<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 4, 1999
---------------------------------
Resource America, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-4408 72-0654145
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
incorporation) File Number) Identification No.)
1521 Locust Street, 4th Floor, Philadelphia, Pennyslvania 19102
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 546-5005
-----------------------------
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial statements of business acquired
(i) Financial statements of business acquired for the year ended December
31, 1998
Independent Auditors' Report
Consolidated Balance Sheet
. Consolidated Statement of Earnings and Retained Earnings
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
(ii) Financial Statements of business acquired for the year ended
December 31, 1997
Report of Public Accountants
Consolidated Balance Sheets
. Consolidated Statements of Operations and Retained Earnings
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(b) Unaudited Pro Forma Financial Information
Pro Forma Combined Consolidated Balance Sheet at December 31, 1998
Pro Forma Combined Consolidated Statement of Operations for the three
months ended December 31, 1998
Pro Forma Combined Consolidated Statement of Operations for the years
ended September 30, 1998 and December 31, 1998
Notes to Pro Forma Combined Consolidated Financial Statements
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 hereunto duly authorized.
RESOURCE AMERICA, INC.
--------------------------------
(Registrant)
Dated: April 19, 1999 By: /s/Steven J. Kessler
-------------------- -----------------------------
Steven J. Kessler
Senior Vice President and Chief Financial Officer
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
JLA CREDIT CORPORATION AND SUBSIDIARIES
December 31, 1998
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
JLA Credit Corporation
We have audited the accompanying consolidated balance sheet of JLA
Credit Corporation (a Delaware corporation) and Subsidiaries as of December 31,
1998, and the related consolidated statements of earnings and retained earnings,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of JLA
Credit Corporation and Subsidiaries as of December 31, 1998, and the
consolidated results of their operations and their consolidated cash flows for
the year then ended in conformity with generally accepted accounting principles.
San Francisco, California
April 9, 1999
<PAGE>
JLA Credit Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
December 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash and cash equivalents $ 28,462,252
Investment in direct financing leases, net 312,139,555
Other assets 16,378,076
------------
Total assets $356,979,883
============
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities
Borrowings from banks $154,015,000
Asset backed borrowing 140,124,909
Accrued interest 833,537
Due to parent 11,944,554
Other liabilities 11,697,917
------------
Total liabilities 318,615,917
Commitments and contingencies
Shareholder's equity
Common stock, par value $500 per share; 64,000 shares authorized,
60,000 shares issued and outstanding 30,000,000
Additional paid-in capital 250,375
Retained earnings 8,113,591
------------
Total shareholder's equity 38,363,966
============
Total liabilities and shareholder's equity $356,979,883
============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
JLA Credit Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS
Year ended December 31, 1998
Revenues
Earned income on direct financing leases $29,516,605
Interest income 2,538,238
Other income 3,435,590
-----------
Total revenues 35,490,433
Expenses
Interest expense 20,609,830
Provision for doubtful receivables 3,268,935
General and administrative expenses 9,261,702
-----------
Total expenses 33,140,467
-----------
Income before provision for income taxes 2,349,966
Provision for income taxes 1,036,647
-----------
NET EARNINGS 1,313,319
Retained earnings at beginning of year 6,800,272
-----------
Retained earnings at end of year $ 8,113,591
===========
The accompanying notes are an integral part of this statement.
<PAGE>
JLA Credit Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities
Net earnings $ 1,313,319
Adjustments to reconcile net income to net cash used in
operating activities
Depreciation and amortization 802,434
Provision for doubtful receivables 3,268,935
Gain on sale of direct financing leases (1,850,873)
Changes in assets and liabilities
Other assets (7,978,458)
Accrued interest (1,648,181)
Other liabilities (222,088)
-------------
Net cash used in operating activities (6,314,912)
Cash flows from investing activities
Collections on direct financing leases 136,809,538
Collections on notes and loans receivable 6,833,885
Purchase of direct financing lease equipment (180,972,825)
Capital expenditures (188,039)
-------------
Net cash used in investing activities (37,517,441)
Cash flows from financing activities
Payments of borrowings from banks, net (23,845,000)
Proceeds from securitization 120,041,027
Payments of borrowings from securitizations (12,912,096)
Payments of loans from affiliate, net (12,641,347)
-------------
Net cash provided by financing activities 70,642,584
-------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 26,810,231
Cash and cash equivalents at beginning of year 1,652,021
-------------
Cash and cash equivalents at end of year $ 28,462,252
=============
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the year for:
Interest $ 21,798,097
Income taxes $ (149,563)
Supplemental disclosures of noncash investing and financing activities
Transfer of note receivable to affiliate loan $ 8,175,267
</TABLE>
<PAGE>
JLA Credit Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE A - ORGANIZATION
JLA Credit Corporation (JLA) was incorporated in the state of Delaware on
August 27, 1985, and is engaged principally in funding direct financing
leases, loan originations and participations as a creditor. Effective January
1, 1992, JLA became a wholly-owned subsidiary of Japan Leasing (USA), Inc.
(JLUS). JLA's former shareholder made contributions of all of JLA's
outstanding common stock to JLUS in exchange for newly issued common stock of
JLUS.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
o Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
o Principles of Consolidation
The consolidated financial statements include the accounts of JLA and its
wholly-owned subsidiaries; JLA Funding Corporation (JLA FC), JLA Funding
Corporation II (JLA FC II), and JLA Funding Corporation III (JLA FC III),
collectively, the Company. All significant intercompany transactions and
balances have been eliminated in consolidation.
o Income Recognition
Income on notes and loans receivable is accrued as earned based on the
interest method. For direct financing leases, unearned income is amortized
over the lease term to produce a constant rate of return on the net
investment. Accrual of interest income is suspended when collection on an
account becomes doubtful, generally after the account becomes 90 days
delinquent. Income recognition is generally resumed when the account
balance has been brought current.
o Allowance for Doubtful Receivables
Based on a periodic review of the lease and loan portfolio, an allowance
for doubtful receivables is maintained at a level that is estimated by the
Company to be sufficient to reasonably provide for expected losses in the
present portfolio of leases and notes and loans receivable.
o Repossessed Equipment Held for Resale
Repossessed equipment held for resale is stated at the lower of cost or
market and is included in other assets on the consolidated balance sheet.
