UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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)
Registrant's telephone number, including area code: (215) 546-5005
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:
17,454,902 Shares February 9, 2001
RESOURCE AMERICA, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - December 31, 2000 (Unaudited)
and September 30, 2000............................................. 3
Consolidated Statements of Income (Unaudited) Three Months Ended
December 31, 2000 and 1999......................................... 4
Consolidated Statements of Comprehensive Income (Unaudited) Three
Months Ended December 31, 2000 and 1999............................ 5
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited) Three Months Ended December 31, 2000................... 6
Consolidated Statements of Cash Flows (Unaudited) Three Months
Ended December 31, 2000 and 1999................................... 7
Notes to Consolidated Financial Statements (Unaudited)
December 31, 2000............................................... 8-14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 15-20
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......... 21
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................... 22
SIGNATURES................................................................... 23
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RESOURCE AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, September 30,
2000 2000
---------------- ---------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 61,929 $ 117,107
Accounts and notes receivable........................................................ 8,502 9,481
Prepaid expenses..................................................................... 851 2,531
----------- -----------
Total current assets............................................................. 71,282 129,119
Investments in real estate loans (less allowance for possible losses of $2,079 and $2,013) 185,066 183,927
Investments in real estate ventures..................................................... 17,579 17,723
Investment in RAIT Investment Trust..................................................... 10,299 10,533
Property and equipment:
Oil and gas properties and equipment (successful efforts)............................ 88,642 86,028
Gas gathering and transmission facilities............................................ 19,003 18,775
Other................................................................................ 7,084 7,037
----------- -----------
114,729 111,840
Less - accumulated depreciation, depletion and amortization............................. (28,894) (26,977)
----------- -----------
Net property and equipment........................................................... 85,835 84,863
Net assets of discontinued operations................................................... - 779
Other assets (less accumulated amortization of $9,317 and $8,641)....................... 74,892 76,195
----------- -----------
Total assets..................................................................... $ 444,953 $ 503,139
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................................................... $ 7,050 $ 7,250
Accounts payable..................................................................... 3,935 5,625
Accrued interest..................................................................... 4,524 1,966
Accrued liabilities.................................................................. 27,163 26,768
Estimated income taxes............................................................... 1,388 7,470
----------- -----------
Total current liabilities........................................................ 44,060 49,079
Long-term debt:
Senior............................................................................... 75,391 80,391
Non-recourse......................................................................... 42,167 42,040
Other................................................................................ 10,305 5,251
----------- -----------
127,863 127,682
Deferred revenue and other liabilities.................................................. 9,389 7,676
Deferred income taxes................................................................... 19,994 19,567
Minority interest....................................................................... 18,144 17,920
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........................... 248 246
Additional paid-in capital........................................................... 221,603 221,361
Less treasury stock, at cost......................................................... (73,764) (15,778)
Less loan receivable from Employee Stock Ownership Plan ("ESOP")..................... (1,385) (1,393)
Accumulated other comprehensive loss................................................. (1,653) (974)
Retained earnings.................................................................... 80,454 77,753
----------- -----------
Total stockholders' equity....................................................... 225,503 281,215
----------- -----------
Total liabilities and stockholders' equity....................................... $ 444,953 $ 503,139
=========== ===========
See accompanying notes to consolidated financial statements
3
RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share data)
Three Months Ended
December 31,
------------------------------
2000 1999
----------- -----------
REVENUES
Energy.................................................................................... $ 21,465 $ 15,760
Real estate finance....................................................................... 3,837 6,651
Interest and other........................................................................ 1,902 2,558
----------- -----------
27,204 24,969
COSTS AND EXPENSES
Energy.................................................................................... 12,004 11,292
Real estate finance....................................................................... 390 734
General and administrative................................................................ 1,202 1,850
Depreciation, depletion and amortization.................................................. 2,634 2,554
Interest.................................................................................. 4,027 4,755
Provision for possible losses............................................................. 506 150
Minority interest in Atlas Pipeline Partners, L.P......................................... 1,019 -
Equity in loss of unconsolidated affiliate................................................ 520 -
----------- -----------
22,302 21,335
----------- -----------
Income from continuing operations before income taxes and extraordinary item................. 4,902 3,634
Provision for income taxes................................................................ 1,750 1,159
----------- -----------
Income from continuing operations before extraordinary item............................... 3,152 2,475
Discontinued operations:
Income from operations of subsidiary................................................... - 610
Loss on disposal of subsidiary......................................................... - (48)
----------- -----------
3,152 3,037
Extraordinary item, net of taxes of $78 and $63........................................... 158 122
----------- -----------
Net income................................................................................ $ 3,310 $ 3,159
=========== ===========
Net income per common share - basic:
From continuing operations............................................................. $ .16 $ .11
Discontinued operations................................................................ - .02
Extraordinary item..................................................................... .01 .01
----------- -----------
