United States SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 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 1-11986 TANGER FACTORY OUTLET CENTERS, INC. (Exact name of Registrant as specified in its charter) North Carolina 56-1815473 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3200 Northline Avenue Suite 360 Greensboro, NC 27408 (336) 292-3010 (Address of principal executive offices) Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of exchange on which registered Common Shares, $.01 par value New York Stock Exchange Series A Cumulative Convertible Redeemable New York Stock Exchange Preferred Shares, $.01 par value Securities registered pursuant to Section 12(g) of the Act: None 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ ] The aggregate market value of voting shares held by non-affiliates of the Registrant was approximately $210,639,411 based on the closing price on the New York Stock Exchange for such stock on March 15, 2002. The number of Common Shares of the Registrant outstanding as of March 1, 2002 was 7,930,111. Documents Incorporated By Reference Part III incorporates certain information by reference from the Registrant's definitive proxy statement to be filed with respect to the Annual Meeting of Shareholders to be held May 17, 2002. 1 PART I Item 1. Business The Company Tanger Factory Outlet Centers, Inc. (the "Company"), a fully-integrated, self-administered and self-managed real estate investment trust ("REIT"), focuses exclusively on developing, acquiring, owning and operating factory outlet centers. Since entering the factory outlet center business 21 years ago, we have become one of the largest owners and operators of factory outlet centers in the United States. As of December 31, 2001, we owned and operated 29 centers with a total gross leasable area ("GLA") of approximately 5.3 million square feet. These centers were approximately 96% occupied, contained approximately 1,150 stores and represented over 250 store brands as of such date. Our factory outlet centers and other assets are held by, and all of our operations are conducted by, Tanger Properties Limited Partnership (the "Operating Partnership"). Accordingly, the descriptions of our business, employees and properties are also descriptions of the business, employees and properties of the Operating Partnership. The terms "we", "our" and "us" refer to the Company or the Company and the Operating Partnership together, as the text requires. We own the majority of the units of partnership interest issued by the Operating Partnership (the "Units") through our two wholly-owned subsidiaries, the Tanger GP Trust and the Tanger LP Trust. The Tanger GP Trust controls the Operating Partnership as its sole general partner. The Tanger LP Trust holds a limited partnership interest. The Tanger family, through its ownership of the Tanger Family Limited Partnership ("TFLP"), holds the remaining Units as a limited partner. Stanley K. Tanger, the Company's Chairman of the Board and Chief Executive Officer, is the sole general partner of TFLP. As of December 31, 2001, our wholly-owned subsidiaries owned 7,929,711 Units, and 80,600 Preferred Units (which are convertible into approximately 726,203 limited partnership Units) and TFLP owned 3,033,305 Units. TFLP's Units are exchangeable, subject to certain limitations to preserve our status as a REIT, on a one-for-one basis for our common shares. See "Business-The Operating Partnership". Preferred Units are automatically converted into limited partnership Units to the extent of any conversion of our preferred shares into our common shares. Our management beneficially owns approximately 27% of all outstanding common shares (assuming the Series A Preferred Shares and the limited partner's Units are exchanged for common shares but without giving effect to the exercise of any outstanding stock and partnership Unit options). Ownership of our common and preferred shares is restricted to preserve our status as a REIT for federal income tax purposes. Subject to certain exceptions, a person may not actually or constructively own more than 4% of our common shares (including common shares which may be issued as a result of conversion of Series A Preferred Shares) or more than 29,400 Series A Preferred Shares (or a lesser number in certain cases). We also operate in a manner intended to enable us to preserve our status as a REIT, including, among other things, making distributions with respect to our outstanding common and preferred shares equal to at least 90% of our taxable income each year. We are a North Carolina corporation that was formed in March 1993. The executive offices are currently located at 3200 Northline Avenue, Suite 360, Greensboro, North Carolina, 27408 and the telephone number is (336) 292-3010. Recent Developments At December 31, 2001, we owned 29 centers in 20 states totaling 5,332,000 square feet of operating GLA compared to 29 centers in 20 states totaling 5,179,000 square feet of operating GLA as of December 31, 2000. The increase is primarily due to the completion of the expansion at our San Marcos, TX center during 2001. The center now contains over 441,000 square feet of gross leasable space. In September 2001, we established a 50% ownership joint venture, TWMB Associates, LLC ("TWMB"), with respect to our Myrtle Beach, South Carolina project with Rosen-Warren Myrtle Beach LLC ("Rosen-Warren") and began construction on the first phase of a new 400,000 square foot Tanger Outlet Center in Myrtle Beach, SC. The first phase will consist of approximately 260,000 square feet and include over 50 brand name outlet tenants. Stores are tentatively expected to begin opening in July of 2002. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Joint Ventures and Other Developments" for a discussion of the formation and purpose of TWMB. 2 We have an option to purchase the retail portion of a site at the Bourne Bridge Rotary in Cape Cod, Massachusetts. Obtaining appropriate approvals for the Bourne project from the local authorities continues to be a challenge and consequently, we are reviewing the viability of maintaining an option on the property. Any developments or expansions that we, or a joint venture that we are involved in, have planned or anticipated, may not be started or completed as scheduled, or may not result in accretive funds from operations. In addition, we regularly evaluate acquisition or disposition proposals and engage from time to time in negotiations for acquisitions or dispositions of properties. We may also enter into letters of intent for the purchase or sale of properties. Any prospective acquisition or disposition that is being evaluated or which is subject to a letter of intent may not be consummated, or if consummated, may not result in accretive funds from operations. During 2001, we continued to maintain strong relationships with multiple sources of capital. We completed the following debt transactions during the year: o In February 2001, the Operating Partnership issued $100 million of 9.125% senior, unsecured notes, maturing on February 15, 2008. The net proceeds of $97 million were used to repay all of the outstanding indebtedness under the $75 million 8.75% notes which were due March 11, 2001. The net proceeds were also used to repay the $20 million LIBOR plus 2.25% term loan due January 2002 with Fleet National Bank and Bank of America. The remaining proceeds were used for general operating purposes. o In March 2001, we entered into a five year collateralized loan with Wells Fargo Bank for $24 million at a variable rate of LIBOR plus 1.75%. The proceeds were used to reduce amounts outstanding under existing lines of credit. Additionally, on March 26, 2001, we extended the maturity date of our existing $29.5 million term loan with Wells Fargo Bank from July 2005 to March 2006. o In May 2001, we entered into an eight year collateralized loan with John Hancock Life Insurance Company for $19.45 million at a fixed rate of 7.98%. The proceeds were used to reduce amounts outstanding under existing lines of credit. o We extended the maturities of our three unsecured lines of credit totaling $75 million with Bank of America, Fleet National Bank and SouthTrust Bank until June 30, 2003. During the fourth quarter of 2001, we purchased at par approximately $14.5 million of our outstanding 7.875% senior, unsecured public notes that mature in October 2004. The purchases were funded by amounts available under our unsecured lines of credit which do not mature until June 2003 as mentioned above. Additionally during the first quarter of 2002, we have purchased at par or below, an additional $4.9 million of the October 2004 notes bringing the total purchased to $19.4 million. The Factory Outlet Concept Factory outlets are manufacturer-operated retail stores that sell primarily first quality, branded products at significant discounts from regular retail prices charged by department stores and specialty stores. Factory outlet centers offer numerous advantages to both consumers and manufacturers. Manufacturers selling in factory outlet stores are often able to charge customers lower prices for brand name and designer products by eliminating the third party retailer. Factory outlet centers also typically have lower operating costs than other retailing formats. Factory outlet centers enable manufacturers to optimize the size of production runs while continuing to maintain control of their distribution channels. In addition, factory outlet centers benefit manufacturers by permitting them to sell out-of-season, overstocked or discontinued merchandise without alienating department stores or hampering the manufacturer's brand name, as is often the case when merchandise is distributed via discount chains. Our factory outlet centers range in size from 11,000 to 729,238 square feet of GLA and are typically located at least 10 miles from densely populated areas, where major department stores and manufacturer-owned full-price retail stores are usually located. Manufacturers prefer these locations so that they do not compete directly with their major customers and their own stores. Many of our factory outlet centers are located near tourist destinations to attract tourists who consider shopping to be a recreational activity. These centers are typically situated in close proximity to interstate highways that provide accessibility and visibility to potential customers. 3 We believe that factory outlet centers continue to present attractive opportunities for capital investment, particularly with respect to strategic re-merchandising plans and expansions of existing centers. We believe that under present conditions such development or expansion costs, coupled with current market lease rates, permit attractive investment returns. We further believe, based upon our contacts with present and prospective tenants, that many companies, including prospective new entrants into the factory outlet business, desire to open a number of new factory outlet stores in the next several years, particularly where there are successful factory outlet centers in which such companies do not have a significant presence or where there are few factory outlet centers. Our Factory Outlet Centers Each of our factory outlet centers carries the Tanger brand name. We believe that both national manufacturers and consumers recognize the Tanger brand as one that provides outlet shopping centers where consumers can trust the brand, quality and price of the merchandise they purchase directly from the manufacturers. As one of the original participants in this industry, we have developed long-standing relationships with many national and regional manufacturers. Because of our established relationships with many manufacturers, we believe we are well positioned to capitalize on industry growth. As of March 1, 2002, we had a diverse tenant base comprised of over 250 different well-known, upscale, national designer or brand name concepts, such as Dana Buchman, Liz Claiborne, Reebok, Nike, Tommy Hilfiger, Brooks Brothers, Nautica, Coach, Polo Ralph Lauren, GAP, Old Navy and Banana Republic. Most of the factory outlet stores are directly operated by the respective manufacturer. No single tenant (including affiliates) accounted for 10% or more of combined base and percentage rental revenues during 2001, 2000 and 1999. As of March 1, 2002, our largest tenant, including all of its store concepts, accounted for approximately 6.3% of our GLA. Because our typical tenant is a large, national manufacturer, we have not experienced any material problems with respect to rent collections or lease defaults. Revenues from fixed rents and operating expense reimbursements accounted for approximately 91% of our total revenues in 2001. Revenues from contingent sources, such as percentage rents, vending income and miscellaneous income, accounted for approximately 7% of 2001 revenues. As a result, only small portions of our revenues are dependent on contingent revenue sources. Business History Stanley K. Tanger, the Company's founder, Chairman and Chief Executive Officer, entered the factory outlet center business in 1981. Prior to founding the Company, Stanley K. Tanger and his son, Steven B. Tanger, the Company's President and Chief Operating Officer, built and managed a successful family owned apparel manufacturing business, Tanger/Creighton Inc. ("Tanger/Creighton"), which business included the operation of five factory outlet stores. Based on their knowledge of the apparel and retail industries, as well as their experience operating Tanger/Creighton's factory outlet stores, the Tangers recognized that there would be a demand for factory outlet centers where a number of manufacturers could operate in a single location and attract a large number of shoppers. From 1981 to 1986, Stanley K. Tanger solely developed the first successful factory outlet centers. Steven Tanger joined the company in 1986 and by June 1993, together, the Tangers had developed 17 centers with a total GLA of approximately 1.5 million square feet. In June of 1993, we completed our initial public offering ("IPO"), making Tanger Factory Outlet Centers, Inc. the first publicly traded outlet center company. Since our IPO, we have developed nine and acquired seven centers and, together with expansions of existing centers net of centers disposed of, added approximately 3.8 million square feet of GLA to our portfolio, bringing our portfolio of properties as of December 31, 2001 to 29 centers totaling approximately 5.3 million square feet of GLA. Business and Operating Strategy Our strategy is to increase revenues through new development, selective acquisitions and expansions of factory outlet centers while minimizing our operating expenses by designing low maintenance properties and achieving economies of scale. We continue to focus on strengthening our tenant base in our centers by replacing low volume tenants with high volume anchor tenants. 4 Effective August 7, 2000, we formed a joint venture with C. Randy Warren Jr., former Senior Vice President of Leasing of the Company. The new entity, Tanger-Warren Development, LLC ("Tanger-Warren"), was formed to identify, acquire and develop sites exclusively for us. We agreed to be co-managers of Tanger-Warren, each with 50% ownership interest in the joint venture and any entities formed with respect to a specific project. We typically seek opportunities to develop or acquire new centers in locations that have at least 5 million people residing within an hour's drive, an average household income within a 50-mile radius of at least $35,000 per year and access to frontage on a major or interstate highway with a traffic count of at least 50,000 cars per day. We will vary our minimum conditions based on the particular characteristics of a site, especially if the site is located near or at a tourist destination. Our current goal is to target sites that are large enough to support centers with approximately 75 stores totaling at least 300,000 square feet of GLA. We generally prelease at least 50% of the space in each center prior to acquiring the site and beginning construction. Construction of a new factory outlet center has normally taken us four to six months from groundbreaking to the opening of the first tenant store. Construction of expansions to existing properties typically takes less time, usually between three to four months. Capital Strategy We intend to achieve a strong and flexible financial position by: (1) maintaining a quality portfolio of strong income producing properties, (2) managing our leverage position relative to our portfolio when pursuing new development and expansion opportunities, (3) extending and sequencing debt maturities, (4) managing our interest rate risk, (5) maintaining our liquidity and (6) utilizing internally generated sources of capital by maintaining a low distribution payout ratio, defined as annual distributions as a percent of funds from operations, and subsequently reinvesting a significant portion of our cash flow into our portfolio. For a discussion of funds from operations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Funds From Operations". We have successfully increased our dividend each of our first eight years as a public company. At the same time, we continue to have a low payout ratio, which for the year ended December 31, 2001, was 75%. As a result, we retained approximately $9.3 million of our 2001 FFO. A low distribution payout ratio allows us to retain capital to maintain the quality of our portfolio, as well as to develop, acquire and expand properties and reduce outstanding debt. We intend to retain the ability to raise additional capital, including public debt or equity, to pursue attractive investment opportunities that may arise and to otherwise act in a manner that we believe to be in our best interest and our shareholders' interests. During the second quarter of 2001, we amended our shelf registration for the ability to issue up to $200 million in debt and $200 million in equity securities. We may also consider selling certain properties that do not meet our long-term investment criteria as well as outparcels on existing properties to generate capital to reinvest into other attractive investment opportunities. We maintain unsecured, revolving lines of credit that provide for unsecured borrowings up to $75 million. At December 31, 2001, amounts outstanding under these credit facilities totaled $20.95 million During 2001, we extended the maturity of each of our three $25 million lines to June 30, 2003. Based on cash provided by operations, existing credit facilities, ongoing negotiations with certain financial institutions and our ability to sell debt or equity subject to market conditions, we believe that we have access to the necessary financing to fund the planned capital expenditures during 2002. The Operating Partnership Our centers and other assets are held by, and all of our operations are conducted by, the Operating Partnership. As of December 31, 2001, our wholly-owned subsidiaries owned 7,929,711 Units, and 80,600 Preferred Units (which are convertible into approximately 726,203 limited partnership Units) and TFLP owned 3,033,305 Units. TFLP's Units are exchangeable, subject to certain limitations to preserve our status as a REIT, on a one-for-one basis for our common shares. 5 Each preferred partnership Unit entitles us to receive distributions from the Operating Partnership, in an amount equal to the distribution payable with respect to a share of Series A Preferred Shares, prior to the payment by the Operating Partnership of distributions with respect to the general partnership Units. Preferred partnership Units will be automatically converted by holders into limited partnership Units to the extent that the Series A Preferred Shares are converted into Common Shares and will be redeemed by the Operating Partnership to the extent that the Series A Preferred Shares are redeemed by us. Competition We carefully consider the degree of existing and planned competition in a proposed area before deciding to develop, acquire or expand a new center. Our centers compete for customers primarily with factory outlet centers built and operated by different developers, traditional shopping malls and full- and off-price retailers. However, we believe that the majority of our customers visit factory outlet centers because they are intent on buying name-brand products at discounted prices. Traditional full- and off-price retailers are often unable to provide such a variety of name-brand products at attractive prices. Tenants of factory outlet centers typically avoid direct competition with major retailers and their own specialty stores, and, therefore, generally insist that the outlet centers be located not less than 10 miles from the nearest major department store or the tenants' own specialty stores. For this reason, our centers compete only to a very limited extent with traditional malls in or near metropolitan areas. We compete favorably with two large national developers of factory outlet centers and numerous small developers. Competition with other factory outlet centers for new tenants is generally based on cost, location, quality and mix of the centers' existing tenants, and the degree and quality of the support and marketing services provided. As a result of these factors and due to the strong tenant relationships that presently exist with the current major outlet developers, we believe there are significant barriers to entry into the outlet center industry by new developers. We also believe that our centers have an attractive tenant mix, as a result of our decision to lease substantially all of our space to manufacturer operated stores rather than to off-price retailers, and also as a result of the strong brand identity of our major tenants. Corporate and Regional Headquarters We rent space in an office building in Greensboro, North Carolina in which our corporate headquarters are located. In addition, we rent a regional office in New York City, New York under a lease agreement and sublease agreement, respectively, to better service our principal fashion-related tenants, many of who are based in and around that area. We maintain offices and employ on-site managers at 21 centers. The managers closely monitor the operation, marketing and local relationships at each of their centers. Insurance We believe that as a whole our properties are covered by adequate comprehensive liability, fire, flood and extended loss insurance provided by reputable companies with commercially reasonable and customary deductibles and limits. Specified types and amounts of insurance are required to be carried by each tenant under the lease agreement with us. There are however, types of losses, like those resulting from wars or earthquakes, which may either be uninsurable or not economically insurable in some or all of our locations. An uninsured loss could result in a loss to us of both our capital investment and anticipated profits from the affected property. Employees As of March 1, 2002, we had 130 full-time employees, located at our corporate headquarters in North Carolina, our regional office in New York and our 21 business offices. At that date, we also employed 146 part-time employees at various locations. Item 2. Properties As of March 1, 2002, our portfolio consisted of 29 centers located in 20 states. Our centers range in size from 11,000 to 729,238 square feet of GLA. These centers are typically strip shopping centers that enable customers to view all of the shops from the parking lot, minimizing the time needed to shop. The centers are generally located near tourist destinations or along major interstate highways to provide visibility and accessibility to potential customers. 6 We believe that the centers are well diversified geographically and by tenant and that we are not dependent upon any single property or tenant. The only center that represents more than 10% of our consolidated total assets or consolidated gross revenues as of and for the year ended December 31, 2001 is the property in Riverhead, NY. See "Business and Properties - Significant Property". No other center represented more than 10% of our consolidated total assets or consolidated gross revenues as of December 31, 2001. We have an ongoing strategy of acquiring centers, developing new centers and expanding existing centers. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" for a discussion of the cost of such programs and the sources of financing thereof. Certain of our centers serve as collateral for mortgage notes payable. Of the 29 centers, we own the land underlying 26 and have ground leases on three. The land on which the Pigeon Forge and Sevierville centers are located are subject to long-term ground leases expiring in 2086 and 2046, respectively. The land parcel on which the original Riverhead Center is located, approximately 47 acres, is also subject to a ground lease with an initial term expiring in 2004, with renewal at our option for up to seven additional terms of five years each. The land parcel on which the Riverhead Center expansion is located, containing approximately 43 acres, is owned by us. The term of our typical tenant lease averages approximately five years. Generally, leases provide for the payment of fixed monthly rent in advance. There are often contractual base rent increases during the initial term of the lease. In addition, the rental payments are customarily subject to upward adjustments based upon tenant sales volume. Most leases provide for payment by the tenant of real estate taxes, insurance, common area maintenance, advertising and promotion expenses incurred by the applicable center. As a result, substantially all operating expenses for the centers are borne by the tenants.
