-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KlETZT3rS429F7xio6ywBKrNSzicdC0hsbEr3Bt+9pIygSb39r4qpO1teAFpXXSS uNGqsRJmFzKEUuE9ewk9pQ== 0000950116-00-001250.txt : 20000516 0000950116-00-001250.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950116-00-001250 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RESOURCE AMERICA INC CENTRAL INDEX KEY: 0000083402 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 720654145 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-04408 FILM NUMBER: 635897 BUSINESS ADDRESS: STREET 1: 1521 LOCUST ST STREET 2: 4TH FL CITY: PHILADELPHIA STATE: PA ZIP: 19102 BUSINESS PHONE: 2155465005 MAIL ADDRESS: STREET 1: 1521 LOCUST ST CITY: PHILADELPHIA STATE: PA ZIP: 19102 FORMER COMPANY: FORMER CONFORMED NAME: RESOURCE EXPLORATION INC DATE OF NAME CHANGE: 19890214 FORMER COMPANY: FORMER CONFORMED NAME: SMTR CORP DATE OF NAME CHANGE: 19700522 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 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: 0-4408 RESOURCE AMERICA, INC. ---------------------- (Exact name of registrant as specified in its charter) Delaware 72-0654145 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1521 Locust Street, Suite 400, Philadelphia, PA 19102 (Address of principal executive offices) (Zip code) (215) 546-5005 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of outstanding shares of each of the issuer's classes of common stock, as of the latest practicable date: 23,364,097 Shares May 8, 2000 RESOURCE AMERICA, INC. AND SUBSIDIARIES INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE -------- Item 1. Financial Statements Consolidated Balance Sheets - March 31, 2000 (Unaudited) and September 30, 1999.................................................................... 3 Consolidated Statements of Income (Unaudited) Three Months and Six Months Ended March 31, 2000 and 1999................................. 4 Consolidated Statements of Comprehensive Income (Unaudited) Three Months and Six Months Ended March 31, 2000 and 1999................................. 5 Consolidated Statement of Changes in Stockholders' Equity (Unaudited) Six Months Ended March 31, 2000........................................................... 6 Consolidated Statements of Cash Flows (Unaudited) Six Months Ended March 31, 2000 and 1999.................................................. 7 Notes to Consolidated Financial Statements (Unaudited) March 31, 2000............................................................................ 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................. 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................... 22 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.............................................................. 23 SIGNATURES................................................................................................. 23
2 PART I ITEM 1. FINANCIAL STATEMENTS RESOURCE AMERICA, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
March 31, September 30, 2000 1999 ---------------- ----------- (Unaudited) ASSETS Cash and cash equivalents........................................................... $ 19,220 $ 42,643 Accounts and notes receivable and other prepaid expenses............................ 12,645 18,977 Net assets of discontinued operations............................................... 97,537 2,394 Investments in real estate loans (less allowance for possible losses of $1,705 and $1,405)............................................ 183,599 250,231 Investments in real estate ventures................................................. 17,546 18,159 Investments in leases and notes receivable (less allowance for possible losses of $10,017)..................................................... - 401,461 Investment in Resource Asset Investment Trust....................................... 8,986 9,300 Property and equipment: Oil and gas properties and equipment (successful efforts)........................ 83,725 78,923 Gas gathering and transmission facilities........................................ 18,265 18,061 Other............................................................................ 6,934 12,198 ------------ ------------- 108,924 109,182 Less - accumulated depreciation, depletion and amortization...................... (23,511) (21,213) ------------- -------------- Net property and equipment................................................. 85,413 87,969 Other assets (less accumulated amortization of $8,360 and $6,058)................... 53,236 70,253 ------------ ------------- $ 478,182 $ 901,387 ============ ============= LIABILITIES AND STOCKHOLDERS' EQUITY Debt: Warehouse debt................................................................... $ - $ 15,291 Non-recourse debt................................................................ 53,290 439,943 Senior debt...................................................................... 99,100 101,400 Other debt ...................................................................... 5,649 21,188 ------------ ------------- Total debt................................................................. 158,039 577,822 Other liabilities: Accounts payable................................................................. 11,106 16,751 Accrued liabilities.............................................................. 13,206 27,395 Estimated income taxes........................................................... 4,000 2,563 Deferred income taxes............................................................ 7,700 13,069 ------------ ------------- Total liabilities.......................................................... 194,051 637,600 Minority interest in Atlas Pipeline Partners, L.P................................... 17,699 - Commitments and contingencies....................................................... - - Stockholders' equity Preferred stock, $1.00 par value: 1,000,000 authorized shares .................. - - Common stock, $.01 par value: 49,000,000 authorized shares....................... 244 244 Accumulated other comprehensive loss............................................. (1,974) (1,764) Additional paid-in capital....................................................... 221,022 221,084 Less treasury stock, at cost..................................................... (16,507) (17,002) Less loan receivable from Employee Stock Ownership Plan ("ESOP") ................ (1,440) (1,488) Retained earnings................................................................ 65,087 62,713 ------------ ------------- Total stockholders' equity................................................. 266,432 263,787 ------------ ------------- $ 478,182 $ 901,387 ============ =============