Net income per common share - basic....................................................... $ .17 $ .14
=========== ===========
Weighted average common shares outstanding................................................ 19,439 23,318
=========== ===========
Net income per common share - diluted:
From continuing operations............................................................. $ .16 $ .10
Discontinued operations................................................................ - .02
Extraordinary item..................................................................... .01 .01
----------- -----------
Net income per common share - diluted..................................................... $ .17 $ .13
=========== ===========
Weighted average common shares............................................................ 19,821 23,742
=========== ===========
See accompanying notes to consolidated financial statements
4
RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands)
Three Months Ended
December 31,
------------------------------
2000 1999
----------- -----------
Net income................................................................................ $ 3,310 $ 3,159
Other comprehensive loss:
Unrealized loss on investment, net of taxes of $80 and $89............................. (154) (172)
Unrealized loss on natural gas futures contracts, net of taxes of $44.................. (79) -
----------- -----------
(233) (172)
----------- -----------
Comprehensive income...................................................................... $ 3,077 $ 2,987
=========== ===========
See accompanying notes to consolidated financial statements
5
RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED DECEMBER 31, 2000
(Unaudited)
(in thousands, except share data)
Common stock Additional Treasury Stock ESOP
--------------------------- Paid-In ----------------------------- Stockholders'
Shares Amount Capital Shares Amount Receivable
--------------------------------------------------------------------------------------
Balance, October 1, 2000.................. 24,621,962 $ 246 $ 221,361 (1,029,982) $ (15,778) $ (1,393)
Cumulative effect adjustment for adoption
of SFAS 133 (Note 6)......................
Treasury shares issued.................... (110) 8,760 184
Issuance of common stock.................. 131,520 2 352
Purchase of treasury shares............... (6,418,547) (58,170)
Other comprehensive loss..................
Cash dividends ($.033 per share)..........
Repayment of ESOP Loan.................... 8
Net income................................
-------------------------------------------------------------------------------
Balance, December 31, 2000................ 24,753,482 $ 248 $ 221,603 (7,439,769) $ (73,764) $ (1,385)
========== ========= ========= =========== =========== ==========
[RESTUBBED TABLE]
Accumulated
Other Totals
Comprehensive Retained Stockholders'
Income (Loss) Earnings Equity
---------------------------------------------
Balance, October 1, 2000.................. $ (974) $ 77,753 $ 281,215
Cumulative effect adjustment for adoption
of SFAS 133 (Note 6)...................... (446) (446)
Treasury shares issued.................... 74
Issuance of common stock.................. 354
Purchase of treasury shares............... (58,170)
Other comprehensive loss.................. (233) (233)
Cash dividends ($.033 per share).......... (609) (609)
Repayment of ESOP Loan.................... 8
Net income................................ 3,310 3,310
------------------------------------------
Balance, December 31, 2000................ $ (1,653) $ 80,454 $ 225,503
============= ========== ===========
See accompanying notes to consolidated financial statements
6
RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
December 31,
------------------------------
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................................ $ 3,310 $ 3,159
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization............................................... 2,634 2,554
Amortization of discount on senior notes and deferred finance costs.................... 222 281
Provision for possible losses.......................................................... 506 150
Minority interest in Atlas Pipeline Partners, L.P...................................... 1,019 -
Equity in loss of unconsolidated subsidiary............................................ 520 -
Non-cash compensation.................................................................. 95 78
Income from operations of discontinued subsidiary...................................... - (562)
Deferred income taxes.................................................................. 427 (599)
Accretion of discount.................................................................. (1,669) (1,734)
Collection of interest................................................................. 628 3,286
Extraordinary gain on debt extinguishment.............................................. (158) (122)
Loss (gain) on asset dispositions...................................................... 1 (976)
Property impairments and abandonments.................................................. 6 381
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable and other assets............................ 1,392 (6,349)
Increase in accounts payable and other liabilities..................................... 1,588 11,386
----------- -----------
Net cash provided by operating activities of continuing operations........................ 10,521 10,933
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in net assets of discontinued subsidiary....................................... - (13,930)
Capital expenditures...................................................................... (1,919) (2,057)
Principal payments on notes receivable.................................................... 1,811 68,841
Proceeds from sale of assets.............................................................. 6 44
Increase in other assets.................................................................. (45) (1,899)
Investments in real estate loans and ventures............................................. (608) (1,389)
(Decrease) increase in other liabilities.................................................. (14) 107
----------- -----------
Net cash (used in) provided by investing activities of continuing operations.............. (769) 49,717
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings................................................................................ 13,977 31,925
Principal payments on borrowings.......................................................... (20,471) (97,724)
Dividends paid............................................................................ (609) (778)
Repayment of ESOP loan.................................................................... 8 8
Treasury shares purchased................................................................. (58,170) -
Changes in other assets................................................................... 3 -
Proceeds from issuance of stock........................................................... 332 -
----------- -----------
Net cash used in financing activities of continuing operations............................ (64,930) (66,569)
----------- -----------
Net cash provided by discontinued operations.............................................. - 1,002
----------- -----------
Decrease in cash and cash equivalents..................................................... (55,178) (4,917)
Cash and cash equivalents at beginning of period.......................................... 117,107 32,504
----------- -----------
Cash and cash equivalents at end of period................................................ $ 61,929 $ 27,587
=========== ===========
See accompanying notes to consolidated financial statements
7
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 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 period included herein have been made.