Location of Centers (as of March 1, 2002) Number of GLA % State Centers (sq. ft.) of GLA - ------------------------------ ------------- -------------- --------------- Georgia 4 950,590 18 New York 1 729,238 14 Texas 2 618,867 12 Tennessee 2 448,691 8 Florida 2 363,789 7 Missouri 1 277,494 5 Iowa 1 277,230 5 Pennsylvania 1 255,059 5 Louisiana 1 245,098 5 North Carolina 2 187,702 4 Arizona 1 184,768 3 Indiana 1 141,051 3 Minnesota 1 134,480 2 Michigan 1 112,420 2 California 1 105,950 2 Maine 2 84,397 2 Alabama 1 80,730 1 New Hampshire 2 61,915 1 West Virginia 1 49,252 1 Massachusetts 1 23,417 --- - ------------------------------ ------------- -------------- --------------- Total 29 5,332,138 100 ============================== ============= ============== ===============
7 The table set forth below summarizes certain information with respect to our existing centers as of March 1, 2002.
Mortgage Debt GLA % Outstanding Fee or Date Opened Location (sq. ft.) Occupied (000's) (2) Ground Lease - ------------------- ------------------------------------------ ----------- ---- ----------- --------------- --------------------- Jun. 1986 Kittery I, ME 59,694 100 $ 6,445 Fee Mar. 1987 Clover, North Conway, NH 11,000 100 --- Fee Nov. 1987 Martinsburg, WV 49,252 73 --- Fee Apr. 1988 LL Bean, North Conway, NH 50,915 100 --- Fee Jul. 1988 Pigeon Forge, TN 94,750 96 --- Ground Lease Aug. 1988 Boaz, AL 80,730 93 --- Fee Jun. 1988 Kittery II, ME 24,703 94 --- Fee Jul. 1989 Commerce, GA 185,750 78 8,723 Fee Oct. 1989 Bourne, MA 23,417 100 --- Fee Feb. 1991 West Branch, MI 112,420 100 7,190 Fee May 1991 Williamsburg, IA 277,230 95 19,767 Fee Feb. 1992 Casa Grande, AZ 184,768 90 --- Fee Dec. 1992 North Branch, MN 134,480 98 --- Fee Feb. 1993 Gonzales, LA 245,098 97 --- Fee May 1993 San Marcos, TX 441,432 97 38,542 Fee Aug. 1994 Riverhead, NY 729,238 98 --- Ground Lease (1) Aug. 1994 Terrell, TX 177,435 96 --- Fee Sep. 1994 Seymour, IN 141,051 73 --- Fee Oct. 1994 (3) Lancaster, PA 255,059 94 14,822 Fee Nov. 1994 Branson, MO 277,494 93 24,000 Fee Nov. 1994 Locust Grove, GA 248,854 97 --- Fee Jan. 1995 Barstow, CA 105,950 62 --- Fee Dec. 1995 Commerce II, GA 342,556 95 29,500 Fee Feb. 1997 (3) Sevierville, TN 353,941 100 --- Ground Lease Sept. 1997 (3) Blowing Rock, NC 105,448 100 9,782 Fee Sep. 1997 (3) Nags Head, NC 82,254 100 6,638 Fee Mar. 1998 (3) Dalton, GA 173,430 94 11,327 Fee Jul. 1998 (3) Fort Meyers, FL 198,789 97 --- Fee Nov. 1999 (3) Fort Lauderdale, FL 165,000 100 --- Fee - ------------------- ----------------------------------------- ------------ ---- -------- --------------- ------------------------ Total 5,332,138 95 $ 176,736 =================== ========================================= ============ ==== ======== =============== ======================== (1) The original Riverhead center is subject to a ground lease which may be renewed at our option for up to seven additional terms of five years each. We own the land on which the Riverhead center expansion is located. (2) As of December 31, 2001. The average interest rate, including loan cost amortization, for average debt outstanding for the year ended December 31, 2001 was 8.8% and the weighted average maturity date was March 2007. (3) Represents date acquired by us.
8 Lease Expirations The following table sets forth, as of December 31, 2001, scheduled lease expirations, assuming none of the tenants exercise renewal options. Most leases are renewable for five year terms at the tenant's option.
%of Gross Annualized Average Base Rent No. of Approx. Annualized Annualized Represented Leases GLA Base Rent Base Rent by Expiring Year Expiring(1) (sq. ft.) (1) per sq. ft. (000's) (2) Leases - ------------------------ ----------------- ----------------- ------------- --------------- -------------- 2002 207 757,000 (3) $ 12.99 $9,828 14 2003 200 848,000 14.27 12,103 17 2004 232 977,000 14.09 13,763 20 2005 164 736,000 15.26 11,243 16 2006 162 682,000 16.22 11,067 16 2007 75 326,000 14.85 4,837 7 2008 13 76,000 15.91 1,212 2 2009 9 86,000 10.68 917 1 2010 10 59,000 13.28 780 1 2011 10 83,000 11.79 984 1 2012 & thereafter 24 347,000 9.45 3,281 5 - ------------------------ ----------- ----------------------- ---------- -------------- ------------------ Total 1,106 4,977,000 $ 14.07 $ 70,015 100 ======================== =========== ======================= ========== ============== ================== (1) Excludes leases that have been entered into but which tenant has not yet taken possession, vacant suites, space under construction and month-to-month leases totaling in the aggregate approximately 355,000 square feet. (2) Base rent is defined as the minimum payments due, excluding periodic contractual fixed increases and rents calculated based on a percentage of tenants' sales. (3) As of December 31, 2001, approximately 170,000 square feet of the total scheduled to expire in 2002 had already renewed.
Rental and Occupancy Rates The following table sets forth information regarding the expiring leases during each of the last five calendar years.
Renewed by Existing Re-leased to Total Expiring Tenants New Tenants ----------------------------------- ---------------------------- ---------------------------- % of % of % of GLA Total Center GLA Expiring GLA Expiring Year (sq. ft.) GLA (sq. ft.) GLA (sq. ft.) GLA - ---------------- --------------- ---------------- ------------- ----------- ------------ ------------ 2001 684,166 13 560,195 82 55,362 8 2000 690,263 13 520,030 75 67,916 10 1999 715,197 14 606,450 85 22,882 3 1998 548,504 11 407,837 74 38,526 7 1997 238,250 5 195,380 82 18,600 8
9 The following table sets forth the average base rental rate increases per square foot upon re-leasing stores that were turned over or renewed during each of the last five calendar years.
Renewals of Existing Leases Stores Re-leased to New Tenants (1) ---------------------------------------------------- ------------------------------------------------------ Average Annualized Base Rents Average Annualized Base Rents ($ per sq. ft.) ($ per sq. ft.) -------------------------------------- ---------------------------------------- GLA % GLA % Year (sq. ft.) Expiring New Increase (sq.ft.) Expiring New Change - --------- ---------- ----------- --------- ---------- ---------- ----------- --------- ---------- 2001 560,195 $14.08 $14.89 6 268,888 $14.90 $16.43 10 2000 520,030 13.66 14.18 4 302,724 14.68 15.64 7 1999 606,450 14.36 14.36 -- 240,851 15.51 16.57 7 1998 407,387 13.83 14.07 2 220,890 15.33 13.87 (9) 1997 195,380 14.21 14.41 1 171,421 14.59 13.42 (8) _____________________ (1) The square footage released to new tenants for 2001, 2000, 1999, 1998 and 1997 contains 55,362, 67,916, 22,882, 38,526 and 18,600 square feet, respectively, that was released to new tenants upon expiration of an existing lease during the current year.
The following table shows certain information on rents and occupancy rates for the centers during each of the last five calendar years.
Average GLA Open at Aggregate % Annualized Base End of Each Number of Percentage Year Leased(1) Rent per sq. ft. (2) Year Centers Rents (000's) - ------------ ----------- ------------------------ ------------------ ----------------- ---------------- 2001 96 $14.22 5,332,000 29 $2,735 2000 96 13.97 5,179,000 29 3,253 1999 97 13.85 5,149,000 31 3,141 1998 97 13.88 5,011,000 31 3,087 1997 98 14.04 4,458,000 30 2,637 _____________________ (1) As of December 31st of each year shown. (2) Represents total base rental revenue divided by Weighted Average GLA of the portfolio, which amount does not take into consideration fluctuations in occupancy throughout the year.
Occupancy Costs We believe that our ratio of average tenant occupancy cost (which includes base rent, common area maintenance, real estate taxes, insurance, advertising and promotions) to average sales per square foot is low relative to other forms of retail distribution. The following table sets forth, for each of the last five years, tenant occupancy costs per square foot as a percentage of reported tenant sales per square foot.
Occupancy Costs as a Year % of Tenant Sales ------------------------------ -------------------------- 2001 7.1 2000 7.4 1999 7.8 1998 7.9 1997 8.2
10 Tenants The following table sets forth certain information with respect to our ten largest tenants and their store concepts as of March 1, 2002.
Number GLA % of Total Tenant of Stores (sq. ft.) GLA - ------------------------------------------ ------------- ------------- -------------- The Gap, Inc.: GAP 17 148,702 2.8 Old Navy 11 147,641 2.8 Banana Republic 6 41,324 0.8 -------- ---------------- ---------------- 34 337,667 6.3 Liz Claiborne: Liz Claiborne 23 255,868 4.8 Elizabeth 8 28,894 0.5 DKNY Jeans 3 8,820 0.2 Dana Buchman 3 6,600 0.1 Laundry 2 4,333 0.1 Special Brands By Liz Claiborne 1 3,780 0.1 Claiborne Mens 1 3,100 0.1 -------- ---------------- ---------------- 41 311,395 5.9 Phillips-Van Heusen Corporation: Bass Shoe 20 134,166 2.5 Van Heusen 20 85,197 1.6 Geoffrey Beene Co. Store 11 41,992 0.8 Izod 14 32,017 0.6 -------- ---------------- ---------------- 65 293,372 5.5 Reebok International, Ltd.: Reebok 19 153,461 2.9 Rockport 4 11,900 0.2 Greg Norman 1 3,000 0.1 -------- ---------------- ---------------- 24 168,361 3.2 Bass Pro Outdoor World 1 165,000 3.1 Dress Barn Inc. 18 123,822 2.3 Sara Lee Corporation: L'eggs, Hanes, Bali 24 103,809 1.9 Socks Galore 5 6,230 0.1 Understatements 1 3,000 0.1 -------- ---------------- ---------------- 30 113,039 2.1 American Commercial, Inc: Mikasa Factory Store 13 103,480 1.9 Brown Group Retail, Inc: Factory Brand Shoe 14 81,380 1.5 Naturalizer 6 16,040 0.3 -------- ---------------- ---------------- 20 97,420 1.8 Polo Ralph Lauren: Polo Ralph Lauren 9 74,366 1.4 Polo Jeans 4 15,000 0.3 Club Monaco 1 3,885 0.1 -------- ---------------- ---------------- 14 93,251 1.8 - ------------------------------------------ -------- ---------------- ---------------- Total of all tenants listed in table 260 1,806,807 33.9 ========================================== ======== ================ ================
11 Significant Property The center in Riverhead, New York is our only center that comprises more than 10% of consolidated total assets or consolidated total gross revenues. The Riverhead, NY center represented 20% of our consolidated total assets and 20% of our consolidated gross revenue for the year ended December 31, 2001. The Riverhead center was originally constructed in 1994 and now totals 729,238 square feet. Tenants at the Riverhead center principally conduct retail sales operations. The occupancy rate as of the end of 2001, 2000 and 1999 was 99%, 94% and 99%. Average annualized base rental rates during 2001, 2000 and 1999 were $18.68, $19.72 and $19.15 per weighted average GLA, respectively. Depreciation on the Riverhead center is recognized on a straight-line basis over 33.33 years, resulting in a depreciation rate of 3% per year. At December 31, 2001, the net federal tax basis of this center was approximately $84.9 million. Real estate taxes assessed on this center during 2001 amounted to $3.3 million. Real estate taxes for 2002 are estimated to be approximately $3.4 million. The following table sets forth, as of December 31, 2001, scheduled lease expirations at the Riverhead center assuming that none of the tenants exercise renewal options:
% of Gross Annualized Base Rent No. of Annualized Annualized Represented Leases GLA Base Rent Base Rent by Expiring Year Expiring (1) (sq. ft.)(1) per sq. ft. (000)(2) Leases - --------------------------- ----------------- ----------------- ------------------ ---------------- ---------------- 2002 34 112,783 $ 21.58 $ 2,434 18 2003 18 80,050 19.51 1,562 11 2004 35 153,355 19.59 3,004 22 2005 16 84,355 20.35 1,717 13 2006 13 39,430 23.21 915 7 2007 31 110,000 21.34 2,347 17 2008 4 20,500 21.06 432 3 2009 2 37,751 10.27 388 3 2010 -- -- -- -- -- 2011 2 31,000 12.31 382 3 2012 and thereafter 4 48,000 10.19 489 3 - ---------------------------- --------- --------------------- ------------------ --------------- -------------------- Total 159 717,224 $ 19.06 $ 13,670 100 ============================ ========= ===================== ================== =============== ==================== (1) Excludes leases that have been entered into but which tenant has not taken possession, vacant suites and month-to-month leases. (2) Base rent is defined as the minimum payments due, excluding periodic contractual fixed increases and rents calculated based on a percentage of tenants' sales.
