-----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, RfRvxoHka0o2wovReJMspfYi7xR9LVbdlFVtBe86pLOPa1ahzrxtkwTUXCRr7isQ KdXe5KC5q0rT/YNnzK2uOQ== /in/edgar/work/20000814/0000950116-00-001974/0000950116-00-001974.txt : 20000921 0000950116-00-001974.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950116-00-001974 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RESOURCE AMERICA INC CENTRAL INDEX KEY: 0000083402 STANDARD INDUSTRIAL CLASSIFICATION: [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: 701055 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 0001.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 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 shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 23,559,244 Shares August 11, 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 - June 30, 2000 (Unaudited) and September 30, 1999.................................................................... 3 Consolidated Statements of Income (Unaudited) Three Months and Nine Months Ended June 30, 2000 and 1999................................. 4 Consolidated Statements of Comprehensive Income (Unaudited) Three Months and Nine Months Ended June 30, 2000 and 1999................................. 5 Consolidated Statement of Changes in Stockholders' Equity (Unaudited) Nine Months Ended June 30, 2000........................................................... 6 Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended June 30, 2000 and 1999.................................................. 7 Notes to Consolidated Financial Statements (Unaudited) June 30, 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.................................... 23 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.............................................................. 25 SIGNATURES................................................................................................. 25
2 PART I ITEM 1. FINANCIAL STATEMENTS RESOURCE AMERICA, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
June 30, September 30, 2000 1999 ---------------- --------------- (Unaudited) ASSETS Cash and cash equivalents........................................................... $ 21,361 $ 42,643 Accounts and notes receivable and other prepaid expenses............................ 14,783 18,977 Net assets of discontinued operations............................................... 99,606 2,394 Investments in real estate loans (less allowance for possible losses of $1,855 and $1,405)............................................ 181,656 250,231 Investments in real estate ventures................................................. 17,743 18,159 Investments in leases and notes receivable (less allowance for possible losses of $10,017)..................................................... - 401,461 Investment in Resource Asset Investment Trust....................................... 9,195 9,300 Property and equipment: Oil and gas properties and equipment (successful efforts)........................ 84,808 78,923 Gas gathering and transmission facilities........................................ 18,455 18,061 Other............................................................................ 7,064 12,198 ------------ ------------- 110,327 109,182 Less - accumulated depreciation, depletion and amortization...................... (25,811) (21,213) ------------ ------------- Net property and equipment................................................. 84,516 87,969 Other assets (less accumulated amortization of $9,253 and $6,058)................... 53,723 70,253 ------------ ------------- $ 482,583 $ 901,387 ============ ============= LIABILITIES AND STOCKHOLDERS' EQUITY Debt: Warehouse debt................................................................... $ - $ 15,291 Non-recourse debt................................................................ 58,920 439,943 Senior debt...................................................................... 99,100 101,400 Other debt ...................................................................... 5,602 21,188 ------------ ------------- Total debt................................................................. 163,622 577,822 Other liabilities: Accounts payable................................................................. 8,357 16,751 Accrued liabilities.............................................................. 14,098 27,395 Estimated income taxes........................................................... 6,812 2,563 Deferred income taxes............................................................ 4,713 13,069 ------------ ------------- Total liabilities.......................................................... 197,602 637,600 Minority interest in Atlas Pipeline Partners, L.P................................... 17,795 - 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....................... 245 244 Accumulated other comprehensive loss............................................. (1,836) (1,764) Additional paid-in capital....................................................... 220,965 221,084 Less treasury stock, at cost..................................................... (16,331) (17,002) Less loan receivable from Employee Stock Ownership Plan ("ESOP") ................ (1,432) (1,488) Retained earnings................................................................ 65,575 62,713 ------------ ------------- Total stockholders' equity................................................. 267,186 263,787 ------------ ------------- $ 482,583 $ 901,387 ============ =============
See accompanying notes to consolidated financial statements 3 RESOURCE AMERICA, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended June 30, June 30, ------------------------- ------------------------ 2000 1999 2000 1999 ---------- ----------- ----------- ---------- (in thousands, except share data) REVENUES Energy................................................................. $ 17,579 $ 11,177 $ 56,836 $ 40,305 Real estate finance.................................................... 3,914 16,833 14,328 36,601 Interest and other..................................................... 2,533 2,358 7,112 5,875 --------- --------- --------- -------- 24,026 30,368 78,276 82,781 COSTS AND EXPENSES Energy................................................................. 12,208 8,430 40,564 27,766 Real estate finance.................................................... 628 915 2,083 2,567 General and administrative............................................. 1,890 1,083 5,735 4,032 Depreciation, depletion and amortization............................... 2,866 1,177 7,965 3,803 Interest............................................................... 4,557 5,955 13,767 13,885 Provision for possible losses.......................................... 225 75 670 400 Minority interest in Atlas Pipeline Partners, L.P...................... 770 - 1,130 - --------- --------- --------- -------- 23,144 17,635 71,914 52,453 --------- --------- --------- -------- Income from continuing operations before income taxes and extraordinary item ................................................. 882 12,733 6,362 30,328 Provision for income taxes............................................. 219 4,350 1,972 10,024 --------- --------- --------- -------- Income from continuing operations before extraordinary item............ 663 8,383 4,390 20,304 Discontinued operations: Income (loss) from operations of subsidiaries....................... - (1,065) 453 (1,039) Gain on disposal of subsidiaries.................................... 