<PAGE>
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
<PAGE>
RESOURCE AMERICA, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
-------
<S> <C> <C>
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
</TABLE>
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
RESOURCE AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
==================================================================================================================
December 31, September 30,
1997 1997
------------ -------------
(Unaudited)
<S> <C> <C>
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
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
RESOURCE AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(continued)
<TABLE>
<CAPTION>
==================================================================================================================
December 31, September 30,
1997 1997
------------ -------------
(Unaudited)
<S> <C> <C>
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
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
RESOURCE AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
==================================================================================================================
Quarter Ended December 31,
------------------------------
1997 1996
-------- --------
<S> <C> <C>
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
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
RESOURCE AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(in thousands except number of shares and share issuance data)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
-------------------- Paid-In Retained ---------------------
Shares Amount Capital Earnings Shares Amount
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
RESOURCE AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
====================================================================================================================
Quarter Ended December 31,
---------------------------------
1997 1996
-------- --------
<S> <C> <C>
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)
</TABLE>
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE>
RESOURCE AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
(continued)
<TABLE>
<CAPTION>
====================================================================================================================
Quarter Ended December 31,
---------------------------------
1997 1996
-------- --------
<S> <C> <C>
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
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-8-
<PAGE>
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:
<TABLE>
<CAPTION>
Quarter Ended December 31,
--------------------------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
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 $--
====== ===
</TABLE>
-9-
<PAGE>
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-
<PAGE>
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:
<TABLE>
<CAPTION>
Quarter Ended December 31,
--------------------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
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
====== ======
</TABLE>
-11-
<PAGE>
The following table sets forth certain information relating to expenses
incurred in the Company's real estate finance operations during the periods
indicated:
<TABLE>
<CAPTION>
Quarter Ended December 31,
--------------------------
1997 1996
-------- ---------
(in thousands)
<S> <C> <C>
Commercial Mortgage Loan Acquisition
and Resolution.............................................. $ 380 $163
Non-Conforming Residential Mortgage Lending................... 1,143 --
------ ---
$1,523 $163
====== ====
</TABLE>
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-
<PAGE>
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-
<PAGE>
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:
<TABLE>
<CAPTION>
Quarter Ended December 31,
--------------------------
1997 1996
-------- ---------
(in thousands)
<S> <C> <C>
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
====== ======
</TABLE>
The following table sets forth certain information relating to expenses
recognized in the Company's equipment leasing operations during the periods
indicated:
<TABLE>
<CAPTION>
Quarter Ended December 31,
--------------------------
1997 1996
-------- ---------
(in thousands)
<S> <C> <C>
Small ticket leasing.......................................... $ 797 $353
Partnership management........................................ 338 372
Lease finance placement and advisory services................. 190 158
------ -----
$1,325 $883
====== ====
</TABLE>
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-
<PAGE>
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:
<TABLE>
<CAPTION>
Quarter Ended December 31,
--------------------------
1997 1996
---------- ---------
<S> <C> <C>
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
</TABLE>
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-
<PAGE>
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:
<TABLE>
<CAPTION>
Quarter Ended December 31,
--------------------------
1997 1996
-------- ---------
<S> <C> <C>
Production Costs
As a percent of sales......................................... 42% 38%
Gas (mcf)..................................................... $1.14 $1.03
Oil (bbl)..................................................... $6.79 $6.19
</TABLE>
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-
<PAGE>
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:
<TABLE>
<CAPTION>
Quarter Ended December 31,
--------------------------
1997 1996
---------- ---------
(in thousands)
<S> <C> <C>
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
======== =======
</TABLE>
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-
<PAGE>
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-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
a) Exhibits:
<S> <C>
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.
</TABLE>
- ---------------------------
(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-
<PAGE>
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-
<PAGE>
EXHIBIT 11
CALCULATION OF BASIC AND
DILUTED EARNINGS PER SHARE
BASIC EARNINGS PER SHARE
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1996
------ ------
<S> <C> <C>
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
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 28,086
<SECURITIES> 0
<RECEIVABLES> 148,367
<ALLOWANCES> 960
<INVENTORY> 0
<CURRENT-ASSETS> 34,343
<PP&E> 31,228
<DEPRECIATION> 16,073
<TOTAL-ASSETS> 207,919
<CURRENT-LIABILITIES> 16,690
<BONDS> 119,946
0
0
<COMMON> 55
<OTHER-SE> 70,402
<TOTAL-LIABILITY-AND-EQUITY> 207,919
<SALES> 1,232
<TOTAL-REVENUES> 15,077
<CGS> 574
<TOTAL-COSTS> 9,354
<OTHER-EXPENSES> 4,592
<LOSS-PROVISION> 318
<INTEREST-EXPENSE> 3,870
<INCOME-PRETAX> 5,726
<INCOME-TAX> 1,775
<INCOME-CONTINUING> 3,951
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,951
<EPS-PRIMARY> .83
<EPS-DILUTED> .81
</TABLE>