Certain reclassifications have been made to the consolidated financial
statements for the first quarter ended December 31, 1999 to conform with the
first quarter ended December 31, 2000. In addition, certain reclassifications
have been made to the consolidated financial statements for the first quarter
ended December 31, 1999 to reflect discontinued operations.
The accounting policies followed by the Company 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, 2000.
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), investments, lease receivables 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 (in thousands):
December 31, September 30,
2000 2000
------------ -------------
(Unaudited)
Contracts acquired (including syndication network).................................... $ 17,022 $ 17,378
Goodwill.............................................................................. 28,161 28,484
Deferred financing costs.............................................................. 2,282 2,533
Investments........................................................................... 7,605 8,581
Note and escrow received upon disposal of subsidiary
(net of allowance for possible losses of $8,827 and $8,944)........................ 14,692 16,080
Other (net of allowance for possible losses of $677).................................. 5,130 3,139
----------- -----------
$ 74,892 $ 76,195
=========== ===========
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.
8
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 2000
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
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.
The following table provides information about other financial
instruments as of December 31, 2000:
Carrying Estimated
Amount Fair Value
------ ----------
(in thousands)
Energy debt.......................................................................... $ 23,292 $ 23,292
Real estate finance debt............................................................. 25,675 25,675
Senior debt.......................................................................... 75,391 71,621
Other debt........................................................................... 10,555 10,555
----------- -----------
$ 134,913 $ 131,143
=========== ===========
Earnings Per Share
The following table presents a reconciliation of the components used in
the computation of net income per common share-basic and net income per common
share-diluted for the three months ended December 31, 2000 and 1999:
The computations of basic and diluted earnings per share for each
period were as follows:
Three Months Ended
December 31,
-----------------------------
2000 1999
----------- -----------
(in thousands)
Income from continuing operations before extraordinary item........................... $ 3,152 $ 2,475
Income from discontinued operations................................................... - 562
Extraordinary gain on early extinguishment of debt.................................... 158 122
----------- -----------
Net income............................................................................ $ 3,310 $ 3,159
=========== ===========
Basic average shares of common stock outstanding...................................... 19,439 23,318
Dilutive effect of stock option and award plans....................................... 382 424
----------- -----------
Dilutive average shares of common stockholders........................................ 19,821 23,742
=========== ===========
9
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 2000
(Unaudited)
NOTE 3 - CASH FLOW STATEMENTS
The Company considers temporary investments with a maturity at the date
of acquisition of 90 days or less to be cash equivalents.
Supplemental disclosure of cash flow information:
Three Months Ended
December 31,
----------------------------
2000 1999
----------- -----------
(in thousands)
Cash paid during the period for:
Interest....................................... $ 1,247 $ 2,638
Income taxes................................... 7,000 482
NOTE 4 - INVESTMENTS IN REAL ESTATE LOANS
The Company primarily focuses its real estate activities on managing
its existing real estate loan portfolio. These real estate loans generally were
acquired at discounts from both their face value and the appraised value of the
properties underlying the loans. The Company records as income the accretion of
a portion of the difference between its cost basis in a real estate loan and the
sum of projected cash flows therefrom. Cash received by the Company for payment
on each real estate loan is allocated between principal and interest. This
accretion of discount amounted to $1.7 million during the three months ended
December 31, 2000 and 1999. As the Company sells senior lien interests or
receives funds from refinancings in 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 December 31, 2000, the Company held real estate loans having an
aggregate face value of $692.4 million, which were being carried at an
aggregate cost of $185.1 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.
