<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 June 30, 2000
OR
[ ] 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 (I.R.S. Employer
incorporation or organization) Identification No.)
1521 Locust Street, Suite 400, Philadelphia, PA 19102
(Address of principal executive offices)
(Zip code)
(215) 546-5005
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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:
23,559,244 Shares August 11, 2000
<PAGE>
RESOURCE AMERICA, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
-----------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 2000 (Unaudited)
and September 30, 1999.................................................................... 3
Consolidated Statements of Income (Unaudited)
Three Months and Nine Months Ended June 30, 2000 and 1999................................. 4
Consolidated Statements of Comprehensive Income (Unaudited)
Three Months and Nine Months Ended June 30, 2000 and 1999................................. 5
Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
Nine Months Ended June 30, 2000........................................................... 6
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended June 30, 2000 and 1999.................................................. 7
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2000............................................................................. 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................. 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................... 23
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................................................. 25
SIGNATURES................................................................................................. 25
</TABLE>
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
RESOURCE AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
---------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................................... $ 21,361 $ 42,643
Accounts and notes receivable and other prepaid expenses............................ 14,783 18,977
Net assets of discontinued operations............................................... 99,606 2,394
Investments in real estate loans (less allowance for
possible losses of $1,855 and $1,405)............................................ 181,656 250,231
Investments in real estate ventures................................................. 17,743 18,159
Investments in leases and notes receivable (less allowance for
possible losses of $10,017)..................................................... - 401,461
Investment in Resource Asset Investment Trust....................................... 9,195 9,300
Property and equipment:
Oil and gas properties and equipment (successful efforts)........................ 84,808 78,923
Gas gathering and transmission facilities........................................ 18,455 18,061
Other............................................................................ 7,064 12,198
------------ -------------
110,327 109,182
Less - accumulated depreciation, depletion and amortization...................... (25,811) (21,213)
------------ -------------
Net property and equipment................................................. 84,516 87,969
Other assets (less accumulated amortization of $9,253 and $6,058)................... 53,723 70,253
------------ -------------
$ 482,583 $ 901,387
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt:
Warehouse debt................................................................... $ - $ 15,291
Non-recourse debt................................................................ 58,920 439,943
Senior debt...................................................................... 99,100 101,400
Other debt ...................................................................... 5,602 21,188
------------ -------------
Total debt................................................................. 163,622 577,822
Other liabilities:
Accounts payable................................................................. 8,357 16,751
Accrued liabilities.............................................................. 14,098 27,395
Estimated income taxes........................................................... 6,812 2,563
Deferred income taxes............................................................ 4,713 13,069
------------ -------------
Total liabilities.......................................................... 197,602 637,600
Minority interest in Atlas Pipeline Partners, L.P................................... 17,795 -
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....................... 245 244
Accumulated other comprehensive loss............................................. (1,836) (1,764)
Additional paid-in capital....................................................... 220,965 221,084
Less treasury stock, at cost..................................................... (16,331) (17,002)
Less loan receivable from Employee Stock Ownership Plan ("ESOP") ................ (1,432) (1,488)
Retained earnings................................................................ 65,575 62,713
------------ -------------
Total stockholders' equity................................................. 267,186 263,787
------------ -------------
$ 482,583 $ 901,387
============ =============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------- ------------------------
2000 1999 2000 1999
---------- ----------- ----------- ----------
(in thousands, except share data)
<S> <C> <C> <C> <C>
REVENUES
Energy................................................................. $ 17,579 $ 11,177 $ 56,836 $ 40,305
Real estate finance.................................................... 3,914 16,833 14,328 36,601
Interest and other..................................................... 2,533 2,358 7,112 5,875
--------- --------- --------- --------
24,026 30,368 78,276 82,781
COSTS AND EXPENSES
Energy................................................................. 12,208 8,430 40,564 27,766
Real estate finance.................................................... 628 915 2,083 2,567
General and administrative............................................. 1,890 1,083 5,735 4,032
Depreciation, depletion and amortization............................... 2,866 1,177 7,965 3,803
Interest............................................................... 4,557 5,955 13,767 13,885
Provision for possible losses.......................................... 225 75 670 400
Minority interest in Atlas Pipeline Partners, L.P...................... 770 - 1,130 -
--------- --------- --------- --------
23,144 17,635 71,914 52,453
--------- --------- --------- --------
Income from continuing operations before income taxes and
extraordinary item ................................................. 882 12,733 6,362 30,328
Provision for income taxes............................................. 219 4,350 1,972 10,024
--------- --------- --------- --------
Income from continuing operations before extraordinary item............ 663 8,383 4,390 20,304
Discontinued operations:
Income (loss) from operations of subsidiaries....................... - (1,065) 453 (1,039)
Gain on disposal of subsidiaries.................................... 605 - 160 -
--------- --------- --------- --------
1,268 7,318 5,003 19,265
Extraordinary gain on debt extinguishment, net of taxes of $93
and $150............................................................ - - 197 291
--------- --------- --------- --------
Net income............................................................. $ 1,268 $ 7,318 $ 5,200 $ 19,556
========= ========= ========= ========
Net income per common share - basic:
From continuing operations.......................................... $ .03 $ .38 $ .19 $ .92
Discontinued operations............................................. .02 (.05) .02 (.04)
Extraordinary item.................................................. - - .01 .01
-------- --------- -------- --------
Net income per common share - basic.................................... $ .05 $ .33 $ .22 $ .89
======== ========= ======== ========
Weighted average common shares outstanding............................. 23,395 22,055 23,364 21,984
========= ========= ======== ========
Net income per common share - diluted:
From continuing operations.......................................... $ .03 $ .37 $ .18 $ .90
Discontinued operations............................................. .02 (.05) .03 (.05)
Extraordinary item.................................................. - - .01 .01
--------- --------- --------- --------
Net income per common share - diluted.................................. $ .05 $ .32 $ .22 $ .86
========= ========= ========= ========
Weighted average common shares......................................... 23,821 22,824 23,793 22,676
========= ========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------- ------------------------
2000 1999 2000 1999
---------- ----------- ----------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Net income............................................................. $ 1,268 $ 7,318 $ 5,200 $ 19,556
Other comprehensive income (loss):
Unrealized gain (loss) on investment................................ 209 2,297 (104) 207
Tax effect.......................................................... (71) (782) 32 (69)
--------- --------- --------- --------
138 1,515 (72) 138
--------- --------- --------- --------
Comprehensive income................................................... $ 1,406 $ 8,833 $ 5,128 $ 19,694
========= ========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED JUNE 30, 2000
(Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
Accumulated
Common stock Other Additional Treasury Stock
------------------------- Comprehensive Paid-In -----------------------------
Shares Amount Loss Capital Shares Amount
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1999.................. 24,385,279 $ 244 $ (1,764) $ 221,084 (1,071,432) $ (17,002)
Treasury shares issued.................... (559) 39,680 843
Issuance of common stock.................. 90,711 1 440
Purchase of treasury stock................ (25,000) (172)
Other comprehensive loss: (72)
Net unrealized loss on investment......