<PAGE>
JLA Credit Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
o Income Taxes
The Company files a consolidated federal income tax return with JLUS and
files separate state and local income tax returns for all taxing
authorities except California and New York. The Company continues to
provide for all taxes on a stand-alone basis and settles all federal taxes
currently payable through intercompany accounts, due from/due to
affiliates, on the consolidated balance sheets.
Deferred taxes are provided for temporary differences between the tax
basis and financial reporting basis of assets and liabilities, computed at
current tax rates. Any future change in those rates would result in an
adjustment to the recorded balance of deferred taxes. The Company reviews
the realization of the deferred tax asset to determine if a reserve is
necessary.
o Interest Rate Swap Agreements
Interest rate swap agreements are entered into as a means of managing
interest rate risk. Net settlements are accrued over the term of the swap
agreements as an adjustment to interest expense. Certain interest rate
swap agreements were terminated in 1998 (see Note J) and the remaining
interest rate swap agreemnts were terminated upon the sale of the Company
(see Note M).
o Cash and Cash Equivalents
Cash and cash equivalents include short-term highly liquid investments
with original maturities of three months or less that are readily
convertible into cash. At December 31, 1998, the Company had $18.2 million
funds restricted as to use under terms of the securitizations.
o Defined Contribution Plan
The Company provides a defined contribution plan (the "Plan") under
section 401k of the Internal Revenue Code. The Plan covers all employees
that have completed at least six months of service and are at least 21
years of age. The Company has a discretionary employer contribution which
historically has been equal to a dollar for dollar match of the employees
contribution up to 5% of the employees compensation. The Company match is
vested over a period of seven years at which time the matched amount is
fully vested. All employee contributions and earnings are fully vested at
the time of contribution or earning. All investment selections are made
directly by the employees. The Company's contribution for the year was
$159,155.
<PAGE>
JLA Credit Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998
NOTE C - NET INVESTMENT IN DIRECT FINANCING LEASES
Direct financing leases consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Nonsecuritized minimum lease payments receivable $ 210,913,615
Securitized minimum lease payments receivable 155,589,253
---------------
Total minimum lease payment receivable 366,502,868
Less
Unearned income, nonsecuritized (30,153,901)
Unearned income, securitized (23,125,440)
Allowance for doubtful receivables (5,613,693)
Deferred initial direct costs 4,529,721
---------------
Net investment in direct financing leases $ 312,139,555
===============
The minimum lease payments receivable are due in the following installments:
Year ending
December 31,
1999 $ 126,325,711
2000 109,031,798
2001 70,422,840
2002 38,631,859
2003 15,974,929
Thereafter 6,115,731
---------------
$ 366,502,868
===============
The types of equipment financed consist of the following in the approximate
percentages shown below:
Industrial equipment 50%
Computer equipment 29
Other 11
Office equipment 7
Cars and trucks 3
------
100%
======
</TABLE>
The Company's leasing transactions with customers located in California
represent approximately 47 percent of the minimum lease balance. There was no
other geographical concentration greater than 10 percent. In addition, no
customer balance exceeded 10 percent of the minimum lease balance. When
entering into a leasing transaction, the Company generally does not require
any additional collateral other than the security interest in the property
leased. The contract receivables are pledged as collateral on the securitized
borrowings and the borrowings from banks.
<PAGE>
JLA Credit Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998
NOTE C - NET INVESTMENT IN DIRECT FINANCING LEASES (continued)
The net investment in nonearning receivables, which are included in the
Company's direct financing lease portfolio, were approximately $5 million.
In 1997, the Company entered into an agreement (the Agreement) whereby it
obtained the right to issue up to $75 million principal balance of direct
financing leases through JLA FC II. During the year the Company securitized
$48.3 million principal balance of direct financing leases through JLA FC II
and received proceeds of $46.2 million. The transaction was accounted for as
a collateralized borrowing, accordingly, the principal balance of securitized
leases remains on the Company's balance sheet.
In March 1998, the Company entered into an agreement (the "Agreement")
whereby it obtained the investor commitments to issue up to $125,000,000 of
notes payable by securitizing the principal balance of financing contracts
through JLA Funding Corporation III ("JLA FC III"), a special-purpose
subsidiary. During 1998, the Company securitized $84,591,032 principal
balance of financing contracts through JLA FC III and received proceeds from
the securitization of these contracts of $80,385,460. A cash collateral
reserve account equal to 1% of the contract receivables is also maintained
with the Trustee. The Note Issuance Period under the Agreement terminated
January 16, 1999, with no additional note issuances. The transaction was
accounted for as a collateralized borrowing; accordingly, the principal
balance of the securitized contracts remained on the Company's balance sheet.
The proceeds received in connection with the Agreements consisted of notes
payable to various domestic and foreign investors. These notes are expected
to be paid of as the Company receives aggregate payments on the securitized
contract receivables. The contract receivables collateralize the notes, and
other creditors of JLA would be subordinate to the note holders with respect
to the securitized receivables. The timing and amount of the repayment of the
notes are dependent upon the ultimate collection of the securitized lease
receivables.
NOTE D - ALLOWANCE FOR DOUBTFUL RECEIVABLES
The table below shows the activity in allowance for doubtful receivables for
the year.
Balance at beginning of year $ 5,030,078
Charged to operations, net 3,268,935
Amount written off (2,685,320)
--------------
Balance at end of year $ 5,613,693
==============
The Company provides for both a general reserve and a specific reserve. A
specific reserve is provided if management believes it is probable that a
loss will be sustained on a specific account and that the loss can be
reasonably estimated. The Company's assessment of the future value of
collateral is inherently subjective, as it requires material estimates that
may be susceptible to significant change.
