-----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, Eb41N8l/ZplPmuZoBdu/VeuqLXaW6J/m/CnwY5K6oGw4kfVndLRGAstf0ThvnrjK QbJ65I77/fs2HA7NV9j0dQ== 0000950116-98-001070.txt : 19980513 0000950116-98-001070.hdr.sgml : 19980513 ACCESSION NUMBER: 0000950116-98-001070 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980512 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: 98616981 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 March 31, 1998 ------------- [ ] 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: 6,504,985 Shares April 30, 1998 RESOURCE AMERICA, INC. INDEX
PAGE NUMBER ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - March 31, 1998 (Unaudited) and September 30, 1997...................................................... 3-4 Consolidated Statements of Income (Unaudited) Three Months and Six Months Ended March 31, 1998 and 1997.................................................................... 5 Consolidated Statement of Changes In Stockholders' Equity (Unaudited) Six Months Ended March 31, 1998................................ 6 Consolidated Statements of Cash Flows (Unaudited) Six Months Ended March 31, 1998 and 1997.................................... 7-8 Notes to Consolidated Financial Statements (Unaudited)........................ 9-12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................... 13-22 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K............................................... 23
-2- PART I. FINANCIAL INFORMATION RESOURCE AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
March 31, September 30, 1998 1997 -------- -------- (Unaudited) ASSETS Current Assets Cash and cash equivalents............................... $ 22,625 $ 69,279 Accounts and notes receivable........................... 4,644 2,414 Prepaid expenses and other current assets............... 2,024 576 -------- -------- Total Current Assets........................... 29,293 72,269 Investments in Real Estate Loans (less allowance for possible losses of $716 and $400) ............................................... 182,624 88,816 Notes Secured by Equipment Leases............................. 14,113 4,761 Net Investment in Direct Financing Leases (less allowance for possible losses of $827 and $248) ............................................... 1,585 3,391 Investment in Marketable Securities........................... 9,125 -- Property and Equipment Oil and gas properties and equipment (successful efforts).................................. 26,012 24,939 Gas gathering and transmission facilities............... 1,625 1,606 Other ............................................... 4,312 2,874 -------- -------- 31,949 29,419 Less - accumulated depreciation, depletion, and amortization...................................... (16,452) (15,793) -------- ------- 15,497 13,626 Other Assets ............................................... 17,103 12,256 -------- -------- $269,340 $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) ================================================================================
March 31, September 30, 1998 1997 -------- --------- (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current maturities of long-term debt.................... $ 679 $ 708 Borrowings under credit facilities...................... 3,008 - Accounts payable........................................ 1,207 1,339 Accrued interest........................................ 2,338 2,734 Accrued liabilities..................................... 3,048 1,967 Estimated income taxes.................................. 426 4,093 -------- --------- Total Current Liabilities............................... 10,706 10,841 Long-term Debt, less current maturities....................... 177,583 118,786 Deferred Income Taxes......................................... 1,028 -- Other Long-term Liabilities................................... 2,063 663 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..................................... 55 54 Unrealized gain on investment reported at fair value, net of tax................................ 1,483 -- Additional paid-in capital.............................. 59,433 56,787 Retained earnings....................................... 31,326 22,005 Less treasury stock, at cost............................ (14,016) (13,664) Less loan receivable from Employee Stock Option Plan ("ESOP")............................ (321) (353) -------- --------- Total Stockholders' Equity.............................. 77,960 64,829 -------- --------- $269,340 $ 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)