605 - 160 - --------- --------- --------- -------- 1,268 7,318 5,003 19,265 Extraordinary gain on debt extinguishment, net of taxes of $93 and $150............................................................ - - 197 291 --------- --------- --------- -------- Net income............................................................. $ 1,268 $ 7,318 $ 5,200 $ 19,556 ========= ========= ========= ======== Net income per common share - basic: From continuing operations.......................................... $ .03 $ .38 $ .19 $ .92 Discontinued operations............................................. .02 (.05) .02 (.04) Extraordinary item.................................................. - - .01 .01 -------- --------- -------- -------- Net income per common share - basic.................................... $ .05 $ .33 $ .22 $ .89 ======== ========= ======== ======== Weighted average common shares outstanding............................. 23,395 22,055 23,364 21,984 ========= ========= ======== ======== Net income per common share - diluted: From continuing operations.......................................... $ .03 $ .37 $ .18 $ .90 Discontinued operations............................................. .02 (.05) .03 (.05) Extraordinary item.................................................. - - .01 .01 --------- --------- --------- -------- Net income per common share - diluted.................................. $ .05 $ .32 $ .22 $ .86 ========= ========= ========= ======== Weighted average common shares......................................... 23,821 22,824 23,793 22,676 ========= ========= ========= ========
See accompanying notes to consolidated financial statements 4 RESOURCE AMERICA, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three Months Ended Nine Months Ended June 30, June 30, ------------------------- ------------------------ 2000 1999 2000 1999 ---------- ----------- ----------- ---------- (in thousands) Net income............................................................. $ 1,268 $ 7,318 $ 5,200 $ 19,556 Other comprehensive income (loss): Unrealized gain (loss) on investment................................ 209 2,297 (104) 207 Tax effect.......................................................... (71) (782) 32 (69) --------- --------- --------- -------- 138 1,515 (72) 138 --------- --------- --------- -------- Comprehensive income................................................... $ 1,406 $ 8,833 $ 5,128 $ 19,694 ========= ========= ========= ========
See accompanying notes to consolidated financial statements 5 RESOURCE AMERICA, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY NINE MONTHS ENDED JUNE 30, 2000 (Unaudited) (in thousands, except share data)
Accumulated Common stock Other Additional Treasury Stock ------------------------- Comprehensive Paid-In ----------------------------- Shares Amount Loss Capital Shares Amount -------------------------------------------------------------------------------------- Balance, October 1, 1999.................. 24,385,279 $ 244 $ (1,764) $ 221,084 (1,071,432) $ (17,002) Treasury shares issued.................... (559) 39,680 843 Issuance of common stock.................. 90,711 1 440 Purchase of treasury stock................ (25,000) (172) Other comprehensive loss: (72) Net unrealized loss on investment...... Cash dividends ($.099 per share).......... Repayment of ESOP Loan.................... Net income................................ ----------- --------- ----------- ----------- ------------ ---------- Balance, June 30, 2000.................... 24,475,990 $ 245 $ (1,836) $ 220,965 (1,056,752) $ (16,331) =========== ========= ============ =========== =========== ===========
[RESTUB]
ESOP Totals Loan Retained Stockholders' Receivable Earnings Equity ---------------------------------------- Balance, October 1, 1999.................. $ (1,488) $ 62,713 $ 263,787 Treasury shares issued.................... 284 Issuance of common stock.................. 441 Purchase of treasury stock................ (172) Other comprehensive loss: (72) Net unrealized loss on investment...... Cash dividends ($.099 per share).......... (2,338) (2,338) Repayment of ESOP Loan.................... 56 56 Net income................................ 5,200 5,200 --------- ---------- ----------- Balance, June 30, 2000.................... $ (1,432) $ 65,575 $ 267,186 ========== ========== ===========
See accompanying notes to consolidated financial statements 6 RESOURCE AMERICA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended June 30, -------------------------------- 2000 1999 ----------- ------------- (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income................................................................................ $ 5,200 $ 19,556 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, depletion and amortization............................................... 7,965 3,803 Amortization of discount on senior debt and deferred finance costs..................... 841 982 Provision for possible losses.......................................................... 670 400 Minority interest in Atlas Pipeline Partners, L.P...................................... 1,130 - Gain on disposal of subsidiary......................................................... (160) - (Income) loss from operations of discontinued subsidiary............................... (453) 1,039 Gain on asset dispositions............................................................. (1,594) (3,702) Property impairments and abandonments.................................................. 627 (32) Deferred income taxes.................................................................. (7,100) 193 Accretion of discount.................................................................. (12,845) (28,215) Collection of interest................................................................. 13,420 11,944 Extraordinary gain on debt extinguishment.............................................. (197) (291) Change in operating assets and liabilities: Increase in accounts receivable and other assets....................................... (1,174) (910) Increase (decrease) in accounts payable and other liabilities.......................... 2,164 (7,187) ----------- ------------ Net cash provided by (used in) operating activities of continuing operations.............. 8,494 (2,420) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of subsidiary.......................................................... - 2,962 Capital expenditures...................................................................... (8,997) (8,119) Principal payments on notes receivable.................................................... 71,799 - Proceeds from sale of assets.............................................................. 788 30,519 Increase in other assets.................................................................. (4,837) (891) Investments in real estate loans and ventures............................................. (2,540) (89,608) Net change in net assets of discontinued operations....................................... (17,424) - Decrease in other liabilities............................................................. (279) (9,770) ------------ ----------- Net cash provided by (used in) investing activities of continuing operations.............. 