UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(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, 2002
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.)
1845 Walnut Street
Suite 1000
Philadelphia, PA 19103
(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:
17,160,500 Shares February 3, 2003
1
RESOURCE AMERICA, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT
ON FORM 10-Q/A
PAGE
-----
PAGE
-----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.................................................................................
Consolidated Balance Sheets - December 31, 2002 (Unaudited)
and September 30, 2002.............................................................................. 2
Consolidated Statements of Income (Unaudited)
Three Months Ended December 31, 2002 and 2001....................................................... 3
Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
Three Months Ended December 31, 2002................................................................ 4
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended December 31, 2002 and 2001....................................................... 5
Notes to Consolidated Financial Statements (Unaudited)
December 31, 2002................................................................................... 6 - 16
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................................... 16 - 25
Item 3. Quantitative and Qualitative Disclosures about Market Risk........................................... 26 - 28
Item 4. Controls and Procedures.............................................................................. 28
PART II OTHER INFORMATION
Item 5. Other Information.................................................................................... 29
Item 6. Exhibits and Reports on Form 8-K..................................................................... 29 - 30
SIGNATURES........................................................................................................ 31
CERTIFICATIONS.................................................................................................... 32 - 33
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RESOURCE AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, September 30,
2002 2002
------------ -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ..................... $ 44,041 $ 25,736
Accounts receivable ........................... 27,332 16,060
Assets held for disposal ...................... - 5,488
Prepaid expenses .............................. 3,038 2,696
-------- --------
Total current assets......................... 74,411 49,980
Investments in real estate loans and ventures .. 200,450 202,423
Investment in RAIT Investment Trust ............ 27,485 29,580
Property and equipment:
Oil and gas properties and equipment
(successful efforts).......................... 129,724 126,983
Gas gathering and transmission facilities ..... 29,371 28,091
Other ......................................... 8,541 8,390
-------- --------
167,636 163,464
Less - accumulated depreciation, depletion and
amortization.................................. (46,917) (44,287)
-------- --------
Net property and equipment .................... 120,719 119,177
Goodwill ....................................... 37,471 37,471
Intangible assets .............................. 9,312 9,589
Other assets ................................... 25,361 19,278
-------- --------
$495,209 $467,498
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ............. $ 8,499 $ 4,320
Accounts payable .............................. 16,346 12,378
Accrued interest .............................. 3,730 1,760
Liabilities associated with assets held for
disposal...................................... - 11,317
Accrued liabilities ........................... 9,495 9,808
Estimated income taxes ........................ - 893
Deferred revenue on drilling contracts ........ 22,194 4,948
-------- --------
Total current liabilities.................... 60,264 45,424
Long-term debt:
Senior ........................................ 65,336 65,336
Non-recourse .................................. 76,970 68,220
Other ......................................... 23,703 17,634
-------- --------
166,009 151,190
Liabilities associated with assets held for
disposal...................................... - 3,144
Deferred revenue and other liabilities ......... 1,174 1,074
Deferred income taxes .......................... 15,376 13,733
Minority interest .............................. 19,164 19,394
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............................. 250 250
Additional paid-in capital .................... 223,766 223,824
Less treasury stock, at cost .................. (76,330) (74,828)
Less ESOP loan receivable ..................... (1,193) (1,201)
Accumulated other comprehensive income ........ 5,947 5,911
Retained earnings ............................. 80,782 79,583
-------- --------
Total stockholders' equity................... 233,222 233,539
-------- --------
$495,209 $467,498
======== ========
See accompanying notes to consolidated financial statements
2
RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share data)
Three Months
Ended
December 31,
-----------------
2002 2001
------- -------
REVENUES:
Energy ................................................... $17,960 $28,757
Real estate finance ...................................... 3,159 3,684
Interest and other ....................................... 2,268 1,341
------- -------
23,387 33,782
COSTS AND EXPENSES:
Energy ................................................... 10,986 20,601
Real estate finance ...................................... 846 523
General and administrative ............................... 1,598 1,266
Depreciation, depletion and amortization ................. 2,983 2,797
Interest ................................................. 3,338 3,315
Provision for possible losses ............................ 373 150
Minority interest in Atlas Pipeline Partners, L.P. ....... 645 753
------- -------
20,769 29,405
Income from continuing operations before income taxes ..... 2,618 4,377
Provision for income taxes ................................ 837 1,447
------- -------
Income from continuing operations ......................... 1,781 2,930
Discontinued operations:
Loss on discontinued operations, net of income tax
benefit of $354.......................................... - (741)
------- -------
Net income ............................................... $ 1,781 $ 2,189
======= =======
Net income (loss) per common share - basic:
From continuing operations ................................ $ .10 $ .17
Discontinued operations ................................... - (.04)
------- -------
Net income per common share - basic ....................... $ .10 $ .13
======= =======
Weighted average common shares outstanding ................ 17,369 17,432
======= =======
Net income (loss) per common share - diluted:
From continuing operations ................................ $ .10 $ .17
Discontinued operations ................................... - (.05)
------- -------
Net income per common share - diluted ..................... $ .10 $ .12
======= =======
Weighted average common shares outstanding ................ 17,647 17,749
======= =======
See accompanying notes to consolidated financial statements
3
RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED DECEMBER 31, 2002
(Unaudited)
(in thousands, except share data)
Accumulated
Common stock Additional Treasury Stock ESOP Other Totals
------------------- Paid-In --------------------- Loan Comprehensive Retained Stockholders'
Shares Amount Capital Shares Amount Receivable Income Earnings Equity
---------- ------ ---------- ---------- -------- ---------- ------------- -------- -------------
Balance,
October
1, 2002..... 25,044,066 $250 $223,824 (7,623,198) $(74,828) $(1,201) $5,911 $79,583 $233,539
Treasury
shares
issued...... (58) 4,503 95 37
Purchase of
treasury
shares...... (202,950) (1,597) (1,597)
Other
comprehensive
income.........
36 36
Cash
dividends
($.033
per
share)...... (582) (582)
Repayment
of ESOP
Loan........ 8 8
Net income.... 1,781 1,781
---------- ---- -------- ---------- -------- ------- ------ ------- --------
Balance,
December
31, 2002.... 25,044,066 $250 $223,766 (7,821,645) $(76,330) $(1,193) $5,947 $80,782 $233,222
========== ==== ======== ========== ======== ======= ====== ======= ========
See accompanying notes to consolidated financial statements
4
RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
December 31,
-------------------
2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .............................................. $ 1,781 $ 2,189
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, depletion and amortization ............... 2,983 2,797
Amortization of discount on senior notes and deferred
finance costs.......................................... 333 251
Provision for possible losses .......................... 373 150
Minority interest in Atlas Pipeline Partners, L.P. ..... 645 753
Equity in loss (earnings) of equity investee ........... 348 (87)
Loss on discontinued operations ........................ - 741
Non-cash compensation .................................. 36 83
Deferred income taxes .................................. 1,573 390
Accretion of discount .................................. (695) (1,201)
Collection of interest ................................. 91 -
(Gain) loss on asset dispositions ...................... (1,787) 14
Property impairments and abandonments .................. 6 6
Changes in operating assets and liabilities ............. 10,126 (1,529)
-------- --------
Net cash provided by operating activities ............... 15,813 4,557
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .................................... (4,185) (3,957)
Principal payments on notes receivable .................. 3,764 687
Proceeds from sale of assets ............................ 3,407 5
Increase in other assets ................................ (5,963) (1,996)
Investments in real estate loans and ventures ........... (1,160) (6,534)
Decrease in other liabilities ........................... (72) (50)
-------- --------
Net cash used in investing activities ................... (4,209) (11,845)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings .............................................. 42,695 49,083
Principal payments on borrowings ........................ (26,828) (48,768)
Dividends paid to minority interest of Atlas Pipeline
Partners, L.P.......................................... (875) (973)
Dividends paid .......................................... (582) (582)
Repayment of ESOP loan .................................. 8 8
Treasury shares purchased ............................... (1,597) (298)
Increase in other assets ................................ (496) (62)
-------- --------
Net cash provided by (used in) financing activities ..... 12,325 (1,592)
-------- --------
Net cash used in discontinued operations ................ (5,624) (262)
-------- --------
Increase (decrease) in cash and cash equivalents ........ 18,305 (9,142)
Cash and cash equivalents at beginning of period ........ 25,736 48,648
-------- --------
Cash and cash equivalents at end of period .............. $ 44,041 $ 39,506
======== ========
See accompanying notes to consolidated financial statements
5
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
(Unaudited)
NOTE 1 - MANAGEMENT'S OPINION REGARDING INTERIM FINANCIAL STATEMENTS
The consolidated financial statements of the Company and its wholly-owned
subsidiaries as of December 31, 2002 and for the three month periods ended
December 31, 2002 and 2001 are unaudited. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted in this Form 10-Q/A pursuant to the rules and
regulations of the Securities and Exchange Commission. However, in the opinion
of management, these interim financial statements include all the necessary
adjustments to fairly present the results of the interim periods presented.