<PAGE>
JLA Credit Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998
NOTE E - BORROWINGS FROM BANKS
The interest rates on the borrowings from banks ranged from 5.41% to 8.35%,
and the weighted average interest rate, before considering any interest rate
swap agreements was 7.26%. The borrowings were paid off in full in February
1999, with proceeds from borrowings obtained by the purchaser (see Note M).
NOTE F - ASSET BACKED BORROWINGS
The interest rates on the asset backed borrowings range from 5.91% to 7.0%,
and the weighted average interest rate was 6.59%.
The maturities for assets backed borrowings is as follows:
Year ending
December 31,
-----------
1999 $ 55,816,150
2000 38,404,587
2001 29,313,768
2002 13,322,874
2003 3,267,530
---------------
$ 140,124,909
===============
NOTE G - DUE TO PARENT
The Company has amounts outstanding to the Parent in the form of revolving
advances and a note payable. The amounts borrowed are used for working
capital. At December 31, 1998, the outstanding balances of the revolving
advances and the note payable were $689,701 and $11,221,966, respectively.
The note bears interest at LIBOR plus .75% (6.6% at December 31, 1998). The
entire outstanding amount was repaid subsequent to year-end as a result of
the sale of the Company (see note N). The total interest expense on the notes
was $1,678,505.
<PAGE>
JLA Credit Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998
NOTE H - INCOME TAXES
The provision (benefit) for income taxes for the year ended consists of the
following:
Current
Federal $ 905,677
State and local 185,500
---------------
1,091,177
Deferred
Federal (45,260)
State and local (9,270)
---------------
(54,530)
---------------
$ 1,036,647
===============
The provision for income tax differs from the federal statutory income tax
rate of 35 percent principally due to state income taxes.
Net deferred tax assets, which are included in other assets, approximate
$3,153,000 and primarily relate to the allowance for doubtful receivables.
The Company has historically filed a consolidated federal tax return with its
parent. Cumulative amounts due to the parent for income taxes, net of the
deferred tax assets, were settled in connection with the sale of the Company
(see note M) for $3.5 million.
NOTE I - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts have been determined by the Company, using
available market information and valuation methodologies, as described below.
Changes in these assumptions or estimation methods may significantly affect
the estimated fair values. Accordingly, management provides no assurance that
the estimates presented herein would necessarily be realized in an immediate
sale or settlement of the instruments.
Book values of cash equivalents and other current amounts receivable and
payable approximate fair value due to the short maturity of the instruments.
The Company generally borrows funds from banks through three to six months
revolving lines of credits. The estimated fair values of debts approximate
carrying cost due to the short maturity.
The securitized borrowings reflect current fair value as the borrowing rate
approximates current market conditions. The rates are covered by short-term
swap arrangements which assist the rates to approximate current conditions.
<PAGE>
JLA Credit Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998
NOTE J - RELATED PARTY TRANSACTIONS
In November 1998, the Company transferred all of its rights and obligations
to certain Residual Value Position Pool Agreements to the Parent. The total
value transferred was $8,175,267 for which the Company received a reduction
in the amount due to Parent.
The Parent was the guarantor of the Company's interest rate swap agreements.
During the year, the Company was forced to terminate certain swap agreements
due to the financial condition of the Parent. The applicable termination fee
of approximately $1,600,000 was paid and the cost was borne by the Parent on
behalf of the Company.
NOTE K - COMMITMENTS AND CONTINGENCIES
The Company rents the office facilities for all office locations.
Rental expense for the year ended was approximately $385,858.
The minimum rental commitments under noncancelable leases are as follows:
Year ending
December 31,
1999 $ 314,682
2000 268,147
2001 244,879
2002 94,420
2003 44,267
---------------
$ 966,395
===============
NOTE L - YEAR 2000 COMPLIANCE
The Year 2000 issue relates to limitations in computer systems and
applications that may prevent proper recognition of the Year 2000. The
potential effect of the Year 2000 issue on the Company and its business
partners will not be fully determinable until the Year 2000 and thereafter.
If Year 2000 modifications are not properly completed either by the Company
or entities with which the Company conducts business, the Company's revenues
and financial condition could be adversely impacted.
<PAGE>
JLA Credit Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998
NOTE M - SUBSEQUENT EVENTS
On February 4, 1999, the Company's parent sold all of the Company's common
shares to Fidelity Leasing, Inc., a wholly-owned subsidiary of Resource
America, Inc. ("RAI"). RAI is a publicly held, Delaware corporation. The
purchase price of $39 million, (including $1 million in acquisition related
costs) is payable in cash at the closing date. In connection with the sale,
certain assets and liabilities were transferred to the Company's parent prior
to closing.
The accompanying notes are an integral part of this statement.