Item 3. Legal Proceedings We are subject to legal proceedings and claims that have arisen in the ordinary course of our business and have not been finally adjudicated. In our opinion, the ultimate resolution of these matters will have no material effect on our results of operations or financial condition. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders, through solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended December 31, 2001. 12 EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information concerning our executive officers: NAME AGE POSITION Stanley K. Tanger.......... 78 Founder, Chairman of the Board of Directors and Chief Executive Officer Steven B. Tanger........... 53 Director, President and Chief Operating Officer Rochelle G. Simpson ....... 63 Secretary and Executive Vice President - Administration and Finance Willard A. Chafin, Jr...... 64 Executive Vice President - Leasing, Site Selection, Operations and Marketing Frank C. Marchisello, Jr... 43 Senior Vice President - Chief Financial Officer Joseph H. Nehmen........... 53 Senior Vice President - Operations Carrie A. Warren........... 39 Senior Vice President - Marketing Virginia R. Summerell...... 43 Treasurer and Assistant Secretary Kevin M. Dillon............ 43 Vice President - Construction Lisa J. Morrison........... 42 Vice President - Leasing The following is a biographical summary of the experience of our executive officers: Stanley K. Tanger. Mr. Tanger is the founder, Chief Executive Officer and Chairman of the Board of Directors of the Company. He also served as President from inception of the Company to December 1994. Mr. Tanger opened one of the country's first outlet shopping centers in Burlington, North Carolina in 1981. Before entering the factory outlet center business, Mr. Tanger was President and Chief Executive Officer of his family's apparel manufacturing business, Tanger/Creighton, Inc., for 30 years. Steven B. Tanger. Mr. Tanger is a director of the Company and was named President and Chief Operating Officer effective January 1, 1995. Previously, Mr. Tanger served as Executive Vice President since joining the Company in 1986. He has been with Tanger-related companies for most of his professional career, having served as Executive Vice President of Tanger/Creighton for 10 years. He is responsible for all phases of project development, including site selection, land acquisition and development, leasing, marketing and overall management of existing outlet centers. Mr. Tanger is a graduate of the University of North Carolina at Chapel Hill and the Stanford University School of Business Executive Program. Mr. Tanger is the son of Stanley K. Tanger. Rochelle G. Simpson. Ms. Simpson was named Executive Vice President - Administration and Finance in January 1999. She previously held the position of Senior Vice President - Administration and Finance since October 1995. She is also the Secretary of the Company and previously served as Treasurer from May 1993 through May 1995. She entered the factory outlet center business in January 1981, in general management and as chief accountant for Stanley K. Tanger and later became Vice President - Administration and Finance of the Predecessor Company. Ms. Simpson oversees the accounting and finance departments and has overall management responsibility for the Company's headquarters. Willard A. Chafin, Jr. Mr. Chafin was named Executive Vice President - Leasing, Site Selection, Operations and Marketing of the Company in January 1999. Mr. Chafin previously held the position of Senior Vice President - Leasing, Site Selection, Operations and Marketing since October 1995. He joined the Company in April 1990, and since has held various executive positions where his major responsibilities included supervising the Marketing, Leasing and Property Management Departments, and leading the Asset Management Team. Prior to joining the Company, Mr. Chafin was the Director of Store Development for the Sara Lee Corporation, where he spent 21 years. Before joining Sara Lee, Mr. Chafin was employed by Sears Roebuck & Co. for nine years in advertising/sales promotion, inventory control and merchandising. 13 Frank C. Marchisello, Jr. Mr. Marchisello was named Senior Vice President and Chief Financial Officer in January 1999. He was named Vice President and Chief Financial Officer in November 1994. Previously, he served as Chief Accounting Officer since joining the Company in January 1993 and Assistant Treasurer since February 1994. He was employed by Gilliam, Coble & Moser, certified public accountants, from 1981 to 1992, the last six years of which he was a partner of the firm in charge of various real estate clients. Mr. Marchisello is a graduate of the University of North Carolina at Chapel Hill and is a certified public accountant. Joseph H. Nehmen. Mr. Nehmen was named Senior Vice President of Operations in January 1999. He joined the Company in September 1995 and was named Vice President of Operations in October 1995. Mr. Nehmen has over 20 years experience in private business. Prior to joining Tanger, Mr. Nehmen was owner of Merchants Wholesaler, a privately held distribution company in St. Louis, Missouri. He is a graduate of Washington University. Mr. Nehmen is the son-in-law of Stanley K. Tanger and brother-in-law of Steven B. Tanger. Carrie A. Warren. Ms. Warren was named Senior Vice President - Marketing in May 2000. Previously, she held the position of Vice President - Marketing since September 1996 and Assistant Vice President - Marketing since joining the Company in December 1995. Prior to joining Tanger, Ms. Warren was with Prime Retail, L.P. for 4 years where she served as Regional Marketing Director responsible for coordinating and directing marketing for five outlet centers in the southeast region. Prior to joining Prime Retail, L.P., Ms. Warren was Marketing Manager for North Hills, Inc. for five years and also served in the same role for the Edward J. DeBartolo Corp. for two years. Ms. Warren is a graduate of East Carolina University. Virginia R. Summerell. Ms. Summerell was named Treasurer of the Company in May 1995 and Assistant Secretary in November 1994. Previously, she held the position of Director of Finance since joining the Company in August 1992, after nine years with NationsBank. Her major responsibilities include maintaining banking relationships, oversight of all project and corporate finance transactions and development of treasury management systems. Ms. Summerell is a graduate of Davidson College and holds an MBA from the Babcock School at Wake Forest University. Kevin M. Dillon. Mr. Dillon was named Vice President - Construction in October 1997. Previously, he held the position of Director of Construction from September 1996 to October 1997 and Construction Manager from November 1993, the month he joined the Company, to September 1996. Prior to joining the Company, Mr. Dillon was employed by New Market Development Company for six years where he served as Senior Project Manager. Prior to joining New Market, Mr. Dillon was the Development Director of Western Development Company where he spent 6 years. Lisa J. Morrison. Ms. Morrison was named Vice President - Leasing in May 2001. Previously, she held the position of Assistant Vice President of Leasing from August 2000 to May 2001 and Director of Leasing from April 1999 until August 2000. Prior to joining the Company, Ms. Morrison was employed by the Taubman Company and Trizec Properties, Inc. where she served as a leasing agent. Her major responsibilities include managing the leasing strategies for our operating properties, as well as expansions and new development. She also oversees the leasing personnel and the merchandising and occupancy for Tanger properties. 14 PART II Item 5. Market For Registrant's Common Equity and Related Shareholder Matters The Common Shares commenced trading on the New York Stock Exchange on May 28, 1993. The initial public offering price was $22.50 per share. The following table sets forth the high and low sales prices of the Common Shares as reported on the New York Stock Exchange Composite Tape, during the periods indicated.
Common 2001 High Low Dividends Paid - ------------------- -------------- --------------- ----------------- First Quarter $ 23.625 $ 19.750 $ .6075 Second Quarter 23.000 20.340 .6100 Third Quarter 23.000 19.100 .6100 Fourth Quarter 21.400 19.900 .6100 - ------------------- -------------- --------------- ----------------- Year 2001 $ 23.625 $ 19.100 $ 2.4375 - ------------------- -------------- --------------- -----------------
Common 2000 High Low Dividends Paid - ------------------- -------------- --------------- ----------------- First Quarter $ 22.875 $ 18.500 $ .6050 Second Quarter 24.000 18.875 .6075 Third Quarter 24.875 21.000 .6075 Fourth Quarter 23.125 19.500 .6075 - ------------------- -------------- --------------- ----------------- Year 2000 $ 24.875 $ 18.500 $ 2.4275 - ------------------- -------------- --------------- -----------------
As of March 1, 2002, there were approximately 704 shareholders of record. Certain of our debt agreements limit the payment of dividends such that dividends shall not exceed FFO, as defined in the agreements, for the prior fiscal year on an annual basis or 95% of FFO on a cumulative basis. Based on continuing favorable operations and available funds from operations, we intend to continue to pay regular quarterly dividends. 15 Item 6. Selected Financial Data
2001 2000 1999 1998 1997 - ------------------------------------------ ------------- ------------- ------------ -------------- ------------ (In thousands, except per share and center data) OPERATING DATA Total revenues $ 111,068 $ 108,821 $ 104,016 $ 97,766 $ 85,271 Income before (loss) gain on sale or disposal of real estate, minority interest and extraordinary item 9,492 12,249 17,070 15,109 17,583 Income before extraordinary item 7,356 4,312 15,837 12,159 12,827 Net income 7,112 4,312 15,588 11,827 12,827 - ------------------------------------------ -------------- ------------- ------------- ------------ ------------ SHARE DATA Basic: Income before extraordinary item $ .70 $ .32 $ 1.77 $ 1.30 $ 1.57 Net income $ .67 $ .32 $ 1.74 $ 1.26 $ 1.57 Weighted average common shares 7,926 7,894 7,861 7,886 7,028 Diluted: Income before extraordinary item $ .70 $ .31 $ 1.77 $ 1.28 $ 1.54 Net income $ .67 $ .31 $ 1.74 $ 1.24 $ 1.54 Weighted average common shares 7,948 7,922 7,872 8,009 7,140 Common dividends paid $ 2.44 $ 2.43 $ 2.42 $ 2.35 $ 2.17 - ------------------------------------------ -------------- ------------- ------------- ------------ ------------ BALANCE SHEET DATA Real estate assets, before depreciation $ 599,266 $ 584,928 $ 566,216 $ 529,247 $ 454,708 Total assets 476,272 487,408 490,069 471,795 416,014 Debt 358,195 346,843 329,647 302,485 229,050 Shareholders' equity 76,371 90,877 107,764 114,039 122,119 - ------------------------------------------ -------------- ------------- ------------- ------------ ------------ OTHER DATA EBITDA (1) $ 68,198 $ 67,832 $ 66,133 $ 61,991 $ 52,857 Funds from operations (1) $ 37,768 $ 38,203 $ 41,673 $ 37,048 $ 35,840 Cash flows provided by (used in): Operating activities $ 44,626 $ 38,420 $ 43,175 $ 35,787 $ 39,214 Investing activities $ (23,269) $ (25,815) $ (45,959) $ (79,236) $ (93,636) Financing activities $ (21,476) $ (12,474)$ (3,043) $ 46,172 $ 55,444 Gross leasable area open at year end 5,332 5,179 5,149 5,011 4,458 Number of centers 29 29 31 31 30 _______________________ (1) EBITDA and Funds from Operations ("FFO") are widely accepted financial indicators used by certain investors and analysts to analyze and compare companies on the basis of operating performance. EBITDA represents earnings before minority interest, gain (loss) on sale or disposal of real estate, extraordinary item, asset write-down, interest expense, income taxes, depreciation and amortization. FFO is defined as net income (loss), computed in accordance with generally accepted accounting principles, before extraordinary items and gains (losses) on sale or disposal of depreciable operating properties, plus depreciation and amortization uniquely significant to real estate. We caution that the calculations of EBITDA and FFO may vary from entity to entity and as such the presentation of EBITDA and FFO by us may not be comparable to other similarly titled measures of other reporting companies. EBITDA and FFO are not intended to represent cash flows for the period. EBITDA and FFO have not been presented as an alternative to operating income or as an indicator of operating performance, and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles.
16 Item 7. 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 appearing elsewhere in this report. Historical results and percentage relationships set forth in the consolidated statements of operations, including trends which might appear, are not necessarily indicative of future operations. Unless the context indicates otherwise, the term "Company" refers to Tanger Factory Outlet Centers, Inc. and the term "Operating Partnership" refers to Tanger Properties Limited Partnership. The terms "we", "our" and "us" refer to the Company or the Company and the Operating Partnership together, as the text requires. The discussion of our results of operations reported in the consolidated statements of operations compares the years ended December 31, 2001 and 2000, as well as December 31, 2000 and 1999. Certain comparisons between the periods are made on a percentage basis as well as on a weighted average gross leasable area ("GLA") basis, a technique which adjusts for certain increases or decreases in the number of centers and corresponding square feet related to the development, acquisition, expansion or disposition of rental properties. The computation of weighted average GLA, however, does not adjust for fluctuations in occupancy that may occur subsequent to the original opening date. Cautionary Statements Certain statements made below are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995 and included this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words `believe', `expect', `intend', `anticipate', `estimate', `project', or similar expressions. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect our actual results, performance or achievements. Factors which may cause actual results to differ materially from current expectations include, but are not limited to, the following: o general economic and local real estate conditions could change (for example, our tenant's business may change if the economy changes, which might effect (1) the amount of rent they pay us or their ability to pay rent to us, (2) their demand for new space, or (3) our ability to renew or re-lease a significant amount of available space on favorable terms); o the laws and regulations that apply to us could change (for instance, a change in the tax laws that apply to REITs could result in unfavorable tax treatment for us); o availability and cost of capital (for instance, financing opportunities may not be available to us, or may not be available to us on favorable terms); o the level and volatility of interest rates may fluctuate in an unfavorable manner; o our operating costs may increase or our costs to construct or acquire new properties or expand our existing properties may increase or exceed our original expectations. General Overview At December 31, 2001, we owned 29 centers in 20 states totaling 5,332,000 square feet of operating GLA compared to 29 centers in 20 states totaling 5,179,000 square feet of operating GLA as of December 31, 2000. The increase is primarily due to the completion of the expansion at our San Marcos, TX center during 2001. The center now contains over 441,000 square feet of gross leasable space. In September 2001, we established a 50% ownership joint venture, TWMB Associates, LLC ("TWMB"), with respect to our Myrtle Beach, South Carolina project with Rosen-Warren Myrtle Beach LLC ("Rosen-Warren") and began construction on the first phase of a new 400,000 square foot Tanger Outlet Center in Myrtle Beach, SC. The first phase will consist of approximately 260,000 square feet and include over 50 brand name outlet tenants. Stores are tentatively expected to begin opening in July of 2002. 17 A summary of the operating results for the years ended December 31, 2001, 2000 and 1999 is presented in the following table, expressed in amounts calculated on a weighted average GLA basis.
2001 2000 1999 - --------------------------------------------------------- -------------- -------------- --------------- GLA open at end of period (000's) 5,332 5,179 5,149 Weighted average GLA (000's) (1) 5,299 5,115 4,996 Outlet centers in operation 29 29 31 New centers acquired --- --- 1 Centers disposed of or sold --- 2 1 Centers expanded 1 5 5 States operated in at end of period 20 20 22 Occupancy percentage at end of period 96 96 97 Per square foot Revenues Base rentals $14.22 $13.97 $13.85 Percentage rentals .52 .64 .63 Expense reimbursements 5.70 5.87 5.59 Other income .52 .79 .76 - --------------------------------------------------------- -------------- -------------- --------------- Total revenues 20.96 21.27 20.83 - --------------------------------------------------------- -------------- -------------- --------------- Expenses Property operating 6.54 6.57 6.12 General and administrative 1.55 1.44 1.46 Interest 5.69 5.39 4.85 Depreciation and amortization 5.39 5.13 4.97 - --------------------------------------------------------- -------------- -------------- --------------- Total expenses 19.17 18.53 17.40 - --------------------------------------------------------- -------------- -------------- --------------- Income before (loss) gain on sale or disposal of real estate, minority interest and $ 1.79 $ 2.74 $ 3.43 extraordinary item - --------------------------------------------------------- -------------- -------------- --------------- (1) GLA weighted by months of operations. GLA is not adjusted for fluctuations in occupancy that may occur subsequent to the original opening date.