The unaudited interim consolidated financial statements should be read in
conjunction with the audited financial statements included in the Company's
Annual Report on Form 10-K/A for the fiscal year ended September 30, 2002. The
results of operations for the three month period ended December 31, 2002 may
not necessarily be indicative of the results of operations for the full fiscal
year ending September 30, 2003.
Certain reclassifications have been made to the consolidated financial
statements for the three month period ended December 31, 2001 to conform to
the presentation for the three month period ended December 31, 2002.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Comprehensive Income
The following table presents comprehensive income for the periods indicated:
Three Months
Ended
December 31,
---------------
2002 2001
------ ------
(in thousands)
Net income .................................................. $1,781 $2,189
Other comprehensive income (loss):
Unrealized gain on investment in RAIT Investment Trust:
Unrealized holding gain arising during the period, net of
taxes of $442 and $206..................................... 858 400
Less: reclassification adjustment for gain realized in net
income..................................................... (610) --
------ ------
Change in unrealized gain.................................. 248 400
Unrealized (loss) gain on natural gas futures and options
contracts,
net of taxes of $95 and ($39)............................. (212) 73
------ ------
36 473
------ ------
Comprehensive income ........................................ $1,817 $2,662
====== ======
Accumulated other comprehensive income is related to the following:
December 31,
------------------
2002 2001
---- ----
Unmarketable securities -- unrealized gains ........... $6,371 $2,048
Unrealized hedging gains (losses) ..................... (424) 82
------ ------
$5,947 $2,130
====== ======
Investment in RAIT Investment Trust
The Company accounts for its investment in RAIT in accordance with Statement
of Financial Accounting Standard No. 115 "Accounting for Certain Investments
in Debt and Equity Securities." This investment is classified as available-
for-sale and as such is carried at fair market value based on market quotes.
Unrealized gains and losses, net of tax, are reported as a separate component
of stockholders' equity. The cost of securities sold is based on the specific
identification method.
6
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 2002
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Investment in RAIT Investment Trust - (Continued)
The following table discloses the unrealized gains relating to the Company's
RAIT investment at the periods indicated:
At December 31, At September 30,
2002 2002
--------------- ----------------
(in thousands)
Cost ..................................... $17,924 $20,268
Unrealized gains ......................... 9,561 9,312
------- -------
Estimated fair value ..................... $27,485 $29,580
======= =======
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.
Fair Value of Financial Instruments
In fiscal 2001, the Company adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Accordingly, natural gas futures and
option contracts are recorded at fair value in the Company's consolidated
balance sheets.
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 the dates indicated:
December 31, 2002 September 30, 2002
--------------------- ---------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(in thousands) (in thousands)
Energy debt ..................................................................... $ 58,255 $ 58,255 $ 49,345 $ 49,345
Real estate finance debt ........................................................ 32,791 32,791 33,214 33,214
Senior debt ..................................................................... 65,336 67,623 65,336 67,623
Other debt ...................................................................... 18,126 18,126 7,615 7,615
-------- -------- -------- --------
$174,508 $176,795 $155,510 $157,797
======== ======== ======== ========
7
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 2002
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Earnings Per Share
Basic earnings per share is determined by dividing net income by the
weighted average number of shares of common stock outstanding during the
period. Earnings (loss) per share - diluted are computed by dividing net
income (loss) by the sum of the weighted average number of shares of common
stock outstanding and dilutive potential shares issuable during the period.
Dilutive potential shares of common stock consist of the excess of shares
issuable under the terms of various stock option and warrant agreements over
the number of such shares that could have been reacquired (at the weighted
average price of shares during the period) with the proceeds received from the
exercise of the options and warrants.
The components of basic and diluted earnings per share for each year were as
follows:
Three Months
Ended
December 31,
-----------------
2002 2001
------- -------
(in thousands)
Income from continuing operations ......................... $ 1,781 $ 2,930
Loss from discontinued operations ......................... ------- (741)
------- -------
Net income ................................................ $ 1,781 $ 2,189
======= =======
Basic average shares of common stock outstanding .......... 17,369 17,432
Dilutive effect of stock option and award plans ........... 278 317
------- -------
Dilutive average shares of common stock ................... 17,647 17,749
======= =======
Recently Issued Financial Accounting Standards
In November 2002, the FASB issued Interpretation 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" (FIN 45). FIN 45 clarifies the requirements for a
guarantor's accounting for and disclosure of certain guarantees issued and
outstanding and that a guarantor is required to recognize, at the inception of
a guarantee, a liability for the obligations it has undertaken. The objective
of the initial measurement of that liability is the fair value of the
guarantee at its inception. The initial recognition and measurement provisions
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The Company is still evaluating the impact of FIN 45 on its
financial position and results of operations.
In December 2002, the FASB issued Statement of Financial Accounting
Standards, "Accounting for Stock-Based Compensation - Transition and
Disclosure" No. 148 ("SFAS 148"), which is generally effective for fiscal
years ending after December 15, 2002 and, as to certain disclosure
requirements, for interim periods beginning after December 15, 2002. The
Company does not believe the adoption of SFAS 148 will have a material effect
on its consolidated financial position or results of operations.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). The Company is assessing the impact of
adoption of FIN 46. However, based on management's preliminary assessment, it
is reasonably possible that the Company may be required to consolidate several
entities in which it has an investment. If the Company is required to
consolidate any entities, the assets and related depreciation, liabilities and
non-controlling interests of these entities will be reflected in the Company's
consolidated financial statements.
8
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 2002
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
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,
---------------
2002 2001
------ ------
(in thousands)
Cash paid during the period for:
Interest ................................................... $1,035 $ 891
Income taxes ............................................... $ - $1,500
Non-cash activities:
Receipt of a note in satisfaction of a real estate loan
sale....................................................... $1,350 $ -
NOTE 3 - GOODWILL, INTANGIBLE ASSETS AND OTHER ASSETS
Goodwill
On October 1, 2001, the Company early-adopted SFAS 142 "Goodwill and Other
Intangible Assets", which requires that goodwill no longer be amortized, but
instead tested for impairment at least annually. At that time, the Company had
unamortized goodwill of $31.4 million. The Company has completed the
transitional impairment test required upon adoption of SFAS 142. The
transitional test, which involved the use of estimates related to the fair
market value of the business operations associated with the goodwill did not
indicate an impairment loss. The Company will continue to evaluate its
goodwill at least annually and will reflect the impairment of goodwill, if
any, in operating income in the income statement in the period in which the
impairment is indicated. All goodwill recorded on the Company's balance sheets
is related to the Company's energy segment.
Changes in the carrying amount of goodwill for the periods indicated are as
follows:
Three Months
Ended Year Ended
December 31, September 30,
----------------- -------------
2002 2001 2002
------- ------- -------------
(unaudited)
(in thousands)
Goodwill at beginning of period (less accumulated
amortization of $4,796, $4,069 and $4,063)................................................. $37,471 $31,420 $31,420
Additions to goodwill related to prior year asset acquisitions............................... - - 15
Atlas Pipeline goodwill amortization, whose fiscal year
began January 1, 2002, at which time it adopted SFAS 142................................... - (6) (22)
Leasing platform transferred from goodwill to other assets
in accordance with SFAS 142 (net of accumulated
amortization of $587)...................................................................... - - (331)
Syndication network reclassified from other assets
in accordance with SFAS 142 (net of accumulated
amortization of $711)...................................................................... - - 6,389
------- ------- -------
Goodwill at end of period (net of accumulated
amortization of $4,209, $4,069 and $4,209)................................................. $37,471 $31,414 $37,471
======= ======= =======
9
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 2002
(Unaudited)
NOTE 3 - GOODWILL, INTANGIBLE ASSETS AND OTHER ASSETS -- (Continued)
Adjusted net income from continuing operations for the three months ended
December 31, 2001 would have been $2.2 million excluding goodwill
amortization, net of taxes, using the Company's effective tax rate. Adjusted
basic income per share from continuing operations for the three months ended
December 31, 2001 would have been $.13. Adjusted diluted income per share from
continuing operations for the three months ended December 31, 2001 would have
been $.12.
