8% 11.7% 13.8%
Unrated 885,362 6.97% 207,180 23.4% 27.7% 28.8%
------------------------- -------------------------------------------------
Total 1,778,332 6.78% 746,638 42.0% 15.4% 17.3%
Floating-rate/short-term
BB rated or above 12,789 3.02% 11,456 89.6% 3.4% 7.8%
B rated 22,154 7.78% 20,891 94.3% 8.3% 12.3%
Unrated 105,998 12.65% 86,182 81.3% 15.5% 17.0%
------------------------- -------------------------------------------------
Total 140,941 10.95% 118,529 84.1% 13.0% 15.3%
Total amortized
cost 1,919,273 7.08% 865,167 45.1% 15.0% 17.1%
------------ ------------
Excess of fair
value over
amortized cost - 320,878
------------ ------------
Total CMBS
portfolio (3) $ 1,919,273 $ 1,186,045
============ ============
(1) Cash yield is determined by annualizing the actual cash received during the
month of February 2002, and dividing the result by the book value at
February 28, 2002.
(2) Book yield is determined by annualizing the interest income for the month of
February 2002, and dividing the result by the book value at February 28,
2002.
(3) This table excludes CMBS owned through unconsolidated partnerships.
Equity in earnings of unconsolidated partnerships primarily represents the
Company's participation in Madison, which was formed in March 1999. The venture
owns approximately $1.5 billion of real estate related securities. The Company's
investment in the venture at February 28,
18
2002 was $117.0 million, representing a 25.8% ownership interest. In addition to
its investment in the venture, the Company maintains a significant ongoing role
in the venture, for which it earns fees, both as the special servicer for the
purchased CMBS transactions and as the provider of management services. Madison
contributed $8.0 million of equity in earnings of unconsolidated partnerships to
the real estate securities line of business for the quarter ended February 28,
2002 compared to $11.8 million for the same period in 2001. The decrease in
Madison's earnings was primarily due to the timing of principal collections
related to some of the underlying securities.
At least in part through the Company's efforts as special servicer, the
underlying collateral in the Company's CMBS pools continues to perform at much
higher levels than originally anticipated. In recognition of this improvement,
the rating agencies continue to upgrade many of the Company's bond positions,
which increases their value. As a result, in the first quarter of 2002, the
Company sold three CMBS securities, which were originally purchased at
discounts, at or above par for a gain of $1.6 million. Gains on sales of
securities can fluctuate from period to period depending on the timing of asset
sales.
Management and servicing fees increased to $9.0 million for the quarter ended
February 28, 2002 from $5.7 million for the same period in 2001. This increase
was primarily attributable to an increase in the number of CMBS mortgage pools
(88 CMBS pools at February 28, 2002 versus 72 CMBS pools at February 28, 2001)
for which the Company acts as special servicer.
Operating expenses increased to $4.5 million during the quarter ended February
28, 2002 compared to $3.4 million for the same period in 2001. This increase is
primarily due to increased personnel and out-of-pocket expenses directly related
to the growth of the Company's CMBS portfolio.
Corporate and Other, Interest and Income Tax Expenses
Three months ended February 28, 2002 compared to three months ended February 28,
2001
Corporate and other operating expenses increased to $5.9 million for the quarter
ended February 28, 2002 from $5.6 million for the same period in 2001, primarily
due to overall Company growth.
Interest expense decreased to $23.1 million for the quarter ended February 28,
2002 from $30.1 million for the same period in 2001. This decrease was primarily
due to a decline in interest rates. The weighted average interest rate on
outstanding debt was 6.4% at February 28, 2002, compared to 8.2% at February 28,
2001.
Income tax expense decreased to $13.6 million for the quarter ended February 28,
2002 from $14.3 million for the same period in 2001, primarily due to an
effective tax rate of 32.5% for the quarter ended February 28, 2002 compared to
35.5% for the same period in 2001. This decrease in the effective tax rate is
primarily due to lower state taxes related to the Company's CMBS investments.
2. LIQUIDITY AND FINANCIAL RESOURCES
Operating activities provided $22.1 million of cash for the quarter ended
February 28, 2002, compared to $10.9 million for the same period in 2001. The
increase in cash flows provided by operating activities was primarily due to a
lower increase in other assets and an increase in net earnings after adjusting
for the effects of non-cash items. These increases were offset somewhat by a
lower increase in accounts payable and accrued liabilities.
19
The Company used $18.1 million of cash for investing activities during the
quarter ended February 28, 2002, compared to $24.4 million for the same period
in 2001. The decrease in cash flow used for investing activities was primarily
due to a decrease in purchases of investment securities, more proceeds from
mortgage loans held for investment, a decrease in investments in unconsolidated
partnerships, more proceeds from principal collections on and sales of
investment securities, and additional proceeds from sales of land held for
investment. These decreases were offset somewhat by additional acquisitions of
operating properties and equipment and land held for investment, fewer
distributions from unconsolidated partnerships and greater purchases of mortgage
loans held for investment.