See accompanying notes to consolidated financial statements 3 RESOURCE AMERICA, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended March 31, March 31, ------------------------- ---------------------- 2000 1999 2000 1999 ---------- ----------- ----------- -------- (in thousands, except share data) REVENUES Real estate finance.................................................... $ 3,763 $ 9,767 $ 10,414 $ 19,768 Energy................................................................. 23,333 14,002 39,257 29,128 Interest and other..................................................... 2,022 1,845 4,579 3,517 --------- --------- --------- -------- 29,118 25,614 54,250 52,413 COSTS AND EXPENSES Real estate finance.................................................... 721 1,174 1,455 1,652 Energy................................................................. 16,900 7,990 28,356 19,336 General and administrative............................................. 1,996 1,961 3,845 2,949 Depreciation, depletion and amortization............................... 2,545 1,332 5,099 2,626 Interest............................................................... 4,455 3,990 9,210 7,930 Provision for possible losses.......................................... 225 213 445 325 Minority interest in Atlas Pipeline Partners, L.P...................... 360 - 360 - --------- --------- --------- -------- 27,202 16,660 48,770 34,818 --------- --------- --------- -------- Income from continuing operations before income taxes.................. 1,916 8,954 5,480 17,595 Provision for income taxes............................................. 613 2,819 1,753 5,674 --------- --------- --------- -------- Income from continuing operations before extraordinary item............ 1,303 6,135 3,727 11,921 Discontinued operations: Income (loss) from operations of subsidiary......................... (157) 600 453 26 Loss on disposal of subsidiary...................................... (445) - (445) - ---------- --------- --------- -------- 701 6,735 3,735 11,947 Extraordinary item, net of taxes of $34, $93 and $150.................. 71 - 197 291 --------- --------- --------- -------- Net income............................................................. $ 772 $ 6,735 $ 3,932 $ 12,238 ========= ========= ========= ======== Net income per common share - basic: From continuing operations.......................................... $ .06 $ .28 $ .16 $ .54 Discontinued operations............................................. (.03) .03 - - Extraordinary item.................................................. - - .01 .02 --------- --------- --------- -------- Net income per common share - basic.................................... $ .03 $ .31 $.17 $.56 ========= ========= ========= ======== Weighted average common shares outstanding............................. 23,110 22,020 23,350 21,944 ========= ========= ========= ======== Net income per common share - diluted: From continuing operations.......................................... $ .06 $ .27 $ .16 $ .53 Discontinued operations............................................. (.03) .03 - - Extraordinary item.................................................. - - .01 .01 --------- --------- --------- -------- Net income per common share - diluted.................................. $ .03 $ .30 $ .17 $ .54 ======== ========= ========= ======== Weighted average common shares......................................... 23,520 22,656 23,768 22,597 ========= ========= ========= ========
See accompanying notes to consolidated financial statements 4 RESOURCE AMERICA, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three Months Ended Six Months Ended March 31, March 31, ------------------------- ---------------------- 2000 1999 2000 1999 ---------- ----------- ----------- -------- (in thousands) Net income............................................................. $ 772 $ 6,735 $ 3,932 $ 12,238 Other comprehensive (loss) income: Unrealized (loss) gain on investment................................ (52) 627 (313) (2,090) Tax effect.......................................................... 14 (227) 103 713 --------- ---------- --------- -------- (38) 400 (210) (1,377) ---------- --------- --------- -------- Comprehensive income................................................... $ 734 $ 7,135 $ 3,722 $ 10,861 ========= ========= ========= ========
See accompanying notes to consolidated financial statements 5 RESOURCE AMERICA, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY SIX MONTHS ENDED MARCH 31, 2000 (Unaudited) (in thousands, except share data)
Accumulated Common stock Other Additional ---------------------------- Comprehensive Paid-In Shares Amount Loss Capital ------------------------------------------------------------ Balance, October 1, 1999.................. 24,385,279 $ 244 $ (1,764) $ 221,084 Treasury shares issued.................... (417) Issuance of common stock.................. 51,964 355 Purchase of treasury stock................ Other comprehensive loss: (210) Net unrealized loss on investment...... Cash dividends ($.066 per share).......... Repayment of ESOP Loan.................... Net income................................ ----------- --------- ----------- ----------- Balance, March 31, 2000................... 24,437,243 $ 244 $ (1,974) $ 221,022 =========== ========= =========== ===========
[RESTUB]
Treasury Stock ESOP Totals ---------------------------- Loan Retained Stockholders' Shares Amount Receivable Earnings Equity ----------------------------------------------------------------------- Balance, October 1, 1999.................. (1,071,432) $ (17,002) $ (1,488) $ 62,713 $ 263,787 Treasury shares issued.................... 18,286 631 214 Issuance of common stock.................. 355 Purchase of treasury stock................ (20,000) (136) (136) Other comprehensive loss: (210) Net unrealized loss on investment...... Cash dividends ($.066 per share).......... (1,558) (1,558) Repayment of ESOP Loan.................... 48 48 Net income................................ 3,932 3,932 ----------- ---------- --------- ---------- ----------- Balance, March 31, 2000................... (1,073,146) $ (16,507) $ (1,440) $ 65,087 $ 266,432 ========== ========== ========= ========== ===========
See accompanying notes to consolidated financial statements 6 RESOURCE AMERICA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended March 31, ---------------------------- 2000 1999 ----------- --------- (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................................................ $ 3,932 $ 12,238 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, depletion and amortization............................................... 5,099 2,626 Amortization of discount on senior debt and deferred finance costs..................... 562 556 Provision for possible losses.......................................................... 445 325 Minority interest in Atlas Pipeline Partners, L.P...................................... 360 - Loss on disposal of subsidiary......................................................... 445 - Income from operations of discontinued subsidiary...................................... (453) (26) Gain on asset dispositions............................................................. (1,244) (3,546) Property impairments and abandonments.................................................. 426 (14) Deferred income taxes.................................................................. (4,182) (1,250) Accretion of discount.................................................................. (2,488) (12,975) Collection of interest................................................................. 6,414 7,370 Extraordinary gain on debt extinguishment.............................................. (197) (291) Change in operating assets and liabilities: Increase in accounts receivable and other assets....................................... (683) (957) Increase (decrease) in accounts payable and other liabilities.......................... 1,817 (6,703) ----------- ------------ Net cash provided by (used in) operating activities of continuing operations.............. 10,253 (2,647) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of subsidiary.......................................................... - 3,556 Capital expenditures...................................................................... (7,951) (6,738) Principal payments on notes receivable.................................................... 65,859 - Proceeds from sale of assets.............................................................. 788 8,585 Increase in other assets.................................................................. (2,624) (1,125) Investments in real estate loans and ventures............................................. (1,894) (85,167) Net change in net assets of discontinued operations....................................... (14,470) - Decrease in other liabilities............................................................. (228) (9,674) ----------- ----------- Net cash provided by (used in) investing activities of continuing operations.............. 