-----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, DuAO97otJDlxvF4KozwZR8LFPX/GbaeGY1SJsXbXSGih8OsUus+pg+VimEh4vAa9 4AJA1xvYjif5m9o2kWoo2A== 0000950116-98-000295.txt : 19980217 0000950116-98-000295.hdr.sgml : 19980217 ACCESSION NUMBER: 0000950116-98-000295 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980212 SROS: NONE 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: 98534327 BUSINESS ADDRESS: STREET 1: 1521 LOCUST ST STREET 2: 4TH FL CITY: PHILADELPHIA STATE: PA ZIP: 19102 BUSINESS PHONE: 2155465005 MAIL ADDRESS: STREET 1: 2876 SOUTH ARLINGTON ROAD CITY: AKRON STATE: OH ZIP: 44312 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 December 31, 1997 ------------------- [ ] 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 (IRS Employer Identification No.) incorporation or organization) 1521 Locust Street, Philadelphia, Pennsylvania 19102 ---------------------------------------------------- (Address of principal executive offices) (215) 546-5005 -------------- (Registrant's telephone number, including area code) -------------------------------------------- (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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: 4,748,537 Shares January 31, 1998 RESOURCE AMERICA, INC. INDEX
PAGE NUMBER ------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - December 31, 1997 (Unaudited) and September 30, 1997...................................................... 3 Consolidated Statements of Income (Unaudited) - Quarter Ended December 31, 1997 and 1996.................................... 5 Consolidated Statement of Stockholders' Equity (Unaudited) - Quarter Ended December 31, 1997............................................. 6 Consolidated Statements of Cash Flows (Unaudited) - Quarter Ended December 31, 1997 and 1996.................................... 7 Notes to Consolidated Financial Statements (Unaudited)........................ 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................... 11 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.............................................. 19
-2- PART I. FINANCIAL INFORMATION RESOURCE AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
================================================================================================================== December 31, September 30, 1997 1997 ------------ ------------- (Unaudited) ASSETS Current Assets Cash and cash equivalents............................... $ 28,086 $ 69,279 Accounts and notes receivable........................... 5,309 2,414 Prepaid expenses and other current assets............... 948 576 -------- -------- Total Current Assets........................... 34,343 72,269 Investments in Real Estate Loans (less allowance for possible losses of $468 and $400) ............................................... 128,884 88,816 Notes Secured by Equipment Leases............................. 9,008 4,761 Net Investment in Direct Financing Leases (less allowance for possible losses of $492 and $248) ............................................... 4,206 3,391 Property and Equipment Oil and gas properties and equipment (successful efforts).................................. 25,967 24,939 Gas gathering and transmission facilities............... 1,609 1,606 Other ............................................... 3,652 2,874 -------- -------- 31,228 29,419 Less - accumulated depreciation, depletion, and amortization...................................... (16,073) (15,793) -------- ------- 15,155 13,626 Other Assets ............................................... 16,323 12,256 --------- -------- $207,919 $195,119 ======== ========
The accompanying notes are an integral part of these financial statements. -3- RESOURCE AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) (continued)
================================================================================================================== December 31, September 30, 1997 1997 ------------ ------------- (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current maturities of long-term debt.................... $ 5,100 $ 708 Accounts payable........................................ 1,754 1,339 Accrued interest........................................ 6,180 2,734 Accrued liabilities..................................... 2,884 1,967 Estimated income taxes.................................. 772 4,093 --------- --------- Total Current Liabilities............................... 16,690 10,841 Long-term Debt, less current maturities....................... 118,116 118,786 Deferred Income Taxes......................................... 826 -- Other Long-term Liabilities................................... 1,830 663 Commitments and Contingencies................................. -- -- Stockholders' Equity Preferred stock, $1.00 par value, 1,000,000 authorized shares..................................... -- -- Common stock, $.01 par value, 8,000,000 authorized shares..................................... 55 54 Additional paid-in capital.............................. 59,343 56,787 Retained earnings....................................... 25,486 22,005 Less treasury stock, at cost............................ (14,074) (13,664) Less loan receivable from Employee Stock Option Plan ("ESOP")............................ (353) (353) -------- -------- Total Stockholders' Equity.............................. 70,457 64,829 -------- -------- $207,919 $195,119 ======== ========