Financing activities used $2.4 million of cash during the quarter ended February
28, 2002 and provided $38.1 million for the same period in 2001. The increase in
cash used in financing activities was primarily due to less proceeds received
from borrowings under the Company's mortgage notes and other debts payable,
offset in part by fewer net payments under the Company's repurchase agreements
and revolving credit lines.
The Company continues to diversify its capital structure and to manage its debt
position with a combination of short-, medium- and long-term financings with a
goal of properly matching the maturities of its debt with the expected lives of
its assets.
At February 28, 2002, the Company had over $1.1 billion of available liquidity,
which included approximately $1.0 billion under credit facilities and cash, and
approximately $74.0 million of committed project level term financing.
The Company has a $350 million unsecured revolving credit facility, which
matures in July 2004 assuming a one-year extension option is exercised. At
February 28, 2002, $4.0 million was outstanding under this facility, although
the Company had issued and outstanding $36.5 million of standby letters of
credit utilizing the facility.
The Company has various secured revolving lines of credit with an aggregate
commitment of $355.0 million, of which $164.3 million was outstanding at
February 28, 2002. These lines are collateralized by CMBS and mortgage loans and
mature through January 2006.
The Company has financed some of its purchases of CMBS under reverse repurchase
obligation facilities ("repos"). The repo agreements contain provisions which
may require the Company to repay amounts or post additional collateral prior to
the scheduled maturity dates if the market value of the bonds which
collateralize them significantly decline. Therefore, if the market value of the
Company's CMBS falls significantly, the Company could be required to either use
cash flow the Company needs to operate and grow the business or to sell assets
at a time when it may not be most appropriate for the Company to do so, to
generate cash needed to repay amounts under repo obligations.
At February 28, 2002, the Company had three repo facilities through which it
financed selected CMBS. The first facility had a commitment of $48.4 million, of
which $48.4 million was outstanding at February 28, 2002 and is required to be
paid in full by June 2004. The second facility had a commitment of $50.0
million, with an outstanding balance of $0 at February 28, 2002, and matures in
June 2002. The third facility is non-recourse and had a total commitment of
$150.0 million, of which $101.5 million was outstanding at February 28, 2002,
and matures in March 2003. Subsequent to quarter-end, the Company refinanced
this facility, extending the maturity to March 2005, continuing its focus on
lengthening debt maturities.
Additionally, the Company has received seller financing in the form of term
repos for eight specific CMBS transactions. These agreements had an aggregate
commitment of $97.2 million with an outstanding balance of $97.2 million at
February 28, 2002 and expire through August 2004.
In January 2002, the Company entered into a $430 million financing structured as
a repo line with a leading financial institution to finance the acquisition of
securities and loans. This facility has
20
limited recourse to the Company and matures in January 2006 including a one-year
extension option.
Subsequent to the end of the quarter, the Company entered into an additional
$100 million facility, also structured as a multi-year repo line, with another
leading financial institution to finance the acquisition of CMBS. This facility
is non-recourse to the Company and matures in March 2007.
Because the Company borrows significant sums in connection with its activities,
the Company could be adversely affected by reluctance of lenders to make loans
to companies in real estate related businesses. Difficulty obtaining financing
can reduce the Company's ability to take advantage of investment opportunities.
At February 28, 2002, the Company had scheduled maturities on existing debt of
$145.6 million through February 28, 2003, assuming the Company takes advantage
of extensions which are exercisable at the Company's option. The Company's
ability to make scheduled payments of principal or interest on or to refinance
this indebtedness depends on its future performance, which to a certain extent,
is subject to general economic, financial, competitive and other factors beyond
the Company's control. The Company believes its borrowing availability under
existing credit facilities, its operating cash flow and unencumbered asset
values, and its ability to obtain new borrowings and/or raise new capital,
should provide the funds necessary to meet its working capital requirements,
debt service and maturities and short- and long-term needs based upon currently
anticipated levels of growth. However, limitations on access to financing
constrain the Company's ability to take advantage of opportunities that might
lead to more significant growth.
Approximately 63% of the Company's existing indebtedness bears interest at
floating rates. However, most of the Company's investments generate interest or
rental income at essentially fixed rates. The Company has entered into
derivative financial instruments to manage its interest costs and hedge against
risks associated with changing interest rates on its debt portfolio. At February
28, 2002, 27% of the Company's floating-rate debt had been swapped to fixed
rates and 55% was match-funded against floating-rate assets. After considering
the floating-rate debt that had been swapped or was match-funded, 12% of the
Company's debt remained floating-rate and 88% of the debt was fixed-rate or
match-funded. Therefore, a 100 basis point change in LIBOR would impact net
earnings by only $0.1 million, or less than $.01 per share.