Cash dividends ($.099 per share)..........
Repayment of ESOP Loan....................
Net income................................
----------- --------- ----------- ----------- ------------ ----------
Balance, June 30, 2000.................... 24,475,990 $ 245 $ (1,836) $ 220,965 (1,056,752) $ (16,331)
=========== ========= ============ =========== =========== ===========
</TABLE>
[RESTUB]
<TABLE>
<CAPTION>
ESOP Totals
Loan Retained Stockholders'
Receivable Earnings Equity
----------------------------------------
<S> <C> <C> <C>
Balance, October 1, 1999.................. $ (1,488) $ 62,713 $ 263,787
Treasury shares issued.................... 284
Issuance of common stock.................. 441
Purchase of treasury stock................ (172)
Other comprehensive loss: (72)
Net unrealized loss on investment......
Cash dividends ($.099 per share).......... (2,338) (2,338)
Repayment of ESOP Loan.................... 56 56
Net income................................ 5,200 5,200
--------- ---------- -----------
Balance, June 30, 2000.................... $ (1,432) $ 65,575 $ 267,186
========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------------
2000 1999
----------- -------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................................ $ 5,200 $ 19,556
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization............................................... 7,965 3,803
Amortization of discount on senior debt and deferred finance costs..................... 841 982
Provision for possible losses.......................................................... 670 400
Minority interest in Atlas Pipeline Partners, L.P...................................... 1,130 -
Gain on disposal of subsidiary......................................................... (160) -
(Income) loss from operations of discontinued subsidiary............................... (453) 1,039
Gain on asset dispositions............................................................. (1,594) (3,702)
Property impairments and abandonments.................................................. 627 (32)
Deferred income taxes.................................................................. (7,100) 193
Accretion of discount.................................................................. (12,845) (28,215)
Collection of interest................................................................. 13,420 11,944
Extraordinary gain on debt extinguishment.............................................. (197) (291)
Change in operating assets and liabilities:
Increase in accounts receivable and other assets....................................... (1,174) (910)
Increase (decrease) in accounts payable and other liabilities.......................... 2,164 (7,187)
----------- ------------
Net cash provided by (used in) operating activities of continuing operations.............. 8,494 (2,420)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of subsidiary.......................................................... - 2,962
Capital expenditures...................................................................... (8,997) (8,119)
Principal payments on notes receivable.................................................... 71,799 -
Proceeds from sale of assets.............................................................. 788 30,519
Increase in other assets.................................................................. (4,837) (891)
Investments in real estate loans and ventures............................................. (2,540) (89,608)
Net change in net assets of discontinued operations....................................... (17,424) -
Decrease in other liabilities............................................................. (279) (9,770)
------------ -----------
Net cash provided by (used in) investing activities of continuing operations.............. 38,510 (74,907)
CASH FLOWS FROM FINANCING ACTIVITIES
Non-recourse borrowings................................................................... 76,657 157,067
Principal payments on non-recourse borrowings............................................. (144,488) (84,573)
Principal payments on other borrowings.................................................... (2,251) -
Dividends paid............................................................................ (2,338) (2,197)
Net proceeds from Atlas Pipeline Partners, L.P. public offering .......................... 14,042 -
Treasury stock purchased.................................................................. (172) -
Decrease in restricted cash............................................................... 32 -
Repayment of ESOP loan.................................................................... 56 31
(Increase) decrease in other assets....................................................... (82) 193
Proceeds from issuance of stock........................................................... 725 968
----------- -----------
Net cash (used in) provided by financing activities of continuing operations.............. (57,819) 71,489
------------ -----------
Net cash used in discontinued operations.................................................. (10,467) (38,647)
------------ ------------
Decrease in cash and cash equivalents..................................................... (21,282) (44,485)
Cash and cash equivalents at beginning of period.......................................... 42,643 73,345
----------- -----------
Cash and cash equivalents at end of period................................................ $ 21,361 $ 28,860
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JUNE 30, 2000 (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 periods included herein have been made.
Certain reclassifications have been made to the consolidated financial
statements for the third fiscal quarter and nine months ended June 30, 1999 to
conform to the third fiscal quarter and nine months ended June 30, 2000. In
addition, certain reclassifications have been made to the consolidated financial
statements for the third fiscal quarter and nine months ended June 30, 1999 to
reflect discontinued operations of the Company's small ticket equipment leasing
business.
The accounting policies followed by the Company, except as set forth in
Note 2, are set forth in Note 2 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, 1999.
NOTE 2 - Summary of Significant Accounting Policies
Other Assets
Included in other assets are intangible assets that consist primarily
of contracts acquired through acquisitions recorded at fair value on their
acquisition dates, the excess of the acquisition cost over the fair value of the
net assets of a business acquired (goodwill) and deferred financing costs. The
contracts acquired are being amortized on a declining balance method, except for
a syndication network which is being amortized on a straight-line basis, over
their respective estimated lives, ranging from five to 30 years, goodwill is
being amortized on a straight-line basis over periods ranging from 15 to 30
years, deferred financing costs are being amortized over the terms of the
related loans (two to seven years) and others costs are being amortized over
varying periods of up to five years.