The accompanying notes are an integral part of these financial statements. -4- RESOURCE AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands except per share data)
================================================================================================================== Quarter Ended December 31, ------------------------------ 1997 1996 -------- -------- Revenues Real estate finance..................................... $ 9,392 $ 3,219 Equipment leasing....................................... 3,172 1,202 Energy: production...................................... 1,232 950 : services........................................ 583 389 Interest on corporate investments....................... 691 78 Other................................................... 7 6 ------- ------- 15,077 5,844 Costs and Expenses Real estate finance..................................... 1,523 163 Equipment leasing....................................... 1,325 883 Energy: production and exploration...................... 574 412 : services........................................ 309 224 General and administrative.............................. 927 592 Depreciation and amortization........................... 508 379 Interest ............................................... 3,870 409 Provision for possible losses........................... 318 10 ------- ------- 9,354 3,072 ------- ------- Income from operations........................................ 5,723 2,772 Other Income Gain on sale of property................................ 3 88 ------- ------- Income before income taxes.................................... 5,726 2,860 Provision for federal income taxes............................ 1,775 575 ------- ------- Net Income.............................................. $ 3,951 $ 2,285 ======= ======= Net Income per Common Share - Basic........................... $ .83 $ .91 ======= ======= Weighted average common shares outstanding.................... 4,733 2,507 ======= ======= Net income per common share - Diluted......................... $ .81 $ .66 ======= ======= Weighted average common shares................................ 4,906 3,476 ======= =======
The accompanying notes are an integral part of these financial statements. -5- RESOURCE AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) (in thousands except number of shares and share issuance data)
Common Stock Additional Treasury Stock -------------------- Paid-In Retained --------------------- Shares Amount Capital Earnings Shares Amount - --------------------------------------------------------------------------------------------------------------------- Balance, October 1, 1997 5,410,645 $54 $56,787 $22,005 (709,048) $(13,664) - --------------------------------------------------------------------------------------------------------------------- Treasury shares issued 34 1,366 30 Issuance of common stock 49,956 1 2,522 Treasury shares acquired (10,000) (440) Dividends ($.10 per share) (470) Net income 3,951 ---------- ---- ------- ------- ------- -------- Balance, December 31, 1997 5,460,601 $55 $59,343 $25,486 (717,682) $(14,074) ========= === ======= ======= ======= ======== ESOP Total Loan Stockholders' Receivable Equity - ---------------------------------------------------------------------- Balance, October 1, 1997 $(353) $64,829 - ---------------------------------------------------------------------- Treasury shares issued 64 Issuance of common stock 2,523 Treasury shares acquired -- (440) Dividends ($.10 per share) (470) Net income 3,951 ----- ------- Balance, December 31, 1997 $(353) $70,457 ===== =======
The accompanying notes are an integral part of these financial statements. -6- RESOURCE AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
==================================================================================================================== Quarter Ended December 31, --------------------------------- 1997 1996 -------- -------- Cash Flows from Operating Activities: Net income....................................................... $3,951 $2,285 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................................. 508 379 Amortization of discount on senior notes and deferred finance costs....................................... 208 24 Provision for possible losses.................................. 318 10 Accretion of discount.......................................... (1,666) (793) Deferred income taxes.......................................... 826 382 Gain on asset dispositions..................................... (4,740) (785) Change in operating assets and liabilities net of effects from purchase of subsidiaries: (Increase) decrease in accounts receivable................... (3,086) 316 (Increase) decrease in prepaid expenses and other current assets....................................... (372) 236 Increase in accounts payable................................. 367 377 Increase in other current liabilities........................ 1,043 409 ------- ------ Net Cash Provided by (Used In) Operating Activities........................................... (2,643) 2,840 Investing Activities: Acquisition of business, less cash acquired...................... (997) -- Cost of equipment acquired for lease............................. (15,972) (4,411) Capital expenditures............................................. (1,811) (130) Proceeds from sales or refinancings of assets.................... 56,305 2,323 Increase in notes receivable..................................... (355) -- Payments received in excess of revenue recognized on leases and mortgages............................. 437 76 Increase in other assets......................................... (974) (1,536) Increase in other long-term liabilities.......................... 1,168 -- Investments in real estate loans................................. (79,232) (28,881) ------- ------- Net Cash Used In Investing Activities............................ (41,431) (32,559)