38,510 (74,907) CASH FLOWS FROM FINANCING ACTIVITIES Non-recourse borrowings................................................................... 76,657 157,067 Principal payments on non-recourse borrowings............................................. (144,488) (84,573) Principal payments on other borrowings.................................................... (2,251) - Dividends paid............................................................................ (2,338) (2,197) Net proceeds from Atlas Pipeline Partners, L.P. public offering .......................... 14,042 - Treasury stock purchased.................................................................. (172) - Decrease in restricted cash............................................................... 32 - Repayment of ESOP loan.................................................................... 56 31 (Increase) decrease in other assets....................................................... (82) 193 Proceeds from issuance of stock........................................................... 725 968 ----------- ----------- Net cash (used in) provided by financing activities of continuing operations.............. (57,819) 71,489 ------------ ----------- Net cash used in discontinued operations.................................................. (10,467) (38,647) ------------ ------------ Decrease in cash and cash equivalents..................................................... (21,282) (44,485) Cash and cash equivalents at beginning of period.......................................... 42,643 73,345 ----------- ----------- Cash and cash equivalents at end of period................................................ $ 21,361 $ 28,860 =========== ===========
See accompanying notes to consolidated financial statements 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JUNE 30, 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 third fiscal quarter and nine months ended June 30, 1999 to conform to the third fiscal quarter and nine months ended June 30, 2000. In addition, certain reclassifications have been made to the consolidated financial statements for the third fiscal quarter and nine months ended June 30, 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:
June 30, September 30, 2000 1999 ---------------- --------------- (Unaudited) (in thousands) Goodwill ............................................................................. $ 28,917 $ 43,255 Contracts acquired (including syndication network).................................... 17,662 18,636 Deferred financing costs.............................................................. 3,273 5,842 Net assets held for disposition....................................................... - 850 Other................................................................................. 3,871 1,670 ------------ ------------ $ 53,723 $ 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 - JUNE 30, 2000 (Unaudited) - (Continued) NOTE 2 - Summary of Significant Accounting Policies - (Continued) The following table provides information for financial instruments as of June 30, 2000:
Carrying Estimated Amount Fair Value ------------- -------------- (Unaudited) (in thousands) Energy....................................................................... $ 33,045 $ 33,045 Real estate finance.......................................................... 25,875 25,875 Senior debt.................................................................. 99,100 89,190 Other debt................................................................... 5,602 5,602 ------------- -------------- $ 163,622 $ 153,712 ============= ==============
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 nine months ended June 30, 2000 and 1999:
Three Months Ended Nine Months Ended June 30, June 30, --------------------------- -------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (Unaudited) (in thousands, except share data) Income from continuing operations before extraordinary item................................ $ 663 $ 8,383 $ 4,390 $ 20,304 Income (loss) from discontinued operations................ 605 (1,065) 613 (1,039) Extraordinary gain on early extinguishment of debt................................................ - - 197 291 ----------- ----------- ----------- ----------- Net income........................................... $ 1,268 $ 7,318 $ 5,200 $ 19,556 =========== =========== =========== =========== Basic weighted average shares of common stock outstanding..................................... 23,395 22,055 23,364 21,984 Dilutive effect of stock option and award plans .......................................... 426 769 429 692 ----------- ----------- ----------- ----------- Dilutive weighted average shares of common stock........................................... 23,821 22,824 23,793 22,676 =========== =========== =========== ===========
9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JUNE 30, 2000 (Unaudited) - (Continued) NOTE 3 - Cash Flow Statements Supplemental disclosure of cash flow information:
Nine Months Ended June 30, -------------------------- 2000 1999 ---- ---- (Unaudited) (in thousands) Cash paid during the period for: Interest.................................................................. $ 10,984 $ 8,698 Income taxes.............................................................. $ 6,521 $ 10,870 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........................................ $ - $ 4,938 =========== ===========
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. Accordingly, FLI is reported as a discontinued operation for the three and nine months ended June 30, 2000 and 1999. Subsequent to June 30, 2000, FLI was sold. See Note 8. Net assets of FLI at June 30, 2000 were $97.4 million and are summarized in the following table (Unaudited) (in thousands):
Cash and cash equivalents............................................................................... $ 16,425 Investment in leases and notes receivable, net of $10,045 allowance..................................... 479,049 Net fixed assets........................................................................................ 3,485 Other assets............................................................................................ 26,545 Debt.................................................................................................... (413,963) Accounts payable and accrued liabilities................................................................ (14,128) ------------ Net assets of discontinued FLI operations............................................................... $ 97,413 ===========
10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JUNE 30, 2000 (Unaudited) - (Continued) NOTE 4 - Discontinued Operations - (Continued) Summarized operating results of the discontinued FLI operation are as follows:
Three Months Ended Nine Months Ended June 30, June 30, --------------------------- -------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (in thousands) Net revenues.............................................. $ - $ 11,745 $ 29,552 $ 26,131 =========== =========== =========== =========== (Loss) income from operations before income tax (provision) benefit................................ $ - $ (533) $ 775 $ 1,989 Income tax benefit (provision)............................ - 222 (322) (825) ----------- ----------- ----------- ----------- (Loss) income from discontinued operations................ $ - $ (311) $ 453 $ 1,164 =========== =========== =========== =========== Gain on disposal of discontinued operations (net of income taxes of $374,000)...................... $ 605 $ - $ 605 $ - =========== =========== =========== ===========