Three Months Ended
December 31,
-----------------------------
2000 1999
----------- -----------
(in thousands)
Balance, beginning of period.......................................................... $ 183,927 $ 250,231
Additions to existing loans........................................................... 608 1,389
Provision for possible losses......................................................... (150) (150)
Accretion of discount (net of collection of interest)................................. 1,669 1,734
Collections of principal.............................................................. (988) (59,440)
Cost of loans sold.................................................................... - (11,209)
----------- -----------
Balance, end of period................................................................ $ 185,066 $ 182,555
=========== ===========
10
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 2000
(Unaudited)
NOTE 4 - INVESTMENTS IN REAL ESTATE LOANS - (Continued)
The following is a summary of activity in the Company's allowance for
possible losses related to real estate loans for the three months ended December
31, 2000 and 1999:
Three Months Ended
December 31,
-----------------------------
2000 1999
----------- -----------
(in thousands)
Balance, beginning of period..................... $ 2,013 $ 1,405
Provision for possible losses.................... 150 150
Write-down....................................... (84) -
---------- -----------
Balance, end of period........................... $ 2,079 $ 1,555
========== ===========
NOTE 5 - DEBT
Total debt consists of the following:
December 31, September 30,
2000 2000
------------ -------------
(in thousands)
Senior debt..................................... $ 75,391 $ 80,391
Non recourse debt:
Energy:
Revolving and term bank loans.............. 23,292 23,165
Real estate finance:
Revolving credit facilities................ 18,000 18,000
Other...................................... 875 875
---------- -----------
Total non recourse debt................ 42,167 42,040
Other debt...................................... 17,355 12,501
---------- -----------
134,913 134,932
Less current maturities......................... 7,050 7,250
---------- -----------
$ 127,863 $ 127,682
========== ===========
11
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 2000
(Unaudited)
NOTE 6 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company, through its energy subsidiaries, enters into natural gas
futures and option contracts to hedge its exposure to changes in natural gas
prices. At any point in time, such contracts may include regulated New York
Mercantile Exchange ("NYMEX") futures and options contracts and non-regulated
over-the-counter futures contracts with qualified counterparties. NYMEX
contracts are generally settled with offsetting positions, but may be settled by
delivery of natural gas.
Effective October 1, 2000, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (as amended by SFAS 138). This statement establishes
accounting and reporting standards for derivative instruments and hedging
activities. The statement requires that all derivative financial instruments be
recognized in the financial statements as either assets or liabilities measured
at fair value. Changes in the fair value of derivative financial instruments are
recognized in income or other comprehensive income, depending on their
classification.
On the date a contract is entered into, the Company designates the
derivative as a cash flow hedge or a fair value hedge. As these contracts
qualify and have been classified as effective cash flow hedges under SFAS 133,
the change in fair value on the contracts is recorded in other comprehensive
income and subsequently recognized in income in the month the gas being hedged
is sold.
As of October 1, 2000, an unrecognized loss of $446,000 (net of taxes
of $248,000) related to contracts for future gas sales was recorded in
stockholders' equity as a cumulative effect adjustment for adoption of SFAS 133.
At December 31, 2000, the Company had 48 open natural gas futures contracts
related to natural gas sales covering 129,600 dekatherms ("Dth") (net to the
Company) maturing through August 2001. The unrealized loss on these contracts
was approximately $430,000 and has been recorded as a liability in the December
31, 2000 balance sheet. As of December 31, 2000, an unrecognized loss of
$525,000 (net of taxes of $292,000) related to contracts for future gas sales is
recorded in stockholders' equity as a component of other comprehensive income.
12
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 2000
(Unaudited)
NOTE 7 - DISCONTINUED OPERATIONS
In August 2000 the Company sold its small ticket equipment leasing
business, Fidelity Leasing, Inc. ("FLI"). Accordingly, FLI is reported as a
discontinued operation for the quarter ended December 31, 1999.
Summarized operating results of the discontinued FLI operation are as
follows:
Three Months Ended
December 31,
-----------------------------
2000 1999
----------- -----------
(in thousands)
Net revenues................................................. $ - $ 14,044
=========== ===========
Income from operations before income tax provision........... $ - $ 1,043
Provision for income taxes................................... - (433)
----------- -----------
Income from discontinued operations.......................... $ - $ 610
=========== ===========
In November 2000, the Company disposed of Fidelity Mortgage Funding,
Inc. ("FMF"), its residential mortgage lending business. Accordingly, FMF is
reported as a discontinued operation for the quarter ended December 31, 1999.