The accompanying notes are an integral part of these financial statements. -7- RESOURCE AMERICA, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) (continued)
==================================================================================================================== Quarter Ended December 31, --------------------------------- 1997 1996 -------- -------- Financing Activities: Long-term borrowings............................................ $ -- $15,570 Short-term borrowings........................................... 6,670 (110) Proceeds from issuance of common stock.......................... 85 19,659 Dividends paid ($.10 per share)................................. (470) (190) Principal payments on long-term borrowings...................... (704) (2,043) Principal payments on short-term borrowings..................... (2,245) -- Increase in other assets........................................ (15) -- Purchase of treasury stock...................................... (440) -- ------- -------- Net Cash Provided by Financing Activities....................... 2,881 32,886 Increase (decrease) in cash and cash equivalents...................... (41,193) 3,167 Cash and cash equivalents at beginning of period...................... 69,279 4,154 ------- -------- Cash and cash equivalents at end of period............................ $28,086 $ 7,321 ======= ========
The accompanying notes are an integral part of these financial statements. -8- 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 period included herein have been made. Certain reclassifications have been made to the consolidated financial statements for the quarter ended December 31, 1996 to conform with the quarter ended December 31, 1997. The accounting policies followed by the Company are set forth in Note 1 to the Company's consolidated financial statements for the fiscal year ended September 30, 1997, included in the Company's Annual Report on Form 10-K. Note 2 - Cash Flows Statement Supplemental disclosure of cash flow information:
Quarter Ended December 31, -------------------------------- 1997 1996 -------- -------- (in thousands) Cash paid during the quarter for: Interest.............................................. $ 173 $575 Income taxes.......................................... 4,180 450 ------------------------------ Non-cash activities include the following: Notes received in exchange for - Sale of leases...................................... $3,891 $3,260 Sale of mortgages................................... 8,093 -- Sale of a senior lien interest...................... 1,000 -- Stock issued in acquisition........................... 2,500 -- ------------------------------ Details of acquisition: Fair value of assets acquired......................... $3,545 $-- Liabilities assumed................................... (48) -- Stock issued.......................................... (2,500) -- ------ --- Net cash paid........................................... $ 997 $-- ====== ===
-9- Note 3 - Investments in Real Estate The Company has focused its commercial real estate activities on the purchase of income producing mortgage loans at a discount to both the face value of such loans and the appraised value of the property underlying the mortgage. Cash received by the Company as payment on each mortgage is allocated between principal and interest, with the interest portion of the cash received being recorded as income to the Company. Additionally, the Company records as income the accrual of a portion of the discount to the underlying collateral value. This "accretion of discount" amounted to $1.7 million and $793,000 during the quarters ended December 31, 1997 and 1996, respectively. As the Company sells senior lien interests or receives funds from refinancings in such loans, a portion of the cash received is utilized to reduce the cumulative accretion of discount included in the carrying value of the Company's investment in real estate loans. At December 31, 1997, the Company held commercial real estate loans having aggregate face values of $318.7 million, which were being carried at an aggregate cost of $117.0 million, including cumulative accretion of $4.8 million. Note 4 - Investment in Direct Financing Leases Components of the net investment in direct financing leases as of December 31, 1997 are as follows: December 31, 1997 ----------------- (in thousands) Total future minimum lease payments receivable $5,383 Initial direct costs, net of amortization 95 Unguaranteed residual 425 Unearned lease income (1,205) Allowance for possible losses (492) ------ Net investment in direct financing leases $4,206 ====== At December 31, 1997, minimum lease payments required to be made by lessees to the Company under existing direct financing leases for each of the five succeeding fiscal years are as follows: 1998 - $1.2 million; 1999 - $1.3 million; 2000 - $1.2 million; 2001 - $859,000; and 2002 - $667,000. -10- 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. Results of Operations: Real Estate Finance The following table sets forth certain information relating to the revenue recognized in the Company's real estate finance operations during the periods indicated:
Quarter Ended December 31, -------------------------- 1997 1996 -------- -------- (in thousands) Commercial Mortgage Loan Acquisition and Resolution: Interest...................................................... $2,722 $ 634 Accreted discount............................................. 1,666 793 Fees.......................................................... 1,775 1,407 Gains on refinancings and sale of senior lien interests................................ 1,528 385 ------ ------- 7,691 3,219 Non-Conforming Residential Mortgage Lending: Gains on sale of residential mortgage loans................... 1,421 -- Interest...................................................... 280 -- ------ ------- $9,392 $3,219 ====== ======
-11- The following table sets forth certain information relating to expenses incurred in the Company's real estate finance operations during the periods indicated:
Quarter Ended December 31, -------------------------- 1997 1996 -------- --------- (in thousands) Commercial Mortgage Loan Acquisition and Resolution.............................................. $ 380 $163 Non-Conforming Residential Mortgage Lending................... 1,143 -- ------ --- $1,523 $163 ====== ====
During the first quarter of fiscal 1998, the Company purchased or originated four real estate mortgage loans for a total cost of $63.3 million (including $35.3 million of costs with respect to one loan which were reduced immediately upon loan acquisition by first mortgage financing arranged by the Company), as compared to the purchase of four loans for a total cost of $27.9 million in the first quarter of fiscal 1997. The average investment in the four loans (excluding the $35.3 million financing referred to in the preceding sentence) was $7.0 million and ranged from a high of $14.6 million to a low of $1.5 million whereas in the first quarter of fiscal 1997, the average investment in the four loans was $7.0 million and ranged from a high of $19.2 million to a low of $507,000. In addition, during the first quarter of fiscal 1998 the Company originated a construction loan with respect to a hotel property in Savannah, Georgia, in the amount of $3.6 million, of which $280,000 was drawn down during the quarter. The Company also increased its investment in certain existing loans by an aggregate of $2.0 million and $1.0 million in the first quarters of fiscal 1998 and 1997, respectively, for the purpose of paying for property improvement costs, unpaid taxes and similar items relating to properties underlying portfolio loans. The increased investments had been anticipated by the Company at the time of loan acquisitions and were included in its analysis of loan costs and yields. The average balance of the Company's investment in real estate loans was $102.9 million and $35.7 million for the first quarters of fiscal 1998 and fiscal 1997. The Company purchased certain loan assets in the fourth quarter of fiscal 1997 and the first quarter of fiscal 1998 which have not yet been refinanced or in which senior lien interests have not yet been sold. Refinancings and senior lien interests generally bear lower rates of interest and are included within the balance of the obligation owed to the Company, thereby typically increasing the Company's yield on its funds remaining invested. As a consequence of the increase in loans which have not yet been refinanced or in which senior lien interests have not yet been sold, the Company's yield on its average loan balances decreased in the first quarter of fiscal 1998 to 30% from 36% in the first quarter of fiscal 1997. Revenues from commercial mortgage loan acquisition and resolution operations increased to $7.7 million in the first quarter of fiscal 1998 from $3.2 million in the first quarter of fiscal 1997, an increase of 139%. The increase in the first quarter of fiscal 1998 was attributable to (i) an increase of $3.0 million (207%) in interest income (including accretion of discount) -12- resulting from an increase in the average amount of loans outstanding during that period as compared to the same period in the prior fiscal year; (ii) gains recognized on the refinancing of loans and sale of senior lien interests in loans held by the Company which increased to $1.5 million in the first quarter of fiscal 1998 from $385,000 in the first quarter of fiscal 1997, an increase of $1.1 million (297%), as a result of an increased number of loans refinanced or in which senior lien interests were sold (six in the first quarter of 1998, resulting in gross proceeds of $5.3 million, as compared to three in the first quarter of fiscal 1997, resulting in gross proceeds of $2.2 million); and (iii) an increase in fee income to $1.8 million in the first quarter of fiscal 1998 from $1.4 million in first quarter of fiscal 1997, an increase of $368,000 (26%). Of these fees, $830,000 were for financial advisory and consultation services related to the organization and capitalization of Resource Asset Investment Trust ("RAIT"), a newly formed mortgage REIT which completed an initial public offering of its stock in January 1998 for which the Company acted as the sponsor. The Company also received a $900,000 fee