Intangible Assets
Intangible assets consist of costs relating to partnership management and
operating contracts acquired through acquisitions recorded at fair value on
their acquisition dates. investments and deferred financing costs. The Company
amortizes contracts acquired on a declining balance method, over their
respective estimated lives, ranging from eight to thirteen years. Amortization
expense for the quarters ended December 31, 2002 and 2001 was $318,000 and
$320,000, respectively. The aggregate estimated amortization expense for these
contracts is approximately $1.2 million for each of the succeeding five years.
December 31, September 30,
2002 2002
------------ -------------
(in thousands)
Partnership management and operating contracts ... $14,383 $14,343
Leasing platform ................................. 918 918
------- -------
15,301 15,261
Accumulated amortization ......................... (5,989) (5,672)
------- -------
Intangible assets, net ........................... $ 9,312 $ 9,589
======= =======
Other Assets
The following table provides information about other assets at the dates
indicated.
December 31, September 30,
2002 2002
------------ -------------
(in thousands)
Deferred financing costs (net of accumulated
amortization of $4,075 and $3,742)............ 2,262 2,122
Equity method investments in and advances to
Trapeza entities.............................. 4,361 3,085
Investments at lower of cost or market ......... 6,081 6,137
Other .......................................... 12,657 7,934
------- -------
$25,361 $19,278
======= =======
10
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 2002
(Unaudited)
NOTE 3 - GOODWILL, INTANGIBLE ASSETS AND OTHER ASSETS - (Continued)
Other Assets - (Continued)
Deferred financing costs are amortized over the terms of the related loans
(two to seven years).
Investments in Trapeza entities are accounted for by the equity method of
accounting as the Company has the ability to exercise significant influence.
Investments are accounted for at the lower of cost or market. These include
non-marketable investments in entities in which the Company has less than a
20% ownership interest, and in which it does not have the ability to exercise
significant influence.
NOTE 4 - INVESTMENTS IN REAL ESTATE LOANS AND VENTURES
The Company primarily focuses its real estate activities on managing its
existing real estate loan portfolio. In addition, one real estate partnership
which we sponsored is in the offering phase. Real estate loans generally were
acquired at discounts from both their face value and the appraised value of
the properties underlying the loans. Cash received by the Company for payment
on each real estate loan is allocated between principal and interest. The
Company also 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. This accretion of discount amounted to $695,000 and $1.2
million during the three months ended December 31, 2002 and 2001,
respectively. As the Company sells senior lien interests or receives funds
from refinancings of its loans by the borrower, 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, 2002, the Company held real estate loans having an aggregate
face value of $616.6 million, which were being carried at an aggregate cost of
$186.4 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,
-------------------
2002 2001
-------- --------
(in thousands)
Loan balance, beginning of period ....................... $187,542 $192,263
New loan ................................................ 1,350 -
Addition to existing loans .............................. 1,160 6,261
Accretion of discount (net of collection of interest) ... 695 1,201
Collections of principal ................................ (4,393) -
-------- --------
Loan balance, end of period ............................. 186,354 199,725
Real estate ventures balance, end of period ............. 17,949 16,723
Allowances for possible losses .......................... (3,853) (2,679)
-------- --------
Balance, loans and ventures, end of period .............. $200,450 $213,769
======== ========
11
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 2002
(Unaudited)
NOTE 4 - INVESTMENTS IN REAL ESTATE LOANS AND VENTURES - (Continued)
In determining its allowance for possible losses related to its real estate
loans and ventures, the Company considers general and local economic
conditions, neighborhood values, competitive overbuilding, casualty losses and
other factors which may affect the value of loans and its properties. The
value of loans and properties may also be affected by factors such as the cost
of compliance with regulations and liability under applicable environment
laws, changes in interest rates and the availability of financing. Income from
a property will be reduced if a significant number of tenants are unable to
pay rent or if available space cannot be rented on favorable terms. In
addition, the Company continuously monitors collections and payments from its
borrowers and maintains an allowance for estimated losses based upon its
historical experience and its knowledge of specific borrower collection issues
identified. The Company reduces it investment in real estate loans and
ventures by an allowance for amounts that may become unrealizable in the
future. Such allowance can be either specific to a particular loan or venture
or general to all loans or ventures.
The following is a summary of activity in the Company's allowance for
possible losses related to real estate loans and ventures for the periods
indicated.
Three Months
Ended
December 31,
---------------
2002 2001
------ ------
(in thousands)
Balance, beginning of period ................................ $3,480 $2,529
Provision for possible losses ............................... 373 150
------ ------
Balance, end of period ...................................... $3,853 $2,679
====== ======
NOTE 5 - DEBT
Total debt consists of the following:
December 31, September 30,
2002 2002
------------ -------------
(in thousands)
Senior debt .................................... $ 65,336 $ 65,336
Non-recourse debt:
Energy:
Revolving and term bank loans................ 58,095 49,345
Real estate finance:
Revolving credit facilities.................. 18,000 18,000
Other........................................ 875 875
-------- --------
Total non-recourse debt .................... 76,970 68,220
Other debt ..................................... 32,202 21,954
-------- --------
174,508 155,510
Less current maturities ........................ 8,499 4,320
-------- --------
$166,009 $151,190
======== ========
12
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 2002
(Unaudited)
NOTE 5 - DEBT - (Continued)
In December 2002, the Company's subsidiary, Atlas Pipeline ("the
Partnership"), entered into a $7.5 million credit facility with Wachovia Bank.
This facility replaced a similar $10.0 million facility administered by PNC
Bank. Borrowings under the facility are secured by a lien on and security
interest in all the property of the Partnership and its subsidiaries,
including pledges by the Partnership of the issued and outstanding equity
interests in its subsidiaries. Up to $3.0 million of the facility may be used
for standby letters of credit. No such letters of credit have been issued
under the facility. The revolving credit facility has a term ending in
December 2005 and bears interest at one of two rates, elected at the
Partnership's option:
o the base rate plus the applicable margin; or
o the adjusted LIBOR plus the applicable margin.
The base rate for any day equals the higher of the federal funds rate plus
1/2 of 1% or the Wachovia Bank prime rate. Adjusted LIBOR is LIBOR divided by
1.00 minus the percentage prescribed by the Federal Reserve Board for
determining the reserve requirement for euro currency funding. The applicable
margin is as follows:
o where utilization of the borrowing base is equal to or less than 50%, the
applicable margin is 0.00% for base rate loans and 1.50% for LIBOR loans;
o where utilization of the borrowing base is greater than 50%, but equal to
or less than 75%, the applicable margin is 0.25% for base rate loans and
1.75% for LIBOR loans; and
o where utilization of the borrowing base is greater than 75%, the
applicable margin is 0.50% for base rate loans and 2.00% for LIBOR loans.
The Wachovia credit facility requires the Partnership to maintain specified
net worth and specified ratios of current assets to current liabilities and
debt to EBITDA, and requires it to maintain a specified interest coverage
ratio. The Partnership used this credit facility to pay off its previous
revolving credit facility at PNC Bank. At December 31, 2002, $6.5 million was
outstanding under this facility at an interest rate of 2.92%.
In January 2003, the borrowing limit under this facility increased to $10.0
million through June 2003, the Company is actively seeking to secure the
availability to $15.0 million.
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 the delivery of natural gas.
The Company formally documents all relationships between hedging instruments
and the items being hedged, including the Company's risk management objective
and strategy for undertaking the hedging transactions. This includes matching
the natural gas futures and options contracts to the hedged asset. The Company
assesses, both at the inception of the hedge and on an ongoing basis, whether
the derivatives are highly effective in offsetting changes in fair value of
hedged items. When it is determined that a derivative is not highly effective
as a hedge or it has ceased to be a highly effective hedge, due to the loss of
correlation between changes in gas reference prices under a hedging instrument
and actual gas prices, the Company will discontinue hedge accounting for the
derivative and further changes in fair value for the derivative will be
recognized immediately into earnings. Gains or losses on these instruments are
accumulated in other comprehensive income (loss) to the extent that these
hedges are deemed to be highly effective as hedges, and are recognized in
earnings in the period in which the hedged item is recognized in earnings.