Three Months Six Months Ended March 31, Ended March 31, --------------- --------------- 1998 1997 1998 1997 ---- ---- ---- ---- Revenues Real estate finance...................................... $15,875 $3,778 $25,267 $6,997 Equipment leasing........................................ 3,452 1,674 6,624 2,876 Energy: production....................................... 1,048 947 2,280 1,898 : services......................................... 487 361 1,070 750 Interest and other....................................... 443 100 1,141 198 ------- ------ ------- ------- 21,305 6,860 36,382 12,719 Costs and Expenses Real estate finance...................................... 2,985 188 4,508 352 Equipment leasing........................................ 1,465 906 2,790 1,800 Energy: production and exploration...................... 571 425 1,145 837 : services........................................ 299 223 608 447 General and administrative............................... 1,289 656 2,216 1,250 Depreciation and amortization............................ 708 392 1,216 771 Interest ............................................. 4,171 610 8,041 1,017 Provision for possible losses............................ 623 136 941 146 ------- ------ ------- ------ 12,111 3,534 21,465 6,620 ------- ------ ------- ------ Income from Operations................................... 9,194 3,326 14,917 6,099 Other Income (Expense) Gain [loss] on sale of property.......................... -- (17) 3 71 ------- ------ ------- ------ Income before income taxes............................... 9,194 3,309 14,920 6,170 Provision for income taxes............................... 2,875 775 4,650 1,350 ------- ------ ------- ------ Net Income............................................... $ 6,319 $2,534 $10,270 $4,820 ======= ====== ======= ====== Net Income per Common Share - Basic...................... $1.33 $.71 $2.17 $1.59 ======= ====== ======= ====== Weighted average common shares outstanding............... 4,749 3,552 4,741 3,033 ======= ====== ======= ====== Net Income per Common Share - Diluted.................... $1.29 $.55 $2.09 $1.19 ======= ====== ======= ====== Weighted average common shares........................... 4,916 4,625 4,911 4,045 ======= ====== ======= ======
The accompanying notes are an integral part of these financial statements. -5- RESOURCE AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY SIX MONTHS ENDED MARCH 31, 1998 (Unaudited) (in thousands except number of shares and share issuance data)
Unrealized Gain on Investment Common Stock Reported at Additional Treasury Stock ESOP Total ------------------- Fair Value, Paid-In Retained ------------------ Loan Stockholders' Shares Amount Net of Tax Capital Earnings Shares Amount Receivable Equity - ----------------------------------------------------------------------------------------------------------------------------------- Balance, October 1, 1997 . 5,410,645 $ 54 $ -- $ 56,787 $ 22,005 (709,048) $ (13,664) $ (353) $ 64,829 - ----------------------------------------------------------------------------------------------------------------------------------- Treasury shares issued ... 98 4,116 88 186 Issuance of common stock . 55,574 1 2,548 2,549 Unrealized net gain on investment ............. 1,483 1,483 Treasury shares acquired . (10,000) (440) (440) Dividends ($.20 per share) (949) (949) Repayment of ESOP loan ... 32 32 Net income ............... 10,270 10,270 ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------- -------- Balance, March 31, 1998 .. 5,466,219 $ 55 $ 1,483 $ 59,433 $ 31,326 714,932 ($ 14,016) ($ 321) $ 77,960 ========== ========== ========== ========== ========== ========== ========== ======== ========
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)
Six Months Ended March 31, 1998 1997 ---- ---- Cash Flows from Operating Activities: Net income....................................................... $ 10,270 $4,820 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................................. 1,216 771 Property impairments........................................... 63 -- Amortization of discount on senior notes and deferred finance costs....................................... 444 55 Provision for possible losses.................................. 941 146 Collection of interest income ................................. 2,769 174 Accretion of discount.......................................... (3,597) (1,503) Deferred income taxes.......................................... 362 117 Gain on asset dispositions..................................... (15,987) (3,096) Change in operating assets and liabilities net of effects from purchase of subsidiaries: (Increase) decrease in accounts receivable................... (2,230) 534 Increase in prepaid expenses and other current assets............................................. (1,448) (304) Increase (decrease) in accounts payable...................... (180) 17 Increase (decrease) in other current liabilities............. (2,895) 580 -------- ------ Net Cash Provided by (Used in) Operating Activities........................................... (10,272) 2,311 Investing Activities: Acquisition of business, less cash acquired...................... (997) -- Cost of equipment acquired for lease............................. (32,966) (11,478) Capital expenditures............................................. (2,654) (258) Proceeds from sales or refinancings of assets.................... 119,103 8,397 Principal payments on notes receivable........................... 5,539 1,878 Payments received in excess of revenue recognized on leases and mortgages............................. 1,205 720 Increase in other assets......................................... (8,058) (2,217) Increase in other long-term liabilities.......................... 1,400 -- Investments in real estate loans................................. (178,560) (30,394) -------- ------- Net Cash Used in Investing Activities............................ (95,988) (33,352)
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)