for services to a borrower whose loan the Company later acquired. Gains on sale of loans and fees vary from transaction to transaction and there may be significant variations in the Company's gain on sale and fee income from period to period. Costs and expenses of the Company's commercial mortgage loan acquisition and resolution operations increased $217,000 (133%) in the first quarter of fiscal 1998 compared to the first quarter of fiscal 1997. The increase was primarily a result of higher personnel costs associated with the expansion of this operation. As a consequence of the foregoing, the Company's gross profit from commercial mortgage loan acquisition and resolution operations increased to $7.3 million in the first quarter of fiscal 1998 from $3.1 million in the first quarter of fiscal 1997 (139%). On October 1, 1997, the Company's non-conforming residential mortgage lending business commenced operations. On November 5, 1997 the Company acquired Tri-Star Financial Services, Inc. ("Tri-Star"), an originator of non-conforming residential mortgage loans, for $3.5 million of which $2.5 million was paid with shares of the Company's common stock and the remainder in cash. During the first quarter of fiscal 1998 the Company originated 263 non-conforming residential loans (including residential loans originated by Tri-Star subsequent to its acquisition) for a cost of $11.8 million and acquired a portfolio of 37 loans for a cost of $2.7 million. The Company sold residential mortgage loans with a book value of $11.0 million during the first quarter of fiscal 1998 in exchange for cash of $4.3 million and a note (from an unaffiliated third party) with a carried value of $8.1 million, resulting in a gain on sale of $1.4 million. Costs and expenses associated with residential mortgage lending operations were $1.1 million, reflecting the commencement of operations during the quarter. -13- Results of Operations: Equipment Leasing The following table sets forth certain information relating to the revenue recognized in the Company's equipment leasing operations during the periods indicated:
Quarter Ended December 31, -------------------------- 1997 1996 -------- --------- (in thousands) Gain on sale of leases........................................ $1,788 $ 313 Interest and fees............................................. 601 76 Partnership management........................................ 531 513 Lease finance placement and advisory services................. 252 300 ------ ------- $3,172 $1,202 ====== ======
The following table sets forth certain information relating to expenses recognized in the Company's equipment leasing operations during the periods indicated:
Quarter Ended December 31, -------------------------- 1997 1996 -------- --------- (in thousands) Small ticket leasing.......................................... $ 797 $353 Partnership management........................................ 338 372 Lease finance placement and advisory services................. 190 158 ------ ----- $1,325 $883 ====== ====
During the first quarter of fiscal 1998 the Company experienced continued growth in its leasing business, originating 1,551 leases having a cost of $16.0 million, as compared to 307 leases having a cost of $4.4 million during the first quarter of fiscal 1997. In the first quarter of fiscal 1998, the Company sold leases with a book value of approximately $14.4 million to a special-purpose financing entity in return for cash of $12.3 million and a note with a face value of $3.9 million, as compared to the first quarter of fiscal 1997, when the Company sold leases with a book value of $3.0 million in exchange for a note with a face value of $3.3 million. Revenues from equipment leasing increased to $3.2 million in the first quarter of fiscal 1998 from $1.2 million in the first quarter of fiscal 1997, an increase of $2.0 million (164%). The increase in revenues in the first quarter of fiscal 1998 was attributable to (i) an increase in the gain on sale of leases of $1.5 million (471%) resulting from the increased number of leases originated by the Company and, thus, available for sale; and (ii) an increase in interest and fee income of $525,000 (691%) resulting from the increased volume of lease transactions. -14- Equipment leasing costs and expenses increased $442,000 (50%) in the first quarter of fiscal 1998 as compared to the first quarter of fiscal 1997. This increase was primarily a result of higher operating costs associated with the increase in lease originations. Results of Operations: Energy During the first quarter of fiscal 1998 oil and gas production revenues increased 30%, compared to the same period of the previous fiscal year. A comparison of the Company's revenues, daily production volumes, and average sales prices follows:
Quarter Ended December 31, -------------------------- 1997 1996 ---------- --------- Revenues (in thousands) Gas .......................................................... $1,017 $755 Oil .......................................................... 201 185 Production Volumes (in thousands) Gas (mcf/day)................................................. 4,198 3,309 Oil (bbls/day)................................................ 124 91 Average Sales Price Gas (per mcf)................................................. $ 2.63 $ 2.48 Oil (per bbl)................................................. 17.52 22.19
