<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 outstanding shares of each of the issuer's classes of
common stock, as of the latest practicable date:
23,364,097 Shares May 8, 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 - March 31, 2000 (Unaudited)
and September 30, 1999.................................................................... 3
Consolidated Statements of Income (Unaudited)
Three Months and Six Months Ended March 31, 2000 and 1999................................. 4
Consolidated Statements of Comprehensive Income (Unaudited)
Three Months and Six Months Ended March 31, 2000 and 1999................................. 5
Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
Six Months Ended March 31, 2000........................................................... 6
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended March 31, 2000 and 1999.................................................. 7
Notes to Consolidated Financial Statements (Unaudited)
March 31, 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.................................... 22
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................................................. 23
SIGNATURES................................................................................................. 23
</TABLE>
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
RESOURCE AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
---------------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................................... $ 19,220 $ 42,643
Accounts and notes receivable and other prepaid expenses............................ 12,645 18,977
Net assets of discontinued operations............................................... 97,537 2,394
Investments in real estate loans (less allowance for
possible losses of $1,705 and $1,405)............................................ 183,599 250,231
Investments in real estate ventures................................................. 17,546 18,159
Investments in leases and notes receivable (less allowance for
possible losses of $10,017)..................................................... - 401,461
Investment in Resource Asset Investment Trust....................................... 8,986 9,300
Property and equipment:
Oil and gas properties and equipment (successful efforts)........................ 83,725 78,923
Gas gathering and transmission facilities........................................ 18,265 18,061
Other............................................................................ 6,934 12,198
------------ -------------
108,924 109,182
Less - accumulated depreciation, depletion and amortization...................... (23,511) (21,213)
------------- --------------
Net property and equipment................................................. 85,413 87,969
Other assets (less accumulated amortization of $8,360 and $6,058)................... 53,236 70,253
------------ -------------
$ 478,182 $ 901,387
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt:
Warehouse debt................................................................... $ - $ 15,291
Non-recourse debt................................................................ 53,290 439,943
Senior debt...................................................................... 99,100 101,400
Other debt ...................................................................... 5,649 21,188
------------ -------------
Total debt................................................................. 158,039 577,822
Other liabilities:
Accounts payable................................................................. 11,106 16,751
Accrued liabilities.............................................................. 13,206 27,395
Estimated income taxes........................................................... 4,000 2,563
Deferred income taxes............................................................ 7,700 13,069
------------ -------------
Total liabilities.......................................................... 194,051 637,600
Minority interest in Atlas Pipeline Partners, L.P................................... 17,699 -
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....................... 244 244
Accumulated other comprehensive loss............................................. (1,974) (1,764)
Additional paid-in capital....................................................... 221,022 221,084
Less treasury stock, at cost..................................................... (16,507) (17,002)
Less loan receivable from Employee Stock Ownership Plan ("ESOP") ................ (1,440) (1,488)
Retained earnings................................................................ 65,087 62,713
------------ -------------
Total stockholders' equity................................................. 266,432 263,787
------------ -------------
$ 478,182 $ 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 Six Months Ended
March 31, March 31,
------------------------- ----------------------
2000 1999 2000 1999
---------- ----------- ----------- --------
(in thousands, except share data)
<S> <C> <C> <C> <C>
REVENUES
Real estate finance.................................................... $ 3,763 $ 9,767 $ 10,414 $ 19,768
Energy................................................................. 23,333 14,002 39,257 29,128
Interest and other..................................................... 2,022 1,845 4,579 3,517
--------- --------- --------- --------
29,118 25,614 54,250 52,413
COSTS AND EXPENSES
Real estate finance.................................................... 721 1,174 1,455 1,652
Energy................................................................. 16,900 7,990 28,356 19,336
General and administrative............................................. 1,996 1,961 3,845 2,949
Depreciation, depletion and amortization............................... 2,545 1,332 5,099 2,626
Interest............................................................... 4,455 3,990 9,210 7,930
Provision for possible losses.......................................... 225 213 445 325
Minority interest in Atlas Pipeline Partners, L.P...................... 360 - 360 -
--------- --------- --------- --------
27,202 16,660 48,770 34,818
--------- --------- --------- --------
Income from continuing operations before income taxes.................. 1,916 8,954 5,480 17,595
Provision for income taxes............................................. 613 2,819 1,753 5,674
--------- --------- --------- --------
Income from continuing operations before extraordinary item............ 1,303 6,135 3,727 11,921
Discontinued operations:
Income (loss) from operations of subsidiary......................... (157) 600 453 26
Loss on disposal of subsidiary...................................... (445) - (445) -
---------- --------- --------- --------
701 6,735 3,735 11,947
Extraordinary item, net of taxes of $34, $93 and $150.................. 71 - 197 291
--------- --------- --------- --------
Net income............................................................. $ 772 $ 6,735 $ 3,932 $ 12,238
========= ========= ========= ========
Net income per common share - basic:
From continuing operations.......................................... $ .06 $ .28 $ .16 $ .54
Discontinued operations............................................. (.03) .03 - -
Extraordinary item.................................................. - - .01 .02
--------- --------- --------- --------
Net income per common share - basic.................................... $ .03 $ .31 $.17 $.56
========= ========= ========= ========
Weighted average common shares outstanding............................. 23,110 22,020 23,350 21,944
========= ========= ========= ========
Net income per common share - diluted:
From continuing operations.......................................... $ .06 $ .27 $ .16 $ .53
Discontinued operations............................................. (.03) .03 - -
Extraordinary item.................................................. - - .01 .01
--------- --------- --------- --------
Net income per common share - diluted.................................. $ .03 $ .30 $ .17 $ .54
======== ========= ========= ========
Weighted average common shares......................................... 23,520 22,656 23,768 22,597
========= ========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------------- ----------------------
2000 1999 2000 1999
---------- ----------- ----------- --------
(in thousands)
<S> <C> <C> <C> <C>
Net income............................................................. $ 772 $ 6,735 $ 3,932 $ 12,238
Other comprehensive (loss) income:
Unrealized (loss) gain on investment................................ (52) 627 (313) (2,090)
Tax effect.......................................................... 14 (227) 103 713
--------- ---------- --------- --------
(38) 400 (210) (1,377)
---------- --------- --------- --------
Comprehensive income................................................... $ 734 $ 7,135 $ 3,722 $ 10,861
========= ========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED MARCH 31, 2000
(Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
Accumulated
Common stock Other Additional
---------------------------- Comprehensive Paid-In
Shares Amount Loss Capital
------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, October 1, 1999.................. 24,385,279 $ 244 $ (1,764) $ 221,084
Treasury shares issued.................... (417)
Issuance of common stock.................. 51,964 355
Purchase of treasury stock................