39,480 (90,563) CASH FLOWS FROM FINANCING ACTIVITIES: Non-recourse borrowings................................................................... 61,647 132,806 Principal payments on non-recourse borrowings............................................. (135,108) (46,808) Principal payments on other borrowings.................................................... (2,205) - Dividends paid............................................................................ (1,558) (1,461) Net proceeds from Atlas Pipeline Partners, L.P. public offering .......................... 14,042 - Treasury stock purchased.................................................................. (136) - Decrease in restricted cash............................................................... 32 - Repayment of ESOP loan.................................................................... 48 23 Decrease in other assets.................................................................. - 458 Proceeds from issuance of stock........................................................... 570 846 ----------- ----------- Net cash (used in) provided by financing activities of continuing operations.............. (62,668) 85,864 ------------ ----------- Net cash used in discontinued operations.................................................. (10,488) (41,979) ------------ ------------ Decrease in cash and cash equivalents..................................................... (23,423) (49,325) Cash and cash equivalents at beginning of period.......................................... 42,643 73,345 ----------- ----------- Cash and cash equivalents at end of period................................................ $ 19,220 $ 24,020 =========== ===========
See accompanying notes to consolidated financial statements 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - MARCH 31, 2000 (Unaudited) NOTE 1 - Management's Opinion Regarding Interim Financial Statements In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair statement of the results of operations for the interim periods included herein have been made. Certain reclassifications have been made to the consolidated financial statements for the second fiscal quarter and six months ended March 31, 1999 to conform to the second fiscal quarter and six months ended March 31, 2000. In addition, certain reclassifications have been made to the consolidated financial statements for the second fiscal quarter and six months ended March 31, 1999 to reflect discontinued operations of the Company's small ticket equipment leasing business. The accounting policies followed by the Company, except as set forth in Note 2, are set forth in Note 2 to the Company's consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1999. NOTE 2 - Summary of Significant Accounting Policies Other Assets Included in other assets are intangible assets that consist primarily of contracts acquired through acquisitions recorded at fair value on their acquisition dates, the excess of the acquisition cost over the fair value of the net assets of a business acquired (goodwill) and deferred financing costs. The contracts acquired are being amortized on a declining balance method, except for a syndication network which is being amortized on a straight-line basis, over their respective estimated lives, ranging from five to 30 years, goodwill is being amortized on a straight-line basis over periods ranging from 15 to 30 years, deferred financing costs are being amortized over the terms of the related loans (two to seven years) and others costs are being amortized over varying periods of up to five years. Other assets consist of the following:
March 31, September 30, 2000 1999 ---------- ---------- (Unaudited) (in thousands) Goodwill ............................................................................. $ 28,756 $ 43,255 Contracts acquired (including syndication network).................................... 17,936 18,636 Deferred financing costs.............................................................. 3,477 5,842 Net assets held for disposition....................................................... - 850 Other................................................................................. 3,067 1,670 --------- --------- $ 53,236 $ 70,253 ========= =========
Fair Value of Financial Instruments The following methods and assumptions were used by the Company in estimating the fair value of each class of financial instruments for which it is practicable to estimate fair value: For cash and cash equivalents, receivables and payables, the carrying amounts approximate fair value because of the short maturity of these instruments. For investments in real estate loans, because each loan is a unique transaction involving a discrete property, it is impractical to determine their fair values. However, the Company believes the carrying amounts of the loans are reasonable estimates of their fair value considering the nature of the loans and the estimated yield relative to the risks involved. 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - MARCH 31, 2000 (Unaudited) - (Continued) NOTE 2 - Summary of Significant Accounting Policies - (Continued) The following table provides information for financial instruments as of March 31, 2000:
Carrying Estimated Amount Fair Value ------------- ------------ (Unaudited) (in thousands) Real estate finance.......................................................... $ 25,875 $ 25,875 Energy....................................................................... 27,415 27,415 Senior debt.................................................................. 99,100 81,262 Other debt................................................................... 5,649 5,649 ------------- ------------ $ 158,039 $ 140,201 ============= ============
Earnings Per Share The following table presents a reconciliation of the components used in the comparison of net income per common share-basic and net income per common share-diluted for the three months and six months ended March 31, 2000 and 1999:
Three Months Ended Six Months Ended March 31, March 31, --------------------------- ------------------ 2000 1999 2000 1999 ----------- ----------- ----------- -------- (Unaudited) (in thousands, except share data) Income from continuing operations before extraordinary item................................ $ 1,303 $ 6,135 $ 3,727 $ 11,921 Income (loss) from discontinued operations................ (602) 600 8 26 Extraordinary gain on early extinguishment of debt................................................ 71 - 197 291 ----------- ----------- ----------- ----------- Net income........................................... $ 772 $ 6,735 $ 3,932 $ 12,238 =========== =========== =========== =========== Basic weighted average shares of common stock outstanding..................................... 23,110 22,020 23,350 21,944 Dilutive effect of stock option and award plans .......................................... 410 636 418 653 ----------- ----------- ----------- ----------- Dilutive weighted average shares of common stock........................................... 23,520 22,656 23,768 22,597 =========== =========== =========== ===========
9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - MARCH 31, 2000 (Unaudited) - (Continued) NOTE 3 - Cash Flow Statements Supplemental disclosure of cash flow information:
Six Months Ended March 31, -------------------------- 2000 1999 ---- ---- (Unaudited) (in thousands) Cash paid during the period for: Interest.................................................................. $ 9,649 $ 9,614 Income taxes.............................................................. $ 5,834 $ 12,702 Non-cash activities include the following: Acquisition of business: Fair value of assets acquired........................................... $ - $ 315,466 Liabilities assumed..................................................... - (147,534) Debt issued............................................................. - (142,997) Amounts due seller...................................................... - (6,673) ----------- ----------- Net cash paid............................................................. $ - $ 18,262 =========== =========== Disposal of business: Net liabilities assumed by buyer........................................ $ - $ 4,436 =========== ===========
NOTE 4 - Discontinued Operations In February 2000, the Company adopted a plan to sell Fidelity Leasing, Inc. and subsidiaries ("FLI"), its small ticket equipment leasing business. The Company anticipates that the business will be sold by September 30, 2000. Accordingly, FLI is reported as a discontinued operation for the three and six months ended March 31, 2000 and 1999. Net assets of FLI at March 31, 2000 were $95.0 million and are summarized in the following table (Unaudited) (in thousands):
Cash and cash equivalents............................................................................... $ 16,957 Investment in leases and notes receivable, net of $9,763 allowance...................................... 467,680 Net fixed assets........................................................................................ 3,592 Other assets............................................................................................ 25,709 Debt.................................................................................................... (402,152) Accrued accounts payable and liabilities................................................................ (16,768) ----------- Net assets of discontinued FLI operations............................................................... $ 95,018 ===========
10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - MARCH 31, 2000 (Unaudited) - (Continued) NOTE 4 - Discontinued Operations - (Continued) Summarized operating results of the discontinued FLI operation are as follows:
Three Months Ended Six Months Ended March 31, March 31, --------------------------- -------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (Unaudited) (in thousands) Net revenues.............................................. $ 14,961 $ 10,740 $ 29,552 $ 14,386 =========== =========== =========== =========== (Loss) income from operations before income tax (provision) benefit................................ $ (268) $ 2,252 $ 775 $ 2,522 Income tax benefit (provision) ........................... 111 (935) (322) (1,047) ----------- ------------ ------------ ----------- (Loss) income from discontinued operations................ $ (157) $ 1,317 $ 453 $ 1,475 =========== =========== =========== ===========
On September 28, 1999 the Company adopted a plan to discontinue Fidelity Mortgage Funding, Inc. ("FMF"), its residential mortgage lending business. The Company anticipates that the business will be disposed of by September 30, 2000. Accordingly, FMF is reported as a discontinued operation for the three and six months ended March 31, 2000 and 1999. Net assets of FMF at March 31, 2000 were $2.5 million and consist primarily of mortgage note and loan receivables. Summarized operating results of the discontinued FMF operation are as follows:
Three Months Ended Six Months Ended March 31, March 31, --------------------------- -------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (Unaudited) (in thousands) Net revenues.............................................. $ 199 $ 443 $ 253 $ 1,298 =========== =========== =========== =========== Loss from operations before income tax benefit............ $ - $ (1,075) $ - $ (2,173) Income tax benefit........................................ - 358 - 724 ----------- ----------- ----------- ----------- Loss from operations...................................... - (717) - (1,449) Loss on disposal before income tax benefit................ (686) - (686) - Income tax benefit........................................ 241 - 241 - ----------- ----------- ----------- ----------- Loss on disposal.......................................... (445) - (445) - ------------ ----------- ------------ ----------- Loss from discontinued operations......................... $ (445) $ (717) $ (445) $ (1,449) ============ ============ ============ ============
11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - MARCH 31, 2000 (Unaudited) - (Continued) NOTE 5 - Investments in Real Estate Loans The Company has primarily focused its real estate activities on the purchase of income producing commercial mortgage loans at a discount from both the face value of such mortgage loans and the appraised value of the properties underlying the mortgage loans. The Company records as income the accretion of a portion of the difference between its cost basis in a commercial mortgage loan and the sum of projected cash flows therefrom. Cash received by the Company for payment on each mortgage is allocated between principal and interest. This accretion of discount amounted to $754,000 and $2.7 million during the three months ended March 31, 2000 and 1999, respectively, and $2.5 million and $5.6 million during the six months ended March 31, 2000 and 1999, respectively. As the Company sells senior lien interests or receives funds from refinancings of such loans, a portion of the cash received is employed to reduce the cumulative accretion of discount included in the carrying value of the Company's investments in real estate loans. At March 31, 2000, the Company held commercial mortgage loans having aggregate face values of $700.3 million, which were being carried at aggregate cost of $183.6 million, including cumulative accretion. The following is a summary of the changes in the carrying value of the Company's investments in real estate loans for the periods indicated:
Three Months Ended Six Months Ended March 31, 2000 March 31, 2000 ------------------ ---------------- (Unaudited) (in thousands) Commercial mortgage loan balance, beginning of period............................................... $ 182,555 $ 250,231 Additions to existing loans.......................................... 505 1,894 Provision for possible losses........................................ (150) (300) Accretion of discount (net of collection of interest)................ 754 2,488 Collection of principal.............................................. (63) (59,503) Cost of loans sold................................................... (2) (11,211) --------------- ---------------- Commercial mortgage loan balance, end of period...................... $ 183,599 $ 183,599 =============== ================
A summary of activity in the Company's allowance for possible losses related to real estate loans for the three and six months ended March 31, 2000 and 1999 is as follows:
Three Months Ended Six Months Ended March 31, March 31, -------------------------- -------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (Unaudited) (in thousands) Balance, beginning of period.............................. $ 1,555 $ 1,005 $ 1,405 $ 905 Provision for possible losses............................. 150 200 300 300 ----------- ----------- ----------- ----------- Balance, end of period.................................... $ 1,705 $ 1,205 $ 1,705 $ 1,205 =========== =========== =========== ===========
12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - MARCH 31, 2000 (Unaudited) - (Continued) NOTE 6 - Debt Debt at March 31, 2000 does not include the debt of the discontinued operations of FLI, its small ticket leasing business (see Note 4).