Summarized operating results of the discontinued FMF operation are as
follows:
Three Months Ended
December 31,
-----------------------------
2000 1999
----------- -----------
(in thousands)
Net revenues................................................. $ - $ 199
=========== ===========
Loss on disposal before income tax benefit................... - (70)
Income tax benefit........................................... - 22
----------- -----------
Loss on disposal of discontinued operations.................. $ - $ (48)
=========== ===========
13
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 2000
(Unaudited)
NOTE 8 - OPERATING SEGMENT INFORMATION
The Company operates in two principal industry segments - energy and
real estate finance. Segment data for the three months ended December 31, 2000
and 1999 are as follows:
Three Months Ended
December 31,
-----------------------------
2000 1999
----------- -----------
(in thousands)
Revenues:
Energy.................................. $ 21,465 $ 15,760
Real estate finance..................... 3,837 6,651
Corporate............................... 1,902 2,558
----------- -----------
$ 27,204 $ 24,969
=========== ===========
Operating profit (loss):
Energy.................................. $ 4,732 $ 1,517
Real estate finance..................... 1,627 5,164
Corporate............................... (1,457) (3,047)
----------- -----------
$ 4,902 $ 3,634
=========== ===========
Identifiable assets:
Energy.................................. $ 146,557 $ 147,775
Real estate finance..................... 203,320 202,335
Corporate............................... 95,076 153,029
----------- -----------
$ 444,953 $ 503,139
=========== ===========
Operating profit (loss) represents total revenues less costs
attributable thereto, including interest expense, provision for possible losses,
and, with respect to energy and real estate finance, general and administrative
expenses, and less depreciation, depletion and amortization.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Unaudited)
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 MORE
PARTICULARLY DESCRIBED IN ITEM 1, UNDER THE CAPTION "RISK FACTORS", IN OUR
ANNUAL REPORT ON FORM 10-K FOR FISCAL 2000. THESE RISKS AND UNCERTAINTIES 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. 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 First Quarter of Fiscal 2001
Our operating results and financial condition for the first quarter of
fiscal 2001 reflect the further expansion of our energy operations, continuing a
trend which began with the acquisition of Atlas Group (now Atlas America) at the
end of fiscal 1998 and continued with the acquisition of Viking Resources at the
end of fiscal 1999. The expansion of our energy operations is shown in the
following tables:
Revenues as a Percent of Total Revenues(1)
Three Months Ended
December 31,
-----------------------------------
2000 1999
---------------- ---------------
Energy .................................... 79% 63%
Real estate finance........................ 14% 27%
Assets as a Percent of Total Assets(2)
December 31, September 30,
2000 2000
---------------- ---------------
Energy(3).................................. 33% 30%
Real estate finance........................ 46% 40%
- ------------------
(1) The balance (7% and 10% for the three months ended December 31, 2000 and
1999, respectively) is attributable to revenues derived from corporate
assets not allocated to a specific industry segment, including cash and the
common shares held in RAIT Investment Trust.
(2) The balance (21% and 30% at December 31, 2000 and September 30, 2000,
respectively) is attributable to corporate assets not attributable to a
specific industry segment, as referred to in (1) above.
(3) Energy assets expressed as a percent of total assets, excluding cash, were
38% and 39% at December 31, 2000 and September 30, 2000, respectively.
15
Results of Operations: Energy
The following tables set forth information relating to revenues
recognized and costs and expenses incurred, daily production volumes, average
sales prices and production cost per equivalent unit in the Company's energy
operations during the periods indicated:
Three Months Ended
December 31,
-----------------------------
2000 1999
----------- -----------
(in thousands)
Revenues:
Production.................................... $ 8,888 $ 5,461
Well drilling................................. 9,313 7,154
Well services................................. 2,176 2,085
Transportation................................ 1,088 1,060
----------- ------------
$ 21,465 $ 15,760
=========== ============
Costs and expenses:
Exploration and production.................... $ 1,997 $ 2,219
Well drilling................................. 7,241 5,971
Well services................................. 897 1,330
Transportation................................ 436 231
Non-direct.................................... 1,433 1,541
----------- ------------
$ 12,004 $ 11,292
=========== ============
Three Months Ended
December 31,
---------------------------
2000 1999
----------- ---------
Revenues (in thousands):
Gas(1)........................................ $ 7,471 $ 4,415
Oil........................................... $ 1,414 $ 1,025
Production volumes:
Gas (thousands of cubic feet (mcf)/day)(1).... 17,211 16,646
Oil (barrels (bbls)/day)...................... 502 541
Average sales price:
Gas (per mcf)................................. $ 4.72 $ 2.88
Oil (per bbl)................................. $ 30.61 $ 20.58
Production costs:
(per mcf equivalent unit)..................... $ .87 $ .93
- -------------
(1) Excludes sales of residual gas and sales to landowners.