Other comprehensive loss: (210)
Net unrealized loss on investment......
Cash dividends ($.066 per share)..........
Repayment of ESOP Loan....................
Net income................................
----------- --------- ----------- -----------
Balance, March 31, 2000................... 24,437,243 $ 244 $ (1,974) $ 221,022
=========== ========= =========== ===========
</TABLE>
[RESTUB]
<TABLE>
<CAPTION>
Treasury Stock ESOP Totals
---------------------------- Loan Retained Stockholders'
Shares Amount Receivable Earnings Equity
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, October 1, 1999.................. (1,071,432) $ (17,002) $ (1,488) $ 62,713 $ 263,787
Treasury shares issued.................... 18,286 631 214
Issuance of common stock.................. 355
Purchase of treasury stock................ (20,000) (136) (136)
Other comprehensive loss: (210)
Net unrealized loss on investment......
Cash dividends ($.066 per share).......... (1,558) (1,558)
Repayment of ESOP Loan.................... 48 48
Net income................................ 3,932 3,932
----------- ---------- --------- ---------- -----------
Balance, March 31, 2000................... (1,073,146) $ (16,507) $ (1,440) $ 65,087 $ 266,432
========== ========== ========= ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended March 31,
----------------------------
2000 1999
----------- ---------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................................ $ 3,932 $ 12,238
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization............................................... 5,099 2,626
Amortization of discount on senior debt and deferred finance costs..................... 562 556
Provision for possible losses.......................................................... 445 325
Minority interest in Atlas Pipeline Partners, L.P...................................... 360 -
Loss on disposal of subsidiary......................................................... 445 -
Income from operations of discontinued subsidiary...................................... (453) (26)
Gain on asset dispositions............................................................. (1,244) (3,546)
Property impairments and abandonments.................................................. 426 (14)
Deferred income taxes.................................................................. (4,182) (1,250)
Accretion of discount.................................................................. (2,488) (12,975)
Collection of interest................................................................. 6,414 7,370
Extraordinary gain on debt extinguishment.............................................. (197) (291)
Change in operating assets and liabilities:
Increase in accounts receivable and other assets....................................... (683) (957)
Increase (decrease) in accounts payable and other liabilities.......................... 1,817 (6,703)
----------- ------------
Net cash provided by (used in) operating activities of continuing operations.............. 10,253 (2,647)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of subsidiary.......................................................... - 3,556
Capital expenditures...................................................................... (7,951) (6,738)
Principal payments on notes receivable.................................................... 65,859 -
Proceeds from sale of assets.............................................................. 788 8,585
Increase in other assets.................................................................. (2,624) (1,125)
Investments in real estate loans and ventures............................................. (1,894) (85,167)
Net change in net assets of discontinued operations....................................... (14,470) -
Decrease in other liabilities............................................................. (228) (9,674)
----------- -----------
Net cash provided by (used in) investing activities of continuing operations.............. 39,480 (90,563)
CASH FLOWS FROM FINANCING ACTIVITIES:
Non-recourse borrowings................................................................... 61,647 132,806
Principal payments on non-recourse borrowings............................................. (135,108) (46,808)
Principal payments on other borrowings.................................................... (2,205) -
Dividends paid............................................................................ (1,558) (1,461)
Net proceeds from Atlas Pipeline Partners, L.P. public offering .......................... 14,042 -
Treasury stock purchased.................................................................. (136) -
Decrease in restricted cash............................................................... 32 -
Repayment of ESOP loan.................................................................... 48 23
Decrease in other assets.................................................................. - 458
Proceeds from issuance of stock........................................................... 570 846
----------- -----------
Net cash (used in) provided by financing activities of continuing operations.............. (62,668) 85,864
------------ -----------
Net cash used in discontinued operations.................................................. (10,488) (41,979)
------------ ------------
Decrease in cash and cash equivalents..................................................... (23,423) (49,325)
Cash and cash equivalents at beginning of period.......................................... 42,643 73,345
----------- -----------
Cash and cash equivalents at end of period................................................ $ 19,220 $ 24,020
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - MARCH 31, 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 second fiscal quarter and six months ended March 31, 1999 to
conform to the second fiscal quarter and six months ended March 31, 2000. In
addition, certain reclassifications have been made to the consolidated financial
statements for the second fiscal quarter and six months ended March 31, 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>
March 31, September 30,
2000 1999
---------- ----------
(Unaudited)
(in thousands)
<S> <C> <C>
Goodwill ............................................................................. $ 28,756 $ 43,255
Contracts acquired (including syndication network).................................... 17,936 18,636
Deferred financing costs.............................................................. 3,477 5,842