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
JLA Credit Corporation:
We have audited the accompanying consolidated balance sheets of JLA Credit
Corporation (a Delaware corporation) and Subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of operations and retained
earnings and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management.. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plans and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also included
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred top above
presenting fairly, in all material respects, the financial position of JLA
Credit Corporation and Subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
San Francisco, California,
March 18, 1998
<PAGE>
JLA CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,652,021 $ 18,421,711
Investment in direct financing lease:
Investment in nonsecuritized direct financing leases 240,465,456 222,545,823
Investment in securitized direct, financing leases 33,958,952 -
Allowance for doubtful receivables (5,030,078) (2,827,437)
------------ ------------
Net investment in direct financing leases 269,394,330 219,718,386
Notes and loans receivable 15,009,152 17,842,889
Due from affiliates 58,846 8,627,325
Other real estate owned - 15,000,000
Other assets 8,154,132 7,270,538
Office furniture and equipment, net of accumulated depreciation
of $1,369,507 and $1,223,491 in 1997 and 1996, respectively 859,881 1,431,969
------------ ------------
$295,128,362 $288,312,818
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Borrowings from banks $177,860,000 $156,889,130
Asset-backed borrowing 32,995,978 -
Accrued interest payable 2,481,718 1,796,426
Due to affiliates 32,820,014 87,980,061
Other liabilities 11,920,005 7,426,485
------------ ------------
Total liabilities 258,077,715 254,092,102
------------ ------------
Commitments and contingencies
Shareholder's equity:
Common stock, par value $500 per share; 64,000 shares
authorized, 60,000 shares issued and outstanding 30,000,000 30,000,000
Additional paid-in capital 250,375 250,375
Retained earnings 6,800,272 3,970,341
------------ ------------
Total shareholder's equity 37,050,647 34,220,716
------------ ------------
Total liabilities and shareholder's equity $295,128,362 $288,312,818
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
JLA CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
REVENUES:
Earned income on direct financing leases $25,664,537 $15,774,050
Interest income on notes and loans receivable 2,186,724 5,000,785
Other income 5,312,850 2,785,174
----------- -----------
Total revenues 33,164,111 23,560,009
----------- -----------
EXPENSES:
Interest expense 15,530,726 12,033,126
Provision for doubtful receivables 4,945,243 2,004,204
Losses on repossessed equipment 27,824 974,345
General and administrative expenses 7,342,885 5,853,008
Other expenses 315,000 427,895
----------- -----------
Total expenses 28,161,678 21,292,578
----------- -----------
Income before provision for income taxes 5,002,433 2,267,431
PROVISION FOR INCOME TAXES 2,172,502 979,480
----------- -----------
Net income 2,829,931 1,287,951
RETAINED EARNINGS, beginning of year 3,970,341 2,682,390
----------- -----------
RETAINED EARNINGS, end of year $ 6,800,272 $ 3,970,341
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
JLA CREDIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,829,931 $ 1,287,951
------------- -------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,017,046 459,171
Provision for doubtful receivables 4,945,243 2,004,204
Losses on repossessed equipment 27,824 974,346
Changes in assets and liabilities:
Other assets (883,594) (415,827)
Accrued interest payable 685,291 559,524
Other liabilities 4,493,520 3,044,931
------------- -------------
Total adjustments 10,285,330 6,626,349
------------- -------------
Net cash provided by operating activities 13,115,261 7,914,300
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections on direct financing leases 111,537,085 52,883,062
Collections on notes and loans receivable 4,564,636 25,768,353
Originations of notes and loans receivable (1,759,444) (49,144,504)
Originations of direct financing lease equipment (151,165,855) (116,827,209)
Purchase of fixed assets (466,529) (454,465)
------------- -------------
Net cash used in investing activities (37,290,107) (87,774,763)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings from banks 35,645,071 37,557,479
Repayments of borrowings from banks (14,674,201) (47,285,135)
Proceeds from securitization 32,995,978 -
Proceeds from (repayments of) loans from affiliate, net (46,561,692) 100,367,611
------------- -------------
Net cash provided by financing activities 7,405,156 90,639,955
------------- -------------
Net increase (decrease) in cash and cash equivalents (16,769,690) 10,779,492
CASH AND CASH EQUIVALENTS, beginning of year 18,421,711 7,642,219
------------- -------------
CASH AND CASH EQUIVALENTS, end of year $ 1,652,021 $ 18,421,711
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 14,707,418 $ 11,473,602
Income taxes 1,156,007 274,000
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
JLA CREDIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,1997 AND 1996
1. ORGANIZATION:
JLA Credit Corporation (JLA) was incorporated in the state of Delaware on August
27,1985, and engaged principally in funding direct financing leases, loan
originations and participations as a creditor. Effective January 1, 1992, JLA
became a wholly owned subsidiary of Japan Leasing (USA), Inc. (JLUS). JLA's
former shareholder made contributions of all of JLA's outstanding common stock
to JLUS in exchange for newly issued common stock of JLUS.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
In preparing the financial statements in conformity with generally accepted
accounting principles management is required to make estimates and assumptions
that affect the amount of reported assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements.
The same is true of revenues and expenses reported for the period. Actual
results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of JLA and its wholly
owned subsidiaries, JLA Funding Corporation and JLA Funding Corporation II
(collectively, the Company). All significant intercompany transactions and
balances have been eliminated in consolidation.
Income Recognition
Income on notes and loans receivable is accrued as earned based on the interest
method. For direct financing leases, unearned income is amortized over the lease
term to produce a constant rate of return on the net investment. Accrual of
interest income is suspended when collection on an account becomes doubtful,
generally after the account becomes 90 days delinquent. Income recognition is
generally resumed when the account balance has been brought current.
Allowance for Doubtful Receivables
Based on a periodic review of the lease and loan portfolio, an allowance for
doubtful receivables is maintained at a level that is estimated by the Company
to be necessary to provide for expected losses in the present portfolio of
leases, notes and loans receivable.
<PAGE>
-2-
Repossessed Equipment Held for Resale
Repossessed equipment held for resale is stated at the lower of cost or market
and is included in other assets on the consolidated balance sheets.
Income Taxes
The Company files a consolidated federal income tax return with JLUS and files
separate state and local income tax returns for all taxing authorities except
California and New York. The Company continues to provide for all taxes on a
stand-alone basis and settles all federal taxes currently payable through
intercompany accounts, due from/due to affiliates, on the consolidated balance
sheets.
Deferred taxes are provided for temporary differences between the tax basis and
financial reporting basis of assets and liabilities, computed at current tax
rates. Any future change in those rates would result in an adjustment to the
recorded balance of deferred taxes. The Company reviews the realization of the
deferred tax asset to determine if a valuation allowance is necessary.
Interest Rate Swap Agreements
Interest rate swap agreements are entered into as a means of managing interest
rate risk. Net settlements are accrued over the term of the swap agreements as
an adjustment to interest expense.