Six Months Ended March 31, 1998 1997 ------- ------- Financing Activities: Long-term borrowings................................................ $60,000 $14,070 Short-term borrowings............................................... 22,211 5,000 Proceeds from issuance of common stock.............................. 234 19,609 Dividends paid ($.20 per share)..................................... (949) (545) Principal payments on long-term borrowings.......................... (1,201) (560) Principal payments on short-term borrowings......................... (19,203) (4,750) Increase in other assets............................................ (1,046) (153) Purchase of treasury stock.......................................... (440) -- ------- ------- Net Cash Provided by Financing Activities........................... 59,606 32,671 Increase (decrease) in cash and cash equivalents.......................... (46,654) 1,630 Cash and cash equivalents at beginning of period.......................... 69,279 4,154 ------- ------- Cash and cash equivalents at end of period................................ $22,625 $ 5,784 ======= =======
The accompanying notes are an integral part of these financial statements. -8- Notes to Consolidated Financial Statements (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 period included herein have been made. Certain reclassifications have been made to the consolidated financial statements for the quarter and six months ended March 31, 1997 to conform with the quarter and six months ended March 31, 1998. The accounting policies followed by the Company are set forth in Note 1 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, 1997. Note 2 - Cash Flows Statement Supplemental disclosure of cash flow information:
Six Months Ended March 31, ------------------- 1998 1997 ---- ---- (in thousands) Cash paid during the period for: Interest...................................... $8,010 $ 860 Income taxes.................................. 7,870 1,030 ----------------------------- Non-cash activities include the following: Notes received in exchange for: Sale of leases.............................. $8,843 $4,460 Sale of mortgages........................... 8,267 3,500 Receipt of note in satisfaction of real estate sale............................ 1,000 -- Stock issued in acquisition................... 2,500 -- Debt assumed upon acquisition of real estate loan............................. -- 2,381 ----------------------------- Details of acquisition: Fair value of assets acquired................. $3,545 $ -- Liabilities assumed........................... (48) -- Stock issued.................................. (2500) -- ------ ----- Net cash paid................................... $ 997 $ ======== =====
-9- Note 3 - Investments in Real Estate Loans 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 properties underlying the loans. Cash received by the Company as payment on each mortgage loan 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 $1.9 million and $710,000 during the quarters ended March 31, 1998 and 1997, respectively, and $3.6 million and $1.5 million during the six months ended March 31, 1998 and 1997, respectively. As the Company sells senior lien interests or receives funds from refinancings of 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 March 31, 1998, the Company held commercial mortgage loans having aggregate face values of $422.7 million, which were being carried at an aggregate cost of $174.3 million, including cumulative accretion of $4.3 million. The following is a summary of the changes in the carrying value of the Company's investments in real estate loans for the periods indicated.
Three Months Ended Six Months Ended March 31, 1998 March 31, 1998 ----------------- -------------- (in thousands) Balance, beginning of period............................... $128,884 $ 88,816 New loans.................................................. 78,587 142,235 Additions to existing loans................................ 647 2,645 Allowance for possible losses.............................. (82) (134) Accretion of discount...................................... 1,931 3,597 Collections of principal................................... -- (35,250) Cost of loans sold......................................... (23,805) (27,589) Increase (decrease) in investment in residential mortgage loans................................ (3,538) 8,304 -------- -------- Balance, end of period..................................... $182,624 $182,624 ======== ========
-10- Note 4 - Investment in Direct Financing Leases Components of the net investment in direct financing leases as of March 31, 1998 are as follows: March 31, 1998 -------------- (in thousands) Total future minimum lease payments receivable $2,726 Initial direct costs, net of amortization 49 Unguaranteed residual 249 Unearned lease income (612) Allowance for possible losses (827) ------ Net investment in direct financing leases $1,585 ====== Note 5 - Long-Term Debt Long-term debt consists of the following:
March 31, 1998 September 30, 1997 -------------- ------------------ (Unaudited) (in thousands) 12% senior unsecured notes payable, interest due semi-annually, principal due August 2004................................................... $115,000 $115,000 Loan payable to a financial institution, secured by real estate, bears interest at 30 day LIBOR (5.75% at March 31, 1998) plus 2.5% until September 9, 1998, and at LIBOR plus 4% from September 10, 1998 until July 1, 1999,when the financing matures......... 55,000 -- Loan payable to a bank, secured by oil and gas properties, bears interest at the prime rate (8.5% at March 31, 1998) plus 1/4%, payable monthly, and is due September 1, 1999... 5,000 -- Loan payable to a bank, secured by a certificate of deposit, 20 equal semiannual installments of $32,143 through February 2003, and quarterly payments of interest at the prime rate (8.5% at March 31, 1998) plus 1/2% through 2003 .................... 321 353
-11-
Loans payable, secured by real estate, monthly installments totaling approximately $30,000 including interest ranging from prime (8.5% at March 31, 1998) to 9.6%, due at various times from December 2001 through November 2010.................. 2,479 3,216 Unsecured note payable, due in March 1999 including interest at 12 month LIBOR (6 9/32% at March 31, 1998)................................................................... 462 925 ---------- --------- 178,262 119,494 Less current maturities....................................................................... 679 708 ---------- --------- $177,583 $118,786 ========== =========
As of March 31, 1998 the long-term debt maturing over the next five fiscal years is as follows: 1999 - $679,000; 2000 - $60.2 million; 2001 - $249,000; 2002 - $248,000; and 2003 - $202,000. Note 6 - Investment In Marketable Securities In January 1998, the Company acquired 500,000 shares (15% of the outstanding shares) of Resource Asset Investment Trust ("RAIT"), a newly-formed real estate investment trust sponsored by the Company, for $7.0 million. In accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the Company has classified its investment in RAIT as available-for-sale securities which is carried at market value as determined based on quoted market prices, and the unrealized gain is reported net of tax as a separate component of stockholders' equity, and was $1.5 million net of deferred taxes of $667,000 at March 31, 1998. Realized gains and losses from securities classified as available-for-sale are included in income and are determined using the specific identification method for ascertaining the cost of securities sold. Note 7 - Subsequent Event On April 29, 1998 the Company closed a public offering of 1,753,044 shares of its Common Stock. The Company received net proceeds of $106.4 million before estimated offering expenses of $800,000. -12- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations WHEN USED IN THIS FORM 10-Q, THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD LOOKING STATEMENTS WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO FORWARD LOOKING STATEMENTS WHICH MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. Overview of Second Quarter of Fiscal 1998 The Company's gross revenues were $21.3 million in the second quarter of fiscal 1998, an increase of $14.4 million (211%) from $6.9 million in the second quarter of fiscal 1997. As of March 31, 1998, total assets were $269.3 million, an increase of $74.2 million (38%) from $195.1 million at September 30, 1997. Of the increases in total revenues during the second quarter of fiscal 1998, the revenues from the Company's real estate finance business increased to $15.9 million, an increase of $12.1 million (320%) from $3.8 million in the second quarter of fiscal 1997. Equipment leasing revenues were $3.5 million in the second quarter of fiscal 1998, an increase of $1.8 million (106%) from $1.7 million in the second quarter of fiscal 1997. Energy revenues were $1.5 million in the second quarter of fiscal 1998, an increase of $227,000 (17%) from $1.3 million in the second quarter of fiscal 1997. Real estate finance (commercial and residential mortgage loans) and equipment leasing revenues were 91% and 79% of total revenues in the second quarter of fiscal 1998 and 1997, respectively. Energy revenues were 7% and 19% of total revenues in the first quarter of fiscal 1998 and 1997, respectively. Real estate finance and equipment leasing assets were 80% and 77% of total assets at March 31, 1998 and 1997, respectively. Energy assets were 6% and 14% of total assets at March 31, 1998 and 1997, respectively. -13- 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:
Three Months Six Months Ended March 31, Ended March 31, --------------- --------------- 1998 1997 1998 1997 ---- ---- ---- ---- (in thousands) Revenue: Commercial mortgage loan acquisition and resolution: Interest........................................ $ 2,009 $1,500 $ 4,731 $2,134 Accreted discount............................... 1,931 710 3,597 1,503 Fees............................................ 1,880 7 3,655 1,414 Gains on refinancings, sale of senior lien interests and loans............. 7,935 1,561 9,463 1,946 ------- ------ ------- ------ 13,755 3,778 21,446 6,997 ------- ------ ------- ------ Residential mortgage lending: Gains on sale of residential mortgage loans......................................... 1,216 -- 2,637 -- Interest........................................ 904 -- 1,184 -- ------- ------ ------- ------ 2,120 -- 3,821 -- ------- ------ ------- ------ $15,875 $3,778 $25,267 $6,997 ======= ====== ======= ====== The following table sets forth certain information relating to expenses incurred in the Company's real estate finance operations during the periods indicated: Three Months Six Months Ended March 31, Ended March 31, --------------- --------------- 1998 1997 1998 1997 ---- ---- ---- ---- (in thousands) Expenses: Commercial mortgage loan acquisition and resolution......................................... $ 484 $188 $ 864 $352 Residential mortgage lending............................. 2,501 -- 3,644 -- ------ ---- ------ ---- $2,985 $188 $4,508 $352 ====== ==== ====== ====