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 nine months ended June 30, 2000 and 1999. Net assets of FMF at June 30, 2000 were $2.2 million and consist primarily of mortgage note and loan receivables. Summarized operating results of the discontinued FMF operation are as follows:
Three Months Ended Nine Months Ended June 30, June 30, --------------------------- -------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (in thousands) Net revenues.............................................. $ - $ 272 $ - $ 1,570 =========== =========== =========== =========== Loss from operations before income tax benefit............ $ - $ (1,130) $ - $ (3,303) Income tax benefit........................................ - 376 - 1,100 ----------- ----------- ----------- ----------- Loss from operations...................................... - (754) - (2,203) Loss on disposal before income tax benefit................ - - - - Income tax benefit........................................ - - - - ----------- ----------- ----------- ----------- Loss on disposal.......................................... - - - - ----------- ----------- ----------- ----------- Loss from discontinued operations......................... $ - $ (754) $ - $ (2,203) =========== =========== =========== =========== Loss on disposal of discontinued operations (net of income taxes of $234,000)...................... $ - $ - $ (445) $ - =========== =========== =========== =========== Summarized results of discontinued operations are: Income (loss) from operations of subsidiaries.......... $ - $ (1,065) $ 453 $ (1,039) =========== =========== =========== =========== Gain on disposal of subsidiaries....................... $ 605 $ - $ 160 $ - =========== =========== =========== ===========
11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JUNE 30, 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 $1.5 million and $10.7 million during the three months ended June 30, 2000 and 1999, respectively, and $4.0 million and $16.3 million during the nine months ended June 30, 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 June 30, 2000, the Company held commercial mortgage loans having aggregate face values of $685.3 million, which were being carried at aggregate cost of $181.7 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 Nine Months Ended June 30, 2000 June 30, 2000 ---------------------- --------------------- (Unaudited) (in thousands) Commercial mortgage loan balance, beginning of period............................................... $ 183,599 $ 250,231 Additions to existing loans.......................................... 928 2,822 Provision for possible losses........................................ (150) (450) Accretion of discount (net of collection of interest)................ 1,507 3,995 Collection of principal.............................................. (2,576) (62,079) Cost of loans sold................................................... (1,652) (12,863) --------------- ---------------- Commercial mortgage loan balance, end of period...................... $ 181,656 $ 181,656 =============== ================
A summary of activity in the Company's allowance for possible losses related to real estate loans for the three and nine months ended June 30, 2000 and 1999 is as follows:
Three Months Ended Nine Months Ended June 30, June 30, -------------------------- -------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (Unaudited) (in thousands) Balance, beginning of period.............................. $ 1,705 $ 1,205 $ 1,405 $ 905 Provision for possible losses............................. 150 100 450 400 ----------- ----------- ----------- ----------- Balance, end of period.................................... $ 1,855 $ 1,305 $ 1,855 $ 1,305 =========== =========== =========== ===========
12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JUNE 30, 2000 (Unaudited) - (Continued) NOTE 6 - Debt Debt at June 30, 2000 does not include the debt of the discontinued operations of FLI, its small ticket leasing business (see Note 4).
June 30, 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........................................... 33,045 44,975 ------------ ------------ Total non-recourse debt................................................. 58,920 439,943 Senior debt.................................................................. 99,100 101,400 Other debt: Equipment leasing Term loans.............................................................. - 7,587 Seller financing........................................................ - 7,725 Corporate................................................................. 5,602 5,876 ------------ ------------ Total other debt........................................................ 5,602 21,188 ------------ ------------ $ 163,622 $ 577,822 ============ ============
13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JUNE 30, 2000 (Unaudited) - (Continued) NOTE 7 - Operating Segment Information The Company operates in two principal industry segments - energy and real estate finance. Corporate represents revenues, expenses and assets not allocated to an industry segment. Segment data for the three and nine months ended June 30, 2000 and 1999 are as follows:
Three Months Ended Nine Months Ended June 30, June 30, -------------------------- -------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (in thousands) Revenues: Energy................................................. $ 17,579 $ 11,177 $ 56,836 $ 40,305 Real estate finance.................................... 3,914 16,833 14,328 36,601 Corporate.............................................. 2,533 2,358 7,112 5,875 ---------- ----------- ----------- ----------- $ 24,026 $ 30,368 $ 78,276 $ 82,781 ========== =========== =========== =========== Operating Profit (Loss): Energy................................................. $ 932 $ 1,217 $ 5,462 $ 7,705 Real estate finance.................................... 2,596 15,241 10,249 31,161 Corporate.............................................. (2,646) (3,725) (9,349) (8,538) --------- ----------- ----------- ----------- $ 882 $ 12,733 $ 6,362 $ 30,328 ========= =========== =========== ===========