Cash and Cash Equivalents
Cash and cash equivalents include short-term highly liquid investments with
original maturities of three months or less that are readily convertible into
cash.
Reclassification
Certain reclassifications have been made to 1996 financial statements to conform
with the current year's presentation.
3. NET INVESTMENT IN DIRECT FINANCING LEASES:
Leases, which are classified as direct financing leases as of December 31, 1997
and 1996, consist of the following:
1997 1996
---- ----
Nonsecuritized minimum lease payments receivable $280,979,123 $263,091,757
Securitized minimum lease payments receivable 40,657,854 -
------------ ------------
Total minimum lease payments receivable 321,636,977 263,091,757
Less:
Unearned income, nonsecuritized (43,270,026) (41,746,957)
Unearned income, securitized (7,363,200) -
Allowance for doubtful receivables (5,030,078) (2,827,437)
Deferred initial direct costs 3,420,657 1,201,023
------------ ------------
Net investment in direct financing leases $269,394,330 $219,718,386
============ ============
<PAGE>
-3-
The minimum lease payments receivable as of December 31, 1997, are due in the
following installments:
Year Ending
December 31 (000s)
----------- --------
1998 $112,105
1999 91,002
2000 63,939
2001 37,353
2002 13,238
Thereafter 4,000
--------
$321,637
========
At December 31, 1997 and 1996, the types of equipment financed consist of the
following:
1997 1996
---- ----
Industrial equipment 49% 51%
Office equipment 15 10
Computer equipment 19 24
Cars and trucks 7 5
Other 10 10
--- ---
100% 100%
=== ===
The Company's leasing transactions with customers located in California and New
York represent approximately 49 percent and 9 percent of the minimum lease
receivable balance as of December 31, 1997, and 46 percent and 11 percent as of
December 31, 1996. There was no other geographical concentration greater than 10
percent. In addition, there was no customer with a balance greater than 10
percent of the minimum lease receivable balance. When entering into a leasing
transaction, the Company generally does not require any additional collateral
other than the security interest in the property leased or, in certain cases,
personal guarantees.
At December 31, 1997 and 1996, net investment in nonearning assets, which were
included in the Company's direct financing lease portfolio, were approximately
$4.0 million and $3.3 million, respectively.
1994 Securitization
In July 1994, the Company securitized $24,084,000 principal balance of direct
financing leases and loans receivable (the Receivables) through JLA Funding
Corporation, a special-purpose subsidiary. The Company received proceeds of
$20,069,000 and retained subordinated certificates receivable in the amount of
$3,823,000. The transaction was accounted for as a sale; accordingly, the
Receivables were removed from the Company's balance sheets. The income statement
impact was nominal.
<PAGE>
-4-
Upon closing, the Company established a cash collateral account as required by
the agreement and recorded an excess servicing fee receivable. At December 31,
1996, the cash collateral account and excess servicing fee receivable were
$201,000 and $77,000, respectively.
The Company continued to service the Receivables and receive a fee in accordance
with the servicing agreement. Servicing fees recognized during 1997 and 1996
were $24,000 and $123,000, respectively, and are included in other income on the
consolidated statements of operations and retained earnings. At December 31,
1996, the outstanding balance of the Receivables was $3,089,000.
In August 1997, the Company exercised a cleanup call option whereby it acquired
the remaining principal balance of the Receivables (on the 1994 securitization)
and extinguished the respective liabilities associated with the original sale of
the Receivables. The outcome of the exercise of the clean-up call was to
recognize previously deferred income in the amount of $290,000. This amount is
included in other income. At the time of the cleanup call, the outstanding
balance of the Receivables in the amount of $1,311,000 was recorded by the
Company.
1997 Securitization
In September 1997, the Company entered into an agreement (the Agreement) whereby
it obtained the investor commitments to securitize up to $75,000,000 principal
balance of direct financing leases through JLA Funding Corporation II (JLA FC
II), a special-purpose subsidiary. During 1997, the Company securitized
$35,115,673 principal balance of direct financing leases through JLA FC II,
received proceeds of $32,995,978 and contributed equity in the amount of
$2,119,695. In addition, the Company contributed additional cash collateral
equaling 1 percent of total collateral. As of December 31, 1997, the balance of
the cash collateral account was $351,157. As of December 31, 1997, net
investment in securitized direct financing leases, including deferred initial
direct costs, was $33,958,952. The transaction was accounted for as a
collateralized borrowing; accordingly, the principal balance of securitized
leases remained on the Company's balance sheet.
The proceeds received in connection with the Agreement consisted of notes
payable to various domestic and foreign investors. These notes are expected to
be paid off as the Company receives aggregate payments of the securitized lease
receivables. The lease receivables collateralize the notes, and other creditors
of JLA would be subordinate to the note holders with respect to the securitized
receivables. The timing and the amount of the repayment of the notes are
dependent upon the ultimate collection of the securitized lease receivables. The
interest rate on the notes is tied to the one-month LIBOR rate, and as of
December 31, 1997, for Class A senior securities was 6.27 percent and for Class
B subordinated securities was 6.61 percent. The weighted average interest rates
for 1997 were 6.03 percent for Class A securities and 6.45 percent for Class B
securities. The notes were subject to an interest rate cap agreement at 7.5
percent until March 1998, when the cap was terminated and replaced with an
interest rate swap agreement. The interest rate swap agreement calls for
interest to be paid on the Class A securities at 6.34 percent and on the Class B
securities at 7 percent.
