<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 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
<PAGE>
RESOURCE AMERICA, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C> <C>
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
</TABLE>
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
RESOURCE AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
-------- --------
(Unaudited)
ASSETS
<S> <C> <C>
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
======== ========
</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>
March 31, September 30,
1998 1997
-------- ---------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
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
======== =========
</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>
Three Months Six Months
Ended March 31, Ended March 31,
--------------- ---------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
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
======= ====== ======= ======
</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
SIX MONTHS ENDED MARCH 31, 1998
(Unaudited)
(in thousands except number of shares and share issuance data)
<TABLE>
<CAPTION>
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
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
========== ========== ========== ========== ========== ========== ========== ======== ========
</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>
Six Months Ended March 31,
1998 1997
---- ----
<S> <C> <C>
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)
</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>
Six Months Ended March 31,
1998 1997
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
-8-
<PAGE>
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:
<TABLE>
<CAPTION>
Six Months Ended
March 31,
-------------------
1998 1997
---- ----
(in thousands)
<S> <C> <C>
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 $
======== =====
</TABLE>
-9-
<PAGE>
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.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, 1998 March 31, 1998
----------------- --------------
(in thousands)
<S> <C> <C>
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
======== ========
</TABLE>
-10-
<PAGE>
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:
<TABLE>
<CAPTION>
March 31, 1998 September 30, 1997
-------------- ------------------
(Unaudited)
(in thousands)
<S> <C> <C>
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
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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
========== =========
</TABLE>
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-
<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.
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-
<PAGE>
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>
Three Months Six Months
Ended March 31, Ended March 31,
--------------- ---------------
1998 1997 1998 1997
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
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
====== ==== ====== ====
</TABLE>
-14-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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:
<TABLE>
<CAPTION>
Three Months Six Months
Ended March 31, Ended March 31,
--------------- ---------------
1998 1997 1998 1997
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
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
====== ==== ====== ======
</TABLE>
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-
<PAGE>
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:
<TABLE>
<CAPTION>
Three Months Six Months
Ended March 31, Ended March 31,
--------------- ---------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
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
</TABLE>
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-
<PAGE>
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:
<TABLE>
<CAPTION>
Three Months Six Months
Ended March 31, Ended March 31,
--------------- ---------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
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
</TABLE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<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: 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-
<PAGE>
EXHIBIT 11.1
CALCULATION OF BASIC AND
DILUTED EARNINGS PER SHARE
BASIC EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Six Months
Ended March 31, Ended March 31,
----------------------- ----------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
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
======================================================
</TABLE>
DILUTED EARNINGS PER SHARE
<TABLE>
<S> <C> <C> <C> <C>
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
======================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 22,625
<SECURITIES> 9,125
<RECEIVABLES> 4,644
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,293
<PP&E> 31,949
<DEPRECIATION> 16,452
<TOTAL-ASSETS> 269,340
<CURRENT-LIABILITIES> 10,706
<BONDS> 177,583
0
0
<COMMON> 55
<OTHER-SE> 77,905
<TOTAL-LIABILITY-AND-EQUITY> 269,340
<SALES> 2,280
<TOTAL-REVENUES> 36,382
<CGS> 1,145
<TOTAL-COSTS> 12,483
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 941
<INTEREST-EXPENSE> 8,041
<INCOME-PRETAX> 14,920
<INCOME-TAX> 4,650
<INCOME-CONTINUING> 10,270
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,270
<EPS-PRIMARY> 2.17
<EPS-DILUTED> 2.09
</TABLE>