June 30, September 30, 2000 1999 ----------- --------------- Identifiable Assets: Energy............................................................................. $ 144,666 $ 139,098 Real estate finance................................................................ 200,421 273,922 Equipment leasing (discontinued, See Note 4)....................................... - 431,464 Corporate.......................................................................... 137,496 56,903 ----------- ----------- $ 482,583 $ 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 and administrative expenses except for energy and real estate finance. NOTE 8 - Subsequent Event On August 1, 2000, the Company completed the sale of all of the outstanding capital stock of FLI to European American Bank and AEL Leasing Co., Inc., subsidiaries of ABN AMRO Bank, N.V. Total consideration received by the Company, including payment of certain intercompany indebtedness, was $152.2 million and the assumption of approximately $431.0 million in debt payable to third parties and other liabilities of $152.2 million, $16.0 million was paid by a non-interest bearing promissory note which is payable to the extent that payments are received on a pool of FLI lease receivables comprised of receivables aged more than 90 days, are on FLI's credit watch list, or have an outstanding balance of $200,000 or more and would be risk rated "not pass" under the purchasers' credit policies. In addition, $10.0 million is held in escrow until March 31, 2000 as security for the Company's indemnification obligations to the purchasers. In connection with the sale, the Company made $15.4 million of payments to FLI's management and incurred an estimated $1.8 million of expenses. 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. THESE RISKS AND UNCERTAINITIES ARE MORE FULLY DISCUSSED IN OUR 1999 ANNUAL REPORT ON FORM 10-K, PARTICULARLY IN THE SECTION TITLED "CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR." READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. WE UNDERTAKE NO OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO FORWARD LOOKING STATEMENTS WHICH WE MAY MAKE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF THIS FORM 10-Q OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. Overview of Third Quarter of Fiscal 2000 Our gross revenues were $24.0 million in the third quarter of fiscal 2000, a decrease of $6.4 million (21%) from $30.4 million in the third quarter of fiscal 1999. The decrease in total revenues during the third quarter of fiscal 2000 was primarily due to a decrease of $12.9 million (77%) in real estate finance revenues to $3.9 million as compared to $16.8 million in the third quarter of fiscal 1999, partially offset by a $6.4 million (57%) increase, from $11.2 million in the third quarter of fiscal 1999 to $17.6 million in the third quarter of fiscal 2000, in energy revenues. The decrease in real estate finance revenues was principally due to decreases of $2.1 million (47%) in interest revenues, $9.2 million (86%) in accreted discount and $1.8 million (126%) in net rental and fee income. The increase in energy revenues was principally due to increases of $3.8 million (151%) in well production revenues and $1.7 million (64%) in well service revenues. In February 2000, we adopted a plan to sell our small ticket equipment leasing business. As a result, we account for this business as a discontinued operation. The effect of this accounting treatment on our financial statements is o to reflect small ticket equipment leasing operations in our income statements for the three and nine months ended June 30, 1999 as well as June 30, 2000 on a net basis "discontinued operations", rather than in detail throughout the income statements; and to reflect the assets and liabilities of our small ticket leasing operations on a net basis in a single line item "net assets of discontinued operations" on our balance sheet as of June 30, 2000; however, in accordance with generally accepted accounting principles, our balance sheet as of September 30, 1999 is not so adjusted. Our revenues from continuing operations, expressed as a percentage of our total revenues from continuing operations, were distributed across our operating segments as follows:
Three Months Ended Nine Months Ended June 30, June 30, -------------------------- -------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (Unaudited) Energy ..................................................... 73% 37% 73% 49% Real estate finance......................................... 16% 55% 18% 44%
The balance of our revenues from continuing operations is 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 Third Quarter of Fiscal 2000 - (Continued) As of June 30, 2000, total assets were $482.6 million, a decrease of $418.8 million (46%) from assets of $901.4 million at September 30, 1999. The decrease principally resulted from the classification of small ticket equipment leasing as a discontinued operation. Expressed as a percentage of our total assets, our assets were distributed across our operating segments as follows:
June 30, September 30, 2000 1999 -------------- -------------- (Unaudited) Energy ................................................................................. 30% 15% Real estate finance..................................................................... 42% 30% Equipment leasing....................................................................... - 48%
The balance of 28% at June 30, 2000 includes net assets of discontinued operations of $99.6 million (21%) and other corporate assets not attributable to a specific operating segment. The balance of 7% at September 30, 1999 includes other corporate assets not attributable to a specific operating segment. Results of Operations: Energy On August 31, 1999, we 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 three and nine months ended June 30, 2000 are not comparable to those for the three and nine months ended June 30, 1999. 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - (Continued) Results of Operations: Energy - (Continued) The following table sets forth 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 our energy operations during the periods indicated:
Three Months Ended Nine Months Ended June 30, June 30, -------------------------- -------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (Unaudited) (in thousands, except sales price information) Revenues: Production............................................ $ 6,342 $ 2,524 $ 17,069 $ 7,454 Well drilling......................................... 6,921 6,028 28,463 24,669 Well services......................................... 4,316 2,625 11,304 7,031 Gain on sales of assets............................... - - - 1,151 ----------- ----------- ----------- ----------- $ 17,579 $ 11,177 $ 56,836 $ 40,305 =========== =========== =========== =========== Costs and expenses: Exploration and production............................ $ 1,693 $ 1,015 $ 6,040 $ 2,407 Well drilling......................................... 5,484 4,798 23,176 19,537 Well services......................................... 1,800 1,177 5,069 1,436 Non-direct ........................................... 3,231 1,440 6,279 4,386 ----------- ----------- ----------- ----------- $ 12,208 $ 8,430 $ 40,564 $ 27,766 =========== =========== =========== =========== Production revenues: Gas (1)............................................... $ 4,672 $ 2,275 $ 13,438 $ 6,762 Oil................................................... $ 1,593 $ 246 $ 3,511 $ 618 Production volumes: Gas (thousands of cubic feet ("mcf")/day) (1)......... 15,401 10,824 16,701 10,643 Oil (barrels ("bbls")/day)............................ 617 188 547 188 Average sales price: Gas (per mcf)......................................... $ 3.33 $ 2.31 $ 2.94 $ 2.33 Oil (per bbl)......................................... $ 28.35 $ 14.39 $ 23.42 $ 12.04