<PAGE>
-5-
The estimated repayment schedule for the next five years for the notes payable
based upon the underlying receivables as of December 31, 1997, is as follows:
Year Ending
December 31
-----------
1998 $ 5,950,844
1999 9,260,879
2000 8,594,933
2001 6,917,100
2002 2,272,222
-----------
$32,995,978
===========
4. NOTES AND LOANS RECEIVABLE:
Notes and loans receivable as of December 31, 1997 and 1996, consist of the
following:
1997 1996
---- ----
Notes and loans receivable $15,009,152 $17,842,889
Interest receivable - -
Less: Allowance for doubtful
receivables - -
----------- -----------
$15,009,152 $17,842,889
=========== ===========
The projected annual receipts for notes and loans receivable as of December 31,
1997, are as follows:
Year Ending
December 31
-----------
1998 $ 6,443,798
1999 6,927,435
2000 1,637,919
-----------
$15,009,152
===========
At December 31,1994, the Company had a note receivable of $52.3 million from a
partnership that owned land on which the partnership intended to further develop
a real estate project. The note was secured by the land and guaranteed by Japan
Leasing Corporation (JLC), the Company's ultimate parent.
On May 1, 1995, the Company foreclosed on the property and recorded the land as
held for sale at an estimated fair value of $15 million. The difference between
the book value of the note receivable at that time and the fair value of the
land was settled by transferring cash from JLC under the guarantee. In March
1997, the Company disposed of the property in a sale transaction. The difference
between the carrying value of the property and proceeds received from the sale
as adjusted for closing costs resulted in a net gain on sale in the amount of
$2,027,236. This gain was recorded in other income.
<PAGE>
-6-
5. ALLOWANCE FOR DOUBTFUL RECEIVABLES:
The table below shows the activity in allowance for doubtful receivables during
1997 and 1996:
Direct Financing Leases
-----------------------
1997 1996
---- ----
Balance, beginning of year $ 2,827,437 $ 2,079,521
Charge to operations, net 4,945,243 2,004,204
Amount written off (2,742,602) (1,256,288)
----------- -----------
Balance, end of year $ 5,030,078 $ 2,827,437
=========== ===========
The Company provides for both a general reserve and a specific reserve. A
specific reserve is provided if management believes it is probable that a loss
will be sustained and that the loss can be reasonably estimated. The Company's
assessment of the future value of collateral is inherently subjective, as it
requires material estimates that may be susceptible to significant change.
6. BORROWINGS FROM BANKS:
At December 31, 1997 and 1996, the interest rates on the borrowings from banks
ranged from 6.25 percent to 7.21 percent and 6.0 percent to 6.4 percent,
respectively, and the weighted average interest rates, before considering any
interest rate swap agreements, were 6.47 percent for 1997 and 6.07 percent for
1996.
The repayment schedule for the next five years and thereafter for borrowings
from banks as of December 31, 1997, is as follows:
Year Ending
December 31
-----------
1998 $162,760,000
1999 6,920,000
2000 8,180,000
------------
$177,860,000
============
The Company has developed relationships with several domestic branch operations
of foreign owned banks. These relationships have enabled the Company to extend
credit facilities, generally for one year, as they become due. In management's
opinion, debt scheduled for repayment in 1998 will be extended, as appropriate,
to meet the Company's cash flow requirements for 1998, although no formal
agreements have been arranged in anticipation of these extensions. In addition,
the Company through an affiliate has the ability to refinance the current
portion of the debt as it becomes due.
<PAGE>
-7-
7. INTEREST RATE INSTRUMENTS:
The Company enters into interest rate swap and cap agreements to reduce the
impact of changes in interest rates on its floating rate debt. The swap
agreements are contracts to exchange floating rate for fixed interest payments
periodically without the exchange of the underlying notional amounts. The
counterparties to these instruments are major financial institutions. The
notional amounts of interest rate agreements are used to measure the interest to
be paid or received and do not represent the amount of exposure to credit loss.
The differential to be paid or received is accrued as interest rates change and
is recognized as an adjustment to interest expense in the income statement. The
related accrued receivable or payable is included in other assets or
liabilities.
At December 31,1997 and 1996, the Company had $140 million and $110 million of
aggregate notional principal amounts outstanding, respectively, for the purpose
of converting floating rate debt to fixed rate debt.
At December 31, 1997 and 1996, the agreements effectively changed the interest
rate exposure on $140 million and $110 million of floating rate borrowing to
fixed rates ranging from 5.18 percent to 6.38 percent due through 1997 and from
5.23 percent to 8.37 percent due through 1996, and the weighted average interest
rates were 5.98 percent and 5.80 percent, respectively.
Interest rate caps are used to lock in a maximum rate if rates rise, but enable
the Company to otherwise pay lower market rates. The Company had interest rate
caps in place protecting $35 million and $30 million of bank borrowings at
December 31, 1997 and 1996, respectively. The cap rates ranged between 5.5
percent and 6.5 percent on the underlying LIBOR. The cost of interest rate caps
is amortized to interest expense over the life of the caps. The unamortized cost
of the interest rate caps is included in other assets.
8. INCOME TAXES:
The provision (benefit) for income taxes for the years ended December 31, 1997
and 1996, consists of the following:
1997 1996
---- ----
Current:
Federal $1,996,844 $1,051,161
State and local 956,081 521,469
---------- ----------
2,952,925 1,572,630
---------- ----------
Deferred:
Federal (527,742) (424,210)
State and local (252,681) (168,940)
---------- ----------
(780,423) (593,150)
---------- ----------
$2,172,502 $ 979,480
========== =========
The provision for income tax for 1997 and 1996 differs from the federal
statutory income tax rate principally due to state income taxes.
<PAGE>
-8-
The components of the net deferred income tax assets at December 31, 1997 and
1996, are as follows:
1997 1996
---- -----
Gross deferred tax assets $3,098,432 $2,362,653
Gross deferred tax liabilities - (81,444)
---------- ----------
Net deferred tax assets $3,098,432 $2,281,209
========== ==========
Deferred tax assets mainly relate to allowance for doubtful receivables; at
December 31, 1996, deferred tax liabilities mainly relate to depreciation of
fixed assets. No other significant deferred tax assets or liabilities existed at
December 31, 1997 and 1996. Management believes that the realization of the net
deferred tax asset is reasonably assured. The net deferred tax assets are
included in other assets.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair value amounts have been determined by the Company, using
available market information and valuation methodologies, as described below.