18 Results of Operations 2001 Compared to 2000 Base rentals increased $3.9 million, or 5%, in the 2001 period when compared to the same period in 2000. The increase is primarily due to the effect of the expansion completed in 2001, as mentioned in the General Overview above, and the full year effect of expansions completed in the fourth quarter of 2000, offset by the loss of rent from the sales of the centers in Lawrence, Kansas and McMinnville, Oregon in June 2000. Base rent per weighted average GLA increased by $.25 per square foot, or 2%, as a result of the expansions which had a higher average base rent per square foot compared to the portfolio average and the sales of the centers in Lawrence, KS and McMinnville, OR which had a lower average base rent per square foot compared to the portfolio average. Percentage rentals, which represent revenues based on a percentage of tenants' sales volume above predetermined levels, decreased by $518,000, or 16%, and on a weighted average GLA basis, decreased $.12 per square foot in 2001 compared to 2000. Same-space sales for the year ended December 31, 2001, defined as the weighted average sales per square foot reported in space open for the full duration of each comparison period, increased 5% to $294 per square foot due to our efforts to re-merchandise selected centers by replacing low volume tenants with high volume tenants. However, for the year ended December 31, 2001, reported same-store sales, defined as the weighted average sales per square foot reported by tenants for stores open since January 1, 2000, decreased by 2% compared with the previous year. Expense reimbursements, which represent the contractual recovery from tenants of certain common area maintenance, insurance, property tax, promotional, advertising and management expenses generally fluctuates consistently with the reimbursable property operating expenses to which it relates. Expense reimbursements, expressed as a percentage of property operating expenses, decreased to 87% in 2001 from 89% in 2000 primarily as a result of higher real estate taxes due to revaluations, increases in property insurance premiums and increases in other non-reimbursable expenses. Other income decreased $1.3 million in 2001 as compared to 2000. The 2000 period included gains on sales of land outparcels totaling $908,000 and the recognition of business interruption insurance proceeds relating to the Stroud, Oklahoma center, which was destroyed by a tornado in May 1999, totaling $985,000. These items were offset in part by increases in the 2001 period in vending and interest income. Property operating expenses increased by $1.0 million, or 3%, in 2001 as compared to 2000. On a weighted average GLA basis, property operating expenses decreased from $6.57 to $6.54 per square foot. The decrease per square foot is the result of a company-wide effort to improve operating efficiencies and reduce costs in common area maintenance and marketing partially offset by increases in real estate taxes, property insurance and other non-reimbursable expenses. General and administrative expenses increased $865,000, or 12%, in 2001 as compared to 2000 primarily due to increases in professional fees and provisions for bad debts. As a percentage of revenues, general and administrative expenses were approximately 7.4% of revenues in 2001 and 6.8% in 2000. On a weighted average GLA basis, general and administrative expenses increased $.11 per square foot from $1.44 in 2000 to $1.55 in 2001. Interest expense increased $2.6 million during 2001 as compared to 2000 due primarily to our increased debt levels attributable to development completed in 2001 and the full year effect of expansions completed in the fourth quarter of 2000. Our strategy to replace short-term, variable rate debt with long-term, fixed rate debt and extend our average debt maturities has resulted in an overall higher interest rate on outstanding debt. Also, $295,200 paid to terminate certain interest rate swap agreements during the first quarter of 2001 contributed to the increase in interest expense. Depreciation and amortization per weighted average GLA increased 5% from $5.13 per square foot in the 2000 period to $5.39 per square foot in the 2001 period due to a higher mix of tenant finishing allowances included in buildings and improvements which are depreciated over shorter lives (i.e. over lives generally ranging from 3 to 10 years as opposed to other construction costs which are depreciated over lives ranging from 15 to 33 years). 19 The asset write-down recognized in 2000 represents the write off of all development costs associated with our site in Ft. Lauderdale, Florida, as well as additional costs associated with various other non-recurring development activities at other sites, which were discontinued. The costs associated with the Ft. Lauderdale site were written off because we terminated our contract to purchase twelve acres of land in Dania Beach/Ft. Lauderdale, FL. The loss on sale of real estate during 2000 represents the loss recognized on the sale of our centers in Lawrence, KS and McMinnville, OR and the land and the remaining site improvements in Stroud, OK. Net proceeds received from the sale of the centers totaled $7.1 million. As a result of the two center sales, we recognized a loss on sale of real estate of $5.9 million. The combined net operating income of these two centers represented approximately 1% of the total portfolio's operating income. We sold the Stroud land and site improvements in December 2000 and received net proceeds of approximately $723,500 in January 2001. As a result of this sale, we recognized a loss of $1 million on the sale of real estate in the fourth quarter of 2000. The extraordinary losses recognized in 2001 represent the write-off of unamortized deferred financing costs related to debt that was extinguished during each period prior to its scheduled maturity. 2000 Compared to 1999 Base rentals increased $2.3 million, or 3%, in the 2000 period when compared to the same period in 1999. The increase is primarily due to the effect of the expansions during 2000 and the fourth quarter of 1999 plus the acquisition of the Ft. Lauderdale, FL center in November of 1999, offset by the loss of rent from the sales of the centers in Lawrence, KS and McMinnville, OR and the full year effect of the loss of the Stroud, OK center. Base rentals per weighted average GLA increased $.12 per square foot due to the sale of the Lawrence, KS and McMinnville, OR centers and the loss of the Stroud, OK center, all of which had lower average base rentals per square foot than the portfolio average. Percentage rentals, which represent revenues based on a percentage of tenants' sales volume above predetermined levels, increased by $112,000, or 4%, and on a weighted average GLA basis, increased $.01 per square foot in 2000 compared to 1999. Same-space sales for the year ended December 31, 2000, defined as the weighted average sales per square foot reported in space open for the full duration of each comparison period, increased 7% to $281 per square foot due to our efforts to re-merchandise selected centers by replacing low volume tenants with high volume tenants. However, for the year ended December 31, 2000, reported same-store sales, defined as the weighted average sales per square foot reported by tenants for stores open since January 1, 1999, were flat compared with the previous year. Expense reimbursements, which represent the contractual recovery from tenants of certain common area maintenance, insurance, property tax, promotional, advertising and management expenses generally fluctuates consistently with the reimbursable property operating expenses to which it relates. Expense reimbursements, expressed as a percentage of property operating expenses, decreased to 89% in 2000 from 91% in 1999 primarily as a result of a lower average occupancy rate and higher operating expenses in the 2000 period compared to the 1999 period. Other income increased $280,000 in 2000 as compared to 1999. The increase is primarily due to gains on sale of out parcels of land totaling $908,000 during 2000 as compared to $687,000 in 1999. Property operating expenses increased by $3.0 million, or 10%, in 2000 as compared to 1999. On a weighted average GLA basis, property operating expenses increased from $6.12 to $6.57 per square foot. The increases are the result of certain real estate tax assessments and higher common area maintenance expenses. General and administrative expenses increased $68,000, or 1%, in 2000 as compared to 1999. As a percentage of revenues, general and administrative expenses were approximately 6.8% of revenues in 2000 and 7.0% in 1999. On a weighted average GLA basis, general and administrative expenses decreased $.02 per square foot from $1.46 in 1999 to $1.44 in 2000. The decrease in general and administrative expenses per square foot reflects our efforts to control general and administrative expenditures. 20 Interest expense increased $3.3 million during 2000 as compared to 1999 due to additional financing necessary to fund the expansions of 2000, the acquisition in Fort Lauderdale, FL, higher average interest rates and additional amortization of deferred financing charges incurred during the year for the more than $75 million in debt obtained during 2000. Depreciation and amortization per weighted average GLA increased from $4.97 per square foot in 1999 to $5.13 per square foot in the 2000 period due to a higher mix of tenant finishing allowances included in buildings and improvements which are depreciated over shorter lives (i.e., over lives generally ranging from 3 to 10 years as opposed to other construction costs which are depreciated over lives ranging from 15 to 33 years). The asset write-down recognized in 2000 represents the write off of all development costs associated with our site in Ft. Lauderdale, FL, as well as additional costs associated with various other non-recurring development activities at other sites, which were discontinued. The costs associated with the Ft. Lauderdale site were written off because we terminated our contract to purchase twelve acres of land in Dania Beach/Ft. Lauderdale, FL. The loss on sale of real estate during 2000 represents the loss recognized on the sale of our centers in Lawrence, KS and McMinnville, OR and the land and the remaining site improvements in Stroud, OK. Net proceeds received from the sale of the centers totaled $7.1 million. As a result of the two center sales, we recognized a loss on sale of real estate of $5.9 million. The combined net operating income of these two centers represented approximately 1% of the total portfolio's operating income. We sold the Stroud land and site improvements in December 2000 and received net proceeds of approximately $723,500 in January 2001. As a result of this sale, we recognized a loss of $1 million on the sale of real estate in the fourth quarter of 2000. The extraordinary losses recognized in 1999 represent the write-off of unamortized deferred financing costs related to debt that was extinguished during each period prior to its scheduled maturity. Liquidity and Capital Resources Net cash provided by operating activities was $44.6, $38.4 and $43.2 million for the years ended December 31, 2001, 2000 and 1999, respectively. The increase in cash provided by operating activities in 2001 compared to 2000 is primarily due to changes in other assets and accounts payable and accrued expenses. The decrease in cash provided by operating activities in 2000 compared to 1999 is primarily due to higher interest rate costs and a decrease in accounts payable. Net cash used in investing activities amounted to $23.3, $25.8 and $46.0 million during 2001, 2000 and 1999, respectively, and reflects the acquisitions, expansions and dispositions of real estate during each year. Cash used in financing activities of $21.5, $12.5 and $3.0 in 2001, 2000 and 1999, respectively, has fluctuated consistently with the capital needed to fund the current development and acquisition activity and reflects increases in dividends paid during 2001, 2000 and 1999. Joint Ventures Effective August 7, 2000, we announced the formation of a joint venture with C. Randy Warren Jr., former Senior Vice President of Leasing of the Company. The new entity, Tanger-Warren Development, LLC ("Tanger-Warren"), was formed to identify, acquire and develop sites exclusively for us. We agreed to be co-managers of Tanger-Warren, each with 50% ownership interest in the joint venture and any entities formed with respect to a specific project. As of December 31, 2001, our investment in Tanger-Warren amounted to approximately $9,000 and the impact of this joint venture on our results of operations has been insignificant. In September 2001, we established a joint venture, TWMB Associates, LLC ("TWMB"), with respect to our Myrtle Beach, South Carolina project with Rosen-Warren Myrtle Beach LLC ("Rosen-Warren"). We and Rosen-Warren, each as 50% owners, contributed $4.3 million in cash for a total initial equity in TWMB of $8.6 million. In September 2001, TWMB began construction on the first phase of a new 400,000 square foot Tanger Outlet Center in Myrtle Beach, SC. The first phase is projected to cost $34.6 million and will consist of approximately 260,000 square feet and include over 50 brand name outlet tenants. Currently, leases for over 215,000 square feet, or 83% of the first phase are fully executed. Stores are tentatively expected to begin opening in July of 2002. We currently anticipate construction of a 140,000 square foot second, and final phase to cost $13.7 million. Prior to beginning construction on the second phase, Rosen-Warren and we each will be required to contribute an additional $1.75 million in cash for a total equity contribution in phase two of TWMB of $3.5 million. Upon the opening of phase one of the Myrtle Beach property, we will receive on-going asset management fees. 21 In conjunction with the beginning of construction, TWMB closed on a construction loan in the amount of $36.2 million with Bank of America, NA (Agent) and SouthTrust Bank, the proceeds of which will be used to develop the Tanger Outlet Center in Myrtle Beach, SC. As of December 31, 2001, the construction loan had a $10,000 balance. All debt incurred by this unconsolidated joint venture is secured by its property as well as joint and several guarantees by Rosen-Warren and us. We do not expect events to occur that would trigger the provisions of the guarantee because our properties have historically produced sufficient cash flow to meet the related debt service requirements. Either owner in TWMB has the right to initiate the sale or purchase of the other party's interest no sooner than October 25, 2002. If such action is initiated, one owner would determine the fair market value purchase price of the joint venture and the other would determine whether they would take the role of seller or purchaser. The owner who is to designate the fair market value purchase price would be determined by the toss of a coin. If either Rosen-Warren or we enacted this provision and depending on our role in the transaction as either seller or purchaser, we could potentially incur a cash outflow for the purchase of Rosen-Warren's interest. However, we do not expect this event to occur in the near future based on the positive expectations of developing and operating an outlet center in the Myrtle Beach area. Other Developments We have an option to purchase the retail portion of a site at the Bourne Bridge Rotary in Cape Cod, Massachusetts. Obtaining appropriate approvals for the Bourne project from the local authorities continues to be a challenge and consequently, we are reviewing the viability of maintaining an option on the property. Any developments or expansions that we, or a joint venture that we are involved in, have planned or anticipated may not be started or completed as scheduled, or may not result in accretive funds from operations. In addition, we regularly evaluate acquisition or disposition proposals and engage from time to time in negotiations for acquisitions or dispositions of properties. We may also enter into letters of intent for the purchase or sale of properties. Any prospective acquisition or disposition that is being evaluated or which is subject to a letter of intent may not be consummated, or if consummated, may not result in accretive funds from operations. Financing Arrangements On February 9, 2001, we issued $100 million of 9 1/8% senior, unsecured notes, maturing on February 15, 2008. The net proceeds of $97 million were used to repay all of the outstanding indebtedness under the $75 million 8 3/4% notes which were due March 11, 2001. The net proceeds were also used to repay the $20 million LIBOR plus 2.25% term loan due January 2002 with Fleet National Bank and Bank of America. The interest rate swap agreements associated with this loan were terminated at a cost of $295,200 which has been included in interest expense. In addition, approximately $180,000 of unamortized costs were written off as an extraordinary item. The remaining proceeds were used for general operating purposes. On March 26, 2001, we entered into a five year collateralized loan with Wells Fargo Bank for $24.0 million at a variable rate of LIBOR plus 1.75%. The proceeds were used to reduce amounts outstanding under existing lines of credit. Additionally, on March 26, 2001, we extended the maturity date of our existing $29.5 million term loan with Wells Fargo Bank from July 2005 to March 2006. On May 1, 2001, we entered into an eight year collateralized loan with John Hancock Life Insurance Company for $19.45 million at a fixed rate of 7.98%. The proceeds were used to reduce amounts outstanding under existing lines of credit. During the fourth quarter of 2001, we purchased at par approximately $14.5 million of our outstanding 7 7/8% senior, unsecured public notes that mature in October 2004. The purchases were funded by amounts available under our unsecured lines of credit which do not mature until June 2003. Additionally during the first quarter of 2002, we have purchased at par or below, an additional $4.9 million of the October 2004 notes bringing the total purchased to $19.4 million. 22 At December 31, 2001, approximately 51% of our outstanding debt represented unsecured borrowings and approximately 59% of our real estate portfolio was unencumbered. The average interest rate, including loan cost amortization, on average debt outstanding for the year-ended December 31, 2001 was 8.79%. We intend to retain the ability to raise additional capital, including public debt or equity, to pursue attractive investment opportunities that may arise and to otherwise act in a manner that we believe to be in our best interest and our shareholders' interests. During the second quarter of 2001, we amended our shelf registration for the ability to issue up to $200 million in debt and $200 million in equity securities. We may also consider the use of operational and developmental joint ventures, selling certain properties that do not meet our long-term investment criteria as well as outparcels on existing properties to generate capital to reinvest into other attractive investment opportunities. We maintain unsecured, revolving lines of credit that provide for unsecured borrowings up to $75 million at December 31, 2001. During 2001, we extended the maturity of each of our three $25 million lines to June 30, 2003. Also during 2001, we cancelled a $25 million line of credit which reduced our borrowing ability from lines of credit from $100 million to $75 million. Based on cash provided by operations, existing credit facilities, ongoing negotiations with certain financial institutions and our ability to sell debt or equity subject to market conditions, we believe that we have access to the necessary financing to fund the planned capital expenditures during 2002. We anticipate that adequate cash will be available to fund our operating and administrative expenses, regular debt service obligations, and the payment of dividends in accordance with REIT requirements in both the short and long term. Although we receive most of our rental payments on a monthly basis, distributions to shareholders are made quarterly and interest payments on the senior, unsecured notes are made semi-annually. Amounts accumulated for such payments will be used in the interim to reduce the outstanding borrowings under the existing lines of credit or invested in short-term money market or other suitable instruments. Contractual Obligations and Commercial Commitments The following table details our contractual obligations and commercial commitments over the next five years and thereafter (in thousands):
Contractual Obligations 2002 2003 2004 2005 2006 Thereafter ---------- ----------- ---------- ----------- ----------- -------------- Debt $2,288 $23,785 $63,941 $23,888 $53,899 $190,394 Operating leases 2,264 1,914 1,832 1,824 1,819 64,401 - -------------------- ---------- ----------- ---------- ----------- ----------- -------------- $4,552 $25,699 $65,773 $25,712 $55,718 $254,795 - -------------------- ---------- ----------- ---------- ----------- ----------- --------------
Our debt agreements require the maintenance of certain ratios, including debt service coverage and leverage, and limit the payment of dividends such that dividends and distributions will not exceed funds from operations, as defined in the agreements, for the prior fiscal year on an annual basis or 95% of funds from operations on a cumulative basis. We have historically been and currently are in compliance with all of our debt covenants. We expect to remain in compliance with all our existing debt covenants; however, should circumstances arise that would cause us to be in default, the various lenders would have the ability to accelerate the maturity on our outstanding debt. We operate in a manner intended to enable us to qualify as a REIT under the Internal Revenue Code (the "Code"). A REIT which distributes at least 90% of its taxable income to its shareholders each year and which meets certain other conditions is not taxed on that portion of its taxable income which is distributed to its shareholders. Based on our 2001 taxable income to shareholders, we were required to distribute approximately $3,044,000 in order to maintain our REIT status as described above. We distributed approximately $19,315,000 to common shareholders during 2001, significantly more than our required distributions. If events were to occur that would cause our actual dividend to be reduced, we believe we still have an adequate margin regarding required dividend payments based on our historic dividend and taxable income levels to maintain our REIT status. 23 The following table details our commercial commitments (in thousands):
Commercial Commitments 2003 2004 ---------- ----------- Lines of credit $54,050 --- Joint venture guarantee --- $36,200 - ----------------------------------- ---------- ----------- $54,050 $36,200 - ----------------------------------- ---------- -----------