March 31, September 30, 2000 1999 ------------ ------------- (Unaudited) (in thousands) Warehouse debt: Equipment leasing......................................................... $ - $ 15,291 Non-recourse debt: Equipment leasing Securitized term facilities............................................. - 219,979 CP conduit facilities................................................... - 93,213 Real estate finance Loan facilities......................................................... - 58,901 Revolving credit facilities............................................. 25,000 22,000 Other................................................................... 875 875 Energy Revolving and term bank loans........................................... 27,415 44,975 ------------ ------------ Total non-recourse debt................................................. 53,290 439,943 Senior debt.................................................................. 99,100 101,400 Other debt: Equipment leasing Term loans.............................................................. - 7,587 Seller financing........................................................ - 7,725 Corporate................................................................. 5,649 5,876 ------------ ------------ Total other debt........................................................ 5,649 21,188 ------------ ------------ $ 158,039 $ 577,822 ============ ============
13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - MARCH 31, 2000 (Unaudited) - (Continued) NOTE 7 - Operating Segment Information The Company operates in two principal industry segments - real estate finance and energy. Corporate represents revenues, expenses and assets not allocated to an industry segment. Segment data for the three and six months ended March 31, 2000 and 1999 are as follows:
Three Months Ended Six Months Ended March 31, March 31, -------------------------- -------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (Unaudited) (in thousands) Revenues: Real estate finance.................................... $ 3,763 $ 9,767 $ 10,414 $ 19,768 Energy................................................. 23,333 14,002 39,257 29,128 Corporate.............................................. 2,022 1,845 4,579 3,517 ---------- ----------- ----------- ----------- $ 29,118 $ 25,614 $ 54,250 $ 52,413 ========== =========== =========== =========== Operating Profit (Loss): Real estate finance.................................... $ 1,483 $ 7,439 $ 5,934 $ 15,920 Energy................................................. 3,159 4,020 4,677 6,488 Corporate.............................................. (2,726) (2,505) (5,131) (4,813) --------- ----------- ----------- ----------- $ 1,916 $ 8,954 $ 5,480 $ 17,595 ========= =========== =========== ===========
March 31, September 30, 2000 1999 ----------- ------------- (Unaudited) Identifiable Assets: Real estate finance................................................................ $ 202,484 $ 273,922 Equipment leasing.................................................................. - 431,464 Energy............................................................................. 142,335 139,098 Corporate.......................................................................... 133,363 56,903 ----------- ----------- $ 478,182 $ 901,387 =========== ===========
Operating profit (loss) represents total revenues less costs attributable thereto, including interest expense, provision for possible losses, and less depreciation, depletion and amortization, but excludes general corporate expenses. NOTE 8 - Public Offering of Units by Partnership In January 2000, the Company's natural gas gathering operations were sold to a master limited partnership ("MLP"), which sold 1,500,000 common units to the public. The Company received $14.0 million (after offering expenses) for the gathering systems, and the MLP issued to the Company 1,641,026 subordinated units constituting a 51% limited partner interest in the MLP. Because the Company owns more than 50% of the MLP, the assets of the MLP are consolidated with the Company and the common units sold to the public are shown as a minority interest on the Company's consolidated balance sheet. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. WHEN USED IN THIS FORM 10-Q, THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD LOOKING STATEMENTS WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO FORWARD LOOKING STATEMENTS WHICH MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. Overview of Second Quarter of Fiscal 2000 The Company's gross revenues were $29.1 million in the second quarter of fiscal 2000, an increase of $3.5 million (14%) from $25.6 million in the second quarter of fiscal 1999. The increase in total revenues during the second quarter of fiscal 2000 was primarily due to an increase of $9.3 million (67%) in energy revenues to $23.3 million in the second quarter of fiscal 2000 as compared to $14.0 million in the second quarter of fiscal 1999, partially offset by a $6.0 million (61%) decrease, from $9.8 million in the second quarter of fiscal 1999 to $3.8 million in the second quarter of fiscal 2000, in real estate finance revenues. The increase in energy revenues was principally due to increases of $6.1 million (75%) in well drilling revenues and $2.9 million (120%) in production revenues in the second quarter of fiscal 2000 as compared to the second quarter of fiscal 1999. In February 2000, the Company adopted a plan to sell its small ticket leasing business. The Company anticipates that the business will be sold by September 30, 2000. As a result, the Company's consolidated statements of income for continuing operations excludes leasing operations. The net effect of these operations is, however, set forth in the consolidated statements of income under discontinued operations. In addition, the assets and liabilities pertaining to equipment leasing are not shown broadly on the Company's consolidated balance sheet as of March 31, 2000; rather, they are shown on a net basis under net assets of discontinued operations. The Company's revenues from continuing operations, expressed as a percentage of its total revenues from continuing operations, were distributed across its operating segments as follows:
Three Months Ended Six Months Ended March 31, March 31, -------------------------- ------------------------ 2000 1999 2000 1999 ----------- ----------- ----------- --------- (Unaudited) Energy ..................................................... 80% 55% 72% 56% Real estate finance......................................... 13% 38% 19% 38%
The balance of the Company's revenues from continuing operations are attributable to corporate revenue not allocated to a specific operating segment. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - (Continued) Overview of Second Quarter of Fiscal 2000 - (Continued) As of March 31, 2000, total assets were $478.2 million, a decrease of $423.2 million (47%) from assets of $901.4 million at September 30, 1999, principally as a result of the classification of equipment leasing as a discontinued operation. The Company's assets, expressed as a percentage of its total assets, were distributed across its operating segments as follows:
March 31, September 30, 2000 1999 -------------- -------------- (Unaudited) Real estate finance..................................................................... 42% 30% Equipment leasing....................................................................... - 48% Energy ................................................................................. 30% 15%
The balance of 28% at March 31, 2000 includes net assets of discontinued operations of $97.5 million (20%) and other corporate assets not attributable to a specific operating segment. Results of Operations: Real Estate Finance The following table sets forth certain information relating to the revenue recognized and costs and expenses incurred in the Company's real estate finance operations during the periods indicated:
Three Months Ended Six Months Ended March 31, March 31, -------------------------- -------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (Unaudited) (in thousands) Revenues: Interest............................................. $ 2,617 $ 3,654 $ 6,414 $ 7,370 Accreted discount.................................... 754 2,659 2,488 5,605 Fees................................................. 248 3,440 265 4,409 Gains on sales of senior lien interests.............. - - - 2,370 Gains on sales of loans.............................. - - 984 - Loan payments in excess of carrying values........... 8 14 81 14 Net rental income.................................... 136 - 182 - ----------- ----------- ----------- ----------- $ 3,763 $ 9,767 $ 10,414 $ 19,768 =========== =========== =========== =========== Cost and Expenses...................................... $ 721 $ 1,174 $ 1,455 $ 1,652 =========== =========== =========== ===========
16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - (Continued) Results of Operations: Real Estate Finance - (Continued) Revenues from real estate finance operations decreased to $3.8 million and $10.4 million in the second fiscal quarter and six months ended March 31, 2000, a decrease of $6.0 million (61%) and $9.4 million (47%) from $9.8 million and $19.8 million in the second fiscal quarter and six months ended March 31, 1999. The decrease was attributable to the following: (i) A decrease of $2.9 million (47%) and $4.1 million (31%) in interest income in the fiscal quarter and six months ended March 31, 2000, respectively, as compared to the prior year, including a decrease of $1.9 million and $3.1 million of accretion of discount in the same respective periods. The decrease in interest income was caused primarily by the repayment of one loan in the third fiscal quarter of 1999, the repayment of another loan in the first fiscal quarter of 2000, and by the cessation of accretion for two loans in the quarter ended March 31, 2000. The average accretion rate (accreted discount divided by the book value of average loan balances) on commercial mortgage loans held decreased to 2% in the quarter ended March 31, 2000 as compared to 5% in the quarter ended March 31, 1999. (ii) A decrease of $3.2 million (93%) and $4.1 million (94%) in fee income during the quarter and six months ended March 31, 2000 as compared to the prior year. This decrease was the result primarily of a one-time fee of $3.4 million earned in the second quarter of fiscal 1999 for services rendered to an existing borrower in connection with the operation, leasing and supervision of the collateral securing one of the Company's loans. No comparable fees were earned during the quarter ended March 31, 2000. (iii) A decrease of $2.4 million in gains from sales of senior lien interests. The Company sold senior lien interests in two loans in the six months ended March 31, 1999 resulting in proceeds of $5.7 million; no such gains were recognized in the quarter ended March 31, 2000. As set forth in the Company's Annual Report on Form 10-K for fiscal 1999, the Company made a strategic decision effective January 1, 1999 to structure most future senior lien transactions as financings rather than sales. During the six months ended March 31, 2000, the Company acquired no loans as compared to the purchase and origination of three loans for a cost of $79.9 million during the six months ended March 31, 1999. As a consequence of the foregoing, the Company's yield (gross real estate finance revenues, including gains resulting from refinancings, sales of loans and sales of senior lien interests in loans, divided by the book value of average loan balances) decreased to 8% and 10% in the second fiscal quarter and six months ended March 31, 2000 as compared to the 17% in both the second fiscal quarter and six months ended March 31, 1999. Costs and expenses of the Company's real estate finance operations were $721,000 and $1.5 million in the second fiscal quarter and six months ended March 31, 2000, a decrease of $453,000 (39%) and $197,000 (12%) from $1.2 million and $1.7 million in the same periods of the prior year due to a decrease in personnel and compensation to existing employees. 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - (Continued) Results of Operations: Energy On August 31, 1999, the Company acquired Viking Resources Corporation ("Viking"). Results of operations include the operations of Viking from September 1, 1999 and, accordingly, the results of operations for the six months ended March 31, 2000 are not comparable to the similar period of the prior year. The following table sets forth certain information relating to revenues recognized and costs and expenses incurred, daily production volumes, average sales prices, production costs as a percentage of oil and gas sales, and production cost per equivalent unit in the Company's energy operations during the periods indicated:
Three Months Ended Six Months Ended March 31, March 31, -------------------------- -------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (Unaudited) (in thousands, except sales price information) Revenues: Production............................................ $ 5,266 $ 2,410 $ 10,727 $ 4,930 Well drilling......................................... 14,388 8,240 21,542 18,641 Well services......................................... 3,679 2,201 6,988 4,406 Gain on sales of assets............................... - 1,151 - 1,151 ----------- ----------- ----------- ----------- $ 23,333 $ 14,002 $ 39,257 $ 29,128 =========== =========== =========== =========== Costs and Expenses: Exploration and production............................ $ 1,964 $ 948 $ 4,347 $ 2,270 Well drilling......................................... 11,797 6,562 19,216 15,875 Well services......................................... 3,139 480 4,793 1,191 ----------- ----------- ----------- ----------- $ 16,900 $ 7,990 $ 28,356 $ 19,336 =========== =========== =========== =========== Production Revenues: Gas................................................... $ 4,351 $ 2,198 $ 8,766 $ 4,487 Oil................................................... $ 893 $ 200 $ 1,918 $ 372 Production volumes: Gas (thousands of cubic feet ("mcf")/day) (1)......... 18,057 10,584 17,348 10,553 Oil (barrels (`bbls")/day)............................ 483 223 512 188 Average sales price: Gas (per mcf)......................................... $ 2.92 $ 2.31 $ 2.90 $ 2.34 Oil (per bbl)......................................... $ 24.66 $ 9.95 $ 22.49 $ 10.86
- ----------------------------- (1) Excludes sales of residual gas and sales to landowners. Natural gas revenues were $4.4 million and $8.8 million in the second fiscal quarter and six months ended March 31, 2000, an increase of $2.2 million (98%) and $4.3 million (95%) from $2.2 million and $4.5 million in the second fiscal quarter and six months ended March 31, 1999 due to a 71% and 64% increase in production volumes and a 26% and 24% increase in the average sales price of natural gas. Oil revenues were $893,000 and $1.9 million in the second fiscal quarter and six months ended March 31, 2000, an increase of $693,000 (47%) and $1.5 million (416%) from $200,000 and $372,000 in the second fiscal quarter and six months ended March 31, 1999, due to a 117% and 172% increase in production volumes and a 148% and 107% increase in the average sales price of oil during the second fiscal quarter and six months ended March 31, 2000 and 1999, respectively. Both gas and oil volumes continued to be favorably impacted by the acquisition of The Atlas Group, Inc. at the end of fiscal 1998 and Viking in August 1999. 