Net assets held for disposition....................................................... - 850
Other................................................................................. 3,067 1,670
--------- ---------
$ 53,236 $ 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 - MARCH 31, 2000 (Unaudited) -
(Continued)
NOTE 2 - Summary of Significant Accounting Policies - (Continued)
The following table provides information for financial instruments as
of March 31, 2000:
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
------------- ------------
(Unaudited)
(in thousands)
<S> <C> <C>
Real estate finance.......................................................... $ 25,875 $ 25,875
Energy....................................................................... 27,415 27,415
Senior debt.................................................................. 99,100 81,262
Other debt................................................................... 5,649 5,649
------------- ------------
$ 158,039 $ 140,201
============= ============
</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 six months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
--------------------------- ------------------
2000 1999 2000 1999
----------- ----------- ----------- --------
(Unaudited)
(in thousands, except share data)
<S> <C> <C> <C> <C>
Income from continuing operations before
extraordinary item................................ $ 1,303 $ 6,135 $ 3,727 $ 11,921
Income (loss) from discontinued operations................ (602) 600 8 26
Extraordinary gain on early extinguishment
of debt................................................ 71 - 197 291
----------- ----------- ----------- -----------
Net income........................................... $ 772 $ 6,735 $ 3,932 $ 12,238
=========== =========== =========== ===========
Basic weighted average shares of common
stock outstanding..................................... 23,110 22,020 23,350 21,944
Dilutive effect of stock option and
award plans .......................................... 410 636 418 653
----------- ----------- ----------- -----------
Dilutive weighted average shares of
common stock........................................... 23,520 22,656 23,768 22,597
=========== =========== =========== ===========
</TABLE>
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - MARCH 31, 2000 (Unaudited) -
(Continued)
NOTE 3 - Cash Flow Statements
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
Six Months Ended March 31,
--------------------------
2000 1999
---- ----
(Unaudited)
(in thousands)
<S> <C> <C>
Cash paid during the period for:
Interest.................................................................. $ 9,649 $ 9,614
Income taxes.............................................................. $ 5,834 $ 12,702
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........................................ $ - $ 4,436
=========== ===========
</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. The
Company anticipates that the business will be sold by September 30, 2000.
Accordingly, FLI is reported as a discontinued operation for the three and six
months ended March 31, 2000 and 1999. Net assets of FLI at March 31, 2000 were
$95.0 million and are summarized in the following table (Unaudited) (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Cash and cash equivalents............................................................................... $ 16,957
Investment in leases and notes receivable, net of $9,763 allowance...................................... 467,680
Net fixed assets........................................................................................ 3,592
Other assets............................................................................................ 25,709
Debt.................................................................................................... (402,152)
Accrued accounts payable and liabilities................................................................ (16,768)
-----------
Net assets of discontinued FLI operations............................................................... $ 95,018
===========
</TABLE>
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - MARCH 31, 2000 (Unaudited) -
(Continued)
NOTE 4 - Discontinued Operations - (Continued)
Summarized operating results of the discontinued FLI operation are as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
--------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited)
(in thousands)
<S> <C> <C> <C> <C>
Net revenues.............................................. $ 14,961 $ 10,740 $ 29,552 $ 14,386
=========== =========== =========== ===========
(Loss) income from operations before income
tax (provision) benefit................................ $ (268) $ 2,252 $ 775 $ 2,522
Income tax benefit (provision) ........................... 111 (935) (322) (1,047)
----------- ------------ ------------ -----------
(Loss) income from discontinued operations................ $ (157) $ 1,317 $ 453 $ 1,475
=========== =========== =========== ===========
</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 six months ended March 31, 2000 and 1999. Net assets of FMF at
March 31, 2000 were $2.5 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 Six Months Ended
March 31, March 31,
--------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited)
(in thousands)
<S> <C> <C> <C> <C>
Net revenues.............................................. $ 199 $ 443 $ 253 $ 1,298
=========== =========== =========== ===========
Loss from operations before income tax benefit............ $ - $ (1,075) $ - $ (2,173)
Income tax benefit........................................ - 358 - 724
----------- ----------- ----------- -----------
Loss from operations...................................... - (717) - (1,449)
Loss on disposal before income tax benefit................ (686) - (686) -
Income tax benefit........................................ 241 - 241 -
----------- ----------- ----------- -----------
Loss on disposal.......................................... (445) - (445) -
------------ ----------- ------------ -----------
Loss from discontinued operations......................... $ (445) $ (717) $ (445) $ (1,449)
============ ============ ============ ============
</TABLE>
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - MARCH 31, 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 $754,000 and $2.7 million during the three
months ended March 31, 2000 and 1999, respectively, and $2.5 million and $5.6