Other assets consist of the following:
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
---------------- ---------------
(Unaudited)
(in thousands)
<S> <C> <C>
Goodwill ............................................................................. $ 28,917 $ 43,255
Contracts acquired (including syndication network).................................... 17,662 18,636
Deferred financing costs.............................................................. 3,273 5,842
Net assets held for disposition....................................................... - 850
Other................................................................................. 3,871 1,670
------------ ------------
$ 53,723 $ 70,253
============ ============
</TABLE>
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in
estimating the fair value of each class of financial instruments for which it is
practicable to estimate fair value:
For cash and cash equivalents, receivables and payables, the carrying
amounts approximate fair value because of the short maturity of these
instruments.
For investments in real estate loans, because each loan is a unique
transaction involving a discrete property, it is impractical to determine their
fair values. However, the Company believes the carrying amounts of the loans are
reasonable estimates of their fair value considering the nature of the loans and
the estimated yield relative to the risks involved.
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JUNE 30, 2000 (Unaudited) -
(Continued)
NOTE 2 - Summary of Significant Accounting Policies - (Continued)
The following table provides information for financial instruments as
of June 30, 2000:
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
------------- --------------
(Unaudited)
(in thousands)
<S> <C> <C>
Energy....................................................................... $ 33,045 $ 33,045
Real estate finance.......................................................... 25,875 25,875
Senior debt.................................................................. 99,100 89,190
Other debt................................................................... 5,602 5,602
------------- --------------
$ 163,622 $ 153,712
============= ==============
</TABLE>
Earnings Per Share
The following table presents a reconciliation of the components used in
the comparison of net income per common share-basic and net income per common
share-diluted for the three months and nine months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited)
(in thousands, except share data)
<S> <C> <C> <C> <C>
Income from continuing operations before
extraordinary item................................ $ 663 $ 8,383 $ 4,390 $ 20,304
Income (loss) from discontinued operations................ 605 (1,065) 613 (1,039)
Extraordinary gain on early extinguishment
of debt................................................ - - 197 291
----------- ----------- ----------- -----------
Net income........................................... $ 1,268 $ 7,318 $ 5,200 $ 19,556
=========== =========== =========== ===========
Basic weighted average shares of common
stock outstanding..................................... 23,395 22,055 23,364 21,984
Dilutive effect of stock option and
award plans .......................................... 426 769 429 692
----------- ----------- ----------- -----------
Dilutive weighted average shares of
common stock........................................... 23,821 22,824 23,793 22,676
=========== =========== =========== ===========
</TABLE>
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JUNE 30, 2000 (Unaudited) -
(Continued)
NOTE 3 - Cash Flow Statements
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------
2000 1999
---- ----
(Unaudited)
(in thousands)
<S> <C> <C>
Cash paid during the period for:
Interest.................................................................. $ 10,984 $ 8,698
Income taxes.............................................................. $ 6,521 $ 10,870
Non-cash activities include the following:
Acquisition of business:
Fair value of assets acquired........................................... $ - $ 315,466
Liabilities assumed..................................................... - (147,534)
Debt issued............................................................. - (142,997)
Amounts due seller...................................................... - (6,673)
----------- ------------
Net cash paid............................................................. $ - $ 18,262
=========== ===========
Disposal of business:
Net liabilities assumed by buyer........................................ $ - $ 4,938
=========== ===========
</TABLE>
NOTE 4 - Discontinued Operations
In February 2000, the Company adopted a plan to sell Fidelity Leasing,
Inc. and subsidiaries ("FLI"), its small ticket equipment leasing business.
Accordingly, FLI is reported as a discontinued operation for the three and nine
months ended June 30, 2000 and 1999. Subsequent to June 30, 2000, FLI was sold.
See Note 8. Net assets of FLI at June 30, 2000 were $97.4 million and are
summarized in the following table (Unaudited) (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Cash and cash equivalents............................................................................... $ 16,425
Investment in leases and notes receivable, net of $10,045 allowance..................................... 479,049
Net fixed assets........................................................................................ 3,485
Other assets............................................................................................ 26,545
Debt.................................................................................................... (413,963)
Accounts payable and accrued liabilities................................................................ (14,128)
------------
Net assets of discontinued FLI operations............................................................... $ 97,413
===========
</TABLE>
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JUNE 30, 2000 (Unaudited) -
(Continued)
NOTE 4 - Discontinued Operations - (Continued)
Summarized operating results of the discontinued FLI operation are as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Net revenues.............................................. $ - $ 11,745 $ 29,552 $ 26,131
=========== =========== =========== ===========
(Loss) income from operations before income
tax (provision) benefit................................ $ - $ (533) $ 775 $ 1,989
Income tax benefit (provision)............................ - 222 (322) (825)
----------- ----------- ----------- -----------
(Loss) income from discontinued operations................ $ - $ (311) $ 453 $ 1,164
=========== =========== =========== ===========
Gain on disposal of discontinued operations
(net of income taxes of $374,000)...................... $ 605 $ - $ 605 $ -
=========== =========== =========== ===========
</TABLE>
On September 28, 1999 the Company adopted a plan to discontinue
Fidelity Mortgage Funding, Inc. ("FMF"), its residential mortgage lending
business. The Company anticipates that the business will be disposed of by
September 30, 2000. Accordingly, FMF is reported as a discontinued operation for
the three and nine months ended June 30, 2000 and 1999. Net assets of FMF at
June 30, 2000 were $2.2 million and consist primarily of mortgage note and loan
receivables.
Summarized operating results of the discontinued FMF operation are as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Net revenues.............................................. $ - $ 272 $ - $ 1,570
=========== =========== =========== ===========
Loss from operations before income tax benefit............ $ - $ (1,130) $ - $ (3,303)
Income tax benefit........................................ - 376 - 1,100
----------- ----------- ----------- -----------
Loss from operations...................................... - (754) - (2,203)
Loss on disposal before income tax benefit................ - - - -
Income tax benefit........................................ - - - -
----------- ----------- ----------- -----------
Loss on disposal.......................................... - - - -
----------- ----------- ----------- -----------
Loss from discontinued operations......................... $ - $ (754) $ - $ (2,203)
=========== =========== =========== ===========
Loss on disposal of discontinued operations
(net of income taxes of $234,000)...................... $ - $ - $ (445) $ -
=========== =========== =========== ===========
Summarized results of discontinued operations are:
Income (loss) from operations of subsidiaries.......... $ - $ (1,065) $ 453 $ (1,039)
=========== =========== =========== ===========
Gain on disposal of subsidiaries....................... $ 605 $ - $ 160 $ -
=========== =========== =========== ===========
</TABLE>
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JUNE 30, 2000 (Unaudited) -
(Continued)
NOTE 5 - Investments in Real Estate Loans
The Company has primarily focused its real estate activities on the
purchase of income producing commercial mortgage loans at a discount from both
the face value of such mortgage loans and the appraised value of the properties
underlying the mortgage loans. The Company records as income the accretion of a
portion of the difference between its cost basis in a commercial mortgage loan
and the sum of projected cash flows therefrom. Cash received by the Company for
payment on each mortgage is allocated between principal and interest. This
accretion of discount amounted to $1.5 million and $10.7 million during the
three months ended June 30, 2000 and 1999, respectively, and $4.0 million and
$16.3 million during the nine months ended June 30, 2000 and 1999, respectively.