- ---------------------------- (1) Excludes sales of residual gas and sales to landowners. Natural gas revenues were $4.7 million and $13.4 million in the three months and nine months ended June 30, 2000, an increase of $2.4 million (105%) and $6.7 million (99%) from $2.3 million and $6.8 million in the three months and nine months ended June 30, 1999. The increases were due to 42% and 57% increases in production volumes, principally due to the added Viking production and 44% and 26% increases in the average sales price of natural gas during the respective periods. Of the $2.4 million and $6.7 million increase in gas revenues in the three months and nine months ended June 30, 2000, $1.4 million and $4.9 million was attributable to volume increases while $1.0 million and $1.8 million was attributable to price increases. Oil revenues were $1.6 million and $3.5 million in the three months and nine months ended June 30, 2000, an increase of $1.3 million (548%) and $2.9 million (468%) from $246,000 and $618,000 in the three months and nine months ended June 30, 1999, due to 228% and 191% increases in production volumes principally resulting from the added Viking production and 97% and 95% increases in the average sales price of oil. Of the $1.3 million and $2.9 million increase in oil revenues in the three months and nine months ended June 30, 2000, $1.1 million and $2.3 million was attributable to volume increases while $200,000 and $600,000 was attributable to price increases. 17 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 $2.8 million and $9.0 million for the third quarter and nine months of ended June 30, 2000, resulting in an overall increase of $557,000 (24%) and $2.2 million (33%) compared to the third quarter and nine months of ended June 30, 1999. Average daily gas production volumes would have been 10,548 mcf and 11,205 mcf for the third quarter and nine months June 30, 2000, a 3% decrease and 6% increase compared to the third quarter and nine months ended June 30, 1999. Oil production revenues would have been $315,000 and $967,000 for the third quarter and nine months ended June 30, 2000, resulting in an overall increase of $69,000 (28%) and $349,000 (56%) compared to the third quarter and nine months ended June 30, 1999. Average daily oil production volumes would have been 141 barrels and 154 barrels for the third quarter and nine months ended June 30, 2000, 25% and 18% decreases compared to the third quarter and nine months ended June 30, 1999. Well drilling revenues in the three months and nine months ended June 30, 2000 increased $893,000 (15%) and $3.8 million (15%). These increases result from represent the billings and costs associated with the completion of 42 and 151 net wells for partnerships sponsored by Atlas America, Inc. and Viking in the third quarter and nine months ended June 30, 2000 as compared to 30 and 124 wells in the third quarter and nine months ended June 30, 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 $240,000 and $874,000) were $1.5 million and $5.2 million in the third fiscal quarter and nine months ended June 30, 2000, an increase of $420,000 (41%) and $2.1 million (70%) from $1.0 million and $3.1 million in the third fiscal quarter and nine months ended June 30, 1999 as a result of the acquisition of Viking referred to above. Nondirect expenses for the three months and nine months ended June 30, 2000 were $3.2 million and $6.3 million respectively; an increase of $1.8 million (24%) and $1.9 (43%) as compared to the three months and nine months ended June 30, 1999. The increase is principally due to increased labor costs associated with the acquisition of Viking. Amortization of oil and gas properties as a percentage of oil and gas production revenues was 30% for the third fiscal quarter and 31% for the nine months ended June 30, 2000 compared to 24% in both the third fiscal quarter and nine months ended June 30, 1999. The variance from period to period is directly attributable to changes in our oil and gas reserve quantities, product prices and fluctuations in the depletable cost basis of oil and gas. 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - (Continued) Results of Operations: Real Estate Finance The following table sets forth certain information relating to the revenue recognized and costs and expenses incurred in real estate finance operations during the periods indicated:
Three Months Ended Nine Months Ended June 30, June 30, -------------------------- -------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (Unaudited) (in thousands) Revenues: Interest............................................. $ 2,436 $ 4,574 $ 8,850 $ 11,944 Accreted discount (net of collection of interest).... 1,507 10,666 3,995 16,271 Gains on sales of senior lien interests and loans.... 349 151 1,414 2,535 Net rental and fee income............................ (378) 1,442 69 5,851 ----------- ----------- ----------- ----------- $ 3,914 $ 16,833 $ 14,328 $ 36,601 =========== =========== =========== =========== Cost and expenses...................................... $ 628 $ 915 $ 2,083 $ 2,567 =========== =========== =========== ===========
Revenues from real estate finance operations decreased to $3.9 million and $14.3 million in the third fiscal quarter and nine months ended June 30, 2000, a decrease of $12.9 million (77%) and $22.3 million (61%) from $16.8 million and $36.6 million in the third fiscal quarter and nine months ended June 30, 1999. The decrease was attributable to the following: (i) A decrease of $11.3 million (74%) and $15.4 million (54%) in interest income in the three months and nine months ended June 30, 2000, respectively, as compared to the prior year, including a decrease of $9.2 million (86%) and $12.3 million (75%) in accretion of discount in the same respective periods. The decrease in interest income was caused primarily by the following: o As previously reported in our 1999 Annual Report on Form 10-K, one loan was repaid in the third fiscal quarter of 1999. In addition, in the same quarter, a second loan was significantly paid down in connection with a refinancing/restructuring. This resulted in a reduction of $8.5 million and $10.2 million in interest income for the three and nine months ended June 30, 2000 as compared to the three and nine months ended June 30, 1999. o One loan was repaid in the first fiscal quarter of 2000. This resulted in a reduction of $489,000 and $1.1 million in interest income for the three and nine months ended June 30, 2000 as compared to the three and nine months ended June 30, 1999. o Two loans completed their accretion of discount in the third fiscal quarter of 2000, resulting in a reduction of $448,000 and $2.7 million in interest income in the three and nine months ended June 30, 2000 as compared to the same periods in fiscal 1999. This resulted in our average accretion rate (accreted discount divided by the book value of average loan balances) on our mortgage loan portfolio to decrease to 8.6% in the quarter ended June 30, 2000 from 23% in the quarter ended June 30,1999. o The refinancing of one of our mortgage loans such that our loan ceased being a wraparound mortgage loan. This resulted in a book reduction of interest income and offsetting interest expense of $1.3 for the three months ended June 30, 2000 as compared to the same period in fiscal 1999. The refinancing did not materially affect our net cash flow from this loan. 