million during the six months ended March 31, 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 March 31, 2000, the Company held commercial mortgage loans having
aggregate face values of $700.3 million, which were being carried at aggregate
cost of $183.6 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 Six Months Ended
March 31, 2000 March 31, 2000
------------------ ----------------
(Unaudited)
(in thousands)
<S> <C> <C>
Commercial mortgage loan balance,
beginning of period............................................... $ 182,555 $ 250,231
Additions to existing loans.......................................... 505 1,894
Provision for possible losses........................................ (150) (300)
Accretion of discount (net of collection of interest)................ 754 2,488
Collection of principal.............................................. (63) (59,503)
Cost of loans sold................................................... (2) (11,211)
--------------- ----------------
Commercial mortgage loan balance, end of period...................... $ 183,599 $ 183,599
=============== ================
</TABLE>
A summary of activity in the Company's allowance for possible losses
related to real estate loans for the three and six months ended March 31, 2000
and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited)
(in thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period.............................. $ 1,555 $ 1,005 $ 1,405 $ 905
Provision for possible losses............................. 150 200 300 300
----------- ----------- ----------- -----------
Balance, end of period.................................... $ 1,705 $ 1,205 $ 1,705 $ 1,205
=========== =========== =========== ===========
</TABLE>
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - MARCH 31, 2000 (Unaudited) -
(Continued)
NOTE 6 - Debt
Debt at March 31, 2000 does not include the debt of the discontinued
operations of FLI, its small ticket leasing business (see Note 4).
<TABLE>
<CAPTION>
March 31, 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........................................... 27,415 44,975
------------ ------------
Total non-recourse debt................................................. 53,290 439,943
Senior debt.................................................................. 99,100 101,400
Other debt:
Equipment leasing
Term loans.............................................................. - 7,587
Seller financing........................................................ - 7,725
Corporate................................................................. 5,649 5,876
------------ ------------
Total other debt........................................................ 5,649 21,188
------------ ------------
$ 158,039 $ 577,822
============ ============
</TABLE>
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - MARCH 31, 2000 (Unaudited) -
(Continued)
NOTE 7 - Operating Segment Information
The Company operates in two principal industry segments - real estate
finance and energy. Corporate represents revenues, expenses and assets not
allocated to an industry segment. Segment data for the three and six months
ended March 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited)
(in thousands)
<S> <C> <C> <C> <C>
Revenues:
Real estate finance.................................... $ 3,763 $ 9,767 $ 10,414 $ 19,768
Energy................................................. 23,333 14,002 39,257 29,128
Corporate.............................................. 2,022 1,845 4,579 3,517
---------- ----------- ----------- -----------
$ 29,118 $ 25,614 $ 54,250 $ 52,413
========== =========== =========== ===========
Operating Profit (Loss):
Real estate finance.................................... $ 1,483 $ 7,439 $ 5,934 $ 15,920
Energy................................................. 3,159 4,020 4,677 6,488
Corporate.............................................. (2,726) (2,505) (5,131) (4,813)
--------- ----------- ----------- -----------
$ 1,916 $ 8,954 $ 5,480 $ 17,595
========= =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
----------- -------------
(Unaudited)
<S> <C> <C>
Identifiable Assets:
Real estate finance................................................................ $ 202,484 $ 273,922
Equipment leasing.................................................................. - 431,464
Energy............................................................................. 142,335 139,098
Corporate.......................................................................... 133,363 56,903
----------- -----------
$ 478,182 $ 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
corporate expenses.
NOTE 8 - Public Offering of Units by Partnership
In January 2000, the Company's natural gas gathering operations were
sold to a master limited partnership ("MLP"), which sold 1,500,000 common units
to the public. The Company received $14.0 million (after offering expenses) for
the gathering systems, and the MLP issued to the Company 1,641,026 subordinated
units constituting a 51% limited partner interest in the MLP. Because the
Company owns more than 50% of the MLP, the assets of the MLP are consolidated
with the Company and the common units sold to the public are shown as a minority
interest on the Company's consolidated balance sheet.
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. READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON THESE FORWARD LOOKING STATEMENTS WHICH SPEAK ONLY AS OF
THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE
RESULTS OF ANY REVISIONS TO FORWARD LOOKING STATEMENTS WHICH MAY BE MADE TO
REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE
OCCURRENCE OF UNANTICIPATED EVENTS.
Overview of Second Quarter of Fiscal 2000
The Company's gross revenues were $29.1 million in the second quarter
of fiscal 2000, an increase of $3.5 million (14%) from $25.6 million in the
second quarter of fiscal 1999. The increase in total revenues during the second
quarter of fiscal 2000 was primarily due to an increase of $9.3 million (67%)
in energy revenues to $23.3 million in the second quarter of fiscal 2000 as
compared to $14.0 million in the second quarter of fiscal 1999, partially offset
by a $6.0 million (61%) decrease, from $9.8 million in the second quarter of
fiscal 1999 to $3.8 million in the second quarter of fiscal 2000, in real estate
finance revenues. The increase in energy revenues was principally due to
increases of $6.1 million (75%) in well drilling revenues and $2.9 million
(120%) in production revenues in the second quarter of fiscal 2000 as compared
to the second quarter of fiscal 1999.