As the Company sells senior lien interests or receives funds from refinancings
of such loans, a portion of the cash received is employed to reduce the
cumulative accretion of discount included in the carrying value of the Company's
investments in real estate loans.
At June 30, 2000, the Company held commercial mortgage loans having
aggregate face values of $685.3 million, which were being carried at aggregate
cost of $181.7 million, including cumulative accretion. 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 Nine Months Ended
June 30, 2000 June 30, 2000
---------------------- ---------------------
(Unaudited)
(in thousands)
<S> <C> <C>
Commercial mortgage loan balance,
beginning of period............................................... $ 183,599 $ 250,231
Additions to existing loans.......................................... 928 2,822
Provision for possible losses........................................ (150) (450)
Accretion of discount (net of collection of interest)................ 1,507 3,995
Collection of principal.............................................. (2,576) (62,079)
Cost of loans sold................................................... (1,652) (12,863)
--------------- ----------------
Commercial mortgage loan balance, end of period...................... $ 181,656 $ 181,656
=============== ================
</TABLE>
A summary of activity in the Company's allowance for possible losses
related to real estate loans for the three and nine months ended June 30, 2000
and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited)
(in thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period.............................. $ 1,705 $ 1,205 $ 1,405 $ 905
Provision for possible losses............................. 150 100 450 400
----------- ----------- ----------- -----------
Balance, end of period.................................... $ 1,855 $ 1,305 $ 1,855 $ 1,305
=========== =========== =========== ===========
</TABLE>
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JUNE 30, 2000 (Unaudited) -
(Continued)
NOTE 6 - Debt
Debt at June 30, 2000 does not include the debt of the discontinued
operations of FLI, its small ticket leasing business (see Note 4).
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
------------ --------------
(Unaudited)
(in thousands)
<S> <C> <C>
Warehouse debt:
Equipment leasing......................................................... $ - $ 15,291
Non-recourse debt:
Equipment leasing
Securitized term facilities............................................. - 219,979
CP conduit facilities................................................... - 93,213
Real estate finance
Loan facilities......................................................... - 58,901
Revolving credit facilities............................................. 25,000 22,000
Other................................................................... 875 875
Energy
Revolving and term bank loans........................................... 33,045 44,975
------------ ------------
Total non-recourse debt................................................. 58,920 439,943
Senior debt.................................................................. 99,100 101,400
Other debt:
Equipment leasing
Term loans.............................................................. - 7,587
Seller financing........................................................ - 7,725
Corporate................................................................. 5,602 5,876
------------ ------------
Total other debt........................................................ 5,602 21,188
------------ ------------
$ 163,622 $ 577,822
============ ============
</TABLE>
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JUNE 30, 2000 (Unaudited) -
(Continued)
NOTE 7 - Operating Segment Information
The Company operates in two principal industry segments - energy and
real estate finance. Corporate represents revenues, expenses and assets not
allocated to an industry segment. Segment data for the three and nine months
ended June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Revenues:
Energy................................................. $ 17,579 $ 11,177 $ 56,836 $ 40,305
Real estate finance.................................... 3,914 16,833 14,328 36,601
Corporate.............................................. 2,533 2,358 7,112 5,875
---------- ----------- ----------- -----------
$ 24,026 $ 30,368 $ 78,276 $ 82,781
========== =========== =========== ===========
Operating Profit (Loss):
Energy................................................. $ 932 $ 1,217 $ 5,462 $ 7,705
Real estate finance.................................... 2,596 15,241 10,249 31,161
Corporate.............................................. (2,646) (3,725) (9,349) (8,538)
--------- ----------- ----------- -----------
$ 882 $ 12,733 $ 6,362 $ 30,328
========= =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
----------- ---------------
<S> <C> <C>
Identifiable Assets:
Energy............................................................................. $ 144,666 $ 139,098
Real estate finance................................................................ 200,421 273,922
Equipment leasing (discontinued, See Note 4)....................................... - 431,464
Corporate.......................................................................... 137,496 56,903
----------- -----------
$ 482,583 $ 901,387
=========== ===========
</TABLE>
Operating profit (loss) represents total revenues less costs
attributable thereto, including interest expense, provision for possible losses,
and less depreciation, depletion and amortization, but excludes general and
administrative expenses except for energy and real estate finance.
NOTE 8 - Subsequent Event
On August 1, 2000, the Company completed the sale of all of the
outstanding capital stock of FLI to European American Bank and AEL Leasing Co.,
Inc., subsidiaries of ABN AMRO Bank, N.V. Total consideration received by the
Company, including payment of certain intercompany indebtedness, was $152.2
million and the assumption of approximately $431.0 million in debt payable to
third parties and other liabilities of $152.2 million, $16.0 million was paid by
a non-interest bearing promissory note which is payable to the extent that
payments are received on a pool of FLI lease receivables comprised of
receivables aged more than 90 days, are on FLI's credit watch list, or have an
outstanding balance of $200,000 or more and would be risk rated "not pass" under
the purchasers' credit policies. In addition, $10.0 million is held in escrow
until March 31, 2000 as security for the Company's indemnification obligations
to the purchasers. In connection with the sale, the Company made $15.4 million
of payments to FLI's management and incurred an estimated $1.8 million of
expenses.