We currently maintain three unsecured revolving credit facilities with major national banking institutions, totaling $75 million. As of December 31, 2001 amounts outstanding under these credit facilities totaled $20.95 million. All three credit facilities expire in June 2003. We are party to a joint and several guarantee with respect to the $36.2 million construction loan obtained by TWMB. See "Joint Ventures" section above for further discussion of the guarantee. Related Party Transactions In May 2000, demand notes receivable totaling $3.4 million from Stanley K. Tanger, our Chairman of the Board and Chief Executive Officer, were converted into two separate term notes of which $2.5 million was due from Stanley K. Tanger and $845,000 was due from Steven B. Tanger, our President and Chief Operating Officer. The notes amortize evenly over five years with principal and interest at a rate of 8% per annum due quarterly. The balance of Stanley K. Tanger's note at December 31, 2001, through accelerated payments, was $797,000. Steven B. Tanger's note was paid in full during 2001. Additionally in August 2001, the Board of Directors amended the notes to adjust the interest rate from 8% per annum to 90 day LIBOR plus 1.75%. We believe the amended interest rate is at arm's length based on our current unsecured, variable borrowing rate. During the first quarter of 2002, Stanley K. Tanger made a quarterly payment of $100,000. Market Risk We are exposed to various market risks, including changes in interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes. We negotiate long-term fixed rate debt instruments and enter into interest rate swap agreements to manage our exposure to interest rate changes on our floating rate debt. The swaps involve the exchange of fixed and variable interest rate payments based on a contractual principal amount and time period. Payments or receipts on the agreements are recorded as adjustments to interest expense. In January 2000, we entered into new interest rate swap agreements on notional amounts totaling $20.0 million. In order to fix the interest rate, we paid $162,000. As mentioned previously in the "Financing Arrangements" section, these agreements subsequently were terminated in February 2001 at a cost of $295,200 which has been included in interest expense. In December 2000, we entered into another interest rate swap agreement on notional amounts totaling $25.0 million. This agreement fixes the 30-day LIBOR index at 5.97% through January 2003. At December 31, 2001, we would have had to pay $973,000 to terminate this agreement. A 1% decrease in the 30-day LIBOR index would increase this amount by approximately $252,000. The fair value is based on dealer quotes, considering current interest rates. We do not intend to terminate our remaining interest rate swap agreement prior to its maturity. This derivative is currently carried on our books as a liability; however if held until maturity, the value of the swap will be zero at that time. The fair market value of long-term fixed interest rate debt is subject to interest rate risk. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The estimated fair value of our total debt at December 31, 2001 was $358.2 million while the recorded value was $358.2 million, respectively. A 1% increase from prevailing interest rates at December 31, 2001 would result in a decrease in fair value of total debt by approximately $12.1 million. Fair values were determined from quoted market prices, where available, using current interest rates considering credit ratings and the remaining terms to maturity. 24 Critical Accounting Policies We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. Cost Capitalization We capitalize fees and costs incurred to originate operating leases, including certain payroll, fringe benefits and other incremental direct costs, as deferred charges. The amount of these costs we capitalize is based on our estimate of the amount of costs directly related to executing successful leases. We amortize these costs to expense over the average minimum lease term. We capitalize costs incurred for the construction and development of properties, including certain payroll, fringe benefits and direct and indirect project costs. The amount of these costs we capitalize is based on our estimate of the amount of costs directly related to the construction or development of these assets. Direct costs to acquire assets are capitalized once the acquisition becomes probable. The American Institute of Certified Public Accountants' Accounting Standards Executive Committee is currently considering a proposal that would limit the amount of overhead costs companies capitalize to certain payroll or payroll related costs. If this proposal is adopted, the amount of costs we capitalize will be less than would have been capitalized before the adoption of this proposal. Impairment of Long-Lived Assets Rental property held and used is reviewed for impairment in the event that facts and circumstances indicate the carrying amount of an asset may not be recoverable. In such an event, we compare the estimated future undiscounted cash flows associated with the asset to the asset's carrying amount, and if less, recognize an impairment loss in an amount by which the carrying amount exceeds its fair value. We believe that no material impairment existed at December 31, 2001. Revenue Recognition Base rentals are recognized on a straight-line basis over the terms of the related leases. Substantially all leases contain provisions which provide additional rents based on tenants' sales volume ("percentage rentals") and reimbursement of the tenants' share of advertising and promotion, common area maintenance, insurance and real estate tax expenses. Percentage rentals are recognized when specified targets that trigger the contingent rent are met. Expense reimbursements are recognized in the period the applicable expenses are incurred. Payments received from the early termination of leases are recognized when the applicable space is released, or, otherwise are recognized over the remaining lease term. Business interruption insurance proceeds received are recognized as other income over the estimated period of interruption. Funds from Operations We believe that for a clear understanding of our consolidated historical operating results, FFO should be considered along with net income as presented in the audited consolidated financial statements included elsewhere in this report. FFO is presented because it is a widely accepted financial indicator used by certain investors and analysts to analyze and compare one equity real estate investment trust ("REIT") with another on the basis of operating performance. FFO is generally defined as net income (loss), computed in accordance with generally accepted accounting principles, before extraordinary items and gains (losses) on sale or disposal of depreciable operating properties, plus depreciation and amortization uniquely significant to real estate. We caution that the calculation of FFO may vary from entity to entity and as such the presentation of FFO by us may not be comparable to other similarly titled measures of other reporting companies. FFO does not represent net income or cash flow from operations as defined by generally accepted accounting principles and should not be considered an alternative to net income as an indication of operating performance or to cash flows from operations as a measure of liquidity. FFO is not necessarily indicative of cash flows available to fund dividends to shareholders and other cash needs. 25 Below is a calculation of FFO for the years ended December 31, 2001, 2000 and 1999 as well as actual cash flow and other data for those respective periods (in thousands):
2001 2000 1999 - -------------------------------------------------------------- ------------ -------------- ------------- Funds from Operations: Net income $ 7,112 $ 4,312 $ 15,588 Adjusted for: Extraordinary item-loss on early extinguishment of debt 244 --- 249 Minority interest 2,136 956 5,374 Depreciation and amortization uniquely significant to real estate 28,276 25,954 24,603 Loss (gain) on sale or disposal of real estate --- 6,981 (4,141) - -------------------------------------------------------------- ------------ -------------- ------------- Funds from operations before minority interest (1) $ 37,768 $ 38,203 $ 41,673 Cash flow provided by (used in): Operating activities $ 44,626 $ 38,420 $ 43,175 Investing activities $ (23,269) $ (25,815) $ (45,959) Financing activities $ (21,476) $ (12,474) $ (3,043) Weighted average shares outstanding (2) 11,707 11,706 11,698 - -------------------------------------------------------------- ------------ -------------- ------------- (1) For the years ended December 31, 2000 and 1999, includes $908 and $687 in gains on sales of outparcels of land. (2) Assumes our preferred shares, share and unit options and partnership units of the Operating Partnership held by the minority interest are all converted to our common shares.
New Accounting Pronouncements The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by FAS 137 and FAS 138, (collectively, "FAS 133"). Upon adoption on January 1, 2001, we recorded a cumulative effect adjustment of $216,500, net of minority interest of $83,000, in other comprehensive income (loss). At December 31, 2001 in accordance with the provisions of FAS 133, our sole interest rate swap agreement has been designated as a cash flow hedge and is carried on the balance sheet at fair value. At December 31, 2001, the fair value of the hedge is recorded as a liability of $973,000 in accounts payable and accrued expenses. The FASB also issued SFAS Nos. 141 and 142, "Business Combinations" and "Goodwill and Other Intangible Assets" ("FAS 141") and ("FAS 142"), respectively on June 29, 2001. The provisions of FAS 141 apply to all business combinations initiated after June 30, 2001. FAS 142 is required to be adopted beginning January 1, 2002. We currently do not have any assets identified as either goodwill or intangible assets. In 2001, the FASB issued SFAS No. 143, "Accounting for Obligations Associated with Retirement of Long-Lived Assets" ("FAS 143"). FAS 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement costs. It also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. FAS No. 143 is effective for fiscal years beginning after June 15, 2002. We believe the provisions of FAS No. 143 will not have a significant effect on our results of operations or our financial position. In 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144"), which replaces SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("FAS 121"). FAS 144 retains the requirements of FAS 121 to recognized an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and to measure an impairment loss as the difference between the carrying amount and fair value of the asset. The provisions of FAS 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001. We will implement the provisions of FAS 144 on January 1, 2002. We believe FAS 144 will not have a significant effect on our results of operations or our financial position. 26 Under both FAS No. 121 and 144, real estate assets designated as held for sale are stated at their fair value less costs to sell. We classify real estate as held for sale when our Board of Directors approves the sale of the assets and we have commenced an active program to sell the assets. Subsequent to this classification, no further depreciation is recorded on the assets. Under FAS No. 121, the operating results of real estate assets held for sale are included in continuing operations. Upon implementation of FAS No. 144 in 2002, the operating results of newly designated real estate assets held for sale will be included in discontinued operations in our results of operations. We currently do not have any assets that are held for sale. During 2000, the American Institute of Certified Public Accountants' Accounting Standards Executive Committee issued an exposure draft Statement of Position ("SOP") regarding the capitalization of costs associated with property, plant and equipment. Under the proposed SOP, all property plant and equipment related costs would be expensed unless the costs are directly identifiable with specific projects and the proposal would limit the amount of overhead costs companies capitalize to certain payroll or payroll related costs. If this proposal is adopted, the amount of costs we capitalize will be less than would have been capitalized before the adoption of this proposal. The expected effective date of the final SOP is expected in late 2002 or 2003. Economic Conditions and Outlook The majority of our leases contain provisions designed to mitigate the impact of inflation. Such provisions include clauses for the escalation of base rent and clauses enabling us to receive percentage rentals based on tenants' gross sales (above predetermined levels, which we believe often are lower than traditional retail industry standards) which generally increase as prices rise. Most of the leases require the tenant to pay their share of property operating expenses, including common area maintenance, real estate taxes, insurance and advertising and promotion, thereby reducing exposure to increases in costs and operating expenses resulting from inflation. While factory outlet stores continue to be a profitable and fundamental distribution channel for brand name manufacturers, some retail formats are more successful than others. As typical in the retail industry, certain tenants have closed, or will close, certain stores by terminating their lease prior to its natural expiration or as a result of filing for protection under bankruptcy laws. Approximately 33% of our lease portfolio is scheduled to expire during the next two years. Approximately 927,000 square feet of space is up for renewal during 2002, 20% of which is located in our dominant center in Riverhead, NY, and approximately 848,000 square feet will come up for renewal in 2003. If we were unable to successfully renew or release a significant amount of this space on favorable economic terms, the loss in rent could have a material adverse effect on our results of operations. We renewed 82% of the 684,000 square feet that came up for renewal in 2001 with the existing tenants at an average base rental rate of approximately 6% higher than the expiring rate. This compares with the renewal of 75% of the 690,000 square feet that came up for renewal in 2000 with the existing tenants at an average base rental rate 4% higher than the expiring rate. We also re-tenanted 269,000 square feet during 2001 at a 10% increase in the average base rental rate. This compares favorably with the 303,000 square feet that were released in 2000 at an average increase of 7%. Existing tenants' sales have remained stable and renewals by existing tenants have remained strong. As of March 1, 2002, existing tenants have already renewed approximately 341,000, or 37%, of the square feet scheduled to expire in 2002. In addition, we continue to attract and retain additional tenants. Our factory outlet centers typically include well-known, national, brand name companies. By maintaining a broad base of creditworthy tenants and a geographically diverse portfolio of properties located across the United States, we reduce our operating and leasing risks. No one tenant (including affiliates) accounts for more than 6% of our combined base and percentage rental revenues. Accordingly, we do not expect any material adverse impact on our results of operation and financial condition as a result of leases to be renewed or stores to be released. As of December 31, 2001 and 2000, our centers were 96% occupied. Consistent with our long-term strategy of re-merchandising centers, we will continue to hold space off the market until an appropriate tenant is identified. While we believe this strategy will add value to our centers in the long-term, it may continue to reduce our average occupancy rates in the near term. 27 Item 8. Financial Statements and Supplementary Data The information required by this Item is set forth at the pages indicated in Item 14(a) below. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Not applicable. PART III Certain information required by Part III is omitted from this Report in that the registrant will file a definitive proxy statement pursuant to Regulation 14A (the "Proxy Statement") not later than 120 days after the end of the fiscal year covered by this Report, and certain information included therein is incorporated herein by reference. Only those sections of the Proxy Statement which specifically address the items set forth herein are incorporated by reference. Item 10. Directors and Executive Officers of the Registrant The information concerning our directors required by this Item is incorporated by reference to our Proxy Statement. The information concerning our executive officers required by this Item is incorporated by reference herein to the section in Part I, Item 4, entitled "Executive Officers of the Registrant". The information regarding compliance with Section 16 of the Securities and Exchange Act of 1934 is to be set forth in the Proxy Statement and is hereby incorporated by reference. Item 11. Executive Compensation The information required by this Item is incorporated by reference to our Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this Item is incorporated by reference to our Proxy Statement. Item 13. Certain Relationships and Related Transactions The information required by this Item is incorporated by reference to our Proxy Statement. 28 PART IV Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K (a) Documents filed as a part of this report: 1. Financial Statements Report of Independent Accountants F-1 Consolidated Balance Sheets-December 31, 2001 and 2000 F-2 Consolidated Statements of Operations- Years Ended December 31, 2001, 2000 and 1999 F-3 Consolidated Statements of Shareholders' Equity- For the Years Ended December 31, 2001, 2000 and 1999 F-4 Consolidated Statements of Cash Flows- Years Ended December 31, 2001, 2000 and 1999 F-5 Notes to Consolidated Financial Statements F-6 to F-17 2. Financial Statement Schedule Schedule III Report of Independent Accountants F-18 Real Estate and Accumulated Depreciation F-19 to F-21 29 All other schedules have been omitted because of the absence of conditions under which they are required or because the required information is given in the above-listed financial statements or notes thereto. 3. Exhibits Exhibit No. Description 3.1 Amended and Restated Articles of Incorporation of the Company. (Note 6) 3.1A Amendment to Amended and Restated Articles of Incorporation dated May 29, 1996. (Note 6) 3.1B Amendment to Amended and Restated Articles of Incorporation dated August 20, 1998. (Note 9) 3.1C Amendment to Amended and Restated Articles of Incorporation dated September 30, 1999. (Note 11) 3.2 Restated By-Laws of the Company. (Note 11) 3.3 Amended and Restated Agreement of Limited Partnership for the Operating Partnership. (Note 11) 4.1 Form of Deposit Agreement, by and between the Company and the Depositary, including Form of Depositary Receipt. (Note 1) 4.2 Form of Preferred Stock Certificate. (Note 1) 4.3 Rights Agreement, dated as of August 20, 1998, between Tanger Factory Outlet Centers, Inc. and BankBoston, N.A., which includes the form of Articles of Amendment to the Amended and Restated Articles of Incorporation, designating the preferences, limitations and relative rights of the Class B Preferred Stock as Exhibit A, the form of Right Certificate as Exhibit B and the Summary of Rights as Exhibit C. (Note 8) 4.3A Amendment to Rights Agreement, dated as of October 30, 2001. 10.1 Amended and Restated Unit Option Plan. (Note 9) 10.2 Amended and Restated Share Option Plan of the Company. (Note 9) 10.3 Form of Stock Option Agreement between the Company and certain Directors. (Note 3) 10.4 Form of Unit Option Agreement between the Operating Partnership and certain employees. (Note 3) 10.5 Amended and Restated Employment Agreement for Stanley K. Tanger, as of January 1, 1998. (Note 9) 10.5A Amended Employment Agreement for Stanley K. Tanger, as of January 1, 2001. 10.6 Amended and Restated Employment Agreement for Steven B. Tanger, as of January 1, 1998. (Note 9) 10.6A Amended Employment Agreement for Steven B. Tanger, as of January 1, 2001. 10.7 Amended and Restated Employment Agreement for Willard Albea Chafin, Jr., as of January 1, 2002 10.8 Amended and Restated Employment Agreement for Rochelle Simpson, as of January 1, 2002 10.9 Not applicable. 10.10 Amended and Restated Employment Agreement for Frank C. Marchisello, Jr., as of January 1, 2002 30 10.11 Registration Rights Agreement among the Company, the Tanger Family Limited Partnership and Stanley K. Tanger. (Note 2) 10.11A Amendment to Registration Rights Agreement among the Company, the Tanger Family Limited Partnership and Stanley K. Tanger. (Note 4) 10.12 Agreement Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. (Note 2) 10.13 Assignment and Assumption Agreement among Stanley K. Tanger, Stanley K. Tanger & Company, the Tanger Family Limited Partnership, the Operating Partnership and the Company. (Note 2) 10.14 Promissory Notes by and between the Operating Partnership and John Hancock Mutual Life Insurance Company aggregating $66,500,000. (Note 10) 10.15 Form of Senior Indenture. (Note 5) 10.16 Form of First Supplemental Indenture (to Senior Indenture). (Note 5) 10.16A Form of Second Supplemental Indenture (to Senior Indenture) dated October 24, 1997 among Tanger Properties Limited Partnership, Tanger Factory Outlet Centers, Inc. and State Street Bank & Trust Company. (Note 7) 10.17 Promissory Note 05/16/2000 (Note 12) 10.18 Promissory Note 05/16/2000 (Note 12) 21.1 List of Subsidiaries. 23.1 Consent of PricewaterhouseCoopers LLP. Notes to Exhibits: 1. Incorporated by reference to the exhibits to the Company's Registration Statement on Form S-11 filed October 6, 1993, as amended. 2. Incorporated by reference to the exhibits to the Company's Registration Statement on Form S-11 filed May 27, 1993, as amended. 3. Incorporated by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 4. Incorporated by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. 5. Incorporated by reference to the exhibits to the Company's Current Report on Form 8-K dated March 6, 1996. 6. Incorporated by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1996. 7. Incorporated by reference to the exhibits to the Company's Current Report on Form 8-K dated October 24, 1997. 8. Incorporated by reference to Exhibit 1.1 to the Company's Registration Statement on Form 8-A, filed August 24, 1998. 9. Incorporated by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 10. Incorporated by reference to the exhibit to the Company's Quarterly Report on 10-Q for the quarter ended March 31, 1999. 11. Incorporated by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 12. Incorporated by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 2000. (b) Reports on Form 8-K - none. 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. TANGER FACTORY OUTLET CENTERS, INC. By:/s/ Stanley K. Tanger Stanley K. Tanger Chairman of the Board and Chief Executive Officer March 28, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Signature Title Date /s/ Stanley K. Tanger Chairman of the Board and Chief March 28, 2002 Stanley K. Tanger Executive Officer (Principal Executive Officer) /s/ Steven B. Tanger Director, President and March 28, 2002 Steven B. Tanger Chief Operating Officer /s/ Frank C. Marchisello Jr. Senior Vice President and March 28, 2002 Frank C. Marchisello, Jr. Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Jack Africk Director March 28, 2002 Jack Africk /s/ William G. Benton Director March 28, 2002 William G. Benton /s/ Thomas E. Robinson Director March 28, 2002 Thomas E. Robinson 32 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Tanger Factory Outlet Centers, Inc. and its subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 4 to the consolidated financial statements and in accordance with SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities", the Company changed its accounting method for derivative instruments and hedging activities. /s/ PricewaterhouseCoopers LLP Raleigh, NC January 17, 2002 F-1
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) December 31, 2001 2000 - ----------------------------------------------------------------------------------------------------------- ASSETS Rental Property Land $ 60,158 $ 59,858 Buildings, improvements and fixtures 539,108 505,554 Developments under construction - 19,516 - ----------------------------------------------------------------------------------------------------------- 599,266 584,928 Accumulated depreciation (148,950) (122,365) - ----------------------------------------------------------------------------------------------------------- Rental property, net 450,316 462,563 Cash and cash equivalents 515 634 Deferred charges, net 11,413 8,566 Other assets 14,028 15,645 - ----------------------------------------------------------------------------------------------------------- Total assets $ 476,272 $ 487,408 =========================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Debt Senior, unsecured notes $ 160,509 $ 150,000 Mortgages payable 176,736 135,313 Term note, unsecured - 20,000 Lines of credit 20,950 41,530 - ----------------------------------------------------------------------------------------------------------- 358,195 346,843 Construction trade payables 3,722 9,784 Accounts payable and accrued expenses 16,478 12,807 - ----------------------------------------------------------------------------------------------------------- Total liabilities 378,395 369,434 - ----------------------------------------------------------------------------------------------------------- Commitments Minority interest 21,506 27,097 - ----------------------------------------------------------------------------------------------------------- Shareholders' equity Preferred shares, $.01 par value, 1,000,000 shares authorized, 80,600 shares issued and outstanding at December 31, 2001 and 2000 1 1 Common shares, $.01 par value, 50,000,000 shares authorized, 7,929,711 and 7,918,911 shares issued and outstanding at December 31, 2001 and 2000 79 79 Paid in capital 136,529 136,358 Distributions in excess of net income (59,534) (45,561) Accumulated other comprehensive loss (704) - - ----------------------------------------------------------------------------------------------------------- Total shareholders' equity 76,371 90,877 - ----------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 476,272 $ 487,408 - ----------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements.