In February 2000, the Company adopted a plan to sell its small ticket
leasing business. The Company anticipates that the business will be sold by
September 30, 2000. As a result, the Company's consolidated statements of income
for continuing operations excludes leasing operations. The net effect of these
operations is, however, set forth in the consolidated statements of income under
discontinued operations. In addition, the assets and liabilities pertaining to
equipment leasing are not shown broadly on the Company's consolidated balance
sheet as of March 31, 2000; rather, they are shown on a net basis under net
assets of discontinued operations.
The Company's revenues from continuing operations, expressed as a
percentage of its total revenues from continuing operations, were distributed
across its operating segments as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- ------------------------
2000 1999 2000 1999
----------- ----------- ----------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Energy ..................................................... 80% 55% 72% 56%
Real estate finance......................................... 13% 38% 19% 38%
</TABLE>
The balance of the Company's revenues from continuing operations are
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 Second Quarter of Fiscal 2000 - (Continued)
As of March 31, 2000, total assets were $478.2 million, a decrease of
$423.2 million (47%) from assets of $901.4 million at September 30, 1999,
principally as a result of the classification of equipment leasing as a
discontinued operation. The Company's assets, expressed as a percentage of its
total assets, were distributed across its operating segments as follows:
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
-------------- --------------
(Unaudited)
<S> <C> <C>
Real estate finance..................................................................... 42% 30%
Equipment leasing....................................................................... - 48%
Energy ................................................................................. 30% 15%
</TABLE>
The balance of 28% at March 31, 2000 includes net assets of
discontinued operations of $97.5 million (20%) and other corporate assets not
attributable to a specific operating segment.
Results of Operations: Real Estate Finance
The following table sets forth certain information relating to the
revenue recognized and costs and expenses incurred in the Company's real estate
finance operations during the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited)
(in thousands)
<S> <C> <C> <C> <C>
Revenues:
Interest............................................. $ 2,617 $ 3,654 $ 6,414 $ 7,370
Accreted discount.................................... 754 2,659 2,488 5,605
Fees................................................. 248 3,440 265 4,409
Gains on sales of senior lien interests.............. - - - 2,370
Gains on sales of loans.............................. - - 984 -
Loan payments in excess of carrying values........... 8 14 81 14
Net rental income.................................... 136 - 182 -
----------- ----------- ----------- -----------
$ 3,763 $ 9,767 $ 10,414 $ 19,768
=========== =========== =========== ===========
Cost and Expenses...................................... $ 721 $ 1,174 $ 1,455 $ 1,652
=========== =========== =========== ===========
</TABLE>
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. - (Continued)
Results of Operations: Real Estate Finance - (Continued)
Revenues from real estate finance operations decreased to $3.8 million
and $10.4 million in the second fiscal quarter and six months ended March 31,
2000, a decrease of $6.0 million (61%) and $9.4 million (47%) from $9.8 million
and $19.8 million in the second fiscal quarter and six months ended March 31,
1999. The decrease was attributable to the following:
(i) A decrease of $2.9 million (47%) and $4.1 million (31%) in
interest income in the fiscal quarter and six months ended
March 31, 2000, respectively, as compared to the prior year,
including a decrease of $1.9 million and $3.1 million of
accretion of discount in the same respective periods. The
decrease in interest income was caused primarily by the
repayment of one loan in the third fiscal quarter of 1999, the
repayment of another loan in the first fiscal quarter of 2000,
and by the cessation of accretion for two loans in the quarter
ended March 31, 2000. The average accretion rate (accreted
discount divided by the book value of average loan balances)
on commercial mortgage loans held decreased to 2% in the
quarter ended March 31, 2000 as compared to 5% in the quarter
ended March 31, 1999.
(ii) A decrease of $3.2 million (93%) and $4.1 million (94%) in fee
income during the quarter and six months ended March 31, 2000
as compared to the prior year. This decrease was the result
primarily of a one-time fee of $3.4 million earned in the
second 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 the
Company's loans. No comparable fees were earned during the
quarter ended March 31, 2000.
(iii) A decrease of $2.4 million in gains from sales of senior lien
interests. The Company sold senior lien interests in two loans
in the six months ended March 31, 1999 resulting in proceeds
of $5.7 million; no such gains were recognized in the quarter
ended March 31, 2000. As set forth in the Company's Annual
Report on Form 10-K for fiscal 1999, the Company made a
strategic decision effective January 1, 1999 to structure most
future senior lien transactions as financings rather than
sales.
During the six months ended March 31, 2000, the Company acquired no
loans as compared to the purchase and origination of three loans for a cost of
$79.9 million during the six months ended March 31, 1999.
As a consequence of the foregoing, the Company's 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% and 10% in the second fiscal quarter and
six months ended March 31, 2000 as compared to the 17% in both the second fiscal
quarter and six months ended March 31, 1999.