13
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 2002
(Unaudited)
NOTE 6 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - (Continued)
At December 31, 2002, the Company had 231 open natural gas futures contracts
related to natural gas sales covering 693,000 dekatherm ("Dth") (net to the
Company) maturing through September 2003 at a combined average settlement
price of $3.58 per Dth. Based on quoted market prices, the fair value of the
Company's open natural gas futures contracts at December 31, 2002, is $3.1
million. As these contracts qualify and have been designated as cash flow
hedges, any gains or losses resulting from market price changes are deferred
and recognized as a component of sales revenues in the month the gas is sold,
unless the hedges are no longer "highly effective." Gains or losses on futures
contracts are determined as the difference between the contract price and a
reference price, generally prices on NYMEX. The Company's net unrealized loss
related to open NYMEX contracts was approximately $622,500 at December 31,
2002 and $316,600 at September 30, 2002. The unrealized loss, net of
applicable taxes, has been recorded as a liability in the Company's December
31, 2002, Consolidated Balance Sheets and in Stockholders' Equity as a
component of Accumulated Other Comprehensive Income. The Company recognized a
loss of $96,000 on settled contracts for the quarter ended December 31, 2002.
No contracts were settled for the quarter ended December 31, 2001. As of
December 31, 2002, all of the deferred net losses on derivative instruments
included in accumulated other comprehensive income (loss) are expected to be
reclassified to earnings during the next nine months. The Company recognized
no gains or losses during the quarter ended December 31, 2002, for hedge
ineffectiveness or as a result of the discontinuance of cash flow hedges.
Although hedging provides the Company some protection against falling prices,
these activities could also reduce the potential benefits of price increases,
depending upon the instrument.
NOTE 7 - DISCONTINUED OPERATIONS
In June 2002, the Company adopted a plan to dispose of Optiron Corporation
("Optiron"). The Company has reduced its 50% interest in Optiron to 10%
through a sale to management which was completed in September 2002. In
connection with the sale, the Company forgave $4.3 million of the $5.9 million
of indebtedness owed by Optiron. The remaining $1.6 million was retained by
the Company in the form of a promissory note which is secured by all of
Optiron's assets and by the common stock of Optiron's 90% shareholder. The
note bears interest at the prime rate plus 1% payable monthly; an additional
1% will accrue until the maturity date of the note in 2022.
In accordance with SFAS No. 144, the results of operations have been
prepared under the financial reporting requirements for discontinued
operations, pursuant to which, all historical results of Optiron are included
in the results of discontinued operations rather than the results of
continuing operations for all periods presented.
Summarized operating results of the discontinued Optiron operations are as
follows:
Three Months
Ended
December 31,
--------------
2002 2001
---- -------
(in thousands)
Loss from discontinued operations before income taxes ........ $- $(1,095)
Income tax benefit ........................................... - 354
Loss from discontinued operations ............................ $- $ (741)
14
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 2002
(Unaudited)
NOTE 8 - OPERATING SEGMENT INFORMATION
The operating segments reported below are the segments of the Company for
which separate financial information is available and for which segment
operating income or loss amounts are evaluated regularly by management in
deciding how to allocate resources and in assessing performance.
Three Months
Ended
December 31,
-----------------
2002 2001
------- -------
(in thousands)
Revenues:
Energy ................................................... $18,025 $28,984
Real estate finance ...................................... 3,159 3,669
All other(1) ............................................. 2,290 1,192
------- -------
$23,474 $33,845
======= =======
Operating profit (loss):
Energy ................................................... $ 2,964 $ 4,388
Real estate finance ...................................... 1,474 1,663
All other(1) ............................................. (1,820) (1,674)
------- -------
$ 2,618 $ 4,377
======= =======
December 31, September 30,
2002 2002
------------ -------------
(in thousands)
Identifiable assets:
Energy ........................................ $197,077 $183,693
Real estate finance ........................... 201,637 204,327
All other(1) .................................. 96,495 79,478
-------- --------
$495,209 $467,498
======== ========
- ---------------
(1) Revenue from the Company's financial services subsidiaries is included in
the "All other" category along with corporate interest and dividend income.
Financial services does not meet the criteria of an operating segment under
SFAS 131.
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 depreciation, depletion and amortization. The revenues
information presented does not eliminate intercompany transactions of $87,000
and $63,000 in the three months ended December 31, 2002 and 2001,
respectively.
15
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 2002
(Unaudited)
NOTE 8 - OPERATING SEGMENT INFORMATION - (Continued)
The Company markets its production on a competitive basis. Gas is sold under
various types of contracts ranging from life-of-the-well to short-term
contracts. The Company is party to a ten-year agreement which expires March
2009 to sell the majority of its existing and future production to First
Energy Solutions Corporation ("FES"). Pricing under the contract is
established by an index-based formula which we negotiate annually.
Approximately 80% of the Company's current production was dedicated to the
performance of this agreement for the three month period ending December 31,
2002. Payments from FES are guaranteed by its parent, First Energy
Corporation, a publicly-traded company (NYSE:FE).
The Company anticipates that it will negotiate mutually agreeable pricing
terms for subsequent 12-month periods pursuant to the aforementioned agreement
with FES. Management believes that the loss of any one customer would not have
a material adverse effect as it believes that, under current market
conditions, the Company's production could readily be absorbed by other
purchasers.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Unaudited)
When used in this Form 10-Q/A, 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/A for fiscal 2002. 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/A or to reflect the
occurrence of unanticipated events.
Overview of First Quarter of Fiscal 2003
Our operating results and financial condition for the first quarter of
fiscal 2003 reflect the continuing importance to us of our energy operations,
as shown in the following tables:
Revenues as a Percent of Total Revenues (1)
Three
Months
Ended
December
31,
-----------
2002 2001
---- ----
Energy(2) ....................................................... 77% 85%
Real estate finance ............................................. 14% 11%
Assets as a Percent of Total Assets (3)
December 31, September 30,
2002 2002
------------ -------------
Energy ......................................... 40% 39%
Real estate finance ............................ 41% 44%
- ---------------
(1) We attribute the balance (9% and 4% for the three months ended December 31,
2002 and 2001, respectively) to revenues derived from assets which do not
meet the definition of a business segment and corporate assets such as
cash, common shares held in RAIT Investment Trust and other corporate
investments.
(2) Energy revenues decreased in the first fiscal quarter ended December 31,
2002 as compared to the first fiscal quarter ended December 31, 2001, as a
result of the timing of drilling funds raised and subsequently converted to
earnings as wells are drilled. We expect this ratio to increase for the
remaining quarters of fiscal 2003.
(3) We attribute the balance (19% and 17% at December 31, 2002 and September
30, 2002, respectively) to assets which do not meet the definition of a
business segment and corporate assets, as referred to in (1) above.
17
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 costs per equivalent unit in our energy operations
during the periods indicated:
Three Months
Ended
December 31,
-----------------
2002 2001
------- -------
(in thousands)
Revenues:
Production ............................................... $ 8,069 $ 7,326
Well drilling ............................................ 6,583 17,981
Well services ............................................ 1,900 2,098
Transportation ........................................... 1,408 1,352
------- -------
$17,960 $28,757
======= =======
Costs and expenses:
Production and exploration ............................... $ 1,586 $ 2,042
Well drilling ............................................ 5,725 15,620
Well services ............................................ 855 917
Transportation ........................................... 591 567
Non-direct ............................................... 2,229 1,455
------- -------
$10,986 $20,601
======= =======
Three Months
Ended
December 31,
-----------------
2002 2001
------- -------
Revenues (in thousands):
Gas(1) ................................................... $ 7,050 $ 6,413
Oil ...................................................... $ 1,016 $ 908
Production volumes:
Gas (Mcf/day)(1) (2) ..................................... 19,346 20,577
Oil (Bbls/day)(2) ........................................ 447 533
Average sales prices:
Gas (per Mmcf)(2)(3) ..................................... $ 3.96 $ 3.39
Oil (per Bbl) ............................................ $ 24.71 $ 18.53
Production costs:(4)
As a percent of production revenues ...................... 19% 22%
Per equivalent Mcfe ...................................... $ .76 $ .74
- ---------------
(1) Excludes sales of residual gas and sales to landowners.