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - (Continued) Results of Operations: Real Estate Finance - (Continued) (ii) A decrease of $1.8 million (126%) and $5.8 million (99%) in net rental and fee income during the quarter and nine months ended June 30, 2000 as compared to the prior year. This decrease was the result primarily of a one-time fee of $1.3 million earned in the third 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 our portfolio loans. No comparable fees were earned during the quarter ended June 30, 2000. In addition, we experienced a net loss on one rental real estate venture of approximately $347,000 in the third quarter of fiscal 2000. This loss was attributed to depreciation on an equity method investment. (iii) A decrease of $1.1 million in gains on sales of senior lien interests and loans in the nine months ended June 30, 2000 as compared to the prior year. The Company sold senior lien interests in two loans in the nine months ended June 30, 1999 resulting in proceeds of $5.7 million and a gain of $2.4 million; no such gains were recognized in the nine months ended June 30, 2000. As set forth in our 1999 Annual Report on Form 10-K, we made a strategic decision, effective January 1, 1999, to structure most future senior lien transactions as financings rather than sales. During the three months ended June 30, 2000 the Company did sell one loan to RAIT, receiving proceeds of $1.9 million and a gain of $273,000. During the nine months ended June 30, 2000, we acquired no loans as compared to the purchase and origination of four loans for a cost of $82.4 million during the nine months ended June 30, 1999. As a consequence of the foregoing, our 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 8.6% and 8.8% in the third fiscal quarter and nine months ended June 30, 2000 as compared to the 25% in both the third fiscal quarter and nine months ended June 30, 1999. Costs and expenses of our real estate finance operations were $628,000 and $2.1 million in the third fiscal quarter and nine months ended June 30, 2000, a decrease of $287,000 (31%) and $484,000 (19%) from $915,000 and $2.6 million in the same periods of the prior year. For both periods the decrease is primarily due to reduced salary and benefit costs as a result of less activity within Real Estate finance operations. Results of Operations: Other Revenues, Costs and Expenses Interest and other income was $2.5 million and $7.1 million in the three months and nine months ended June 30, 2000, an increase of $175,000 (7%) and $1.2 million (21%) as compared to $2.4 million and $5.9 million during the three months and nine months ended June 30, 1999. The increase for the nine months ended June 30, 2000 as compared to the nine months ended June 30, 1999 is primarily attributable to an increase in intercompany interest on increased lending related to our discontinued small ticket equipment leasing subsidiary. General and administrative expenses were $1.9 million and $5.7 million in the three months and nine months ended June 30, 2000, an increase of $807,000 (75%) and $1.7 million (42%) as compared to the three months and nine months ended June 30, 1999, primarily as a result of increases in compensation, an increase in accrued pension benefits, hiring additional corporate staff and an increase in occupancy costs as we leased additional office space to accommodate our larger staff. Depreciation, depletion and amortization expense was $2.9 million and $8.0 million in the three months and nine months ended June 30, 2000, an increase of $1.7 million (144%) and $4.2 million (109%) as compared to $1.2 million and $3.8 million for the three months and nine months ended June 30, 1999. These increases primarily resulted from the acquisition of Viking. Interest expense was $4.6 million and $13.8 million in the three months and nine months ended June 30, 2000 a decrease of $1.4 million (23%) and $118,000 (1%), as compared to $6.0 million and $13.9 million during the three months and nine months ended June 30, 1999. The quarterly decrease was primarily due to the repayment of one loan in December 1999. The nine months ended June 30, 2000 was affected by lower average borrowings on our credit facilities partially offset by higher interest rates as compared to the prior year period. 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - (Continued) Provision for possible losses was $225,000 and $670,000 for the three months and nine months ended June 30, 2000 an increase of $150,000 (200%) and $270,000 (68%), as compared to $75,000 and $400,000 in the three months and nine months ended June 30, 1999. For the three months and nine months ended June 30, 2000, $75,000 and $220,000 of the provision is associated with certain notes which were once part of our discontinued mortgage lending business (see Note 4). The remainder of the provision represents our estimate of possible loss associated with the Real Estate finance portfolio. The effective tax rate was 25% and 31% in the three months and nine months ended June 30, 2000 as compared to 34% and 33% in the three months and nine months ended June 30, 1999, a result of lower corporate earnings. Liquidity and Capital Resources Liquidity. During the nine months ended June 30, 2000, the principal sources of liquidity for our continuing operations were: o cash from continuing operations, o sales of real estate loans and properties owned which resulted in net proceeds of approximately $17.7 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 we 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 our and in which we are a limited partner. For the period, our cash flows from continuing operations were positive. As a consequence, we believe that liquidity for our continuing operations is adequate. Liquidity for our discontinued equipment leasing operation 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, we advanced approximately $11.0 million of cash to this operation, all of which remained outstanding at June 30, 2000. Following that advance, the equipment leasing operation required only temporary cash advances, all of which have been repaid. Subsequent to June 30, 2000, the equipment leasing operation was sold, resulting in proceeds to us, net of a $10.0 million escrow for indemnification, and a $16.0 million note payable from a specified pool of lease receivables a $15.4 million payment to management of Fidelity Leasing and $1.8 million of estimated expenses related to the transaction, of $109.0 million. These funds are an additional source of future liquidity. Capital Resources. We have historically derived our capital resources for our continuing operations 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 sales of loans. As a result of the continued depressed price of our common stock, we do not believe we will be able to obtain additional capital resources from public or private securities markets on acceptable terms. As a consequence, we believe that our principal sources of capital resources for the remainder of fiscal 2000 will be the proceeds of the disposition of our equipment leasing operation referred to above. While the sale of the equipment leasing operation will provide us substantial near-term capital resources, our future growth and earnings will depend upon our ability to generate material amounts of further capital resources. If we are unable to do so, our ability to generate growth in our continuing energy and real estate finance operations may be restricted, which could materially affect our earnings potential. 21 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - (Continued) Liquidity and Capital Resources - (Continued) Sources and Uses of Cash. Sources and (uses) of cash for the nine month periods ended June 30, 2000 and 1999 were as follows:
Nine Months Ended June 30, -------------------------------------- 2000 1999 ----------- ------------ (Unaudited) (in thousands) Provided by (used in) operations........................................... $ 8,494 $ (2,420) Provided by (used in) investing activities................................. 38,510 (74,907) (Used in) provided by financing activities................................. (57,819) 71,489 Used in discontinued operations............................................ (10,467) (38,647) ----------- ------------ Decrease in cash and cash equivalents................................... $ (21,282) $ (44,485) =========== ============
We had $21.4 million in cash and cash equivalents on hand at June 30, 2000, as compared to $42.6 million at September 30, 1999, which included cash of the discontinued small ticket equipment leasing operation of $10.1 million. Our ratio of earnings to fixed charges was 1.4 to 1 in the quarter ended June 30, 2000 as compared to 3.1 to 1 in the quarter ended June 30, 1999. Our net cash provided by operating activities in the nine months ended June 30, 2000 was $8.5 million whereas net cash used in operating activities was $2.4 million in the nine months ended June 30, 1999, a net increase of $10.9 million, primarily as a result of the following: o a $16.8 million increase in interest collection net of accretion of discount, o a $9.4 million decrease in accounts payable and accrued liabilities, o an $8.2 million increase in non-cash charges to income from continuing operations, partially offset by, o a $14.4 million decrease in net income, o a $7.3 million decrease in deferred taxes. Net cash provided by our investing activities was $38.5 million for the nine months ended June 30, 2000 as compared to net cash used in investing activities of $74.9 million for the nine months ended June 30, 1999, a net increase of $113.4 million, primarily as a result of the following: o In real estate finance, cash provided increased $128.9 million; due to $71.8 million in principal payments received in the nine months ended June 30, 2000 compared to $0 in the nine months ended June 30, 1999. This was partially offset by our investment of $2.5 million in real estate loans and ventures for the nine months ended June 30, 2000 as compared to investments of $89.6 million for the nine months ended June 30, 1999. These cash provided lines was also partially offset by a decrease of $30.1 million in proceeds from loan sales for the nine months ended June 30, 2000 as compared to the nine months ended June 30, 1999. o In energy, cash used increased $5.2 million as a result of a $3.0 million increase in capital expenditures and other assets, coupled with a $2.2 million decrease in proceeds from asset sales. Net cash used in our financing activities was $57.8 million for the nine months ended June 30, 2000 as compared to net cash provided by financing activities of $71.5 million for the nine months ended June 30, 1999, a net decrease of $129.3 million, primarily attributable to an increase of $140.3 million in payments on our borrowings, net of repayments, for the nine months ended June 30, 2000, compared to the nine months ended June 30, 1999, partially offset by receipts of $14.0 million of net proceeds from the sale of gathering systems to Atlas Pipeline Partners, L.P. during the nine months ended June 30, 2000. 22 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK General. During the nine months ended June 30, 2000, our loans receivable did not undergo material change other than changes resulting from normally recurring debt service payments received and the sale of three loans. Our loans payable generally did not undergo material change other than changes resulting from normally recurring debt service payments, except that the interest rate on one loan payable was increased as a result of increases in market interest rates the credit limit and amount drawn under one of our real estate lines of credit was increased and the revolving loan attributed to our energy operations was paid down in part Energy. During the nine months ended June 30, 2000, the amount outstanding under a revolving loan attributable to our energy operations was reduced by $12.0 million to $33.0 million as a result of the application of the proceeds of the sale of our gathering systems to Atlas Pipeline Partners in connection with APL's initial public offering during the second quarter of fiscal 2000. The weighted average interest rate for this facility increased from 7.87% at September 30, 1999 to 9.04% at June 30, 2000, due to an increase in lending rates. Real Estate Finance. During the nine months ended June 30, 2000, our outstanding loans receivable (to our interest) increased $43.5 million (17.4%) to $294.0 million in the aggregate and the carried cost of our loans increased $2.4 million (1.7%) to $146.4 million in the aggregate. The principal balance of related senior lien interests increased $20.8 million (7.7%) to $291.2 million in the aggregate. These increases were principally attributable to the refinancing of one loan and, because the refinancing was at a fixed rate, the subsequent reclassification of that loan from interest rate sensitive to non-interest rate sensitive in the third quarter of fiscal 2000. The interest rate payable with respect to the senior lien interest underlying the one loan in our portfolio that may be deemed to be interest rate sensitive increased from 7.875% at September 30, 1999 to 8.75% at June 30, 2000. The rate increase resulted from an increase in the LIBOR rate, to which the interest rate payable with respect to the senior lien interest is linked. The maximum amount of one of our real estate revolving lines of credit was increased during the second quarter of fiscal 2000 to $18.0 million from $15.0 million at September 30, 1999. In addition, the interest rate increased to 9.50% on the $18.0 million line, 9.50% on the $5.0 million line and 10.25% on the $7.0 million line, each an increase of 125 basis points. The interest rate increase was due to an increase in the lender's prime rate, to which the interest rates of the lines of credit are linked. 23 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: The registrant filed a Form 8-K dated May 17, 2000 reporting, in Item 5, the execution of an agreement with respect to the sale of Fidelity Leasing, Inc. The registrant filed a Form 8-K dated August 10, 2000 reporting,, in Item 2, the completion of the sale of Fidelity Leasing, Inc. 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: August 14, 2000 By: /s/ Steven J. Kessler --------------- --------------------- STEVEN J. KESSLER Senior Vice President and Chief Financial Officer Date: August 14, 2000 By: /s/ Nancy J. McGurk --------------- ------------------- NANCY J. McGURK Vice President-Finance and Chief Accounting Officer 24 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 0000083402 RESOURCES AMERICA, INC. 3-MOS 9-MOS SEP-30-2000 SEP-30-2000 APR-01-2000 OCT-01-1999 JUN-30-2000 JUN-30-2000 21,361 21,361 0 0 14,783 14,783 0 0 0 0 0 0 110,327 110,327 (25,811) (25,811) 482,583 482,583 0 0 163,622 163,622 0 0 0 0 245 245 266,941 266,941 482,583 482,583 6,342 17,069 24,026 78,276 1,693 6,040 23,144 71,914 0 0 225 670 4,557 13,767 882 6,362 219 1,972 663 4,390 605 613 0 197 0 0 1,268 5,200 0.05 0.22 0.05 0.22
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