Costs and expenses of the Company's real estate finance operations were
$721,000 and $1.5 million in the second fiscal quarter and six months ended
March 31, 2000, a decrease of $453,000 (39%) and $197,000 (12%) from $1.2
million and $1.7 million in the same periods of the prior year due to a decrease
in personnel and compensation to existing employees.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. - (Continued)
Results of Operations: Energy
On August 31, 1999, the Company 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 six months
ended March 31, 2000 are not comparable to the similar period of the prior year.
The following table sets forth certain 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 the Company's energy operations during
the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited)
(in thousands, except sales price information)
<S> <C> <C> <C> <C>
Revenues:
Production............................................ $ 5,266 $ 2,410 $ 10,727 $ 4,930
Well drilling......................................... 14,388 8,240 21,542 18,641
Well services......................................... 3,679 2,201 6,988 4,406
Gain on sales of assets............................... - 1,151 - 1,151
----------- ----------- ----------- -----------
$ 23,333 $ 14,002 $ 39,257 $ 29,128
=========== =========== =========== ===========
Costs and Expenses:
Exploration and production............................ $ 1,964 $ 948 $ 4,347 $ 2,270
Well drilling......................................... 11,797 6,562 19,216 15,875
Well services......................................... 3,139 480 4,793 1,191
----------- ----------- ----------- -----------
$ 16,900 $ 7,990 $ 28,356 $ 19,336
=========== =========== =========== ===========
Production Revenues:
Gas................................................... $ 4,351 $ 2,198 $ 8,766 $ 4,487
Oil................................................... $ 893 $ 200 $ 1,918 $ 372
Production volumes:
Gas (thousands of cubic feet ("mcf")/day) (1)......... 18,057 10,584 17,348 10,553
Oil (barrels (`bbls")/day)............................ 483 223 512 188
Average sales price:
Gas (per mcf)......................................... $ 2.92 $ 2.31 $ 2.90 $ 2.34
Oil (per bbl)......................................... $ 24.66 $ 9.95 $ 22.49 $ 10.86
</TABLE>
- -----------------------------
(1) Excludes sales of residual gas and sales to landowners.
Natural gas revenues were $4.4 million and $8.8 million in the second
fiscal quarter and six months ended March 31, 2000, an increase of $2.2 million
(98%) and $4.3 million (95%) from $2.2 million and $4.5 million in the second
fiscal quarter and six months ended March 31, 1999 due to a 71% and 64% increase
in production volumes and a 26% and 24% increase in the average sales price of
natural gas. Oil revenues were $893,000 and $1.9 million in the second fiscal
quarter and six months ended March 31, 2000, an increase of $693,000 (47%) and
$1.5 million (416%) from $200,000 and $372,000 in the second fiscal quarter and
six months ended March 31, 1999, due to a 117% and 172% increase in production
volumes and a 148% and 107% increase in the average sales price of oil during
the second fiscal quarter and six months ended March 31, 2000 and 1999,
respectively. Both gas and oil volumes continued to be favorably impacted by the
acquisition of The Atlas Group, Inc. at the end of fiscal 1998 and Viking in
August 1999.
18
<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
$3.0 million and $6.2 million for the second quarter and first six months of
fiscal 2000, resulting in an overall increase of $2.4 million (25%) and $1.4
million (30%) compared to the second quarter and first six months of fiscal
1999. Average daily gas production volumes would have been 11,404 mcf and 11,532
mcf for the second quarter and first six months of fiscal 2000, a 6% and 8%
increase compared to the second quarter and first six months of fiscal 1999. Oil
production revenues would have been $336,000 and $652,000 for the second quarter
and first six months of fiscal 2000, resulting in an overall increase of
$148,000 (79%) and $292,000 (81%) compared to the second quarter and first six
months of fiscal 1999. Average daily oil production volumes would have been 145
barrels and 160 barrels for the second quarter and first six months of fiscal
2000, a 30% and 11% decrease compared to the second quarter and first six months
of fiscal 1999.
Well drilling revenues and expenses in the second fiscal quarter and
six months ended March 31, 2000 represent the billings and costs associated with
the completion of 78 and 115 wells for partnerships sponsored by Atlas America,
Inc. and Viking in the second quarter and first six months of fiscal 2000 as
compared to 39 and 92 wells in the second quarter and first six months ended of
fiscal 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 $120,000 and $634,000)
increased $1.3 million (143%) and $2.2 million (110%) to $1.8 million and $3.7
million in the second fiscal quarter and six months ended March 31, 2000, as
compared to the same periods in the prior year, as a result of the acquisition
of the interests in producing properties referred to above.
Amortization of oil and gas properties as a percentage of oil and gas
production revenues was 25% for the second fiscal quarter and 26% for the six
months ended March 31, 2000 compared to 25% in both the second fiscal quarter
and six months ended March 31, 1999. The variance from period to period is
directly attributable to changes in the Company's oil and gas reserve
quantities, product prices and fluctuations in the depletable cost basis of oil
and gas.
Results of Operations: Other Revenues, Costs and Expenses
Interest and other income was $2.0 million and $4.6 million in the
second fiscal quarter and six months ended March 31, 2000, an increase of
$177,000 (10%) and $1.1 million (30%) as compared to $1.8 million and $3.5
million during the second fiscal quarter and six months ended March 31, 1999.