F-2
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Year Ended December 31, 2001 2000 1999 - ------------------------------------------------------------------------------------------------------- REVENUES Base rentals $ 75,354 $ 71,457 $ 69,180 Percentage rentals 2,735 3,253 3,141 Expense reimbursements 30,207 30,046 27,910 Other income 2,772 4,065 3,785 - ------------------------------------------------------------------------------------------------------- Total revenues 111,068 108,821 104,016 - ------------------------------------------------------------------------------------------------------- EXPENSES Property operating 34,639 33,623 30,585 General and administrative 8,231 7,366 7,298 Interest 30,134 27,565 24,239 Depreciation and amortization 28,572 26,218 24,824 Asset write-down --- 1,800 --- - ------------------------------------------------------------------------------------------------------- Total expenses 101,576 96,572 86,946 - ------------------------------------------------------------------------------------------------------- Income before (loss) gain on sale or disposal of real estate, minority interest and extraordinary item 9,492 12,249 17,070 (Loss) gain on sale or disposal of real estate --- (6,981) 4,141 - ------------------------------------------------------------------------------------------------------- Income before minority interest and extraordinary item 9,492 5,268 21,211 Minority interest (2,136) (956) (5,374) - ------------------------------------------------------------------------------------------------------- Income before extraordinary item 7,356 4,312 15,837 Extraordinary item - Loss on early extinguishment of debt, net of minority interest of $94 and $96 in 2001 and 1999 (244) --- (249) - ------------------------------------------------------------------------------------------------------- Net income 7,112 4,312 15,588 Less applicable preferred share dividends (1,771) (1,823) (1,917) - ------------------------------------------------------------------------------------------------------- Net income available to common shareholders $ 5,341 $ 2,489 $ 13,671 - ------------------------------------------------------------------------------------------------------ Basic earnings per common share: Income before extraordinary item $ 0.70 $ 0.32 $ 1.77 Extraordinary item (0.03) --- (0.03) - ------------------------------------------------------------------------------------------------------- Net income $ 0.67 $ 0.32 $ 1.74 - ------------------------------------------------------------------------------------------------------- Diluted earnings per common share: Income before extraordinary item $ 0.70 $ 0.31 $ 1.77 Extraordinary item (0.03) --- (0.03) - ------------------------------------------------------------------------------------------------------- Net income $ 0.67 $ 0.31 $ 1.74 - ------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements.
F-3
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Years Ended December 31, 2001, 2000, and 1999 (In thousands, except share data) Distributions Accumulated Other Total Preferred Common Paid in in Excess of Comprehensive Shareholder Shares Shares Capital Net Income Loss Equity - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1998 $ 1 $ 79 $ 137,530 $ (23,571) $ - $ 114,039 Net income --- --- --- 15,588 --- 15,588 Conversion of 3,000 preferred shares into 27,029 common shares --- 1 (1) --- --- --- Issuance of 500 common shares upon exercise of unti options --- --- 12 --- --- 12 Repurchase and retirement of 48,300 common shares --- (1) (957) --- --- (958) Adjustment for minority interest in the Operating Partnership --- --- (13) --- --- (13) Preferred dividends ($21.76 per share) --- --- --- (1,918) --- (1,918) Common dividends ($2.42 per share) --- --- --- (18,986) --- (18,986) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1999 1 79 136,571 (28,887) --- 107,764 Net income --- --- --- 4,312 --- 4,312 Conversion of 4,670 preferred shares into 42,076 common shares --- --- --- --- --- --- Adjustment for minority interest in the Operating Partnership --- --- (213) --- --- (213) Preferred dividends ($21.87 per share) --- --- --- (1,840) --- (1,840) Common dividends ($2.43 per share) --- --- --- (19,146) --- (19,146) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 2000 1 79 136,358 (45,561) --- 90,877 Comprehensive income: Net income --- --- --- 7,112 --- 7,112 Unrealized loss on mark-to-market of cash flow hedge --- --- --- --- (704) (704) - ------------------------------------------------------------------------------------------------------------------------------------ Total comprehensive income --- --- --- 7,112 (704) 6,408 Issuance of 10,800 common shares upon exercise of unit options --- --- 201 --- --- 201 Adjustment for minority interest in the Operating Partnership --- --- (30) --- --- (30) Preferred dividends ($21.96 per share) --- --- --- (1,770) (1,770) Common dividends ($2.44 per share) --- --- --- (19,315) (19,315) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 2001 $ 1 $ 79 $ 136,529 $ (59,534) $ (704) $ 76,371 - ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. F-4
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2001 2000 1999 - --------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 7,112 $ 4,312 $ 15,588 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 28,572 26,218 24,824 Amortization of deferred financing costs 1,309 1,264 1,005 Minority interest 2,042 956 5,278 Loss on early extinguishment of debt 338 0 345 Asset write-down --- 1,800 0 Gain on disposal or sale of real estate --- 6,981 (4,141) Gain on sale of outparcels of land --- (908) (687) Straight-line base rent adjustment 342 92 (214) Increase (decrease) due to changes in: Other assets 2,213 (2,021) (1,181) Accounts payable and accrued expenses 2,698 (274) 2,358 - --------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 44,626 38,420 43,175 - --------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Acquisition of rental properties --- --- (15,500) Additions to rental properties (20,368) (36,056) (34,224) Additions to investments in joint ventures (4,068) (117) Additions to deferred lease costs (1,618) (2,238) (1,862) Net proceeds from sale of real estate 723 8,598 1,987 Net insurance proceeds from property losses --- 4,046 6,451 Collections from (advances to) officers, net 2,062 (48) (2,811) - --------------------------------------------------------------------------------------------------------- Net cash used in investing activities (23,269) (25,815) (45,959) - --------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Repurchase of common shares --- --- (958) Cash dividends paid (21,085) (20,986) (20,904) Distributions to minority interest (7,394) (7,362) (7,325) Proceeds from issuance of debt 279,075 172,595 185,055 Repayments of debt (267,723) (155,399) (157,893) Additions to deferred financing costs (4,550) (1,322) (1,030) Proceeds from exercise of unit options 201 --- 12 - --------------------------------------------------------------------------------------------------------- Net cash used in financing activities (21,476) (12,474) (3,043) - --------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (119) 131 (5,827) Cash and cash equivalents, beginning of period 634 503 6,330 - --------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 515 $ 634 $ 503 - ---------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. F-5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization of the Company Tanger Factory Outlet Centers, Inc., a fully-integrated, self-administered, self-managed real estate investment trust ("REIT"), develops, owns and operates factory outlet centers. Recognized as one of the largest owners and operators of factory outlet centers in the United States, we own and operate 29 factory outlet centers located in 20 states with a total gross leasable area of approximately 5.3 million square feet at the end of 2001. We provide all development, leasing and management services for our centers. Our factory outlet centers and other assets are held by, and all of our operations are conducted by, Tanger Properties Limited Partnership (the "Operating Partnership"). Prior to 1999, we owned the majority of the units of partnership interest issued by the Operating Partnership (the "Units") and served as its sole general partner. During 1999, we transferred our ownership of Units into two wholly owned subsidiaries, the Tanger GP Trust and the Tanger LP Trust. The Tanger GP Trust controls the Operating Partnership as its sole general partner. The Tanger LP Trust holds a limited partnership interest. All of the remaining Units are owned by the Tanger Family in an entity named the Tanger Family Limited Partnership ("TFLP"). TFLP holds a limited partnership interest in and is a minority owner of the Operating Partnership. Stanley K. Tanger, the Company's Chairman of the Board and Chief Executive Officer, is the sole general partner of TFLP. As of December 31, 2001, our wholly owned subsidiaries owned 7,929,711 Units, and 80,600 Preferred Units (which are convertible into approximately 726,203 limited partnership Units) and TFLP owned 3,033,305 Units. TFLP's Units are exchangeable, subject to certain limitations to preserve our status as a REIT, on a one-for-one basis for our common shares. Preferred Units are automatically converted into limited partnership Units to the extent of any conversion of our preferred shares into our common shares. 2. Summary of Significant Accounting Policies Principles of Consolidation - The consolidated financial statements include our accounts, our wholly-owned subsidiaries and the Operating Partnership. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in real estate joint ventures that represent non-controlling ownership interests are accounted for using the equity method of accounting. Minority Interest - Minority interest reflects TFLP's percentage ownership of the Operating Partnership's Units. Income is allocated to the TFLP based on its respective ownership interest. Reclassifications - Certain amounts in the 2000 and 1999 financial statements have been reclassified to conform to the 2001 presentation. Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Operating Segments - We aggregate the financial information of all centers into one reportable operating segment because the centers all have similar economic characteristics and provide similar products and services to similar types and classes of customers. Rental Properties - Rental properties are recorded at cost less accumulated depreciation. Costs incurred for the construction and development of properties, including certain payroll, fringe benefits and direct and indirect project costs, are capitalized. The amount of these costs capitalized is based on our estimate of the amount of costs directly related to the construction or development of these assets. Direct costs to acquire assets are capitalized once the acquisition becomes probable. Depreciation is computed on the straight-line basis over the estimated useful lives of the assets. We generally use estimated lives ranging from 25 to 33 years for buildings, 15 years for land improvements and seven years for equipment. Expenditures for ordinary maintenance and repairs are charged to operations as incurred while significant renovations and improvements, including tenant finishing allowances, that improve and/or extend the useful life of the asset are capitalized and depreciated over their estimated useful life. F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Buildings, improvements and fixtures consist primarily of permanent buildings and improvements made to land such as landscaping and infrastructure and costs incurred in providing rental space to tenants. Interest costs capitalized during 2001, 2000 and 1999 amounted to $551,000, $1,020,000 and $1,242,000 and development costs capitalized amounted to $616,000, $843,000 and $1,711,000, respectively. Depreciation expense for each of the years ended December 31, 2001, 2000 and 1999 was $26,585,000 $24,239,000 and $23,095,000, respectively. The pre-construction stage of project development involves certain costs to secure land control and zoning and complete other initial tasks essential to the development of the project. These costs are transferred from other assets to developments under construction when the pre-construction tasks are completed. Costs of potentially unsuccessful pre-construction efforts are charged to operations when the project is abandoned. Cash and Cash Equivalents - All highly liquid investments with an original maturity of three months or less at the date of purchase are considered to be cash and cash equivalents. Cash balances at a limited number of banks may periodically exceed insurable amounts. We believe that we mitigate our risk by investing in or through major financial institutions. Recoverability of investments is dependent upon the performance of the issuer. Deferred Charges - Deferred lease costs consist of fees and costs incurred, including payroll, fringe benefits and other incremental direct costs, to originate successful, operating leases and are amortized over the average minimum lease term. Deferred financing costs include fees and costs incurred to obtain long-term financing and are amortized over the terms of the respective loans. Unamortized deferred financing costs are charged to expense when debt is retired before the maturity date. Impairment of Long-Lived Assets - Rental property held and used is reviewed for impairment in the event that facts and circumstances indicate the carrying amount of an asset may not be recoverable. In such an event, we compare the estimated future undiscounted cash flows associated with the asset to the asset's carrying amount, and if less, recognize an impairment loss in an amount by which the carrying amount exceeds its fair value. We believe that no material impairment existed at December 31, 2001. Derivatives - We selectively enter into interest rate protection agreements to mitigate changes in interest rates on our variable rate borrowings. The notional amounts of such agreements are used to measure the interest to be paid or received and do not represent the amount of exposure to loss. None of these agreements are used for speculative or trading purposes. The cost of these agreements is included in deferred financing costs and is amortized on a straight-line basis over the life of the agreements. On January 1, 2001 we adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended by FAS 137 and FAS 138, (collectively, "FAS 133"). FAS 133 requires entities to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at their fair value. FAS 133 also requires us to measure the effectiveness, as defined by FAS 133, of all derivatives to be accounted for as hedges. We formally document our derivative transactions, including identifying the hedge instruments and hedged items, as well as our risk management objectives and strategies for entering into the hedge transaction. At inception and on a quarterly basis thereafter, we assess the effectiveness of derivatives used to hedge transactions. If a derivative is deemed effective, we record the change in fair value in other comprehensive income. If after assessment it is determined that a portion of the derivative is ineffective, then that portion of the derivative's change in fair value will be immediately recognized in earnings. F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Income Taxes - We operate in a manner intended to enable us to qualify as a REIT under the Internal Revenue Code (the "Code"). A REIT which distributes at least 90% of its taxable income to its shareholders each year and which meets certain other conditions is not taxed on that portion of its taxable income which is distributed to its shareholders. We intend to continue to qualify as a REIT and to distribute substantially all of our taxable income to our shareholders. Accordingly, no provision has been made for Federal income taxes. We paid preferred dividends per share of $21.96, $21.87, and $21.76 in 2001, 2000 and 1999, respectively, all of which are treated as ordinary income. For income tax purposes, distributions paid to common shareholders consist of ordinary income, capital gains, return of capital or a combination thereof. For the year ended December 31, 1999, we elected to distribute all of our taxable capital gains. Dividends per share were taxable as follows:
Common dividends per share: 2001 2000 1999 - ------------------------------- ---------------- ------------- -------------- Ordinary income $ .536 $ .341 $ 1.328 Return of capital 1.902 2.087 1.039 Long-term capital gain --- --- .048 - ------------------------------- ---------------- ------------- -------------- - ------------------------------- ---------------- ------------- -------------- $2.438 $2.428 $ 2.415 - ------------------------------- ---------------- ------------- --------------
The following reconciles net income available to common shareholders to taxable income available to common shareholders for the years ended December 31, 2001, 2000 and 1999:
2001 2000 1999 - ------------------------------------------------------------- ------------ ------------- -------------- Net income available to common shareholders $ 5,341 $ 2,489 $13,671 Book/tax difference on: Depreciation and amortization (667) (1,114) (3,763) Gain/(Loss) on sale or disposal of real estate (1,116) 643 (3,241) Other differences (176) 73 468 - ------------------------------------------------------------- ------------ ------------- -------------- Taxable income available to common shareholders 3,382 2,091 7,135 - ------------------------------------------------------------- ------------ ------------- --------------