14
<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. THESE RISKS AND
UNCERTAINITIES ARE MORE FULLY DISCUSSED IN OUR 1999 ANNUAL REPORT ON FORM 10-K,
PARTICULARLY IN THE SECTION TITLED "CAUTIONARY STATEMENTS FOR PURPOSES OF THE
SAFE HARBOR." READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD
LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. WE UNDERTAKE NO
OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO FORWARD LOOKING
STATEMENTS WHICH WE MAY MAKE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE
OF THIS FORM 10-Q OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
Overview of Third Quarter of Fiscal 2000
Our gross revenues were $24.0 million in the third quarter of fiscal
2000, a decrease of $6.4 million (21%) from $30.4 million in the third quarter
of fiscal 1999. The decrease in total revenues during the third quarter of
fiscal 2000 was primarily due to a decrease of $12.9 million (77%) in real
estate finance revenues to $3.9 million as compared to $16.8 million in the
third quarter of fiscal 1999, partially offset by a $6.4 million (57%) increase,
from $11.2 million in the third quarter of fiscal 1999 to $17.6 million in the
third quarter of fiscal 2000, in energy revenues. The decrease in real estate
finance revenues was principally due to decreases of $2.1 million (47%) in
interest revenues, $9.2 million (86%) in accreted discount and $1.8 million
(126%) in net rental and fee income. The increase in energy revenues was
principally due to increases of $3.8 million (151%) in well production revenues
and $1.7 million (64%) in well service revenues.
In February 2000, we adopted a plan to sell our small ticket equipment
leasing business. As a result, we account for this business as a discontinued
operation. The effect of this accounting treatment on our financial statements
is
o to reflect small ticket equipment leasing operations in our income
statements for the three and nine months ended June 30, 1999 as
well as June 30, 2000 on a net basis "discontinued operations",
rather than in detail throughout the income statements; and to
reflect the assets and liabilities of our small ticket leasing
operations on a net basis in a single line item "net assets of
discontinued operations" on our balance sheet as of June 30, 2000;
however, in accordance with generally accepted accounting
principles, our balance sheet as of September 30, 1999 is not
so adjusted.
Our revenues from continuing operations, expressed as a percentage of
our total revenues from continuing operations, were distributed across our
operating segments as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Energy ..................................................... 73% 37% 73% 49%
Real estate finance......................................... 16% 55% 18% 44%
</TABLE>
The balance of our revenues from continuing operations is attributable
to corporate revenue not allocated to a specific operating segment.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. - (Continued)
Overview of Third Quarter of Fiscal 2000 - (Continued)
As of June 30, 2000, total assets were $482.6 million, a decrease of
$418.8 million (46%) from assets of $901.4 million at September 30, 1999. The
decrease principally resulted from the classification of small ticket equipment
leasing as a discontinued operation. Expressed as a percentage of our total
assets, our assets were distributed across our operating segments as follows:
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
-------------- --------------
(Unaudited)
<S> <C> <C>
Energy ................................................................................. 30% 15%
Real estate finance..................................................................... 42% 30%
Equipment leasing....................................................................... - 48%
</TABLE>
The balance of 28% at June 30, 2000 includes net assets of discontinued
operations of $99.6 million (21%) and other corporate assets not attributable to
a specific operating segment. The balance of 7% at September 30, 1999 includes
other corporate assets not attributable to a specific operating segment.
Results of Operations: Energy
On August 31, 1999, we acquired Viking Resources Corporation
("Viking"). Results of operations include the operations of Viking from
September 1, 1999 and, accordingly, the results of operations for the three and
nine months ended June 30, 2000 are not comparable to those for the three and
nine months ended June 30, 1999.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. - (Continued)
Results of Operations: Energy - (Continued)
The following table sets forth information relating to revenues
recognized and costs and expenses incurred, daily production volumes, average
sales prices, production costs as a percentage of oil and gas sales, and
production cost per equivalent unit in our energy operations during the periods
indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited)
(in thousands, except sales price information)
<S> <C> <C> <C> <C>
Revenues:
Production............................................ $ 6,342 $ 2,524 $ 17,069 $ 7,454
Well drilling......................................... 6,921 6,028 28,463 24,669
Well services......................................... 4,316 2,625 11,304 7,031
Gain on sales of assets............................... - - - 1,151
----------- ----------- ----------- -----------
$ 17,579 $ 11,177 $ 56,836 $ 40,305
=========== =========== =========== ===========
Costs and expenses:
Exploration and production............................ $ 1,693 $ 1,015 $ 6,040 $ 2,407
Well drilling......................................... 5,484 4,798 23,176 19,537
Well services......................................... 1,800 1,177 5,069 1,436
Non-direct ........................................... 3,231 1,440 6,279 4,386
----------- ----------- ----------- -----------
$ 12,208 $ 8,430 $ 40,564 $ 27,766
=========== =========== =========== ===========
Production revenues:
Gas (1)............................................... $ 4,672 $ 2,275 $ 13,438 $ 6,762
Oil................................................... $ 1,593 $ 246 $ 3,511 $ 618
Production volumes:
Gas (thousands of cubic feet ("mcf")/day) (1)......... 15,401 10,824 16,701 10,643
Oil (barrels ("bbls")/day)............................ 617 188 547 188
Average sales price:
Gas (per mcf)......................................... $ 3.33 $ 2.31 $ 2.94 $ 2.33
Oil (per bbl)......................................... $ 28.35 $ 14.39 $ 23.42 $ 12.04
</TABLE>
----------------------------
(1) Excludes sales of residual gas and sales to landowners.
Natural gas revenues were $4.7 million and $13.4 million in the three
months and nine months ended June 30, 2000, an increase of $2.4 million (105%)
and $6.7 million (99%) from $2.3 million and $6.8 million in the three months
and nine months ended June 30, 1999. The increases were due to 42% and 57%
increases in production volumes, principally due to the added Viking production
and 44% and 26% increases in the average sales price of natural gas during the
respective periods. Of the $2.4 million and $6.7 million increase in gas
revenues in the three months and nine months ended June 30, 2000, $1.4 million
and $4.9 million was attributable to volume increases while $1.0 million and
$1.8 million was attributable to price increases.