Natural gas revenues increased 35% in the quarter ended December 31, 1997, compared to the same period of the prior fiscal year, due to a 27% increase in production volumes. Additionally, the average sales price per mcf increased 6% in the quarter ended December 31, 1997. Oil revenues increased 9% in the quarter ended December 31, 1997, compared to the same period of fiscal 1997, due to a 36% increase in production volumes which was partially offset by a 21% decrease in the average sales price per barrel as compared to the quarter ended December 31, 1996. Both gas and oil volumes were favorably impacted by two acquisitions of producing properties located in Ohio and New York. These acquisitions accounted for an increase of 32% and 15% in gas and oil volumes, respectively, as compared to the first quarter of fiscal 1997. The Company spent $1.8 million to acquire interests in 431 wells during the 1997 fiscal year. -15- A comparison of the Company's production costs as a percentage of oil and gas sales, and the production cost per equivalent unit for oil and gas, for the quarters ended December 31, 1997 and 1996 is as follows:
Quarter Ended December 31, -------------------------- 1997 1996 -------- --------- Production Costs As a percent of sales......................................... 42% 38% Gas (mcf)..................................................... $1.14 $1.03 Oil (bbl)..................................................... $6.79 $6.19
Production costs increased 42% ($153,000) in the quarter ended December 31, 1997 from the quarter ended December 31, 1996 as a result of the acquisition of the working interests mentioned above. Amortization of oil and gas property costs as a percentage of oil and gas revenues was 15% in the quarter ended December 31, 1997 compared to 19% in the quarter ended December 31, 1996. The variance from year to year 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 properties. Results of Operations: Other Income (Expense) Interest income increased 786% ($613,000) in the quarter ended December 31, 1997 as compared to the quarter ended December 31, 1996 as a result of the substantial increase in the Company's uncommitted cash balances ($69.3 million at the beginning of the first quarter of fiscal 1998 as compared to $4.2 million at the beginning of the first quarter of fiscal 1997), and the temporary investment of such balances. The Company deployed $41.2 million of its cash balances during the first quarter of fiscal 1998 in its real estate finance and equipment leasing operations, reducing its cash balance to $28.1 million at the end of the first quarter of fiscal 1998. General and administrative expense increased 57% ($335,000) in the quarter ended December 31, 1997, as compared to the quarter ended December 31, 1996, primarily as a result of the payment of compensation and benefits to executive officers and occupancy costs. Interest expense increased to $3.9 million in the first quarter of fiscal 1998 from $409,000 in the first quarter of fiscal 1997, an increase of $3.5 million (846%) reflecting the increase in borrowings to fund the growth of the Company's real estate finance and equipment leasing operations. In July 1997, the Company issued $115 million of its 12% Senior Notes. -16- The effective tax rate increased to 31% in the quarter ended December 31, 1997 from 20% in the quarter ended December 31, 1996 resulting from higher anticipated earnings in fiscal 1998 as compared to fiscal 1997 and anticipated stability in the amount of depletion, tax credits and tax exempt interest. Liquidity and Capital Resources The Company's primary liquidity needs are for continued expansion of its real estate finance and small ticket leasing subsidiaries, activities that are the core of the Company's growth strategy. The Company will add to its commercial mortgage loan acquisition and resolution loan portfolio as economically attractive opportunities become available and will also continue to originate non-conforming residential loans. In addition, it expects substantial ongoing growth in its small ticket leasing activities. In energy, the Company is seeking to add to its reserve base through selective acquisition of producing properties and other assets and further development of its mineral interests. The Company from time to time may also consider acquisitions of energy industry companies. Thus far, the Company has been able to finance each of these activities through a variety of sources, including internally generated funds, borrowings, and the sale of its notes and common stock. The Company expects to finance future activities in a similar manner and is exploring public and/or private financings that would provide it with a significant increase in liquidity and capital to permit additional growth. Sources and (uses) of cash for the quarters ended December 31, 1997 and 1996 were as follows:
Quarter Ended December 31, -------------------------- 1997 1996 ---------- --------- (in thousands) Provided by (used in) operations.............................. $(2,643) $ 2,840 (Used in) investing activities................................ (41,431) (32,559) Provided by financing activities.............................. 2,881 32,886 -------- ------- $(41,193) $ 3,167 ======== =======