Revenue Recognition - Base rentals are recognized on a straight-line basis over the term of the lease. Substantially all leases contain provisions which provide additional rents based on tenants' sales volume ("percentage rentals") and reimbursement of the tenants' share of advertising and promotion, common area maintenance, insurance and real estate tax expenses. Percentage rentals are recognized when specified targets that trigger the contingent rent are met. Expense reimbursements are recognized in the period the applicable expenses are incurred. Payments received from the early termination of leases are recognized when the applicable space is released, or, otherwise are amortized over the remaining lease term. Business interruption insurance proceeds received are recognized as other income over the estimated period of interruption. Concentration of Credit Risk - We perform ongoing credit evaluations of our tenants. Although the tenants operate principally in the retail industry, the properties are geographically diverse. No single tenant accounted for 10% or more of combined base and percentage rental income during 2001, 2000 or 1999. New Accounting Pronouncements - The Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards Nos. 141 and 142, "Business Combinations" and "Goodwill and Other Intangible Assets" ("FAS 141") and ("FAS 142"), respectively on June 29, 2001. The provisions of FAS 141 apply to all business combinations initiated after June 30, 2001. FAS 142 is required to be adopted beginning January 1, 2002. We currently do not have any assets identified as either goodwill or intangible assets. In 2001, the FASB issued SFAS No. 143, "Accounting for Obligations Associated with Retirement of Long-Lived Assets" ("FAS 143"). FAS 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement costs. It also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. FAS No. 143 is effective for fiscal years beginning after June 15, 2002. We believe the provisions of FAS No. 143 will not have a significant effect on our results of operations or our financial position. F-8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144"), which replaces SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("FAS 121"). FAS 144 retains the requirements of FAS 121 to recognized an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and to measure an impairment loss as the difference between the carrying amount and fair value of the asset. The provisions of FAS 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001. We will implement the provisions of FAS 144 on January 1, 2002. We believe FAS 144 will not have a significant effect on our results of operations or our financial position. Under both FAS No. 121 and 144, real estate assets designated as held for sale are stated at their fair value less costs to sell. We classify real estate as held for sale when our Board of Directors approves the sale of the assets and we have commenced an active program to sell the assets. Subsequent to this classification, no further depreciation is recorded on the assets. Under FAS No. 121, the operating results of real estate assets held for sale are included in continuing operations. Upon implementation of FAS No. 144 in 2002, the operating results of newly designated real estate assets held for sale will be included in discontinued operations in the consolidated results of operations. We currently do not have any assets that are held for sale. Supplemental Cash Flow Information - We purchase capital equipment and incur costs relating to construction of new facilities, including tenant finishing allowances. Expenditures included in construction trade payables as of December 31, 2001, 2000 and 1999 amounted to $3,722,000, $9,784,000 and $6,287,000, respectively. Interest paid, net of interest capitalized, in 2001, 2000 and 1999 was $27,379,000 $25,644,000 and $23,179,000, respectively. Other assets includes a receivable from the sale of real estate of $723,500 as of December 31, 2000. 3. Investments in Real Estate Joint Ventures At December 31, 2001, our investment in unconsolidated real estate joint ventures, of which we own 50%, was $4.2 million. These investments are recorded initially at cost and subsequently adjusted for net equity in income (loss) and cash contributions and distributions and are included in other assets. Equity in income (loss) is included in other income. Our investment in real estate joint ventures is reduced by 50% of the profits earned for services we provided to the joint ventures. Effective August 7, 2000, we announced the formation of a joint venture with C. Randy Warren Jr., former Senior Vice President of Leasing of the Company. The new entity, Tanger-Warren Development, LLC ("Tanger-Warren"), was formed to identify, acquire and develop sites exclusively for us. We agreed to be co-managers of Tanger-Warren, each with 50% ownership interest in the joint venture and any entities formed with respect to a specific project. As of December 31, 2001, our investment in Tanger-Warren amounted to approximately $9,000 and the impact of this joint venture on our results of operations has been insignificant. In September 2001, we established a joint venture, TWMB Associates, LLC ("TWMB"), with respect to our Myrtle Beach, South Carolina project with Rosen-Warren Myrtle Beach LLC ("Rosen-Warren"). Rosen-Warren and we each own 50% of TWMB. Also, in September 2001 TWMB began construction on the first phase of a new 400,000 square foot Tanger Outlet Center in Myrtle Beach, SC. In conjunction with the beginning of construction, TWMB closed on a construction loan in the amount of $36.2 million with Bank of America, NA (Agent) and SouthTrust Bank, the proceeds of which will be used to develop the Tanger Outlet Center in Myrtle Beach, SC. As of December 31, 2001, the construction loan had a $10,000 balance. All debt incurred by this unconsolidated joint venture is secured by its property as well as joint and several guarantees by us and by our respective venture partner. We receive fees from TWMB for our respective development, leasing and other services and, upon the opening of phase one of the Myrtle Beach property, will receive on-going asset management fees. Since this project was under construction during 2001, the impact of this joint venture to our consolidated results of operations was insignificant. F-9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary unaudited financial information of joint ventures accounted for using the equity method as of December 31, 2001 and 2000 is as follows (in thousands): 2001 2000 - ----------------------------------------------- --------------- -------------- Assets: Investment properties at cost, net $7,348 $ - Cash and cash equivalents 136 141 Other assets 2,199 175 - ----------------------------------------------- --------------- -------------- Total assets $9,683 $ 316 - ----------------------------------------------- --------------- -------------- Liabilities and Owners' Equity Debt $ 10 $ - Accounts payable and other liabilities 1,030 85 - ----------------------------------------------- --------------- -------------- Total liabilities 1,040 85 Owners' equity 8,643 231 - ----------------------------------------------- --------------- -------------- Total liabilities and owners' equity $9,683 $ 316 - ----------------------------------------------- --------------- --------------
4. Accounting Change - Derivative Financial Instruments Effective January 1, 2001, we adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by FAS 137 and FAS 138 (collectively, "FAS 133"). Upon adoption we recorded a cumulative effect adjustment of $216,500 loss, net of minority interest of $83,000, in other comprehensive income (loss). As discussed in Note 7, certain interest rate swap agreements were terminated during the first quarter of 2001 and the other comprehensive loss totaling $106,000, net of minority interest of $41,000, recognized at adoption relating to these agreements was reclassified to earnings. In accordance with the provisions of FAS 133, our sole remaining interest rate swap agreement has been designated as a cash flow hedge and is carried on the balance sheet at fair value. At December 31, 2001, the fair value of the hedge is recorded as a liability of $973,000 in accounts payable and accrued expenses. For the year ended December 31, 2001, the change in the fair value of the remaining derivative instrument was recorded as a $593,000 loss, net of minority interest of $227,000, to accumulated other comprehensive income. Total comprehensive income for the year ended December 31, 2001 is as follows (in thousands):
2001 - -------------------------------------------------------------- -------------- Net income $ 7,112 Other comprehensive income (loss): Cumulative effect adjustment of FAS 133 adoption, net of minority interest of $83 (217) Reclassification to earnings on termination of cash flow hedge, net of minority interest of $41 106 Change in fair value of cash flow hedge, net of minority interest of $227 (593) - -------------------------------------------------------------- -------------- Other comprehensive loss (704) - -------------------------------------------------------------- -------------- Total comprehensive income $ 6,408 - -------------------------------------------------------------- --------------
5. Deferred Charges Deferred charges as of December 31, 2001 and 2000 consists of the following (in thousands):
2001 2000 - --------------------------------------------- -------------- --------------- Deferred lease costs $ 14,467 $12,849 Deferred financing costs 8,210 6,697 - --------------------------------------------- -------------- --------------- 22,677 19,546 Accumulated amortization (11,264) (10,980) - --------------------------------------------- -------------- --------------- $ 11,413 $ 8,566 - --------------------------------------------- -------------- ---------------
F-10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Amortization of deferred lease costs for the years ended December 31, 2001, 2000 and 1999 was $1,642,000, $1,578,000 and $1,459,000, respectively. Amortization of deferred financing costs, included in interest expense in the accompanying consolidated statements of operations, for the years ended December 31, 2001, 2000 and 1999 was $1,277,000, $1,264,000 and $1,005,000, respectively. During 2001 and 1999, we expensed the unamortized financing costs totaling $338,000 and $345,000 related to debt extinguished prior to its respective maturity date. Such amounts are shown as an extraordinary item in the accompanying consolidated statements of operations. 6. Related Party Transactions In May 2000, the demand notes receivable totaling $3.4 million from Stanley K. Tanger, our Chairman of the Board and Chief Executive Officer, were converted into two separate term notes of which $2.5 million was due from Mr. Tanger and $845,000 was due from Steven B. Tanger, our President and Chief Operating Officer. The notes amortize evenly over five years with principal and interest at a rate of 8% per annum due quarterly. The balance of Mr. Tanger's note at December 31, 2001, through accelerated payments, was $797,000. Steven B. Tanger's note was paid in full during 2001. Additionally in August 2001, the Board of Directors amended the notes to adjust the interest rate from 8% per annum to 90 day LIBOR plus 1.75%. During the first quarter of 2002, Stanley K. Tanger made a quarterly payment of $100,000. 7. Debt Debt at December 31, 2001 and 2000 consists of the following (in thousands):
2001 2000 - ---------------------------------------------------------------- -------------- --------------- 8.75% Senior, unsecured notes, maturing March 2001 $ --- $ 75,000 7.875% Senior, unsecured notes, maturing October 2004 60,509 75,000 9.125% Senior, unsecured notes, maturing February 2008 100,000 --- Mortgage notes with fixed interest: 9.77%, maturing April 2005 14,822 15,099 9.125%, maturing September 2005 8,723 9,120 7.875%, maturing April 2009 63,968 64,980 7.98%, maturing April 2009 19,303 --- 8.86%, maturing September 2010 16,420 16,614 Mortgage notes with variable interest: LIBOR plus 1.75%, maturing March 2006 53,500 29,500 Term note, unsecured, with variable interest: LIBOR plus 2.25%, maturing January 2002 --- 20,000 Revolving lines of credit with variable interest rates ranging from either prime less .25% to prime or from LIBOR plus 1.60% to LIBOR plus 1.75% 20,950 41,530 - ---------------------------------------------------------------- -------------- --------------- $ 358,195 $ 346,843 - ---------------------------------------------------------------- -------------- ---------------
During 2001 we cancelled a $25 million revolving credit facility which reduced our unsecured lines of credit borrowing capacity to $75 million. All line of credit agreements expire in June 2003. Interest is payable based on alternative interest rate bases at our option. Certain of our properties, which had a net book value of approximately $181.7 million at December 31, 2001, serve as collateral for the fixed and variable rate mortgages. The credit agreements require the maintenance of certain ratios, including debt service coverage and leverage, and limit the payment of dividends such that dividends and distributions will not exceed funds from operations, as defined in the agreements, for the prior fiscal year on an annual basis or 95% of funds from operations on a cumulative basis. All four existing fixed rate mortgage notes are with insurance companies and contain prepayment penalty clauses. F-11 On February 9, 2001, we issued $100 million of 9.125% senior, unsecured notes, maturing on February 15, 2008. The net proceeds of $97 million were used to repay all of the outstanding indebtedness under our $75 million 8.75% notes which were due March 11, 2001. The net proceeds were also used to repay the $20 million LIBOR plus 2.25% term loan due January 2002 with Fleet National Bank and Bank of America. The interest rate swap agreements associated with this loan were terminated at a cost of $295,200 which has been included in interest expense. In addition, approximately $180,000 of unamortized costs were written off as an extraordinary item. The remaining proceeds were used for general operating purposes. On March 26, 2001, we entered into a five year collateralized loan with Wells Fargo Bank for $24 million at a variable rate of LIBOR plus 1.75%. The proceeds were used to reduce amounts outstanding under existing lines of credit. Additionally on March 26, 2001, we extended the maturity date of our existing $29.5 million term loan with Wells Fargo Bank from July 2005 to March 2006. On May 1, 2001, we entered into an eight year collateralized loan with John Hancock Life Insurance Company for $19.45 million at a fixed rate of 7.98%. The proceeds were used to reduce amounts outstanding under existing lines of credit. During the fourth quarter of 2001, we purchased at par approximately $14.5 million of our outstanding 7 7/8% senior, unsecured public notes that mature in October 2004. The purchases were funded by amounts available under our unsecured lines of credit which do not mature until June 2003. Accordingly, approximately $158,000 of unamortized bond issuance costs were written off as an extraordinary item. Additionally during the first quarter of 2002, we have purchased at or below par, an additional $4.9 million of October 2004 notes bringing our total notes purchased to $19.4 million. Maturities of the existing debt are as follows (in thousands):
Year Amount % ---------------------------------- ------------- ------------ 2002 $ 2,288 1 2003 23,785 7 2004 63,941 18 2005 23,888 7 2006 53,899 15 Thereafter 190,394 52 ---------------------------------- ------------- ------------ $ 358,195 100 ---------------------------------- ------------- ------------
8. Derivatives and Fair Value of Financial Instruments In December 2000, we entered an interest rate swap agreement effective through January 2003 with a notional amount of $25 million that fixed the 30 day LIBOR index at 5.97%. At December 31, 2001, we would have had to pay $973,000 to terminate the agreement. In January 2000, we entered into interest rate swap agreements on notional amounts totaling $20.0 million. In order to fix the interest rate, we paid $162,000. As mentioned above in Note 7, these agreements subsequently were terminated in February 2001 at a cost of $295,200. The carrying amount of cash equivalents approximates fair value due to the short-term maturities of these financial instruments. The fair value of debt at December 31, 2001 and 2000, estimated at the present value of future cash flows, discounted at interest rates available at the reporting date for new debt of similar type and remaining maturity, was approximately $358.2 and $346.1 million, respectively. F-12 9. Shareholders' Equity The Series A Cumulative Convertible Redeemable Preferred Shares (the "Preferred Shares") were sold to the public during 1993 in the form of Depositary Shares, each representing 1/10 of a Preferred Share. Proceeds from this offering, net of underwriters discount and estimated offering expenses, were contributed to the Operating Partnership in return for preferred partnership Units. The Preferred Shares have a liquidation preference equivalent to $25 per Depositary Share and dividends accumulate per Depositary Share equal to the greater of (i) $1.575 per year or (ii) the dividends on the common shares or portion thereof, into which a depositary share is convertible. The Preferred Shares rank senior to the common shares in respect of dividend and liquidation rights. The Preferred Shares are convertible at the option of the holder at any time into common shares at a rate equivalent to .901 common shares for each Depositary Share. At December 31, 2001, 726,203 common shares were reserved for the conversion of Depositary Shares. The Preferred Shares and Depositary Shares may be redeemed at the option of the Company, in whole or in part, at a redemption price of $25 per Depositary Share, plus accrued and unpaid dividends. During 1998, our Board of Directors authorized the repurchase of up to $6 million of our common shares. The timing and amount of purchases will be at the discretion of management. During 1999, we purchased and retired 48,300 common shares at a price of $958,000. We purchased no common shares during 2001 or 2000. The amount authorized for future repurchases remaining at December 31, 2001 totaled $4.8 million. 10. Shareholders' Rights Plan On July 30, 1998, our Board of Directors declared a distribution of one Preferred Share Purchase Right (a "Right") for each then outstanding common share to shareholders of record on August 27, 1998. The Rights are exercisable only if a person or group acquires 15% or more of our outstanding common shares or announces a tender offer the consummation of which would result in ownership by a person or group of 15% or more of the common shares. Each Right entitles shareholders to buy one-hundredth of a share of a new series of Junior Participating Preferred Shares at an exercise price of $120, subject to adjustment. If an acquiring person or group acquires 15% or more of our outstanding common shares, an exercisable Right will entitle its holder (other than the acquirer) to buy, at the Right's then-current exercise price, our common shares having a market value of two times the exercise price of one Right. If an acquirer acquires at least 15%, but less than 50%, of our common shares, the Board may exchange each Right (other than those of the acquirer) for one common share (or one-hundredth of a Class B Preferred Share) per Right. In addition, under certain circumstances, if we are involved in a merger or other business combination where we are not the surviving corporation, an exercisable Right will entitle its holder to buy, at the Right's then-current exercise price, common shares of the acquiring company having a market value of two times the exercise price of one Right. We may redeem the Rights at $.01 per Right at any time prior to a person or group acquiring a 15% position. The Rights will expire on August 26, 2008. F-13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. Earnings Per Share A reconciliation of the numerators and denominators in computing earnings per share in accordance with Statement of Financial Accounting Standards No. 128, Earnings per Share, for the years ended December 31, 2001, 2000 and 1999 is set forth as follows (in thousands, except per share amounts):