(2) As used in this discussion, "Mcf" and Mmcf" means thousand cubic feet and
million cubic feet; "Mcfe" and Mmcfe" means thousand cubic feet equivalent
and million cubic feet equivalent, and "Bbls" means barrels. Bbls are
converted to Mcfs equivalent using the ratio of 6 Bbls to one Mcf.
(3) Our average sales price before the effects of hedging was $4.01 for the
quarter ended December 31, 2002. No contracts were settled for the quarter
ended December 31, 2001.
(4) Production costs include labor to operate the wells and related equipment,
repairs and maintenance, materials and supplies, property taxes, insurance,
gathering charges and production overhead.
18
Our natural gas revenues were $7.0 million in the first quarter of fiscal
2003, an increase of $637,000 (10%) from $6.4 million in the first quarter of
fiscal 2002. The increase was due to a 17% increase in the average sales price
of natural gas partially offset by a 6% decrease in production volumes. The
$649,000 increase in gas revenues consisted of $1.1 million attributable to
price increases, partially offset by $449,000 attributable to volume
decreases. We received $3.96 and $3.39 per mcf for our natural gas in the
first quarter of fiscal 2003 and 2002, respectively. As a result, if current
market conditions continue, we believe that our natural gas production
revenues will be higher in the remainder of fiscal 2003 than in fiscal 2002.
Natural gas volume decreases are attributable to constraints on our production
throughput due to both pipeline capacity and inclement weather. Capacity
constraints will be eased in the second quarter of fiscal 2003 upon the
completion of an additional delivery point into an interstate pipeline system.
Our oil revenues were $1.0 million in the first quarter of fiscal 2003, an
increase of $108,000 (12%) from $908,000 in the first quarter of fiscal 2002.
The increase resulted from a 33% increase in the average sales price of oil
and a 16% decrease in production volumes. The $108,000 increase in oil
revenues consisted of $303,000 attributable to price increases, partially
offset by $195,000 attributable to volume decreases. Oil prices were higher in
the first quarter of fiscal 2003 than in fiscal 2002. The prices we have
received for our oil sold in the first quarter of fiscal 2003 have increased
to approximately $25.00 per barrel. The decrease in oil volumes is a result of
the natural production decline inherent in the life of a well. This decline
was not offset by new wells added, as the majority of the wells we have
drilled during the past several years have targeted gas reserves.
Our well drilling revenues and expenses represent the billing and costs
associated with the completion of 37 and 91 net wells for partnerships
sponsored by Atlas America in the first quarter of fiscal 2003 and 2002,
respectively. Our well drilling gross margin was $858,000 in the first quarter
of fiscal 2003, a decrease of $1.5 million from $2.4 million in the first
quarter of fiscal 2002 due to a decrease in the number of wells drilled ($1.25
million) and the gross margin per well ($250,000). The decrease in the number
of wells drilled was a result of an acceleration of the timing of funds raised
through our private investment partnerships and, thus, the drilling of wells.
We recognized the majority of the drilling revenue from our calendar 2002
private investment partnerships through September 30, 2002. The majority of
the revenue associated with our calendar 2001 private investment partnerships
was recognized through December 31, 2001. We anticipate that drilling revenues
for the second quarter of fiscal 2003 will be greater than the drilling
revenues for the second quarter of fiscal 2002 as a result of an increase in
the amount of funds raised in our calendar 2002 public investment partnership
as compared to our calendar 2001 public investment partnership. Demand for
drilling equipment and services increased in the fiscal year ended September
30, 2002, resulting in an increase in the cost to us of obtaining such
equipment and services in the quarter ended December 31, 2001. These costs
have decreased slightly in the first quarter of fiscal 2003. In fiscal 2002,
we changed the structure of our drilling contracts to a cost-plus basis from a
turnkey basis. Cost-plus contracts protect us in an inflationary environment
while limiting our profit margin. We continue to enter into drilling contracts
with gross margin rates of 13% and expect to obtain that margin through fiscal
2003.
Our well services revenues decreased $198,000 (9%) primarily as a result of
a decrease in services provided for third parties in the first quarter of
fiscal 2003 as compared to the first quarter of fiscal 2002. Our well service
expenses decreased $62,000 (7%) in the first quarter of fiscal 2003 as
compared to the first quarter of fiscal 2002. The decrease in fiscal 2003 also
resulted from a reduction in services provided for third parties.
Our production and exploration expenses were $1.6 million in the first
quarter of fiscal 2003, a decrease of $456,000 (22%) from $2.0 million in the
first quarter of fiscal 2002. This decrease resulted primarily from an
increase in credit received for our contribution of leases to our investment
partnership, which offsets our exploration expense.
19
Our non-direct expenses were $2.2 million in the first quarter of fiscal
2003, an increase of $774,000 (53%) from $1.5 million in the first quarter of
fiscal 2002. These expenses include, among other things, salaries and benefits
not allocated to a specific energy activity, costs of running our energy
corporate office, partnership syndication activities and outside services.
These expenses are partially offset by reimbursements we receive from our
partnership drilling activities. These reimbursements decreased $670,000 as a
result of 54 less wells drilled in the first quarter of fiscal 2003 as
compared to the first quarter of 2002, discussed earlier. We anticipate that
our reimbursements from our drilling investment partnerships for the second
quarter of fiscal 2003 will be greater than the reimbursements for the second
quarter of fiscal 2002 as a result of an increase in the amount of funds
raised in our calendar 2002 public investment partnership as compared to our
2001 public investment partnerships. In addition, the cost of running our
energy corporate office, including postage and telephone costs, increased
approximately $100,000 as a result of continued growth in our energy
operations.
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,
---------------
2002 2001
------ ------
(in thousands)
Revenues:
Interest ................................................... $1,931 $2,328
Accreted discount .......................................... 695 1,201
Gain on resolution of loan ................................. 813 -
Equity in (loss) earnings of equity investee................ (348) 87
Net rental and fee income .................................. 68 68
------ ------
$3,159 $3,684
====== ======
Costs and expenses .......................................... $ 846 $ 523
====== ======
Revenues from our real estate finance operations decreased $525,000 (14%),
from $3.7 million in the first quarter of fiscal 2002 to $3.2 million in the
first quarter of fiscal 2003. This decrease primarily resulted from the
following:
A decrease of $903,000 (26%) in interest and accreted discount resulting
primarily from the following:
o The sale of two loans, one in January 2002 and one in June 2002, which
decreased interest income by $782,000 in the first quarter of fiscal 2003
as compared to the first quarter of fiscal 2002.
o The completion of accretion of discount on three loans decreased interest
income by $383,000 in the first quarter of fiscal 2003 as compared to the
first quarter of fiscal 2002.
o An increase of $243,000 in our accretion due to an increase in our
estimated cash flows relating to several properties. These increases
resulted from improvements in general economic conditions in the areas in
which these properties are located, which enabled the properties to
obtain increased current rents or occupancy rates and thus increased our
estimates of cash flows from these properties.
20
An increase of $813,000 in gain on resolution of a loan in the first quarter
of fiscal 2003 due to the sale of one loan having a book value of $4.2 million
for $5.0 million. No loans were sold in the first quarter of fiscal 2002.
A loss of $348,000 from our share of the operating results of our
unconsolidated real estate investments accounted for on the equity method in
the first quarter of fiscal 2003 as compared to income of $87,000 in the first
quarter of fiscal 2002. The loss was the result of an increase in depreciation
and an operating loss on a property in which we acquired an interest in March
2002.
Costs and expenses of our real estate finance operations were $846,000 in
the first quarter of fiscal 2003, an increase of $323,000 (62%) from $523,000
in the first quarter of fiscal 2002. The increase primarily resulted from
approximately $250,000 in non-recoverable payments made to protect our
interests in certain properties underlying our investments in real estate
loans. In addition, wages and benefits increased $76,000 in the first quarter
of fiscal 2003 as a result of the addition of a new president and other
personnel in our real estate subsidiary in anticipation of the expansion of
our real estate operations through the sponsorship of real estate investment
partnerships as well as the on-going management of our existing portfolio of
commercial loans and real estate joint ventures. The one real estate
partnership we sponsored in fiscal 2002 is still in its offering phase and,
consequently, did not generate fees or other revenues for us.