Oil revenues were $1.6 million and $3.5 million in the three months and
nine months ended June 30, 2000, an increase of $1.3 million (548%) and $2.9
million (468%) from $246,000 and $618,000 in the three months and nine months
ended June 30, 1999, due to 228% and 191% increases in production volumes
principally resulting from the added Viking production and 97% and 95% increases
in the average sales price of oil. Of the $1.3 million and $2.9 million increase
in oil revenues in the three months and nine months ended June 30, 2000, $1.1
million and $2.3 million was attributable to volume increases while $200,000 and
$600,000 was attributable to price increases.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. - (Continued)
Results of Operations: Energy - (Continued)
Without the addition of Viking, gas production revenues would have been
$2.8 million and $9.0 million for the third quarter and nine months of ended
June 30, 2000, resulting in an overall increase of $557,000 (24%) and $2.2
million (33%) compared to the third quarter and nine months of ended June 30,
1999. Average daily gas production volumes would have been 10,548 mcf and 11,205
mcf for the third quarter and nine months June 30, 2000, a 3% decrease and 6%
increase compared to the third quarter and nine months ended June 30, 1999. Oil
production revenues would have been $315,000 and $967,000 for the third quarter
and nine months ended June 30, 2000, resulting in an overall increase of $69,000
(28%) and $349,000 (56%) compared to the third quarter and nine months ended
June 30, 1999. Average daily oil production volumes would have been 141 barrels
and 154 barrels for the third quarter and nine months ended June 30, 2000, 25%
and 18% decreases compared to the third quarter and nine months ended June 30,
1999.
Well drilling revenues in the three months and nine months ended June
30, 2000 increased $893,000 (15%) and $3.8 million (15%). These increases result
from represent the billings and costs associated with the completion of 42 and
151 net wells for partnerships sponsored by Atlas America, Inc. and Viking in
the third quarter and nine months ended June 30, 2000 as compared to 30 and 124
wells in the third quarter and nine months ended June 30, 1999.
Well services revenues and related costs increased significantly as a
result of an increase in the number of wells operated due to the acquisition of
Viking and the addition of wells drilled.
Production costs (excluding exploration costs of $240,000 and $874,000)
were $1.5 million and $5.2 million in the third fiscal quarter and nine months
ended June 30, 2000, an increase of $420,000 (41%) and $2.1 million (70%) from
$1.0 million and $3.1 million in the third fiscal quarter and nine months ended
June 30, 1999 as a result of the acquisition of Viking referred to above.
Nondirect expenses for the three months and nine months ended June 30,
2000 were $3.2 million and $6.3 million respectively; an increase of $1.8
million (24%) and $1.9 (43%) as compared to the three months and nine months
ended June 30, 1999. The increase is principally due to increased labor costs
associated with the acquisition of Viking.
Amortization of oil and gas properties as a percentage of oil and gas
production revenues was 30% for the third fiscal quarter and 31% for the nine
months ended June 30, 2000 compared to 24% in both the third fiscal quarter and
nine months ended June 30, 1999. The variance from period to period is directly
attributable to changes in our oil and gas reserve quantities, product prices
and fluctuations in the depletable cost basis of oil and gas.
18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. - (Continued)
Results of Operations: Real Estate Finance
The following table sets forth certain information relating to the
revenue recognized and costs and expenses incurred in real estate finance
operations during the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited)
(in thousands)
<S> <C> <C> <C> <C>
Revenues:
Interest............................................. $ 2,436 $ 4,574 $ 8,850 $ 11,944
Accreted discount (net of collection of interest).... 1,507 10,666 3,995 16,271
Gains on sales of senior lien interests and loans.... 349 151 1,414 2,535
Net rental and fee income............................ (378) 1,442 69 5,851
----------- ----------- ----------- -----------
$ 3,914 $ 16,833 $ 14,328 $ 36,601
=========== =========== =========== ===========
Cost and expenses...................................... $ 628 $ 915 $ 2,083 $ 2,567
=========== =========== =========== ===========
</TABLE>
Revenues from real estate finance operations decreased to $3.9 million
and $14.3 million in the third fiscal quarter and nine months ended June 30,
2000, a decrease of $12.9 million (77%) and $22.3 million (61%) from $16.8
million and $36.6 million in the third fiscal quarter and nine months ended June
30, 1999. The decrease was attributable to the following:
(i) A decrease of $11.3 million (74%) and $15.4 million (54%) in
interest income in the three months and nine months ended June
30, 2000, respectively, as compared to the prior year, including
a decrease of $9.2 million (86%) and $12.3 million (75%) in
accretion of discount in the same respective periods. The
decrease in interest income was caused primarily by the
following:
o As previously reported in our 1999 Annual Report on Form 10-K,
one loan was repaid in the third fiscal quarter of 1999. In
addition, in the same quarter, a second loan was significantly
paid down in connection with a refinancing/restructuring. This
resulted in a reduction of $8.5 million and $10.2 million in
interest income for the three and nine months ended June 30,
2000 as compared to the three and nine months ended June 30,
1999.
o One loan was repaid in the first fiscal quarter of 2000. This
resulted in a reduction of $489,000 and $1.1 million in
interest income for the three and nine months ended June 30,
2000 as compared to the three and nine months ended June 30,
1999.
o Two loans completed their accretion of discount in the third
fiscal quarter of 2000, resulting in a reduction of $448,000
and $2.7 million in interest income in the three and nine
months ended June 30, 2000 as compared to the same periods in
fiscal 1999. This resulted in our average accretion rate
(accreted discount divided by the book value of average loan
balances) on our mortgage loan portfolio to decrease to 8.6% in
the quarter ended June 30, 2000 from 23% in the quarter ended
June 30,1999.
o The refinancing of one of our mortgage loans such that our loan
ceased being a wraparound mortgage loan. This resulted in a
book reduction of interest income and offsetting interest
expense of $1.3 for the three months ended June 30, 2000 as
compared to the same period in fiscal 1999. The refinancing did
not materially affect our net cash flow from this loan.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. - (Continued)
Results of Operations: Real Estate Finance - (Continued)
(ii) A decrease of $1.8 million (126%) and $5.8 million (99%) in net
rental and fee income during the quarter and nine months ended
June 30, 2000 as compared to the prior year. This decrease was
the result primarily of a one-time fee of $1.3 million earned in
the third quarter of fiscal 1999 for services rendered to an
existing borrower in connection with the operation, leasing and
supervision of the collateral securing one of our portfolio
loans. No comparable fees were earned during the quarter ended
June 30, 2000. In addition, we experienced a net loss on one
rental real estate venture of approximately $347,000 in the third
quarter of fiscal 2000. This loss was attributed to depreciation
on an equity method investment.