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - (Continued) Results of Operations: Energy - (Continued) Without the addition of Viking, gas production revenues would have been $3.0 million and $6.2 million for the second quarter and first six months of fiscal 2000, resulting in an overall increase of $2.4 million (25%) and $1.4 million (30%) compared to the second quarter and first six months of fiscal 1999. Average daily gas production volumes would have been 11,404 mcf and 11,532 mcf for the second quarter and first six months of fiscal 2000, a 6% and 8% increase compared to the second quarter and first six months of fiscal 1999. Oil production revenues would have been $336,000 and $652,000 for the second quarter and first six months of fiscal 2000, resulting in an overall increase of $148,000 (79%) and $292,000 (81%) compared to the second quarter and first six months of fiscal 1999. Average daily oil production volumes would have been 145 barrels and 160 barrels for the second quarter and first six months of fiscal 2000, a 30% and 11% decrease compared to the second quarter and first six months of fiscal 1999. Well drilling revenues and expenses in the second fiscal quarter and six months ended March 31, 2000 represent the billings and costs associated with the completion of 78 and 115 wells for partnerships sponsored by Atlas America, Inc. and Viking in the second quarter and first six months of fiscal 2000 as compared to 39 and 92 wells in the second quarter and first six months ended of fiscal 1999. Well services revenues and related costs increased significantly as a result of an increase in the number of wells operated due to the acquisition of Viking and the addition of wells drilled. Production costs (excluding exploration costs of $120,000 and $634,000) increased $1.3 million (143%) and $2.2 million (110%) to $1.8 million and $3.7 million in the second fiscal quarter and six months ended March 31, 2000, as compared to the same periods in the prior year, as a result of the acquisition of the interests in producing properties referred to above. Amortization of oil and gas properties as a percentage of oil and gas production revenues was 25% for the second fiscal quarter and 26% for the six months ended March 31, 2000 compared to 25% in both the second fiscal quarter and six months ended March 31, 1999. The variance from period to period is directly attributable to changes in the Company's oil and gas reserve quantities, product prices and fluctuations in the depletable cost basis of oil and gas. Results of Operations: Other Revenues, Costs and Expenses Interest and other income was $2.0 million and $4.6 million in the second fiscal quarter and six months ended March 31, 2000, an increase of $177,000 (10%) and $1.1 million (30%) as compared to $1.8 million and $3.5 million during the second fiscal quarter and six months ended March 31, 1999. The increase for the six months ended March 31, 2000 as compared to the six months ended March 31, 1999 is primarily attributable to an increase in intercompany interest on increased borrowing related to the Company's discontinued small ticket equipment leasing subsidiary. General and administrative expenses were $2.0 million and $3.8 million in the second fiscal quarter and six months ended March 31, 2000, an increase of $35,000 (2%) and $896,000 (30%) as compared to the second fiscal quarter and six months ended March 31, 1999, primarily as a result of hiring additional corporate staff, increases in compensation, an increase in accrued pension benefits and an increase in occupancy costs as the Company leased additional office space to accommodate its larger staff. Depreciation, depletion and amortization expense was $2.5 million and $5.1 million in the second fiscal quarter and six months ended March 31, 2000, an increase of $1.2 million (91%) and $2.5 million (94%) as compared to $1.3 million and $2.6 million for the second fiscal quarter and six months ended March 31, 1999. These increases primarily resulted from the acquisition of Viking as described above. 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - (Continued) Results of Operations: Other Revenues, Costs and Expenses - (Continued) Interest expense was $4.5 million and $9.2 million in the second fiscal quarter and six months ended March 31, 2000 an increase of $465,000 (12%) and $1.3 million (16%) as compared to $4.0 million and $7.9 million during the second fiscal quarter and six months ended March 31, 1999. These increases are primarily due to increased average borrowings outstanding from the Company's credit facilities and higher interest rates as compared to the prior year period. Provision for possible losses was $225,000 and $445,000 for the second fiscal quarter and six months ended March 31, 2000 an increase of $12,000 (6%) and $120,000 (37%), as compared to $213,000 and $325,000 in the second fiscal quarter and six months ended March 31, 1999. The effective tax rate increased to 32% in the second fiscal quarter ended March 31, 2000 from 31% in the second fiscal quarter ended March 31, 1999. Liquidity and Capital Resources Liquidity. During the six months ended March 31, 2000, the principal sources of liquidity for the Company's continuing operations were: o cash from continuing operations, o sales of real estate loans and properties owned which resulted in net proceeds of approximately $13.0 million, o existing credit facilities, and o a $3.0 million increase in funds available under an existing real estate line of credit. In addition, during the period the Company obtained $14.0 million from the sale of natural gas gathering systems to Atlas Pipeline Partners, L.P., a master limited partnership whose general partner is a subsidiary of the Company and in which the Company is a limited partner. For the period, the Company's cash flows from continuing operations were positive. As a consequence, the Company believes that liquidity for its continuing operations is adequate. Liquidity for the Company's discontinued operation, equipment leasing, was provided primarily by a combination of warehouse lines of credit, term loan facilities and purchase facilities extended by banks and other institutional lenders. In addition, in the first quarter of fiscal 2000, the Company advanced approximately $11.0 million of cash to this operation, all of which remains outstanding. Following that advance, the Company's equipment leasing operation has required only temporary cash advances from the Company, all of which have been repaid. The Company anticipates that, other than temporary advances similar to those previously extended, its equipment leasing operation will not require the commitment of significant funds before its anticipated disposition. 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - (Continued) Liquidity and Capital Resources - (Continued) Capital Resources. The Company has historically derived its capital resources from public and private offerings of debt and equity securities, lines of credit, sales of senior lien interests in or borrower refinancings of commercial mortgage loans and, with respect to equipment leasing, warehouse credit facilities and commercial paper and term loan securitizations. As a result of the continued depressed price of the Company's common stock, the Company does not believe it will be able to obtain additional capital resources from public or private securities markets on acceptable terms. Moreover, since the Company did not acquire any real estate loans during the period, it does not anticipate generating material capital resources from senior lien financing of real estate loans except for approximately $8.0 million of senior lien financing involving loans currently in its portfolio that is under negotiation. There can be no assurance that such financing will ultimately be obtained or as to its timing. As a consequence, the Company believes that its principal sources of capital resources for the remainder of fiscal 2000 will be its existing lines of credit, which currently have $5.4 million of funds availability, and the proceeds of the anticipated disposition of its equipment leasing operation. There can be no assurance, however, that the disposition will be consummated, or as to the timing or amount of net proceeds of any such disposition. As a consequence, since the Company believes that its future growth and earnings will depend upon its ability to generate material amounts of capital resources, the Company's ability to generate growth in its continuing real estate finance and energy operations may be restricted, which could materially affect the Company's earnings potential. Sources and Uses of Cash. Sources and (uses) of cash for the six month periods ended March 31, 2000 and 1999 were as follows:
Six Months Ended March 31, --------------------------------------- 2000 1999 ----------- ------------- (Unaudited) (in thousands) Provided by (used in) operations........................................... $ 10,253 $ (2,647) Provided by (used in) investing activities................................. 39,480 (90,563) (Used in) provided by financing activities................................. (62,668) 85,864 Used in discontinued operations............................................ (10,488) (41,979) ----------- ------------ Decrease in cash and cash equivalents................................... $ (23,423) $ (49,325) =========== ============
The Company had $19.2 million in cash and cash equivalents on hand at March 31, 2000, as compared to $42.6 million at September 30, 1999, which included cash of the discontinued small ticket equipment leasing business of $10.1 million. The Company's ratio of earnings to fixed charges was 1.51 to 1 in the second fiscal quarter ended March 31, 2000 as compared to 2.16 to 1 in the second fiscal quarter ended March 31, 1999. The Company's net cash provided by operating activities in the first six months of fiscal 2000 was $10.3 million whereas net cash used in operating activities was $2.6 million in the first six months of fiscal 1999, a net increase of $12.9 million, primarily as a result of the following: o an $8.8 million increase in net working capital and o an increase of $2.5 million in depreciation, depletion and amortization o a $9.5 million increase in interest collection net of accretion of discount, partially offset by o a $2.9 million decrease in deferred taxes. 21 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - (Continued) Liquidity and Capital Resources - (Continued) The Company's net cash provided by investing activities was $39.5 million for the six months ended March 31, 2000 as compared to net cash used in investing activities of $90.6 million for the six months ended March 31, 1999, a net increase of $130.1 million. The change was primarily a result of the following: o In energy, cash used increased $4.8 million as a result of a $2.0 million increase in capital expenditures and other assets, coupled with a $2.8 million decrease in proceeds from asset sales. o In real estate finance, there was $65.9 million in principal payments received in the six months ended March 31, 2000 compared to $0 in the six months ended March 31, 1999. In addition, the Company invested $1.9 million in real estate loans and ventures for the six months ended March 31, 2000 as compared to $85.2 million for the six months ended March 31, 1999. This was offset by $788,000 in proceeds from loan sales for the six months ended March 31, 2000 as compared to the $8.6 million for the six months ended March 31, 1999. The Company's net cash used in financing activities was $62.7 million for the six months ended March 31, 2000 as compared to net cash provided by financing activities of $85.9 million for the six months ended March 31, 1999. The net decrease was $148.6 million and was primarily attributable to the following: o $75.7 million of payments on the Company's net borrowings for the six months ended March 31, 2000 o $86.0 million of additional net borrowings for the six months ended March 31, 1999 o $14.0 million of net proceeds from the sale of gathering systems to Atlas Pipeline Partners, L.P. during the six months ended March 31, 2000 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK General. During the six months ended March 31, 2000, the Company's loans receivable did not undergo material change other than changes resulting from normally recurring debt service payments received and the sale of two loans. The Company's debt generally did not undergo material change other than changes resulting from normally recurring debt service payments, except that interest rates on two loans payable were increased as a result of increases in market interest rates; the credit limit and amount drawn, under one of the Company's real estate lines of credit was increased; and the revolving loan attributed to the Company's energy operations was paid down in part. The Company believes that the net effect on its interest expense of the changes in rate was not material. Real Estate. During the six months ended March 31, 2000, the Company's outstanding loans receivable balance decreased $12.2 million (4.9%) to $238.3 million in the aggregate, its carried cost of loans decreased $9.4 million (6.6%) to $134.6 million in the aggregate and the principal balance of related senior lien interests decreased $16.4 million (6.0%) to $254.0 million in the aggregate. These decreases were principally attributable to the sale of two loans during the first quarter of fiscal 2000. There are two loans held in the Company's portfolio at March 31, 2000 that may be deemed to be interest rate sensitive. The senior lien interest (in the amount of $60.0 million) underlying one of the loans was restructured to become a direct obligation of the partnership owning the property rather than of the Company's real estate subsidiary. In addition, the interest rates payable with respect to the senior lien interests underlying both interest rate sensitive loans increased from 8.25% and 7.875%, respectively, at September 30, 1999 to 8.75% and 8.50%, respectively, at March 31, 2000. The senior lien interests have caps of 9.0% and 8.875%, respectively at March 31, 2000. The rate increases resulted from an increase in the LIBOR rate, to which the interest rates payable with respect to the senior lien interests are linked. 22 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - (Continued) The maximum amount of one of the Company's real estate revolving lines of credit was increased during the three months ended March 31, 2000 to $18.0 million from $15.0 million at September 30, 1999. In addition, the interest rate on both of the Company's real estate lines of credit was 9.00% at March 31, 2000, an increase of 75 basis points from September 30, 1999. The interest rate increase was due to the increase of the prime rate, to which the interest rates of the lines of credit are linked. The Company drew down the additional $3.0 million made available under the $18.0 million line of credit during the period and used the proceeds for general business purposes. Energy. During the three months ended March 31, 2000, the amount outstanding under a revolving loan attributable to the Company's energy business was reduced as a result of the sale of gathering systems of the Company's energy subsidiaries to Atlas Pipeline Partners, L.P. ("APL") in connection with APL's initial public offering. The loan balance as of September 30, 1999 was $45.0 million and the balance as of March 31, 2000 was $27.4 million. The weighted average interest rate for this facility increased from 7.87% at September 30, 1999 to 8.38% at March 31, 2000, due to an increase in lending rates. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit No. Description ----------- ----------- 27 Financial Data Schedule (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RESOURCE AMERICA, INC. (Registrant) Date: May 15, 2000 By: /s/ Steven J. Kessler ------------ --------------------- STEVEN J. KESSLER Senior Vice President and Chief Financial Officer Date: May 15, 2000 By: /s/ Nancy J. McGurk ------------ ------------------- NANCY J. McGURK Vice President-Finance and Chief Accounting Officer 23 -----END PRIVACY-ENHANCED MESSAGE-----