Results of Operations: Other Revenues, Costs and Expenses
Our interest and other income was $2.3 million in the first quarter of
fiscal 2003, an increase of $927,000 (69%) as compared to $1.3 million for the
first quarter of fiscal 2002. The following table sets forth information
relating to interest and other income during the periods indicated:
Three Months
Ended
December 31,
---------------
2002 2001
------ ------
(in thousands)
Interest income ............................................. $ 251 $ 347
Dividend income ............................................. 789 804
Gains (losses) on sale of assets ............................ 974 (14)
Other ....................................................... 254 204
------ ------
$2,268 $1,341
====== ======
Interest income decreased $96,000 to $251,000 for the first quarter of
fiscal 2003 from $347,000 for the first quarter of fiscal 2002. The decrease
was primarily due to lower average rates earned on temporary funds invested.
Gains on sale of assets for the first quarter of fiscal 2003 were $974,000, as
compared to a loss of $14,000 for the first quarter of fiscal 2002. This
primarily reflects the sale of 163,500 shares in RAIT Investment Trust from
which we received net proceeds of $3.4 million and a realized a gain of
$969,000.
Our general and administrative expenses increased $332,000 (26%) to $1.6
million in the first quarter of fiscal 2003, as compared to $1.3 million in
the first quarter of fiscal 2002. This increase primarily resulted from
increases in salaries and benefits due to the addition of personnel.
Our depreciation, depletion and amortization consists mainly of depletion of
oil and gas properties and amortization of contracts acquired. Our depletion
as a percentage of oil and gas production revenues was 24% in the first
quarter of fiscal 2003 compared to 26% in the first quarter of fiscal 2002.
The variance from period to period is directly attributable to changes in our
oil and gas reserve quantities, product prices and fluctuations in the
depletable cost basis of oil and gas properties.
The minority interest in Atlas Pipeline Partners represents 48% of the net
earnings of Atlas Pipeline Partners. The minority interest arose from the sale
in February 2000 of our natural gas gathering operations to Atlas Pipeline
Partners and Atlas Pipeline Partners' subsequent initial public offering.
Because we own a 52% interest in Atlas Pipeline Partners, it is included in
our consolidated financial statements and the ownership by the public is shown
as a minority interest.
21
Our provision for possible losses increased $223,000 (149%) to $373,000 in
the first quarter of fiscal 2003 as compared to $150,000 in the first quarter
of fiscal 2002. This increase resulted from certain payments for operating
expenses of the properties underlying our loans, including insurance and
property taxes and our assessment of economic conditions in the areas in which
properties underlying our real estate loans are located.
Our effective tax rate decreased to 32% in the first quarter of fiscal 2003
as compared to 33% in the first quarter of fiscal 2002 as a result of a
decrease in certain unfavorable permanent differences, partially offset by a
decrease in tax credits utilized.
Discontinued Operations
In accordance with SFAS 144 "Accounting for the Impairment or Disposal of
Long Lived Assets", our decision in fiscal 2002 to dispose of Optiron
Corporation, our former energy technology subsidiary, resulted in the
presentation of Optiron as a discontinued operation for the three months ended
December 31, 2001. We had held a 50% equity interest in Optiron; as a result
of the disposition, we currently hold a 10% equity interest in Optiron.
Liquidity and Capital Resources
General. For the quarters ended December 31, 2002 and 2001, our major
sources of liquidity have been funds generated by operations, funds raised
from investor partnerships relating to our energy operations, resolutions of
real estate loans and borrowings under our existing energy, real estate
finance and corporate credit facilities and the sale of our RAIT shares. We
have employed these funds principally in the expansion of our energy
operations, the repurchase of our common stock and the acquisition of senior
lien interests relating to our real estate loans. The following table sets
forth our sources and uses of cash for the periods indicated:
Three Months Ended
December 31,
------------------
2002 2001
------- --------
(in thousands)
Provided by operations ................................... $15,813 $ 4,557
Used in investing activities ............................. (4,209) (11,845)
Provided by (used in) financing activities ............... 12,325 (1,592)
Used in discontinued operations .......................... (5,624) (262)
------- --------
$18,305 $ (9,142)
======= ========
We had $44.0 million in cash and cash equivalents on hand at December 31,
2002, as compared to $25.7 million at September 30, 2002. Our ratio of
earnings from continuing operations before income taxes, minority interest and
interest expense to fixed charges was 2.0 to 1.0 in the first quarter of
fiscal 2003 as compared to 2.6 to 1.0 in the first quarter of fiscal 2002. Our
working capital at December 31, 2002 was $14.1 million, an increase of $9.5
million from $4.6 million at September 30, 2002. This increase in working
capital is due to an increase in cash at December 31, 2002 due to higher
borrowings than at September 30, 2002, credit availability on our energy line
of credit was increased by $7.5 million in the quarter ended December 31,
2002, we also borrowed $5.0 million from Commerce Bank in the quarter ended
December 31, 2002. Our long-term debt (including current maturities) to total
capital ratio at December 31, 2002 was 43% as compared to 40% at September 30,
2002.
22
Cash flows from operating activities. Cash provided by operations is an
important source of short-term liquidity for us. It is directly affected by
changes in the price of natural gas and oil, and interest rates as well as our
ability to raise funds for our drilling investment partnerships and the
strength of the market for rentals of the types of properties secured by our
real estate loans. Net cash provided by operating activities increased $11.3
million in the first quarter of fiscal 2003 to $15.8 million from $4.6 million
in the first quarter of fiscal 2002, as a result of the following:
o Changes in operating assets and liabilities increased operating cash flow
by $12.1 million in the first quarter of fiscal 2003, compared to the
first quarter of fiscal 2002. This increase was primarily due to an
increase of $5.9 million in current liabilities due to the timing of
payments for payables and accrued interest and an increase of $4.2
million in investor funds raised in the quarter ended December 31, 2002
as compared to September 30, 2002. In addition, a tax payment of $1.5
million was made in the quarter ended December 31, 2001. No such tax
payment was required in the quarter ended December 31, 2002.
o Net income from operations in our energy and real estate segments
decreased $1.8 million. Our energy net income decreased primarily due to
the decreased number of wells drilled in the first quarter of fiscal 2003
compared to the first quarter of fiscal 2002, as we discussed in "Results
of Operations: Energy." In real estate finance, interest income decreased
and costs associated with loans increased in the first quarter of fiscal
2003 as compared to the first quarter of fiscal 2002.
Cash flows from investing activities. Net cash used in our investing
activities decreased $7.6 million in the first quarter of fiscal 2003 as
compared to the first quarter of fiscal 2002, as a result of the following:
o Net payments on notes receivable and investments in real estate loans and
ventures increased $8.5 million. Payments received on real estate
investments and ventures are normally dependent on third party
refinancing or from the sale of a loan and vary from period to period.
Additionally, investments in loans and ventures are unique to each
property and will vary from period to period depending upon a number of
factors. In the first quarter of fiscal 2003, we received proceeds of
$3.7 million from the resolution of one loan. In the prior fiscal period
we invested $2.9 million in the acquisition of two participations while
additions to existing loans were $2.2 million greater than in the quarter
ended December 31, 2002.
o Proceeds from the sale of assets increased $3.4 million due to the sale
of 163,500 shares of Resource Asset Investment Trust in the first quarter
of fiscal 2003.
o Investments in other assets increased by $4.0 million. For the first
quarter of fiscal 2003 we invested $1.3 million in, and lent $1.8 million
to our Trapeza entities and invested $3.2 million in leases associated
with our equipment leasing subsidiary, LEAF Financial Corporation
("LEAF"). Offsetting these increases was $1.9 million in RAIT shares
purchased in the quarter ended December 31, 2001.
Cash flows from financing activities. Net cash provided by our financing
activities increased $13.9 million in the first quarter of fiscal 2003 as
compared to the first quarter of fiscal 2002, as a result of the following:
o Net borrowings increased $15.6 million, in part to fund our drilling
investment programs.
o Purchases of treasury shares increased $1.3 million.
Capital Requirements
During the quarter ended December 31, 2002, our capital requirements related
primarily to our investments in our drilling partnerships and pipeline
expansions in which we invested $2.3 million and $1.3 million, respectively.