Changes in these assumptions or estimation methods may significantly affect the
estimated fair values. Accordingly, management provides no assurance that the
estimates presented herein would necessarily be realized in an immediate sale or
settlement of the instruments.
Book values of cash equivalents and other assets and liabilities approximate
fair value due to the short maturity of the instruments.
The estimated fair value of fixed rate loans is based on discounted future cash
flows using current rates for similar instruments having comparable credit risk
and maturity dates.
The Company generally borrows funds from banks through three to six months
revolving lines of credit. The estimated fair values of debts approximate fair
value due to the short maturity.
Interest rate swap agreements were valued by discounting future cash flows the
Company would receive (pay) to reverse the effect of the agreements, taking into
consideration current interest rates adjusted for risks and maturity.
December 31, 1997 December 31, 1996
------------------ -----------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- ------- -------- --------
(000s omitted)
Notes and loans receivable $ 15,009 $ 15,009 $ 17,843 $ 17,843
Borrowing from banks and notes payable 210,856 210,856 156,889 156,889
Interest rate swap agreements - (448) - (110)
Interest rate cap agreements 458 278 382 502
<PAGE>
-9-
10. RELATED-PARTY TRANSACTIONS
Due to affiliates includes funds that the Company borrowed from JLUS for working
capital purposes. The outstanding loan balance at December 31, 1997, is
$32,217,287. The outstanding loan balance at December 31, 1996, was $78,700,756.
Interest expense realized on these loans during 1997 and 1996 amounted to
approximately $2,989,909 and $2,033,000, respectively. At December 31, 1997 and
1996, the interest rate on the loan balance was 6.5 percent and 6.56 percent,
respectively.
At December 31,1997 and 1996, the Company had loans receivable of $15.0 million
and $17.8 million, respectively, from an affiliate. Under the guarantee
agreements between the Company and JLC, the principal and accrued interest on
these loans were guaranteed by JLC. Guarantee fees payable to JLC consist of
certain percentages of outstanding loan balances and residual proceeds, if any.
Guarantee fee expense incurred under this arrangement was approximately $169,000
and $126,000 in 1997 and 1996, respectively.
11. COMMITMENTS AND CONTINGENCIES:
Rental expense for office space for the years ended December 31, 1997 and 1996,
was approximately $321,000 and $280,000, respectively.
The minimum rental commitments under noncancelable leases as of December 31,
1997, are as follows:
Year Ending
December 31
-----------
1998 $ 280,387
1999 265,817
2000 228,926
2001 201,757
2002 50,439
Thereafter -
----------
$1,027,326
==========
12. SUBSEQUENT EVENTS:
Subsequent to December 31, 1997, in accordance with the Agreement, the Company
securitized an additional $31,225,083 principal balance of direct financing
leases through JLA FC II and received proceeds of $30,105,418 and contributed
equity in the amount of $1,119,665. In March 1998, Class B securities totaling
$3,092,000 that were held by the Company were sold for $3,076,385.
In March 1998, the Company entered into a securitization agreement whereby it
will securitize its lease receivables and receive proceeds of up to $200
million. This securitization is expected to close by the end of March 1998. The
proceeds of this securitization will be used to finance and acquire new
equipment contracts.
<PAGE>
RESOURCE AMERICA, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
December 31, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
================================================================================================================================
Merger
Historical Pro Forma
Resource JLA Credit Adjustments Combined
-------- ---------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 51,154 $ 28,462 $ (51,557)(a,b) $ 28,059
Accounts and notes receivable 15,005 11,226 - 26,231
Prepaid expenses and other current assets 5,157 1,281 (956)(a) 5,642
-------- -------- --------- --------
Total Current Assets 71,316 40,969 (52,513) 59,772
Investments in Real Estate Loans 205,358 - - 205,358
Investments in Leases and Notes Receivable 33,836 312,140 (21,875)(a) 324,101
Investment in Resource Asset Investment Trust 9,195 - - 9,195
Property and Equipment
Oil and gas properties and equipment 47,863 - - 47,863
(successful efforts) -
Gas gathering and transmission facilities 7,131 - - 7,131
Other 9,999 2,034 (1,329)(a) 10,704
-------- -------- --------- --------
64,993 2,034 (1,329) 65,698
Less - accumulated depreciation, depletion
and amortization (17,895) (1,329) 1,329 (a) (17,895)
-------- -------- --------- --------
Net Property and Equipment 47,098 705 - 47,803
Deferred Tax Benefit - 3,153 (3,153)(a) -
Other Assets 53,115 13 18,202 (a,b) 71,330
-------- -------- --------- --------
$419,918 $356,980 $ (59,339) $717,559
======== ======== ========= ========
</TABLE>
<PAGE>
RESOURCE AMERICA, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
December 31, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
================================================================================================================================
Merger
Historical Pro Forma
Resource JLA Credit Adjustments Combined
-------- ---------- ----------- --------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilites
Borrowings under credit facilities $ 1,125 $ - $ - $ 1,125
Accounts payable - trade 8,852 833 806 (b) 10,491
Accrued liabilities 22,508 3,781 1,194 (b) 27,483
Accrued interest 5,534 834 (325)(a) 6,043
Estimated income taxes 3,878 4,649 (4,649)(a) 3,878
Current portion of long-term debt 7,460 93,150 (41,438)(a) 59,172
-------- -------- --------- --------
Total Current Liabilities 49,357 103,247 (44,412) 108,192
Long-term Debt 129,588 200,990 25,872 (a) 356,450
Deferred Income Taxes - 2,435 (2,435)(a) -
Other Long-Term Liabilities 687 11,944 - 12,631
Stockholders' Equity
Common stock, $.01 par value, 49,000,000