2001 2000 1999 - --------------------- -------------------------------------------- ------------- ---------------- ------------- NUMERATOR: Income before extraordinary item $ 7,356 $ 4,312 $15,837 Less applicable preferred share dividends (1,771) (1,823) (1,917) - ------------------------------------------------------------------ ------------- ---------------- ------------- Income available to common shareholders- numerator for basic and diluted earnings per share 5,585 2,489 13,920 - ------------------------------------------------------------------ ------------- ---------------- ------------- DENOMINATOR: Basic weighted average common shares 7,926 7,894 7,861 Effect of outstanding share and unit options 22 28 11 - ------------------------------------------------------------------ ------------- ---------------- ------------- Diluted weighted average common shares 7,948 7,922 7,872 - ------------------------------------------------------------------ ------------- ---------------- ------------- Basic earnings per share before extraordinary item $ .70 $ 0.32 $ 1.77 - ------------------------------------------------------------------ ------------- ---------------- ------------- Diluted earnings per share before extraordinary item $ .70 $ 0.31 $ 1.77 - ------------------------------------------------------------------ ------------- ---------------- -------------
Options to purchase common shares excluded from the computation of diluted earnings per share during 2001, 2000 and 1999 because the exercise price was greater than the average market price of the common shares totaled 1,244,000, 1,270,078 and 683,218 shares. The assumed conversion of the preferred shares as of the beginning of each year would have been anti-dilutive. The assumed conversion of the Units held by TFLP as of the beginning of the year, which would result in the elimination of earnings allocated to the minority interest, would have no impact on earnings per share since the allocation of earnings to an Operating Partnership Unit is equivalent to earnings allocated to a common share. 12. Employee Benefit Plans We have a non-qualified and incentive share option plan ("The Share Option Plan") and the Operating Partnership has a non-qualified Unit option plan ("The Unit Option Plan"). Units received upon exercise of Unit options are exchangeable for common shares. We account for these plans under APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for these plans been determined for options granted since January 1, 1995 consistent with Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), our net income and earnings per share would have been reduced to the following pro forma amounts (in thousands, except per share amounts):
2001 2000 1999 --------------- ---------------- ------------ ------------- ------------ Net income: As reported $7,112 $ 4,312 $15,588 Pro forma $6,937 $ 4,094 $15,387 Basic EPS: As reported $ .67 $ .32 $ 1.74 Pro forma $ .65 $ .29 $ 1.71 Diluted EPS: As reported $ .67 $ .31 $ 1.74 Pro forma $ .65 $ .29 $ 1.71
F-14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2000 and 1999, respectively: expected dividend yields ranging from 10% to 11%; expected lives ranging from 5 years to 7 years; expected volatility ranging from 20% to 23%; and risk-free interest rates ranging from 4.72% to 6.61%. There were no option grants in 2001. We may issue up to 1,750,000 shares under The Share Option Plan and The Unit Option Plan. We have granted 1,529,310 options, net of options forfeited, through December 31, 2001. Under both plans, the option exercise price is determined by the Share and Unit Option Committee of the Board of Directors. Non-qualified share and Unit options granted expire 10 years from the date of grant and 20% of the options become exercisable in each of the first five years commencing one year from the date of grant. Options outstanding at December 31, 2001 have exercise prices between $18.625 and $31.25, with a weighted average exercise price of $23.72 and a weighted average remaining contractual life of 4.75 years. A summary of the status of the our two plans at December 31, 2001, 2000 and 1999 and changes during the years then ended is presented in the table and narrative below: 2001 2000 1999 --------------------------- ------------------------- ----------------------- Wtd Avg Wtd Avg Wtd Avg Shares Ex Price Shares Ex Price Shares Ex Price - ----------------------------- ------------- ------------- ------------ ------------ ----------- ----------- Outstanding at beginning of year 1,475,270 $ 23.68 1,280,890 $ 24.63 1,069,060 $ 25.27 Granted --- --- 240,200 18.63 241,800 22.13 Exercised (10,800) 18.625 --- --- (500) 23.80 Forfeited (8,640) 23.66 (45,820) 23.72 (29,470) 26.94 - ----------------------------- -------------- ---------- -------------- ----------- ------------- ----------- Outstanding at end of year 1,455,830 $ 23.72 1,475,270 $ 23.68 1,280,890 $ 24.63 - ----------------------------- -------------- ---------- -------------- ----------- ------------- ----------- Exercisable at end of year 1,047,890 $ 24.25 888,230 $ 24.28 742.030 $ 24.08 Weighted average fair value of options granted $ --- $ 1.20 $ 1.05
We have a qualified retirement plan, with a salary deferral feature designed to qualify under Section 401 of the Code (the "401(k) Plan"), which covers substantially all of our officers and employees. The 401(k) Plan permits our employees, in accordance with the provisions of Section 401(k) of the Code, to defer up to 20% of their eligible compensation on a pre-tax basis subject to certain maximum amounts. Employee contributions are fully vested and are matched by us at a rate of compensation deferred to be determined annually at our discretion. The matching contribution is subject to vesting under a schedule providing for 20% annual vesting starting with the third year of employment and 100% vesting after seven years of employment. The employer matching contribution expense for the years 2001, 2000 and 1999 was immaterial. Effective January 1, 2002, the vesting schedule of our 401(k) Plan was amended providing for 20% annual vesting starting with the second year of employment with 100% vesting after six years of employment. 13. Asset Write-Down During November 2000, we terminated our contract to purchase twelve acres of land in Dania Beach/Ft. Lauderdale, FL. Because of this event, we wrote off all development costs associated with the site in Ft. Lauderdale. In addition, other costs associated with various other non-recurring development activities at other sites were written off. The total non-cash, non-recurring charge for abandoned development costs in the fourth quarter of 2000 was $1.8 million. F-15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. Disposition of Properties In June 2000, we sold our centers in Lawrence, KS and McMinnville, OR. Net proceeds received from the sales totaled $7.1 million. As a result of the sales, we recognized a loss on sale of real estate of $5.9 million. The combined net operating income of these two centers represented approximately 1% of our total portfolio's operating income. In December 2000, we sold the real estate that the Stroud, OK center was located on prior to its destruction in May 1999 by a tornado. The land and site work had a net book value of $1.8 million and we recognized a loss on sale of real estate of $1,046,000. The net proceeds from the sale of the real estate of approximately $723,500 were received in January 2001. 15. Supplementary Income Statement Information The following amounts are included in property operating expenses for the years ended December 31, 2001, 2000 and 1999 (in thousands):
2001 2000 1999 - -------------------------------- ------------- ------------ ------------ Advertising and promotion $ 9,250 $ 9,114 $ 8,579 Common area maintenance 13,155 13,777 12,296 Real estate taxes 8,902 7,434 7,396 Other operating expenses 3,332 3,298 2,314 - -------------------------------- ------------- ------------ ------------ $ 34,639 $ 33,623 $ 30,585 - -------------------------------- ------------- ------------ ------------
16. Lease Agreements The Company is the lessor of a total of 1,147 stores in 29 factory outlet centers, under operating leases with initial terms that expire from 2002 to 2019. Most leases are renewable for five years at the lessee's option. Future minimum lease receipts under non-cancelable operating leases as of December 31, 2001 are as follows (in thousands):
2002 $ 67,523 2003 55,147 2004 43,520 2005 30,041 2006 17,328 Thereafter 40,422 -------------------- -------------------- $ 253,981 -------------------- --------------------
17. Commitments and Contingencies At December 31, 2001, there were no material commitments for construction of new developments or additions to existing properties. Commitments for construction represent only those costs contractually required to be paid by us. We purchased the rights to lease land on which two of the outlet centers are situated for $1,520,000. These leasehold rights are being amortized on a straight-line basis over 30 and 40 year periods. Accumulated amortization was $664,000 and $615,000 at December 31, 2001 and 2000, respectively. F-16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Our non-cancelable operating leases, with initial terms in excess of one year, have terms that expire from 2002 to 2085. Annual rental payments for these leases aggregated $2,333,000, $2,023,000 and $1,481,000, for the years ended December 31, 2001, 2000 and 1999, respectively. Minimum lease payments for the next five years and thereafter are as follows (in thousands):
2002 $ 2,264 2003 1,914 2004 1,832 2005 1,824 2006 1,819 Thereafter 64,401 ------------------- --------------------- $ 74,054 ------------------- ---------------------
We are also subject to legal proceedings and claims which have arisen in the ordinary course of business and have not been finally adjudicated. In our opinion, the ultimate resolution of these matters will have no material effect on our results of operations, financial condition or cash flows. F-17 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Tanger Factory Outlet Centers, Inc. and Subsidiaries Our audits of the consolidated financial statements referred to in our report dated January 17, 2002 appearing in the 2001 Form 10-K of Tanger Factory Outlet Centers, Inc. also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP Raleigh, North Carolina January 17, 2002 F-18
TANGER FACTORY OUTLET CENTERS, INC. and SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION For the Year Ended December 31, 2001 (In thousands) - ------------------------------------- -------------- ------------------------ ----------------------- Costs Capitalized Subsequent to Acquisition Description Initial cost to Company (Improvements) - ------------------------------------- -------------- ------------------------ ----------------------- Buildings, Buildings, Outlet Center Improvements Improvements Name Location Encumbrances Land & Fixtures Land & Fixtures - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Barstow Barstow, CA -- $3,941 $ 12,533 $ --- $ 1,209 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Blowing Rock Blowing Rock, NC $ 9,782 1,963 9,424 --- 2,185 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Boaz Boaz, AL --- 616 2,195 --- 2,142 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Bourne Bourne, MA --- 899 1,361 --- 290 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Branch North Branch, MN --- 247 5,644 249 4,030 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Branson Branson, MO 24,000 4,557 25,040 --- 7,751 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Casa Grande Casa Grande, AZ --- 753 9,091 --- 1,907 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Clover North Conway, NH --- 393 672 --- 247 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Commerce I Commerce, GA 8,723 755 3,511 492 9,273 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Commerce II Commerce, GA 29,500 1,262 14,046 541 17,838 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Dalton Dalton, GA 11,327 1,641 15,596 --- 444 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Ft. Lauderdale Ft. Lauderdale, FL 9,412 6,986 300 18 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Gonzales Gonzales, LA --- 876 15,895 17 5,248 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Kittery-I Kittery, ME 6,445 1,242 2,961 229 1,339 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Kittery-II Kittery, ME --- 921 1,835 529 597 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Lancaster Lancaster, PA 14,822 3,691 19,907 --- 11,091 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- LL Bean North Conway, NH --- 1,894 3,351 --- 1,063 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Locust Grove Locust Grove, GA --- 2,558 11,801 --- 8,365 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Martinsburg Martinsburg, WV --- 800 2,812 --- 1,391 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Nags Head Nags Head, NC 6,638 1,853 6,679 --- 1,747 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Pigeon Forge Pigeon Forge, TN --- 299 2,508 --- 2,046 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Riverhead Riverhead, NY --- --- 36,374 6,152 72,640 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- San Marcos San Marcos, TX 38,542 1,801 9,440 17 35,170 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Sanibel Sanibel, FL --- 4,916 23,196 --- 3,014 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Sevierville Sevierville, TN --- --- 18,495 --- 25,823 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Seymour Seymour, IN --- 1,671 13,249 --- 692 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Terrell Terrell, TX --- 778 13,432 --- 5,660 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- West Branch West Branch, MI 7,190 350 3,428 121 5,216 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- Williamsburg Williamsburg, IA 19,767 706 6,781 716 12,429 - ----------------- ------------------- -------------- --------- -------------- -------- -------------- $ 176,736 $ 50,795 $298,243 $9,363 $240,865 - ----------------- ------------------- -------------- --------- -------------- -------- --------------
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TANGER FACTORY OUTLET CENTERS, INC. and SUBSIDIARIES SCHEDULE III -(Continued) REAL ESTATE AND ACCUMULATED DEPRECIATION For the Year Ended December 31, 2001 (In thousands) - ------------------------------------- -------------------------------------- ------------- ------------- -------------- Gross Amount Carried at Close of Period Description 12/31/01 (1) - ------------------------------------- -------------------------------------- ------------- ------------- -------------- Life Used to Compute Buildings, Depreciation Outlet Center Improvements Accumulated Date of in Income Name Location Land & Fixtures Total Depreciation Construction Statement - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Barstow Barstow, CA $3,941 $13,742 $17,683 $4,724 1995 (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Blowing Rock Blowing Rock, NC 1,963 11,609 13,572 1,693 1997 (3) (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Boaz Boaz, AL 616 4,337 4,953 2,140 1988 (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Bourne Bourne, MA 899 1,651 2,550 892 1989 (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Branch North Branch, MN 496 9,674 10,170 4,010 1992 (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Branson Branson, MO 4,557 32,790 37,347 11,202 1994 (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Casa Grande Casa Grande, AZ 753 10,998 11,751 5,199 1992 (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Clover North Conway, NH 393 919 1,312 533 1987 (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Commerce I Commerce, GA 1,247 12,784 14,031 5,143 1989 (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Commerce II Commerce, GA 1,803 31,884 33,687 7,979 1995 (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Dalton Dalton, GA 1,641 16,040 17,681 2,023 1998 (3) (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Ft. Lauderdale Ft. Lauderdale, FL 9,712 7,004 16,716 571 1999 (3) (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Gonzales Gonzales, LA 893 21,143 22,036 8,869 1992 (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Kittery-I Kittery, ME 1,471 4,300 5,771 2,569 1986 (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Kittery-II Kittery, ME 1,450 2,432 3,882 1,124 1989 (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Lancaster Lancaster, PA 3,691 30,998 34,689 8,953 1994 (3) (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- LL Bean North Conway, NH 1,894 4,414 6,308 2,247 1988 (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Locust Grove Locust Grove, GA 2,558 20,166 22,724 6,470 1994 (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Martinsburg Martinsburg, WV 800 4,203 5,003 2,250 1987 (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Nags Head Nags Head, NC 1,853 8,426 10,279 1,526 1997 (3) (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Pigeon Forge Pigeon Forge, TN 299 4,554 4,853 2,254 1988 (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Riverhead Riverhead, NY 6,152 109,014 115,166 24,336 1993 (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- San Marcos San Marcos, TX 1,818 44,610 46,428 8,356 1993 (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Sanibel Sanibel, FL 4,916 26,210 31,126 2,871 1998 (3) (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Sevierville Sevierville, TN --- 44,318 44,318 6,847 1997 (3) (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Seymour Seymour, IN 1,671 13,941 15,612 5,360 1994 (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Terrell Terrell, TX 778 19,092 19,870 6,721 1994 (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- West Branch West Branch, MI 471 8,644 9,115 3,475 1991 (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- Williamsburg Williamsburg, IA 1,422 19,210 20,632 8,613 1991 (2) - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- $60,158 $539,108 $599,266 $148,950 - ----------------- ------------------- --------- --------------- ------------ ------------- ------------- -------------- (1) Aggregate cost for federal income tax purposes is approximately $618,886,000 (2) The Company generally uses estimated lives ranging from 25 to 33 years for buildings and 15 years for land improvements. Tenant finishing allowances are depreciated over the initial lease term. (3) Represents year acquired
F-20 TANGER FACTORY OUTLET CENTERS, INC. and SUBSIDIARIES SCHEDULE III - (Continued) REAL ESTATE AND ACCUMULATED DEPRECIATION For the Year Ended December 31, 2001 (In Thousands) The changes in total real estate for the three years ended December 31, 2001 are as follows:
2001 2000 1999 -------------- ---------------- ----------------- Balance, beginning of year $584,928 $566,216 $529,247 Acquisition of real estate --- --- 15,500 Improvements 14,338 39,701 31,343 Dispositions and other --- (20,989) (9,874) -------------- ---------------- ----------------- Balance, end of year $599,266 $584,928 $566,216 ============== ================ =================
The changes in accumulated depreciation for the three years ended December 31, 2001 are as follows:
2001 2000 1999 -------------- ---------------- ---------------- Balance, beginning of year $ 122,365 $ 104,511 $84,685 Depreciation for the period 26,585 24,239 23,095 Dispositions and other --- (6,385) (3,269) -------------- ---------------- ---------------- Balance, end of year $148,950 $122,365 $104,511 ============== ================ ================
F-21