The Company had $28.1 million in cash and cash equivalents on hand at December 31, 1997, as compared to $69.3 million at September 30, 1997. The Company's ratio of current assets to current liabilities was 2.1:1 at December 31, 1997 and 6.7:1 at September 30, 1997. Working capital at December 31, 1997 was $17.7 million as compared to $61.4 million at September 30, 1997. Cash used in operating activities in the first quarter of fiscal 1998 increased $5.5 million as compared to the first quarter of fiscal 1997. -17- The Company's cash used in investing activities increased $8.9 million in the first quarter of fiscal 1998 as compared to the first quarter of fiscal 1997. This increase resulted primarily from an increase in the amount of cash used to fund real estate finance and small ticket leasing activities. In commercial mortgage loan acquisition and resolution, the Company invested $62.6 million and $27.9 million in the acquisition or origination of five and four loans in the first quarters of fiscal years 1998 and 1997, respectively. In addition, the Company advanced funds on existing loans of $2.0 million and $1.0 million, respectively, in the same periods. Proceeds received upon refinancings or sales of participations amounted to $39.6 million and $2.2 million in the first quarters of fiscal years 1998 and 1997, respectively. These proceeds reflect the refinancing or sale of participations in six and three loans, respectively, for which gains were recognized on five and one of these loans, respectively. The Company invested $14.5 million in 300 non-conforming residential mortgage loans during the quarter ended December 31, 1997. Cash proceeds from the sale of some of these loans amounted to $4.3 million. In addition, the Company sold approximately 234 of these loans for $8.3 million, paid by a promissory note of which $6.2 million is payable in the second quarter of fiscal 1998. In small ticket leasing, cost of equipment acquired for lease represents the equipment cost and initial direct costs associated with leasing operations. Proceeds received upon the sale of lease equipment receivables totaled $12.3 million in the quarter ended December 31, 1997. Increase in other assets of $974,000 principally represents a note of $765,000 from the purchaser of a loan from the Company. The Company's cash flow provided by financing activities decreased $30.0 million during the first quarter of fiscal 1998 as compared to the first quarter of fiscal 1997. In the first quarter of fiscal 1998, the Company's non-conforming residential mortgage loan business borrowed $6.7 million under its warehouse line and repaid $2.2 million. In the first quarter of fiscal 1997, the Company completed a public offering of shares of its common stock, receiving net proceeds of $19.6 million, and borrowed $14.1 million to finance its commercial mortgage loan and acquisition operations. -18- PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K
a) Exhibits: 2. Agreement and Plan of Merger among Tri-Star Financial Services, Inc. Frank Pellegrini, Resource Tri-Star Acquisition Corp. and the Company.(3) 4.1 Restated Certificate of Incorporation of the Company.(1) 4.2 Bylaws of the Company, as amended.(1) 4.3 Form of Certificate for Common Stock.(1) 4.4 Indenture with respect to 12% Senior Notes due 2004 (including form of note).(2) 11 Calculation of Basic and Diluted Earnings per share. 27 Financial Data Schedule.
- --------------------------- (1) Filed previously as an Exhibit to the Company's Registration Statement on Form S-1 (Registration No. 333-13905) and by this reference incorporated herein. (2) Filed previously as an Exhibit to the Company's Registration Statement on Form S-4 (Registration No. 333-40231) and by this reference incorporated herein. (3) Filed previously as an Exhibit to the Company's Annual Report on Form 10-K for the year ended September 30, 1997. b) Reports on Form 8-K During the quarter for which this report is being filed, the Registrant filed a current report on Form 8-K dated December 17, 1997, reporting that it anticipates filing a registration statement with respect to an underwritten public offering of up to 2,000,000 shares of its common stock (which may include shares offered by certain existing stockholders). The offering will be made in order to increase the working capital available for the Company's business operations. -19- 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: February 12, 1998 By: /s/ Steven J. Kessler ----------------- ----------------------- Steve J. Kessler Senior Vice President and Chief Financial Officer Date: February 12, 1998 By: /s/ Nancy J. McGurk ----------------- --------------------- Nancy J. McGurk Vice President - Finance and Treasurer -20- EX-11 2 EXHIBIT 11 EXHIBIT 11 CALCULATION OF BASIC AND DILUTED EARNINGS PER SHARE BASIC EARNINGS PER SHARE
December 31, ---------------------- 1997 1996 ------ ------ Net income $3,951 $2,285 Weighted average number of shares outstanding 4,733 2,507 ------ ------ Net income per share - Basic $ 0.83 $ 0.91 ====== ====== DILUTED EARNINGS PER SHARE Net income $3,951 $2,285 Weighted average number of shares 4,733 2,507 Dilutive effect of outstanding options and warrants (as determined by the application of the treasury stock method) 173 969 ------ ------ Net income per share - Diluted $ 0.81 $ 0.66 ====== ======
EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS SEP-30-1998 OCT-01-1997 DEC-31-1997 28,086 0 148,367 960 0 34,343 31,228 16,073 207,919 16,690 119,946 0 0 55 70,402 207,919 1,232 15,077 574 9,354 4,592 318 3,870 5,726 1,775 3,951 0 0 0 3,951 .83 .81
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