The increase for the six months ended March 31, 2000 as compared to the six
months ended March 31, 1999 is primarily attributable to an increase in
intercompany interest on increased borrowing related to the Company's
discontinued small ticket equipment leasing subsidiary.
General and administrative expenses were $2.0 million and $3.8 million
in the second fiscal quarter and six months ended March 31, 2000, an increase of
$35,000 (2%) and $896,000 (30%) as compared to the second fiscal quarter and six
months ended March 31, 1999, primarily as a result of hiring additional
corporate staff, increases in compensation, an increase in accrued pension
benefits and an increase in occupancy costs as the Company leased additional
office space to accommodate its larger staff.
Depreciation, depletion and amortization expense was $2.5 million and
$5.1 million in the second fiscal quarter and six months ended March 31, 2000,
an increase of $1.2 million (91%) and $2.5 million (94%) as compared to $1.3
million and $2.6 million for the second fiscal quarter and six months ended
March 31, 1999. These increases primarily resulted from the acquisition of
Viking as described above.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. - (Continued)
Results of Operations: Other Revenues, Costs and Expenses - (Continued)
Interest expense was $4.5 million and $9.2 million in the second fiscal
quarter and six months ended March 31, 2000 an increase of $465,000 (12%) and
$1.3 million (16%) as compared to $4.0 million and $7.9 million during the
second fiscal quarter and six months ended March 31, 1999. These increases are
primarily due to increased average borrowings outstanding from the Company's
credit facilities and higher interest rates as compared to the prior year
period.
Provision for possible losses was $225,000 and $445,000 for the second
fiscal quarter and six months ended March 31, 2000 an increase of $12,000 (6%)
and $120,000 (37%), as compared to $213,000 and $325,000 in the second fiscal
quarter and six months ended March 31, 1999.
The effective tax rate increased to 32% in the second fiscal quarter
ended March 31, 2000 from 31% in the second fiscal quarter ended March 31, 1999.
Liquidity and Capital Resources
Liquidity. During the six months ended March 31, 2000, the principal
sources of liquidity for the Company's continuing operations were:
o cash from continuing operations,
o sales of real estate loans and properties owned which resulted
in net proceeds of approximately $13.0 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 the Company 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 the Company and in
which the Company is a limited partner. For the period, the Company's cash flows
from continuing operations were positive. As a consequence, the Company believes
that liquidity for its continuing operations is adequate.
Liquidity for the Company's discontinued operation, equipment leasing,
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, the Company advanced
approximately $11.0 million of cash to this operation, all of which remains
outstanding. Following that advance, the Company's equipment leasing operation
has required only temporary cash advances from the Company, all of which have
been repaid. The Company anticipates that, other than temporary advances similar
to those previously extended, its equipment leasing operation will not require
the commitment of significant funds before its anticipated disposition.
20
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. - (Continued)
Liquidity and Capital Resources - (Continued)
Capital Resources. The Company has historically derived its capital
resources 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, with respect to equipment leasing, warehouse
credit facilities and commercial paper and term loan securitizations. As a
result of the continued depressed price of the Company's common stock, the
Company does not believe it will be able to obtain additional capital resources
from public or private securities markets on acceptable terms. Moreover, since
the Company did not acquire any real estate loans during the period, it does not
anticipate generating material capital resources from senior lien financing of
real estate loans except for approximately $8.0 million of senior lien financing
involving loans currently in its portfolio that is under negotiation. There can
be no assurance that such financing will ultimately be obtained or as to its
timing. As a consequence, the Company believes that its principal sources of
capital resources for the remainder of fiscal 2000 will be its existing lines of
credit, which currently have $5.4 million of funds availability, and the
proceeds of the anticipated disposition of its equipment leasing operation.
There can be no assurance, however, that the disposition will be consummated, or
as to the timing or amount of net proceeds of any such disposition. As a
consequence, since the Company believes that its future growth and earnings will
depend upon its ability to generate material amounts of capital resources, the
Company's ability to generate growth in its continuing real estate finance and
energy operations may be restricted, which could materially affect the Company's
earnings potential.
Sources and Uses of Cash. Sources and (uses) of cash for the six month
periods ended March 31, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
Six Months Ended March 31,
---------------------------------------
2000 1999
----------- -------------
(Unaudited)
(in thousands)
<S> <C> <C>
Provided by (used in) operations........................................... $ 10,253 $ (2,647)
Provided by (used in) investing activities................................. 39,480 (90,563)
(Used in) provided by financing activities................................. (62,668) 85,864
Used in discontinued operations............................................ (10,488) (41,979)
----------- ------------
Decrease in cash and cash equivalents................................... $ (23,423) $ (49,325)
=========== ============
</TABLE>
The Company had $19.2 million in cash and cash equivalents on hand at
March 31, 2000, as compared to $42.6 million at September 30, 1999, which
included cash of the discontinued small ticket equipment leasing business of
$10.1 million. The Company's ratio of earnings to fixed charges was 1.51 to 1 in
the second fiscal quarter ended March 31, 2000 as compared to 2.16 to 1 in the
second fiscal quarter ended March 31, 1999.