-14- During the quarter and six months ended March 31, 1998, the Company purchased or originated one and five commercial mortgage loans for a total cost of $78.6 million and $142.2 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 two and six loans for a total cost of $5.2 million and $33.1 million the second quarter and six months ended March 31, 1997. In the second quarter of fiscal 1997, the average net investment in the loans was $2.6 million and ranged from a high of $3.5 million to a low of $1.7 million. The Company also increased its investment in certain existing loans by an aggregate of $647,000 and $17,000 in the second 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 the loans were acquired and were included in its analysis of loan costs and yields. The average balance of the Company's investments in commercial mortgage loans was $145.7 million and $52.6 million for the second quarters of fiscal 1998 and fiscal 1997, respectively. The Company purchased certain commercial mortgage loans in the fourth quarter of fiscal 1997 and the first quarter of fiscal 1998 some of which have been refinanced or have had senior lien interests 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 the loans which have been refinanced or in which senior lien interests have been sold, the Company's yield on its average loan balances increased in the second quarter of fiscal 1998 to 38% from 29% in the second quarter of fiscal 1997 and from 30% in the first quarter of fiscal 1998. Revenues from commercial mortgage loan acquisition and resolution operations increased to $13.8 million and $21.4 million in the second quarter and six months ended March 31, 1998 from $3.8 million and $7.0 million in the second quarter and six months ended March 31, 1997, an increase of $10.0 million (264%) for the quarter and $14.4 million (207%) for the six months ended March 31, 1998 as compared to the prior year periods. The increase in the second quarter of fiscal 1998 was attributable to the following: (i) An increase of $1.7 million (78%) in interest income (including accretion of discount) 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 or sale of senior lien interests in loans held by the Company which increased to $7.9 million in the second quarter of fiscal 1998 from $1.6 million in the second quarter of fiscal 1997, an increase of $6.4 million (408%). This is the result of an increased number of loans in which senior lien interests were sold to unaffiliated third parties (seven in the second quarter of 1998) resulting in proceeds of $11.5 million, a gain of $4.8 million and the sale to Resource Asset Investment Trust ("RAIT") (a real estate investment trust sponsored by the Company) of 10 mortgage loans and senior lien interests in two other loans resulting in proceeds of $20.2 million and a gain of $3.1 million, as compared to three mortgage loans in the second quarter of fiscal 1997, resulting in gross proceeds of $218,000. (iii) An increase in fee income to $1.9 million in the second quarter of fiscal 1998 -15- from $7,000 in second quarter of fiscal 1997. Fees received in the second quarter of fiscal 1998 arose from a one-time $1.9 million fee for services to a borrower whose loan the Company later acquired. Gains on sale of senior lien interests in loans and the amount (if any) of fees received 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 $296,000 (157%) in the second quarter of fiscal 1998 compared to the second quarter of fiscal 1997. The increase was primarily a result of higher personnel and legal 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 $13.3 million and $20.6 million in the second quarter and six months ended March 31, 1998 from $3.6 million and $6.6 million in the second quarter and six months ended March 31, 1997, respectively. During the second quarter of fiscal 1998 the Company originated 490 residential mortgage loans for a cost of $20.7 million. The Company may opportunistically purchase residential mortgage loans although its focus is on loan originations. The Company sold residential mortgage loans with a book value of $21.8 million and $33.1 million during the second quarter and six months ended March 31, 1998, respectively, in several different transactions, receiving $22.9 million and $27.5 million in cash, respectively. In addition, during the first quarter of 1998 the Company received a note (from an unaffiliated third party) with a carried value of $8.1 million of which $6.0 million was paid during the second quarter of fiscal 1998. These sales resulted in an aggregate gain of $2.6 million during the six months ended March 31, 1998. Costs and expenses associated with residential mortgage lending operations were $2.5 million and $3.6 million for the second quarter and six months ended March 31, 1998, reflecting the commencement of operations during the quarter ended December 31, 1997, and the increase in loan originations. -16- Results of Operations: Equipment Leasing The following table sets forth certain information relating to the revenue incurred in the Company's equipment leasing operations during the periods indicated:
Three Months Six Months Ended March 31, Ended March 31, --------------- --------------- 1998 1997 1998 1997 ---- ---- ---- ---- (in thousands) Small ticket leasing Gain on sale of leases........................ $2,095 $ 763 $3,883 $1,076 Interest and fees............................. 761 220 1,362 296 Partnership management.......................... 445 408 976 921 Lease finance placement and advisory services............................. 151 283 403 583 ------ ------ ------ ------ $3,452 $1,674 $6,624 $2,876 ====== ====== ====== ====== The following table sets forth certain information relating to expenses incurred in the Company's equipment leasing operations during the periods indicated: Three Months Six Months Ended March 31, Ended March 31, --------------- --------------- 1998 1997 1998 1997 ---- ---- ---- ---- (in thousands) Small ticket leasing............................ $ 931 $358 $1,728 $721 Partnership management.......................... 381 323 719 695 Lease finance placement and advisory services............................. 153 225 343 384 ------ ---- ------ ------ $1,465 $906 $2,790 $1,800 ====== ==== ====== ======
During the second quarter and six months ended March 31, 1998 the Company experienced continued growth in its leasing business, originating 1,798 and 3,341 leases having a cost of $17.0 million and $ 33.0 million, as compared to 660 and 967 leases having a cost of $7.1 million and $11.5 million during the second quarter and six months ended March 31, 1997. In the second quarter of fiscal 1998, the Company sold leases with a book value of approximately $17.8 million to a special-purpose financing entity in return for cash of $15.4 million and a note with a face value of $4.4 million, as compared to the second quarter of fiscal 1997, where the Company sold leases with a book value of $6.4 million to a special purpose financing entity in return for cash of $5.9 million and a note with a face value of $1.2 million. -17- Revenues from equipment leasing increased to $3.5 million and $6.6 million in the second quarter and six months ended March 31, 1998 from $1.7 million and $2.9 million in the second quarter and six months ended March 31, 1997, an increase of $1.8 million and $3.7 million (106% and 130%), respectively. The increase in revenues in the second quarter of fiscal 1998 compared to the prior fiscal quarter was attributable to (i) an increase in the gain on sale of leases of $1.3 million (175%) 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 $541,000 (246%) resulting from the increased volume of lease transactions. Equipment leasing costs and expenses increased $559,000 and $990,000 (62% and 55%) in the second quarter and six months ended March 31, 1998 as compared to the second quarter and six months ended March 31, 1997. This increase was primarily a result of higher operating costs associated with the increase in lease originations. Results of Operations: Energy During the second fiscal quarter and six months ended March 31, 1998 oil and gas production revenues increased 11% and 20%, respectively, compared to the same periods of the previous fiscal year. A comparison of the Company's revenues, daily production volumes, and average sales prices follows:
Three Months Six Months Ended March 31, Ended March 31, --------------- --------------- 1998 1997 1998 1997 ---- ---- ---- ---- Revenues (in thousands) Gas ..................................................... $ 891 $ 752 $1,908 $1,507 Oil ..................................................... 148 178 349 363 Production Volumes Gas (thousands of cubic feet ("mcf")/day)................ 3,535 3,101 3,870 3,206 Oil (barrels ("bbls")/day)............................... 112 91 118 91 Average Sales Price Gas (per mcf)............................................ $ 2.80 $ 2.69 $ 2.71 $ 2.58 Oil (per bbl)............................................ $14.75 $21.75 $16.22 $21.98
Natural gas revenues increased 18% in the second quarter and 27% in the six months ended March 31, 1998, compared to the same periods of the prior fiscal year, due to a 14% and 21% increase in production volumes. Additionally, the average sales price per mcf increased 4% and 5% in the quarter and six months ended March 31, 1998. Oil revenues decreased 17% and 4% in the second quarter and six months ended March 31, 1998, respectively, compared to the same periods of fiscal 1997, due to a 32% and 26% -18- decrease in the average sales price in the quarter and six months ended March 31, 1998, respectively. This decrease was partially offset by a 23% and 30% increase in production volumes as compared to the same periods of fiscal 1997. Both gas and oil volumes were favorably impacted by two acquisitions of interests in producing properties located in Ohio and New York. These acquisitions accounted for an increase of 25% and 29% in gas and oil volumes, respectively, as compared to the second quarter and first six months of fiscal 1997. The Company spent $1.8 million to acquire interests in 431 wells during the twelve months ended December 31, 1997. 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 second quarter and six months ended March 31, 1998 and 1997 is as follows:
Three Months Six Months Ended March 31, Ended March 31, --------------- --------------- 1998 1997 1998 1997 ---- ---- ---- ---- Production Costs As a percent of sales........................... 43% 42% 43% 40% Gas (mcf)....................................... $1.21 $1.20 $1.18 $1.11 Oil (bbl)....................................... $7.27 $7.20 $6.80 $6.66
Production costs increased 16% ($63,000) and 28% ($216,000) in the second quarter and six months ended March 31, 1998 from the second quarter and six months ended March 31, 1997 as a result of the acquisition of the interests in producing properties referred to above. Amortization of oil and gas property costs as a percentage of oil and gas revenues was 20% and 17% in the second quarter and six months ended March 31, 1998 compared to 22% and 21% in the second quarter and six months ended March 31, 1997. The variance from period to period is directly attributable to changes in the Company's oil and gas reserve quantities, product prices and fluctuations in the depletable cost basis of oil and gas properties. Results of Operations: Other Revenues, Costs and Expenses Interest and other income increased $343,000 (343%) and $943,000 (476%) in the second quarter and six months ended March 31, 1998 as compared to the second quarter and six months ended March 31, 1997 as a result of the substantial increase in the Company's uncommitted cash balances ($69.3 million and $28.1 million at the beginning of the first and second quarters of fiscal 1998, respectively, as compared to $4.2 million and $7.3 million at the beginning of the first and second quarter of fiscal 1997, respectively,) and the temporary investment of such balances. In addition, the Company recognized dividend income of $135,000 from RAIT in the second quarter of fiscal 1998. -19- General and administrative expense increased 96% and 77% ($633,000 and $966,000) in the second quarter and six months ended March 31, 1998, as compared to the second quarter and six months ended March 31, 1997, primarily as a result of the payment of compensation and benefits to executive officers and occupancy costs. Interest expense increased to $4.2 million and $8.0 million in the second quarter and six months ended March 31, 1998 from $610,000 and $1.0 million in the second quarter and six months ended March 31, 1997, an increase of $3.6 million and $7.0 million (584% and 691%) 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 $115.0 million of its 12% Senior Notes. Provision for possible losses increased to $623,000 and $941,000 in the second quarter and six months ended March 31, 1998 from $136,000 and $146,000 in the second quarter and six months ended March 31, 1997. The increases were primarily as a result of an increased provision for equipment leasing of $375,000 and $625,000 and real estate finance of $248,000 and $316,000 in the quarter and six months ended March 31, 1998, respectively, as compared to a provision for possible losses of $70,000 and $80,000 for equipment leasing and $66,000 for real estate finance for the quarter and six months ended March 31, 1997, respectively. The increased provisions reflect the increases in lease originations and investments in real estate loans. The effective tax rate increased to 31% in the second quarter and six months ended March 31, 1998, respectively, from 23% and 22% in the second quarter and six months ended March 31, 1997 based upon the Company's anticipated earnings and stability in the amount of the Company's 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 residential loans. In addition, it expects substantial ongoing growth in its small ticket leasing activities. In energy, the Company is seeking to increase 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 sales of its notes and common stock. Subsequent to the end of the second fiscal quarter of 1998, on April 29, 1998 the Company closed a public offering of 1,753,044 shares of its Common Stock, and received net -20- proceeds of $106.4 million before estimated offering expenses of $800,000. The Company expects to finance future activities in a similar manner. Sources and (uses) of cash for the six month periods ended March 31, 1998 and 1997 were as follows: Six Months Ended March 31, ---------------------- 1998 1997 ---- ---- (in thousands) Provided by (used in) operations............. ($10,272) $ 2,311 (Used in) investing activities............... (95,988) (33,352) Provided by financing activities............. 