shares authorized 230 30,000 (30,000)(a) 230
Unrealized loss on investment reported
at fair value, net of tax (1,820) - - (1,820)
Additional paid-in capital 208,733 250 (250)(a) 208,733
Less Treasury stock, at cost (17,713) - - (17,713)
Less loan receivable for ESOP (1,591) - - (1,591)
Retained earnings 52,447 8,114 (8,114)(a) 52,447
-------- -------- --------- --------
Total Stockholders' Equity 240,286 38,364 (38,524) 240,286
-------- -------- --------- --------
$419,918 $356,980 $ (59,339) $ 717,559
======== ======== ========= =========
</TABLE>
<PAGE>
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months Ended December 31, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
================================================================================================================================
Merger
Historical Pro Forma
Resource JLA Credit Adjustments Combined
-------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Revenues
Real estate finance $ 10,856 $ - $ - $ 10,856
Equipment leasing 4,406 9,126 1,500 (f) 15,192
Energy 21,003 - - 21,003
Interest and other 973 - (299)(g) 674
-------- -------- --------- --------
37,238 9,126 1,201 47,725
Costs and Expenses
Real estate finance 1,991 - - 1,991
Equipment leasing 2,033 2,349 - 4,382
Energy 16,919 - - 16,919
General and administrative 1,292 - (836)(c) 456
Depreciation, depletion and amortization 1,748 84 277 (e) 2,109
Interest 4,025 5,468 (138)(d) 9,355
Provision for losses 577 713 - 1,290
-------- -------- --------- --------
28,585 8,614 (697) 36,502
-------- -------- --------- --------
Income before income taxes and
extraordinary item 8,653 512 1,898 11,223
Provision for income taxes 2,942 237 693 (h) 3,872
-------- -------- --------- --------
Income before extraordinary item $ 5,711 $ 275 $ 1,205 $ 7,191
======== ======== ========= ========
Net income per common share-Basic
before extraordinary item $ 0.26 $ 0.33
======== ========
Weighted average shares outstanding 21,871 21,871
Net income per common share-Diluted
before extraordinary item $ 0.26 $ 0.32
======== ========
Weighted average shares outstanding 22,393 22,393
</TABLE>
<PAGE>
RESOURCE AMERICA, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Years Ended September 30, 1998 and December 31, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
================================================================================================================================
Merger
Historical Pro Forma
Resource JLA Credit Adjustments Combined
-------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Revenues
Real estate finance $ 62,856 $ - $ - $ 62,856
Equipment leasing 13,561 35,490 5,137 (f) 54,188
Energy 6,734 - - 6,734
Interest and other 4,316 - (1,407)(g) 2,909
-------- -------- --------- --------
87,467 35,490 3,730 126,687
Costs and Expenses
Real estate finance 11,112 - - 11,112
Equipment leasing 5,263 - - 5,263
Energy 3,661 - - 3,661
General and administrative 4,373 8,919 (1,789)(c) 11,503
Depreciation, depletion and amortization 2,641 342 1,106 (e) 4,089
Interest 17,464 20,610 (2,821)(d) 35,253
Provision for losses 2,213 3,269 - 5,482
-------- -------- --------- --------
46,727 33,140 (3,504) 76,363
-------- -------- --------- --------
Income before income taxes and
extraordinary item 40,740 2,350 7,234 50,324
Provision for income taxes 13,368 1,037 2,202 (h) 16,607
-------- -------- --------- --------
Income before extraordinary item $ 27,372 $ 1,313 $ 5,032 $ 33,825
======== ======== ========= ========
Net income per common share-Basic
before extraordinary item $ 1.64 $ 2.02
======== ========
Weighted average shares outstanding 16,703 16,703
Net income per common share-Diluted
before extraordinary item $ 1.59 $ 1.95
======== ========
Weighted average shares outstanding 17,268 17,268
</TABLE>
<PAGE>
RESOURCE AMERICA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
Merger Pro Forma Adjustments as of December 31, 1998
(a) The accompanying unaudited pro forma consolidated balance sheet as of
December 31, 1998 has been prepared as if the acquisition of JLA Credit Corp.
("JLA") had occurred on December 31, 1998 and reflects the following
adjustments:
To adjust assets and liabilities under the purchase method of accounting
based on the purchase price. Such purchase price has been allocated to the
consolidated assets and liabilities of JLA based on preliminary estimates of
fair values, with the remainder allocated to goodwill. The information presented
herein may differ from the actual purchase price allocation.
The purchase price is determined as follows (in thousands):
Cash consideration $ 38,959
========
The preliminary allocation of the purchase price included in the pro forma
balance sheet is summarized as follows (in thousands):
Working capital assumed 29,127
Net investment in leases $291,675
Fixed assets 705
Other assets 16,645
Other liabilities (11,944)
Debt (287,249)
-
--------
$ 38,959
========
(b) To accrue estimated acquisition related costs.
<PAGE>
The accompanying unaudited pro forma combined consolidated statement of
operations for the three months ended December 31, 1998 has been prepared as if
the acquisition had occurred on October 1, 1998. The accompanying unaudited pro
forma combined consolidated statement of operations for the year ended September
30, 1998 for the Company, and for the year ended December 31, 1998 for JLA have
been prepared to reflect operations of JLA for its year that ended within ninety
days of the Company's fiscal year end.
(c) To record estimated adjustments to equipment leasing expenses for
certain estimated cost reductions realized from the combining of operations.
(d) To record estimated adjustments to interest expense for reduction of debt
(e) To record estimated adjustments to depreciation and amortization expense
attributable to the allocation of the purchase price.
(f) To record estimated adjustments to equipment leasing revenue as a result of
the purchase price allocation.
(g) To record estimated reduction of interest income as a result of cash used to
acquire JLA
(h) To adjust estimated income taxes as a result of above adjustments and to
effect RAI's tax rate.