(iii) A decrease of $1.1 million in gains on sales of senior lien
interests and loans in the nine months ended June 30, 2000 as
compared to the prior year. The Company sold senior lien
interests in two loans in the nine months ended June 30, 1999
resulting in proceeds of $5.7 million and a gain of $2.4 million;
no such gains were recognized in the nine months ended June 30,
2000. As set forth in our 1999 Annual Report on Form 10-K, we
made a strategic decision, effective January 1, 1999, to
structure most future senior lien transactions as financings
rather than sales. During the three months ended June 30, 2000
the Company did sell one loan to RAIT, receiving proceeds of
$1.9 million and a gain of $273,000.
During the nine months ended June 30, 2000, we acquired no loans as
compared to the purchase and origination of four loans for a cost of $82.4
million during the nine months ended June 30, 1999.
As a consequence of the foregoing, our yield (gross real estate finance
revenues, including gains resulting from refinancings, sales of loans and sales
of senior lien interests in loans, divided by the book value of average loan
balances) decreased to 8.6% and 8.8% in the third fiscal quarter and nine months
ended June 30, 2000 as compared to the 25% in both the third fiscal quarter and
nine months ended June 30, 1999.
Costs and expenses of our real estate finance operations were $628,000
and $2.1 million in the third fiscal quarter and nine months ended June 30,
2000, a decrease of $287,000 (31%) and $484,000 (19%) from $915,000 and $2.6
million in the same periods of the prior year. For both periods the decrease is
primarily due to reduced salary and benefit costs as a result of less activity
within Real Estate finance operations.
Results of Operations: Other Revenues, Costs and Expenses
Interest and other income was $2.5 million and $7.1 million in the
three months and nine months ended June 30, 2000, an increase of $175,000 (7%)
and $1.2 million (21%) as compared to $2.4 million and $5.9 million during the
three months and nine months ended June 30, 1999. The increase for the nine
months ended June 30, 2000 as compared to the nine months ended June 30, 1999 is
primarily attributable to an increase in intercompany interest on increased
lending related to our discontinued small ticket equipment leasing subsidiary.
General and administrative expenses were $1.9 million and $5.7 million
in the three months and nine months ended June 30, 2000, an increase of $807,000
(75%) and $1.7 million (42%) as compared to the three months and nine months
ended June 30, 1999, primarily as a result of increases in compensation, an
increase in accrued pension benefits, hiring additional corporate staff and an
increase in occupancy costs as we leased additional office space to accommodate
our larger staff.
Depreciation, depletion and amortization expense was $2.9 million and
$8.0 million in the three months and nine months ended June 30, 2000, an
increase of $1.7 million (144%) and $4.2 million (109%) as compared to $1.2
million and $3.8 million for the three months and nine months ended June 30,
1999. These increases primarily resulted from the acquisition of Viking.
Interest expense was $4.6 million and $13.8 million in the three months
and nine months ended June 30, 2000 a decrease of $1.4 million (23%) and
$118,000 (1%), as compared to $6.0 million and $13.9 million during the three
months and nine months ended June 30, 1999. The quarterly decrease was primarily
due to the repayment of one loan in December 1999. The nine months ended June
30, 2000 was affected by lower average borrowings on our credit facilities
partially offset by higher interest rates as compared to the prior year period.
20
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. - (Continued)
Provision for possible losses was $225,000 and $670,000 for the three
months and nine months ended June 30, 2000 an increase of $150,000 (200%) and
$270,000 (68%), as compared to $75,000 and $400,000 in the three months and nine
months ended June 30, 1999. For the three months and nine months ended June 30,
2000, $75,000 and $220,000 of the provision is associated with certain notes
which were once part of our discontinued mortgage lending business (see Note 4).
The remainder of the provision represents our estimate of possible loss
associated with the Real Estate finance portfolio.
The effective tax rate was 25% and 31% in the three months and nine
months ended June 30, 2000 as compared to 34% and 33% in the three months and
nine months ended June 30, 1999, a result of lower corporate earnings.
Liquidity and Capital Resources
Liquidity. During the nine months ended June 30, 2000, the principal
sources of liquidity for our continuing operations were:
o cash from continuing operations,
o sales of real estate loans and properties owned which resulted in
net proceeds of approximately $17.7 million,
o existing credit facilities, and
o a $3.0 million increase in funds available under an existing real
estate line of credit.
In addition, during the period we obtained $14.0 million from the sale of
natural gas gathering systems to Atlas Pipeline Partners, L.P., a master limited
partnership whose general partner is a subsidiary of our and in which we are a
limited partner. For the period, our cash flows from continuing operations were
positive. As a consequence, we believe that liquidity for our continuing
operations is adequate.
Liquidity for our discontinued equipment leasing operation was provided
primarily by a combination of warehouse lines of credit, term loan facilities
and purchase facilities extended by banks and other institutional lenders. In
addition, in the first quarter of fiscal 2000, we advanced approximately $11.0
million of cash to this operation, all of which remained outstanding at June 30,
2000. Following that advance, the equipment leasing operation required only
temporary cash advances, all of which have been repaid. Subsequent to June 30,
2000, the equipment leasing operation was sold, resulting in proceeds to us, net
of a $10.0 million escrow for indemnification, and a $16.0 million note payable
from a specified pool of lease receivables a $15.4 million payment to management
of Fidelity Leasing and $1.8 million of estimated expenses related to the
transaction, of $109.0 million. These funds are an additional source of future
liquidity.
Capital Resources. We have historically derived our capital resources
for our continuing operations from public and private offerings of debt and
equity securities, lines of credit, sales of senior lien interests in or
borrower refinancings of commercial mortgage loans and sales of loans. As a
result of the continued depressed price of our common stock, we do not believe
we will be able to obtain additional capital resources from public or private
securities markets on acceptable terms. As a consequence, we believe that our
principal sources of capital resources for the remainder of fiscal 2000 will be
the proceeds of the disposition of our equipment leasing operation referred to
above. While the sale of the equipment leasing operation will provide us
substantial near-term capital resources, our future growth and earnings will
depend upon our ability to generate material amounts of further capital
resources. If we are unable to do so, our ability to generate growth in our
continuing energy and real estate finance operations may be restricted, which
could materially affect our earnings potential.