Our natural gas revenues were $7.5 million in the quarter ended
December 31, 2000, an increase of $3.1 million (69%) from $4.4 million in the
first quarter of fiscal 1999 due to a 64% increase in the average sales price of
natural gas and a 3% increase in production volumes. Our oil revenues were $1.4
million in the first quarter of fiscal 2001, an increase of $389,000 (38%) from
$1.0 million in the first quarter of fiscal 2000, due to a 49% increase in the
average sales price of oil partially offset by a 7% decrease in production
volumes. Gas volumes were favorably impacted by the additional volumes
associated with wells drilled for partnerships sponsored by Atlas America.
16
Our well drilling revenues and expenses in the first quarter ended
December 31, 2000 represent the billings and costs associated with the
substantial completion of 50 net wells for partnerships sponsored by Atlas
America as compared to 36 net wells, an increase of 14 wells as compared to the
first quarter of fiscal 2000. The gross profit from drilling operations was $2.1
million (22%) in the first quarter of fiscal 2001 as compared to $1.2 million
(17%) in the first quarter of fiscal 2000. The increase in gross profit arose
from the increase in the number of net wells drilled and the reversal in the
period of certain costs that were over-accrued in a prior period in connection
with a completed drilling program.
Our production costs, excluding exploration costs of $384,000,
decreased $93,000 (5%) to $1.6 million in the first quarter ended December 31,
2000, as compared to $1.7 million in the first quarter ended December 31, 1999.
This decrease is the result of a reduction in repairs and maintenance on
existing wells owned by us.
Our well services revenues and related costs increased as a result of
an increase in the number of wells we operate. The increase in the number of
wells resulted from the new partnership wells drilled during fiscal 2000, as
discussed above.
Our transportation expenses were $436,000 in the first quarter ended
December 31, 2000, an increase of $205,000 (89%) from $231,000 in the first
quarter of fiscal 2000. This increase is the result of higher repair and
compressor expenses incurred by our majority-owned subsidiary, Atlas Pipeline
Partners, L.P.
Our non-direct expenses were $1.4 million in the quarter ended December
31, 2000, a decrease of $108,000 (7%) from $1.5 million in the quarter ended
December 31, 1999. The decrease was due to the reallocation of certain costs to
energy functions (production, drilling, well services and well operations)
rather than to general and administrative costs in the quarter ended December
31, 2000.
Amortization of oil and gas property costs as a percentage of oil and
gas revenues was 17% in the quarter ended December 31, 2000 compared to 27% in
the quarter ended December 31, 1999. The percentage reduction was 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.
17
Results of Operations: Real Estate Finance
The following table sets forth certain information relating to the
revenue recognized and costs and expenses incurred in our real estate finance
operations during the periods indicated:
Three Months Ended
December 31,
-----------------------------
2000 1999
----------- -----------
(in thousands)
Revenues:
Interest........................................................................... $ 2,175 $ 3,797
Accreted discount.................................................................. 1,669 1,734
Gains on sales of loans and loan payments
in excess of carrying value of loans............................................. - 1,057
Net rental and fee income.......................................................... (7) 63
----------- -----------
$ 3,837 $ 6,651
=========== ===========
Costs and expenses.................................................................... $ 390 $ 734
=========== ===========
Revenues from our real estate finance operations decreased $2.8 million
(42%), from $6.6 million in the quarter ended December 31, 1999 to $3.8 million
in the quarter ended December 31, 2000. We attribute the decrease primarily to
the following:
o A decrease of $1.7 million (31%) in interest income resulting from:
- The repayment by a borrower in October 1999 of approximately
$58.8 million of one loan which decreased interest income by $1.3
million in the quarter ended December 31, 2000 as compared to the
quarter ended December 31, 1999.
- The sale of two loans, one in December 1999 and one in June 2000,
which decreased interest income by $575,000 in the current fiscal
period.
- The completion of accretion on eight loans which decreased
interest income by $318,000 in the current fiscal period.
These decreases were partially offset by an increase in accretion on
one loan of $444,000 in the current fiscal period.
o A decrease of $70,000 (111%) in net rental and fee income to a loss
of $7,000 for the current fiscal period from income of $63,000 in
the first quarter of fiscal 1999. The decrease primarily resulted
from an increase in the current fiscal period of $92,000 in non-cash
charges associated with one real estate venture.
o A decrease of $1.1 million (100%) in gains on sales of loans and
loan payments in excess of carrying value of loans. In the quarter
ended December 31, 1999, we sold a loan to RAIT Investment Trust and
two additional loans received final payments in excess of their
carrying value. No such sales or repayments occurred in the current
fiscal period.