The Company's net cash provided by operating activities in the first
six months of fiscal 2000 was $10.3 million whereas net cash used in operating
activities was $2.6 million in the first six months of fiscal 1999, a net
increase of $12.9 million, primarily as a result of the following:
o an $8.8 million increase in net working capital and
o an increase of $2.5 million in depreciation, depletion and
amortization
o a $9.5 million increase in interest collection net of
accretion of discount, partially offset by
o a $2.9 million decrease in deferred taxes.
21
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. - (Continued)
Liquidity and Capital Resources - (Continued)
The Company's net cash provided by investing activities was $39.5
million for the six months ended March 31, 2000 as compared to net cash used in
investing activities of $90.6 million for the six months ended March 31, 1999, a
net increase of $130.1 million. The change was primarily a result of the
following:
o In energy, cash used increased $4.8 million as a result of a
$2.0 million increase in capital expenditures and other
assets, coupled with a $2.8 million decrease in proceeds from
asset sales.
o In real estate finance, there was $65.9 million in principal
payments received in the six months ended March 31, 2000
compared to $0 in the six months ended March 31, 1999. In
addition, the Company invested $1.9 million in real estate
loans and ventures for the six months ended March 31, 2000 as
compared to $85.2 million for the six months ended March 31,
1999. This was offset by $788,000 in proceeds from loan sales
for the six months ended March 31, 2000 as compared to the
$8.6 million for the six months ended March 31, 1999.
The Company's net cash used in financing activities was $62.7 million
for the six months ended March 31, 2000 as compared to net cash provided by
financing activities of $85.9 million for the six months ended March 31, 1999.
The net decrease was $148.6 million and was primarily attributable to the
following:
o $75.7 million of payments on the Company's net borrowings for
the six months ended March 31, 2000
o $86.0 million of additional net borrowings for the six months
ended March 31, 1999
o $14.0 million of net proceeds from the sale of gathering
systems to Atlas Pipeline Partners, L.P. during the six months
ended March 31, 2000
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General. During the six months ended March 31, 2000, the Company's
loans receivable did not undergo material change other than changes resulting
from normally recurring debt service payments received and the sale of two
loans. The Company's debt generally did not undergo material change other than
changes resulting from normally recurring debt service payments, except that
interest rates on two loans payable were increased as a result of increases in
market interest rates; the credit limit and amount drawn, under one of the
Company's real estate lines of credit was increased; and the revolving loan
attributed to the Company's energy operations was paid down in part. The Company
believes that the net effect on its interest expense of the changes in rate was
not material.
Real Estate. During the six months ended March 31, 2000, the Company's
outstanding loans receivable balance decreased $12.2 million (4.9%) to $238.3
million in the aggregate, its carried cost of loans decreased $9.4 million
(6.6%) to $134.6 million in the aggregate and the principal balance of related
senior lien interests decreased $16.4 million (6.0%) to $254.0 million in the
aggregate. These decreases were principally attributable to the sale of two
loans during the first quarter of fiscal 2000.
There are two loans held in the Company's portfolio at March 31, 2000
that may be deemed to be interest rate sensitive. The senior lien interest (in
the amount of $60.0 million) underlying one of the loans was restructured to
become a direct obligation of the partnership owning the property rather than of
the Company's real estate subsidiary. In addition, the interest rates payable
with respect to the senior lien interests underlying both interest rate
sensitive loans increased from 8.25% and 7.875%, respectively, at September 30,
1999 to 8.75% and 8.50%, respectively, at March 31, 2000. The senior lien
interests have caps of 9.0% and 8.875%, respectively at March 31, 2000. The rate
increases resulted from an increase in the LIBOR rate, to which the interest
rates payable with respect to the senior lien interests are linked.
22
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - (Continued)
The maximum amount of one of the Company's real estate revolving lines
of credit was increased during the three months ended March 31, 2000 to $18.0
million from $15.0 million at September 30, 1999. In addition, the interest rate
on both of the Company's real estate lines of credit was 9.00% at March 31,
2000, an increase of 75 basis points from September 30, 1999. The interest rate
increase was due to the increase of the prime rate, to which the interest rates
of the lines of credit are linked. The Company drew down the additional $3.0
million made available under the $18.0 million line of credit during the period
and used the proceeds for general business purposes.
Energy. During the three months ended March 31, 2000, the amount
outstanding under a revolving loan attributable to the Company's energy business
was reduced as a result of the sale of gathering systems of the Company's energy
subsidiaries to Atlas Pipeline Partners, L.P. ("APL") in connection with APL's
initial public offering. The loan balance as of September 30, 1999 was $45.0
million and the balance as of March 31, 2000 was $27.4 million. The weighted
average interest rate for this facility increased from 7.87% at September 30,
1999 to 8.38% at March 31, 2000, due to an increase in lending rates.
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
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RESOURCE AMERICA, INC.
(Registrant)
Date: May 15, 2000 By: /s/ Steven J. Kessler
------------ ---------------------
STEVEN J. KESSLER
Senior Vice President and
Chief Financial Officer
Date: May 15, 2000 By: /s/ Nancy J. McGurk
------------ -------------------
NANCY J. McGURK
Vice President-Finance and
Chief Accounting Officer
23