The Company is committed, under various standby letters of credit or other
agreements, to provide certain guarantees which are not otherwise reflected in
the financial statements. Outstanding standby letters of credit, guarantees,
performance bonds and other commercial commitments under these arrangements at
February 28, 2002 are as follows:
Amount of Commitment Expiration Per Period
---------------------------------------------------------------------
(In millions)
Outstanding Less Than 1 - 3 4 - 5 Over 5
Commitments 1 Year Years Years Years
----------------------------------------------------------------------------------------------------
Standby letters of credit /(1)/ $ 101.4 72.5 27.8 1.1 -
Guarantees of debt (2) 36.5 11.0 8.4 16.6 0.5
Limited maintenance
guarantees 45.0 6.2 38.8 - -
Defined capital
contributions 29.8 23.9 5.9 - -
Performance bonds 37.3 19.9 2.5 - 14.9
Affordable housing
communities - other 44.3 8.1 25.2 11.0 -
---------------------------------------------------------------------
Total commercial
commitments $294.3 141.6 108.6 28.7 15.4
=====================================================================
(1) Includes a $55.3 million letter of credit which is collateralized by
short-term investment securities included in the Company's restricted cash
balance at February 28, 2002. See Note 3 to the unaudited consolidated
condensed financial statements in Item 1.
(2) See "Unconsolidated Investments" section for further discussion.
21
UNCONSOLIDATED INVESTMENTS
The Company frequently makes investments jointly with others, through
partnerships and joint ventures. This (i) allows LNR to further diversify its
investment portfolio, spreading risk over a wider range of investments, (ii)
provides access to transactions which are brought to the Company by other
participants, (iii) provides access to capital and (iv) involves investments
which are larger than the Company is willing to make on its own. In many
instances, the Company has a less than controlling interest in the partnership
or venture or control is shared, and therefore, accounts for its interest by the
equity method, rather than consolidating the assets and liabilities of the
partnership or venture on its balance sheet.
Typically, the Company either invests on a non-recourse basis, such as by
acquiring a limited partnership interest or an interest in a limited liability
company, or the Company acquires a general partner interest, but holds that
interest in a subsidiary which has few, if any, other assets. In those
instances, the Company's exposure to partnership liabilities is essentially
limited to the amounts the Company invests in the partnerships. However, in some
instances the Company is required to give limited guarantees of debt incurred or
other obligations undertaken by the partnerships or ventures. For certain
partnerships, typically those involving real estate property development, the
Company may commit to invest certain amounts in the future based on the
partnership's business plan.
At February 28, 2002, the Company had investments in unconsolidated partnerships
of $365.0 million. Summarized financial information on a combined 100% basis
related to the Company's investments in unconsolidated partnerships accounted
for by the equity method at February 28, 2002 follows:
(In millions, except percentages)
LNR Total Total
LNR Ownership Partnership Partnership
Investment Interest (1) Assets Liabilities
----------------- ----------------- ----------------- -----------------
Properties:
Single-asset
partnerships $ 49,334 33% - 94% $ 307,350 229,980 (2)
Partnerships with Lennar
LLP 69,423 50% 282,529 143,682 (3)
Other 31,957 50% 86,146 21,782
Affordable housing
communities 78,533 1% - 99% 614,361 429,655 (4)
Other 3,590 5% - 99% 13,817 9,061
----------------- ----------------- -----------------
232,837 1,304,203 834,160
Loans:
Domestic non-performing
loan pools 8,768 15% - 50% 49,243 21,772
Securities:
Madison 117,004 25.8% 1,469,174 1,011,975
Other 6,398 69.5% 48,846 39,462
----------------- ----------------- -----------------
123,402 1,518,020 1,051,437
----------------- ----------------- -----------------
Total $ 365,007 $2,871,466 1,907,369 (5)
================= ================= =================
(1) Although LNR may hold a majority financial interest in certain partnerships,
it does not consolidate those partnerships in which control is shared or in
which less than a controlling interest is held.
(2) Only $22.6 million is recourse to the Company.
(3) Only $2.3 million is recourse to the Company.
(4) Only $11.6 million is recourse to the Company.
(5) Debt is non recourse to the Company except for amounts noted in footnotes 2,
3 and 4.
3. ACCOUNTING POLICIES
There has been no material change in the accounting policies since November 30,
2001. See the Company's Annual Report on Form 10-K for the year ended November
30, 2001 for further discussion.
4. NEW ACCOUNTING PRONOUCEMENTS
Information about new accounting pronouncements appears in Note 4 to the
unaudited consolidated condensed financial statements in Item 1.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There has been no material change in the quantitative or qualitative market risk
since November 30, 2001. See the Company's Annual Report on Form 10-K for the
year ended November 30, 2001 for further discussion.
22
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not subject to any legal proceedings other than suits in the
ordinary course of its business, most of which are covered by insurance. The
Company believes these suits will not, in the aggregate, have a material adverse
effect upon the Company.
Items 2-5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10.14 Annex I to Master Repurchase Agreement
Supplemental Terms and Conditions dated as of
January 29, 2002 between Delaware Bonds Holdings,
Inc., as seller and Deutsche Bank AG, New York
Branch, as buyer.
(b) Reports on Form 8-K:
None
23
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:
Signature and Title Date
------------------- ----
/s/ Shelly Rubin April 15, 2002
------------------------------------
Shelly Rubin
Chief Financial Officer (Principal
Financial Officer)
24