Gains on sale of loans and senior lien interests in loans (if any) and
the amount of fees received (if any) vary from transaction to transaction and
there may be significant variations in the Company's gain on sale and fee income
from period to period.
Costs and expenses of our real estate finance operations were $390,000
in the first quarter ended December 31, 2000, a decrease of $344,000 (47%) from
$734,000 in the first quarter ended December 31, 1999. The decrease was
primarily a result of a reduction in staff resulting from our determination in
fiscal 2000 to concentrate our real estate finance activities on managing our
existing loan portfolio.
18
Results of Operations: Other Revenues, Costs and Expenses
Our interest and other income was $1.9 million for the quarter ended
December 31, 2000, a decrease of $656,000 (26%) from $2.6 million for the
quarter ended December 31, 1999. The decrease in the first quarter of fiscal
2001 primarily resulted from $1.7 million in interest recorded in the quarter
ended December 31, 1999 on advances we made to our equipment leasing subsidiary.
No such interest income was recorded in the quarter ended December 31, 2000
since the subsidiary was sold on August 1, 2000 and the advances were repaid.
The decrease in such interest income was partially offset by interest of $1.1
million we earned from the termporary investment of cash received from the sale
of the subsidiary.
Our general and administrative expenses decreased $648,000 (35%) to
$1.2 million in the quarter ended December 31, 2000, as compared to $1.9 million
in the quarter ended December 31, 1999. This decrease primarily resulted from a
reduction in pension expense, reduced salary and benefits associated with the
termination of our former president and reallocation of certain payroll costs to
energy and real estate operations from general and administrative expense.
Our interest expense was $4.0 million in the first quarter ended
December 31, 2000, a decrease of $728,000 (15%) from $4.8 million in the quarter
ended December 31, 1999. This decrease primarily resulted from our purchase of
$24.5 million of our 12% senior subordinated notes which reduced interest
expense by $573,000. In addition, we repaid a real estate loan facility in
October 1999 which reduced interest expense by $182,000.
The minority interest in Atlas Pipeline represents 47% of the net
earnings of Atlas Pipeline. The minority interest arose as a result of the sale
in February 2000 of our natural gas gathering operations to Atlas Pipeline and
Atlas Pipeline's subsequent initial public offering. We retained a 53% interest
in Atlas Pipeline after the offering. Because we own more than 50% of Atlas
Pipeline, it is included in our consolidated financial statements and the
ownership by the public is shown as a minority interest.
Our equity in the loss of an unconsolidated affiliate represents our
50% interest in the net loss of Optiron Corporation, an energy technology
company we formed in fiscal 2000.
Our provision for possible losses increased $356,000 (237%) to $506,000
in the quarter ended December 31, 2000 as compared to $150,000 in the quarter
ended December 31, 1999. This increase resulted from an allowance for possible
losses against receivables associated with the Chapter 11 bankruptcy filing in
January 2001 of an energy customer.
Our effective tax rate increased to 36% in the quarter ended December
31, 2000 as compared to 32% in the quarter ended December 31, 1999 as a result
of the expiration of the tax credit period of four of our real estate
investments in the quarter ended December 31, 2000.
19
Liquidity and Capital Resources
Following the sale of our equipment leasing operations, our major
sources of liquidity have been the proceeds of that sale, funds generated by
operations, funds raised from investor partnerships relating to our energy
operations and borrowings under our existing energy and real estate finance
credit facilities. We have employed these funds principally in the expansion of
our energy operations and repurchase of our senior notes and common stock. The
following table sets forth our sources and uses of cash for the three months
ended December 31, 2000 and 1999 as follows:
Three Months Ended
December 31,
-----------------------------
2000 1999
----------- -----------
(in thousands)
Provided by operations................................................................ $ 10,521 10,933
(Used in) provided by investing activities............................................ (769) 49,717
Used in financing activities.......................................................... (64,930) (66,569)
Provided by discontinued operations................................................... - 1,002
----------- -----------
$ (55,178) $ (4,917)
=========== ===========
We had $61.9 million in cash and cash equivalents on hand at December
31, 2000, as compared to $117.1 million at September 30, 2000. Our ratio of
earnings to fixed charges was 2.5 to 1.0 in the quarter ended December 31, 2000
as compared to 1.8 to 1.0 in the quarter ended December 31, 1999.
Our cash provided by operating activities in the first quarter of
fiscal 2001 decreased $412,000 (4%) as compared to the first quarter of fiscal
2000.