For the quarter ended December 31, 2002 and the remaining quarters of fiscal
2003 we funded and expect to fund these capital expenditures through cash on
hand, borrowings under the credit facilities, and from operations. We, through
our energy subsidiaries, have established two credit facilities to facilitate
the funding of our capital expenditures. In December 2002, we obtained an
increase in our borrowing base on our energy credit facility administered by
Wachovia Bank to $52.5 million. In addition, we repaid our $10.0 million PNC
Bank credit facility with a new $7.5 million credit facility with Wachovia
Bank. From January 2003 through June 2003, we have obtained an increase in
this facility to $10.0 million. We are currently seeking to increase this
facility on a long term basis to $15.0 million. We cannot assure you, however,
that we will obtain the increase we seek.
23
The level of capital expenditures we must devote to our energy operations
are dependent upon the level of funds raised through our drilling investment
partnerships. We have budgeted to raise up to $60.0 million in fiscal 2003
through drilling partnerships which we sponsor. We believe cash flow from
operations and amounts available under our credit facilities will be adequate
to fund our contributions to these partnerships. However, the amount of funds
we raise and the level of our capital expenditures will vary in the future
depending on market conditions for natural gas and other factors.
We continuously evaluate acquisitions of gas and oil and pipeline assets. In
order to make any acquisition, we believe we will be required to access
outside capital either through debt or equity placements or through joint
venture operations with other energy companies. There can be no assurance that
we will be successful in our efforts to locate outside capital.
Contractual Obligations and Commercial Commitments
The following tables set forth our obligations and commitments as of
December 31, 2002.
Payments Due By Period
(in thousands)
----------------------------------------
Less than 1 - 3 4 - 5 After 5
Contractual cash obligations: Total 1 Year Years Years Years
-------- --------- -------- ------ -------
Long-term debt............................................................. $174,508 $8,499 $164,067 $1,942 $ -
Capital lease obligations.................................................. - - - - -
Operating leases........................................................... 4,720 1,434 2,021 1,157 108
Unconditional purchase obligations......................................... - - - - -
Other long-term obligations................................................ - - - - -
-------- ------ -------- ------ ----
Total contractual cash obligations......................................... $179,228 $9,933 $166,088 $3,099 $108
======== ====== ======== ====== ====
Amount of Commitment Expiration Per
Period
(in thousands)
----------------------------------------
Less than 1 - 3 4 - 5 After 5
Other commercial commitments: Total 1 Year Years Years Years
-------- --------- ------- ------ --------
Lines of credit............................................................ $ 6,048 $ 5,048 $ 1,000 $ - $ -
Standby letter of credit................................................... 905 - 905 - -
Guarantees................................................................. 3,176 980 2,196 - -
Standby replacement commitments............................................ 10,533 5,860 4,673 - -
Other commercial commitments............................................... 194,482 2,979 61,051 3,971 126,481
-------- ------- ------- ------ --------
Total commercial commitments............................................... $215,144 $14,867 $69,825 $3,971 $126,481
======== ======= ======= ====== ========
Critical Accounting Policies
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of our
assets, liabilities, revenues and cost and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, we evaluate our
estimates, including those related to provision for possible losses, deferred
tax assets and liabilities, goodwill and identifiable intangible assets, and
certain accrued liabilities. We base our estimates on historical experience
and on various other assumptions that we believe reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
24
For a detailed discussion on the application of policies critical to our
business operations and other accounting policies, see Note 2 of the "Notes to
Consolidated Financial Statements" in our Annual Report on Form 10-K/A.
Recently Issued Financial Accounting Standards
In December 2002, the Financial Accounting Standards Board, which we refer
to as FASB issued Statement of Financial Accounting Standards, which we refer
to as SFAS 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure." SFAS 148, which is generally effective for fiscal years ending
after December 15, 2002 and, as to certain disclosure requirements, for
interim periods beginning after December 15, 2002 we do not believe the
adoption of SFAS 148 will have a material effect on our consolidated financial
position or results of operations.
In November 2002, the FASB issued Interpretation 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" (FIN 45). FIN 45 clarifies the requirements for a
guarantor's accounting for and disclosure of certain guarantees issued and
outstanding and that a guarantor is required to recognize, at the inception of
a guarantee, a liability for the obligations it has undertaken. The objective
of the initial measurement of that liability is the fair value of the
guarantee at its inception. The initial recognition and measurement provisions
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. Management is still evaluating the impact of FIN 45 on its
financial position and results of operations.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). The Company is assessing the impact of
adoption of FIN 46. However, based on management's preliminary assessment, it
is reasonably possible that the Company may be required to consolidate several
entities in which it has an investment. If the Company is required to
consolidate the any entities, the assets and related depreciation, liabilities
and non-controlling interests of these entities will be reflected in the
Company's consolidated financial statements.
25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of the following information is to provide forward-
looking quantitative and qualitative information about our potential exposure
to market risks. The term "market risk" refers to the risk of loss arising
from adverse changes in interest rates and oil and gas prices. The disclosures
are not meant to be precise indicators of expected future losses, but rather
indicators of reasonable possible losses. This forward-looking information
provides indicators of how we view and manage our ongoing market risk
exposures. All of our market risk sensitive instruments were entered into for
purposes other than trading.
General
We are exposed to various market risks, principally, fluctuating interest
rates and changes in commodity prices. These risks can impact our results of
operations, cash flows and financial position. We manage these risks through
regular operating and financing activities and periodically use derivative
financial instruments.
The following analysis presents the effect on our earnings, cash flows and
financial position as if the hypothetical changes in market risk factors
occurred on December 31, 2002. Only the potential impacts of hypothetical
assumptions are analyzed. The analysis does not consider other possible
effects that could impact our business.
Energy
Interest Rate Risk. At December 31, 2002, the amount outstanding under a
revolving loan attributable to our energy operations had increased to $51.6
million from $43.7 million at September 30, 2002. The weighted average
interest rate for this facility increased from 3.86% at September 30, 2002 to
4.03% at December 31, 2002 due to an increase of $7.9 million in prime
borrowings (due to temporary funding needs) which bear interest at a higher
rate than our LIBOR borrowings. Holding all other variables constant, if
interest rates hypothetically increased or decreased by 10%, our net annual
income would change by approximately $141,000.
We have a $7.5 million revolving credit facility to fund the expansion of
Atlas Pipeline Partners' existing gathering systems and the acquisitions of
other gas gathering systems. In the quarter ended December 31, 2002, we drew
$895,200 under this facility. The balance outstanding as of December 31, 2002
was $6.5 million. At December 31, 2002, the weighted average interest rate was
2.92%. A hypothetical 10% change in the average interest rate applicable to
this debt would result in an immaterial change in our earnings, cash flow and
financial position.
Commodity Price Risk. Our major market risk exposure in commodities is
fluctuations in the pricing of our gas and oil production. Realized pricing is
primarily driven by the prevailing worldwide prices for crude oil and spot
market prices applicable to United States natural gas production. Pricing for
gas and oil production has been volatile and unpredictable for many years. To
hedge exposure to changing natural gas prices we use financial hedges. Through
our hedges, we seek to provide a measure of stability in the volatile
environment of natural gas prices. Our risk management objective is to lock in
a range of pricing for expected production volumes, allowing us to forecast
future earnings within a predictable range.
Our contract with First Energy Solutions Corporation allow us from time to
time to "lock in" the sale price for some of our natural gas production volumes
to be delivered in either the current month or in future months, rather than
selling those same production volumes at contract prices in the month produced.
Annually, we negotiate with certain purchasers to deliver a portion of natural
gas produced for the upcoming twelve months. Most of these contracts are indexed
based and the price we receive for our gas changes as the underlying index
changes. Through the year, at our discretion, we are permitted to designate a
portion of our negotiated production volumes to be purchased at the prevailing
contract price at that time, for delivery in either the current month or in
future production months. For the quarter ended December 31, 2002, approximately
56% of produced volumes were sold in this manner. For the fiscal year ending
September 30, 2003, we estimate in excess of 55% of our produced natural gas
volumes will be sold in this manner, leaving the remaining 45% of our produced
volumes to be sold at contract prices in the month produced or at spot market
prices. Considering those volumes already designated for the fiscal year ending
September 30, 2003, and current indices, a theoretical 10% upward or downward
change in the price of natural gas would result in approximately a 6% change in
our projected natural gas revenues.
26
Energy - (Continued)
We periodically enter into financial hedging activities with respect to a
portion of our projected gas production. We recognize gains and losses from
the settlement of these hedges in gas revenues when the associated production
occurs. The gains and losses realized as a result of hedging are substantially
offset in the market when we deliver the associated natural gas. We do not
hold or issue derivative instruments for trading purposes.