59,606 32,671 ------- ------- Increase (decrease) in cash and cash equivalents............................... ($46,654) $ 1,630 ======= ======= The Company had $22.6 million in cash and cash equivalents on hand at March 31, 1998, as compared to $69.3 million at September 30, 1997. The Company's ratio of current assets to current liabilities was 2.7:1 at March 31, 1998 and 6.7:1 at September 30, 1997. Working capital at March 31, 1997 was $18.6 million as compared to $61.4 million at September 30, 1997. The Company's ratio of earnings to fixed charges was 3.2:1 in the quarter ended March 31, 1998 as compared to 6.4:1 in the quarter ended March 31, 1997. Cash used in operating activities in the first six months of fiscal 1998 increased $12.6 million as compared to the first quarter of fiscal 1997 primarily as a result of the following: increases in net income and other non-cash adjustments of $5.5 million and $1.7 million, respectively; increases in gains on asset dispositions and accretion of discount of $12.9 million and $2.1 million respectively; increases in operating assets of $3.9 million; and decreases in operating liabilities of $3.7 million. The Company's cash used in investing activities increased $62.6 million in the six months ended March 31, 1998 as compared to the six months ended March 31, 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 $142.2 million and $29.4 million in the acquisition or origination of five and six loans in the six months ended March 31, 1998 and 1997, respectively. In addition, the Company advanced funds on existing commercial loans of $2.6 million and $1.0 million, respectively, in the same periods. Proceeds received upon refinancings or sales of senior lien interests amounted to $68.5 million and $2.2 million in the six months ended March 31, 1998 and 1997, respectively. These proceeds reflect the sale of senior lien interests in or refinancing of nineteen and two loans, respectively. -21- The Company's cash flow provided by financing activities increased $26.9 million during the six months ended March 31, 1998 as compared to the six months ended March 31, 1997 primarily as the result of a long-term borrowing in the amount of $55 million from a financial institution. The proceeds from this borrowing along with the Company's temporary cash investments were used to acquire a commercial real estate loan. In the six months ended March 31, 1998, the Company's residential mortgage loan business borrowed $22.2 million under its warehouse line and repaid $19.2 million. The Company invested $34.7 million in 790 residential mortgage loans during the six months ended March 31, 1998, and, during that period, sold 756 of these loans for $35.8 million, of such amount, $22.8 million was received as of March 31, 1998. An additional $4.7 million was recognized with respect to sales occurring in the quarter which were funded subsequent to March 31, 1998. The remaining $8.3 million was paid by a promissory note (with a book value of $8.1 million after a provision for loan losses of $174,000) of which $6.0 million was paid in the second quarter of fiscal 1998 with the balance of $2.3 million being payable in 2027. 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 equipment lease receivables totaled $27.8 million in the six months ended March 31, 1998. Increase in other assets and investment in marketable securities of $7.0 million during the quarter ended March 31, 1998 principally represents the acquisition of 500,000 shares of RAIT, a newly-formed real estate investment trust sponsored by the Company. -22- PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a) Exhibits: 11 Calculation of Basic and Diluted Earnings Per Share. 27 Financial Data Schedule. 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 March 30, 1998, reporting that it jointly purchased with RAIT, a real estate investment trust sponsored by the Company, a defaulted loan in the original principal amount of $80.0 million plus accrued fees, restructuring charges, interest and costs from Dai-Ichi Kangyo Bank, Limited, New York Branch, for a price of $85.5 million. -23- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. RESOURCE AMERICA, INC. (Registrant) Date: May 12, 1998 By: /s/ Steven J. Kessler ------------ ----------------------- Steven J. Kessler Senior Vice President and Chief Financial Officer Date: May 12, 1998 By: /s/ Nancy J. McGurk ------------ --------------------- Nancy J. McGurk Vice President - Finance and Treasurer -24- EX-11 2 EXHIBIT 11.1 EXHIBIT 11.1 CALCULATION OF BASIC AND DILUTED EARNINGS PER SHARE BASIC EARNINGS PER SHARE
Three Months Six Months Ended March 31, Ended March 31, ----------------------- ---------------------- 1998 1997 1998 1997 ------ ------ ------ ------ Net income $6,319 $2,534 $10,270 $4,820 Weighted average number of shares outstanding - Basic 4,749 3,552 4,741 3,033 Net income per share - Basic $ 1.33 $ 0.71 $ 2.17 $ 1.59 ======================================================
DILUTED EARNINGS PER SHARE Net income $6,319 $2,534 $10,270 4,820 Weighted average number of shares outstanding - Basic 4,749 3,552 4,741 3,033 Dilutive effect of outstanding options and warrants (as determined by the application of the treasury stock method) 167 1,073 170 1,012 ------ ------ ------- ------ Weighted average number of shares outstanding - Diluted 4,916 4,625 4,911 4,045 Net income per share - Diluted $ 1.29 $ 0.55 $ 2.09 $ 1.19 ======================================================
EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS SEP-30-1998 OCT-01-1997 MAR-31-1998 22,625 9,125 4,644 0 0 29,293 31,949 16,452 269,340 10,706 177,583 0 0 55 77,905 269,340 2,280 36,382 1,145 12,483 0 941 8,041 14,920 4,650 10,270 0 0 0 10,270 2.17 2.09
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