Our cash used by investing activities increased $50.5 million (102%) in
the first quarter of fiscal 2001 as compared to the same period of fiscal year
2000 primarily as a result of the following:
o In our real estate finance operations, principal payments on notes
decreased $67.0 million due to a decrease in borrower refinancings.
The decrease was primarily due to a $58.8 million refinancing of one
loan in the first quarter of fiscal 2000 as compared to the first
quarter of fiscal 2001 where there was no similar refinancing.
o The decrease in principal payments was partially offset by a
decrease of $13.9 million in changes to net assets of our
discontinued operations principally as a result of the disposal of
our equipment leasing operation during fiscal 2000.
o We invested $1.9 million in the capital stock of an affiliate in the
quarter ended December 31, 1999. There was no similar investment in
the quarter ended December 31, 2000.
Our cash flows used in financing activities for the quarter ended
December 31, 2000 decreased $1.6 million as compared to fiscal 2000. Cash used
to purchase treasury stock increased $58.2 million as a result of our
repurchases of common stock, including principally our "Dutch Auction" issuer
tender offer completed in October 2000. This was offset by a decrease of $59.3
million in the amounts we repaid under various loans and credit facilities.
20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
General. During the three months ended December 31, 2000, our loans
receivable did not undergo material change other than changes resulting from
normally recurring debt service payments received. Our loans payable generally
did not undergo material change other than changes resulting from normally
recurring debt service payments. We entered into a $10.0 million term loan
facility secured by certain mortgage loans, as discussed in "Real Estate
Finance", below.
Energy. During the three months ended December 31, 2000, the amount
outstanding under a revolving loan attributable to our energy operations
increased to $23.3 million at December 31, 2000 from $23.2 million at September
30, 2000. The weighted average interest rate for this facility decreased from
8.54% at September 30, 2000 to 8.51% at December 31, 2000, due to a decrease in
lending rates.
Real Estate Finance. The following information is based on the
Company's loans that are not interest rate sensitive. During the three months
ended December 31, 2000, our outstanding loans receivable (to our interest)
increased $3.2 million (1.1%) to $299.7 million in the aggregate and the carried
cost of our loans increased $2.3 million (1.5%) to $149.9 million in the
aggregate. The principal balance of related senior lien interests decreased $1.4
million (.5%) to $290.5 million in the aggregate. These increases were
principally attributable to normal operating activity.
The interest rate payable with respect to the senior lien interest
underlying one loan in our portfolio that may be deemed to be interest rate
sensitive remained unchanged due to the Company's purchase of an interest rate
swap which locked in the interest pay rate at 8.8%. Although the stated interest
rate on the loan continues to fluctuate over LIBOR, the Company pays only the
8.8% locked-in rate. If the effective rate for a particular pay period is
greater than the locked-in rate, the Company receives the benefit of this
difference.
The interest rate on our real estate revolving lines of credit, which
was prime rate (as defined) plus .75% for the outstanding $6.8 million line at
Hudson United Bank, and prime rate (as defined) for the $18.0 million and $5.0
million lines of credit at Sovereign Bank, did not change during the period
ended December 31, 2000 because there was no change in the defined prime rate.
This rate was the "prime rate" as reported in The Wall Street Journal (9.50% at
December 31, 2000).
During the three months ended December 31, 2000, the Company entered
into a $10.0 million term loan agreement. The loan bears interest at a rate
equal to LIBOR plus 350 basis points adjusted annually and matures October 31,
2006. At December 31, 2000, $5.1 million of the loan had been drawn.
21
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description
10.1 Loan Agreement between Atlas Pipeline Partners, L.P.,
PNC Bank, National Association, First Union National Bank
and the banks party thereto.
10.2 Term Loan Agreement between Resource Properties, Inc. and
Miller & Schroeder Investments Corporation
(b) Reports on Form 8-K
None
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RESOURCE AMERICA, INC.
(Registrant)
Date: February 14, 2001 By: /s/ Steven J. Kessler
----------------- --------------------------
STEVEN J. KESSLER
Senior Vice President and
Chief Financial Officer
Date: February 14, 2001 By: /s/ Nancy J. McGurk
----------------- --------------------------
NANCY J. McGURK
Vice President-Finance and
Chief Accounting Officer
23
EXHIBIT INDEX
Exhibit No. Description
10.1 Loan Agreement between Atlas Pipeline Partners, L.P.,
PNC Bank, National Association, First Union National Bank
and the banks party thereto.
10.2 Term Loan Agreement between Resource Properties, Inc. and
Miller & Schroeder Investments Corporation