As of December 31, 2002, we had gas hedges in place covering 693,000
dekatherm maturing through September 30, 2003. We include an adjustment of
$622,500 on our balance sheet to mark these hedges to their fair value. "Fair
value" represents the amount that we estimate we would have realized if we had
terminated the hedges on that date. As these contracts qualify and have been
designated as cash flow hedges, we determine gains and losses on them
resulting from market price changes monthly and reflect them in accumulated
other comprehensive income (loss) until the month in which we sell the hedged
production. At that time, the amount included in accumulated other
comprehensive income (loss) related to the sold production is closed to
production revenues. We determine gains or losses on open and closed hedging
transactions as the difference between the contract price and a reference
price, generally closing prices on NYMEX. Net losses relating to these hedging
contracts in the first quarter of fiscal 2003 and 2002 were $96,000 and $-0-,
respectively.
We set forth in the following table our natural gas hedge transactions in
place as of December 31, 2002. A 10% variation in the market price of natural
gas from its levels at December 31, 2002 would not have a material impact on
our net assets, net earnings or cash flows.
Open Volumes of Settlement Date Weighted Average Unrealized
Contracts Natural Gas (Dth) Quarter Ended Price Per Dth Losses
- ---------------- ----------------------- ----------------------- ----------------------- -----------------------
59 177,000 March 2003 3.56 $(185,800)
105 315,000 June 2003 3.57 (273,100)
67 201,000 September 2003 3.63 (163,600)
- --------------- ----------------------- ----------------------- -----------------------
231 693,000 $3.58 $(622,500)
=============== ======================= ======================= =======================
Real Estate Finance
Portfolio Loans and Related Senior Liens. The following information is based
on our loans that are not interest rate sensitive. During the quarter ended
December 31, 2002, our outstanding loans receivable (to our interest)
increased $6.0 million (2%) to $303.3 million in the aggregate and the carried
cost of our loans decreased $1.4 million (.9%) to $147.5 million in the
aggregate. The principal balance of related senior lien interests decreased
$872,000 (.4%) to $201.4 million in the aggregate.
Debt. The interest rates on our real estate and corporate revolving lines
of credit and term loans are at the prime rate minus 1% for the outstanding
$6.4 million under our term loan at Hudson United Bank and at the prime rate
for the outstanding $18.0 million and $5.0 million lines of credit at
Sovereign Bank. These interest rates decreased during the quarter ended
December 31, 2002 because there was one decrease in the defined prime rate.
This defined rate was the "prime rate" as reported in The Wall Street Journal
(4.25% at December 31, 2002). A hypothetical 10% change in the average
interest rate applicable to these lines of credit would change our net income
by approximately $102,000.
We also have a $10.0 million term loan agreement. The loan bears interest at
the three month LIBOR rate plus 350 basis points, adjusted annually. Principal
and interest is payable monthly based on a five year amortization schedule
maturing on October 31, 2006. At December 31, 2002, $7.5 million was
outstanding on this loan at an interest rate of 4.92%. A hypothetical 10%
change in the average interest rate applicable to this loan would have an
immaterial effect on earnings, cash flow and financial position.
27
Financial Services
In June 2002, LEAF Financial Corporation, our equipment-leasing subsidiary,
entered into a $10.0 million secured revolving credit facility with National
City Bank. The facility is guaranteed by us and has a term of 364 days.
Outstanding loans bear interest at one of two rates, elected at LEAF's option:
o the lender's prime rate plus 200 basis points, or o LIBOR plus 300 basis
points. As of December 31, 2002, the balance outstanding was $5.0 million at
an average interest rate of 4.38%. A hypothetical 10% change in the average
interest rate on this facility would have an immaterial effect on our
earnings, cash flow and financial position.
Other
In June 2002, we established a $5.0 million revolving line of credit with
Commerce Bank. The facility has a term of two years and bears interest at the
prime rate, or LIBOR plus 250 basis points, elected at the borrower's option.
Each rate is subject to a floor of 5.5% and a ceiling of 9.0%. As of December
31, 2002, the balance outstanding was $5.0 million at an average rate of 5.5%.
A hypothetical 10% change in the average interest rate on this facility would
have an immaterial effect on our earnings, cash flow and financial position.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated our
disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-
14(c)) within 90 days prior to the filing of this report. Based upon this
evaluation, these officers believe that our disclosure controls and procedures
are effective.
Changes in Internal Controls
There were no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date
of the last evaluation of our internal controls by our Chief Executive Officer
and Chief Financial Officer.
28
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
In December 2002, we agreed to a settlement of outstanding claims among
ourselves and the successor in interest to the purchasers of our former
proprietary small ticket equipment leasing subsidiary, Fidelity Leasing, Inc.
The settlement was on the terms and conditions described in Item 1, "Business-
Obligations Relating to Discontinued Obligations" in our annual report on Form
10-K for the year ended September 30, 2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description
----------- -----------
3.1 Restated Certificate of Incorporation of Resource America.(2)
3.2 Amended and Restated Bylaws of Resource America.(2)
10.1 Employment Agreement between Edward E. Cohen and Resource America.(3)
10.4 Employment Agreement between Steven J. Kessler and Resource America.(1)
10.5 Employment Agreement between Nancy J. McGurk and Resource America.(1)
10.6 Employment Agreement between Jonathan Z. Cohen and Resource America.(4)
10.7 Credit Agreement among Atlas America, Inc., Resource America, Inc. and the other guarantors party thereto and
Wachovia, National Associate, and other banks party thereto, dated July 31, 2002.(4)
10.7(a) First Amendment to Loan Agreement, dated as of January 24, 2001.(6)
10.8 Amended and Restated Loan Agreement, dated December 14, 1999, among Resource Properties XXXII, Inc., Resource
Properties XXXVIII, Inc., Resource Properties II, Inc., Resource Properties 51, Inc., Resource Properties, Inc.,
Resource America and Jefferson Bank (now known as Hudson United Bank).(6)
10.9(a) Modification of Revolving Credit Loan and Security Agreement dated March 30, 2000.(6)
10.10 Revolving Credit Loan Agreement dated July 27, 1999 by and between Resource America, Inc. and Sovereign Bank.(6)
10.11 Term Loan Agreement between Resource Properties, Inc. and Miller & Schroeder Investments Corporation.(7)
10.12 Credit Agreement among Atlas Pipeline Partners, L.P. and Wachovia Bank dated December 27, 2002.(8)
10.13 Settlement Agreement between Resource America, Inc., FLI Holdings, Inc., AEL Leasing Co., Inc. and Citibank,
N.A. dated December 31, 2002.(9)
29
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - (Continued)
(b) Reports on Form 8-K
None
- ---------------
(1) Filed previously as an exhibit to our Current Report on Form 8-K filed on
May 18, 2000 and by this reference incorporated herein.
(2) Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the
quarter ended December 31, 1999 and by this reference incorporated herein.
(3) Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997 and by this reference incorporated herein.
(4) Filed previously as an exhibit to our Annual Report on Form 10-K for the
year ended September 30, 2001 and by this reference incorporated herein.
(5) Filed previously as an exhibit to our Annual Report on Form 10-K for the
year ended September 30, 1999 and by this reference incorporated herein.
(6) Filed previously as an exhibit to our Annual Report on Form 10-K for the
year ended September 30, 2000 and by this reference incorporated herein.
(7) Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the
quarter ended December 31, 2000 and by this reference incorporated herein.
(8) Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the
quarter ended December 31, 2002 and by this reference incorporated herein.
(9) Filed previously as an exhibit to our Registration Statement on Form S-4
(File No. 333-103084) on February 11, 2003 and by this reference
incorporated herein.
30
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: April 11, 2003 By: /s/ Steven J. Kessler
---------------------
STEVEN J. KESSLER
Senior Vice President and
Chief Financial Officer
Date: April 11, 2003 By: /s/ Nancy J. McGurk
-------------------
NANCY J. McGURK
Vice President-Finance and
Chief Accounting Officer
31
CERTIFICATIONS
I, Edward E. Cohen, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Resource America,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: April 11, 2003
/s/ Edward E. Cohen
Edward E. Cohen
Chairman of the Board, President and Chief Executive Officer
32
CERTIFICATIONS
I, Steven J. Kessler, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Resource America,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: April 11, 2003
/s/ Stephen J. Kessler
Stephen J. Kessler
Senior Vice President and Chief Financial Officer
33