21
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. - (Continued)
Liquidity and Capital Resources - (Continued)
Sources and Uses of Cash. Sources and (uses) of cash for the nine month
periods ended June 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------------------
2000 1999
----------- ------------
(Unaudited)
(in thousands)
<S> <C> <C>
Provided by (used in) operations........................................... $ 8,494 $ (2,420)
Provided by (used in) investing activities................................. 38,510 (74,907)
(Used in) provided by financing activities................................. (57,819) 71,489
Used in discontinued operations............................................ (10,467) (38,647)
----------- ------------
Decrease in cash and cash equivalents................................... $ (21,282) $ (44,485)
=========== ============
</TABLE>
We had $21.4 million in cash and cash equivalents on hand at June 30,
2000, as compared to $42.6 million at September 30, 1999, which included cash of
the discontinued small ticket equipment leasing operation of $10.1 million. Our
ratio of earnings to fixed charges was 1.4 to 1 in the quarter ended June 30,
2000 as compared to 3.1 to 1 in the quarter ended June 30, 1999.
Our net cash provided by operating activities in the nine months ended
June 30, 2000 was $8.5 million whereas net cash used in operating activities was
$2.4 million in the nine months ended June 30, 1999, a net increase of $10.9
million, primarily as a result of the following:
o a $16.8 million increase in interest collection net of accretion
of discount,
o a $9.4 million decrease in accounts payable and accrued
liabilities,
o an $8.2 million increase in non-cash charges to income from
continuing operations, partially offset by,
o a $14.4 million decrease in net income,
o a $7.3 million decrease in deferred taxes.
Net cash provided by our investing activities was $38.5 million for the
nine months ended June 30, 2000 as compared to net cash used in investing
activities of $74.9 million for the nine months ended June 30, 1999, a net
increase of $113.4 million, primarily as a result of the following:
o In real estate finance, cash provided increased $128.9 million;
due to $71.8 million in principal payments received in the nine
months ended June 30, 2000 compared to $0 in the nine months
ended June 30, 1999. This was partially offset by our investment
of $2.5 million in real estate loans and ventures for the nine
months ended June 30, 2000 as compared to investments of $89.6
million for the nine months ended June 30, 1999. These cash
provided lines was also partially offset by a decrease of $30.1
million in proceeds from loan sales for the nine months ended
June 30, 2000 as compared to the nine months ended June 30, 1999.
o In energy, cash used increased $5.2 million as a result of a $3.0
million increase in capital expenditures and other assets,
coupled with a $2.2 million decrease in proceeds from asset
sales.
Net cash used in our financing activities was $57.8 million for the
nine months ended June 30, 2000 as compared to net cash provided by financing
activities of $71.5 million for the nine months ended June 30, 1999, a net
decrease of $129.3 million, primarily attributable to an increase of $140.3
million in payments on our borrowings, net of repayments, for the nine months
ended June 30, 2000, compared to the nine months ended June 30, 1999, partially
offset by receipts of $14.0 million of net proceeds from the sale of gathering
systems to Atlas Pipeline Partners, L.P. during the nine months ended June 30,
2000.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General. During the nine months ended June 30, 2000, our loans
receivable did not undergo material change other than changes resulting from
normally recurring debt service payments received and the sale of three loans.
Our loans payable generally did not undergo material change other than changes
resulting from normally recurring debt service payments, except that the
interest rate on one loan payable was increased as a result of increases in
market interest rates the credit limit and amount drawn under one of our real
estate lines of credit was increased and the revolving loan attributed to our
energy operations was paid down in part
Energy. During the nine months ended June 30, 2000, the amount
outstanding under a revolving loan attributable to our energy operations was
reduced by $12.0 million to $33.0 million as a result of the application of the
proceeds of the sale of our gathering systems to Atlas Pipeline Partners in
connection with APL's initial public offering during the second quarter of
fiscal 2000. The weighted average interest rate for this facility increased from
7.87% at September 30, 1999 to 9.04% at June 30, 2000, due to an increase in
lending rates.
Real Estate Finance. During the nine months ended June 30, 2000, our
outstanding loans receivable (to our interest) increased $43.5 million (17.4%)
to $294.0 million in the aggregate and the carried cost of our loans increased
$2.4 million (1.7%) to $146.4 million in the aggregate. The principal balance of
related senior lien interests increased $20.8 million (7.7%) to $291.2 million
in the aggregate. These increases were principally attributable to the
refinancing of one loan and, because the refinancing was at a fixed rate, the
subsequent reclassification of that loan from interest rate sensitive to
non-interest rate sensitive in the third quarter of fiscal 2000.
The interest rate payable with respect to the senior lien interest
underlying the one loan in our portfolio that may be deemed to be interest rate
sensitive increased from 7.875% at September 30, 1999 to 8.75% at June 30, 2000.
The rate increase resulted from an increase in the LIBOR rate, to which the
interest rate payable with respect to the senior lien interest is linked.
The maximum amount of one of our real estate revolving lines of credit
was increased during the second quarter of fiscal 2000 to $18.0 million from
$15.0 million at September 30, 1999. In addition, the interest rate increased to
9.50% on the $18.0 million line, 9.50% on the $5.0 million line and 10.25% on
the $7.0 million line, each an increase of 125 basis points. The interest rate
increase was due to an increase in the lender's prime rate, to which the
interest rates of the lines of credit are linked.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K:
The registrant filed a Form 8-K dated May 17, 2000 reporting, in
Item 5, the execution of an agreement with respect to the sale of
Fidelity Leasing, Inc.
The registrant filed a Form 8-K dated August 10, 2000 reporting,,
in Item 2, the completion of the sale of Fidelity Leasing, Inc.
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: August 14, 2000 By: /s/ Steven J. Kessler
--------------- ---------------------
STEVEN J. KESSLER
Senior Vice President and
Chief Financial Officer
Date: August 14, 2000 By: /s/ Nancy J. McGurk
--------------- -------------------
NANCY J. McGURK
Vice President-Finance and
Chief Accounting Officer
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