UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2005
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
The number of outstanding shares of the registrant's common stock on August 2,
2005 was 18,307,551.
RESOURCE AMERICA, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets - June 30, 2005 and September 30, 2004................ 3
Consolidated Statements of Income
Three Months and Nine Months Ended June 30, 2005 and 2004.................... 4
Consolidated Statement of Changes in Stockholders' Equity
Nine Months Ended June 30, 2005.............................................. 5
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 2005 and 2004..................................... 6
Notes to Consolidated Financial Statements - June 30, 2005........................ 7 - 22
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................... 23 - 42
Item 3. Quantitative and Qualitative Disclosures about Market Risk........................ 43
Item 4. Controls and Procedures........................................................... 44
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............................... 45
Item 6. Exhibits.......................................................................... 45
SIGNATURES......................................................................................... 46
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RESOURCE AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
JUNE 30, SEPTEMBER 30,
2005 2004
------------- --------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 42,883 $ 69,099
Investments in equipment finance............................................ 54,899 24,177
Accounts receivable......................................................... 9,861 26,903
Receivables from related parties............................................ 5,522 976
Prepaid expenses and other current assets................................... 5,445 3,755
Assets held for sale........................................................ 104,781 102,963
------------- --------------
Total current assets...................................................... 223,391 227,873
Investments in real estate..................................................... 47,410 47,119
Investment in Resource Capital Corp............................................ 15,000 --
Investments in Trapza entities................................................. 9,616 8,483
Investments in financial fund management entities.............................. 13,172 1,065
Property and equipment, net.................................................... 58,468 374,192
Other assets, net.............................................................. 17,114 29,504
Goodwill....................................................................... -- 37,470
------------- --------------
$ 384,171 $ 725,706
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........................................... $ 700 $ 6,151
Secured revolving credit facilities - equipment finance..................... 45,625 8,487
Accounts payable............................................................ 10,656 25,413
Liabilities associated with assets held for sale............................ 76,953 65,300
Accrued liabilities and other current liabilities........................... 16,490 38,679
Liabilities associated with drilling contracts.............................. -- 29,375
------------- --------------
Total current liabilities................................................. 150,424 173,405
Long-term debt................................................................. 28,469 114,696
Deferred revenue and other liabilities......................................... 4,723 9,263
Deferred income taxes.......................................................... -- 19,677
Minority interest - financial fund management entities......................... 9,880 --
Minority interests - energy.................................................... -- 150,750
Commitments and contingencies.................................................. -- --
Stockholders' equity:
Preferred stock $1.00 par value: 1,000,000 authorized shares;
none outstanding.......................................................... -- --
Common stock, $.01 par value: 49,000,000 authorized shares.................. 260 255
Additional paid-in capital.................................................. 254,414 247,865
Less treasury stock, at cost................................................ (77,428) (77,667)
Less ESOP loan receivable................................................... (493) (1,127)
Accumulated other comprehensive income (loss)............................... 1,995 (1,575)
Retained earnings........................................................... 11,927 90,164
------------- --------------
Total stockholders' equity................................................ 190,675 257,915
------------- --------------
$ 384,171 $ 725,706
============= ==============
See accompanying notes to consolidated financial statements
3
RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- --------------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
REVENUES
Real estate............................................ $ 11,104 $ 4,921 $ 20,008 $ 13,575
Equipment finance...................................... 3,481 1,326 9,190 4,191
Financial fund management(1)........................... 4,828 968 10,908 4,046
---------- ---------- ---------- ----------
19,413 7,215 40,106 21,812
COSTS AND EXPENSES
Real estate............................................ 4,242 2,207 11,014 7,641
Equipment finance...................................... 2,467 1,975 6,976 5,627
Financial fund management.............................. 2,263 689 4,720 1,300
General and administrative............................. 1,879 3,840 5,514 7,403
Start-up costs - Resource Capital Corp. ............... 309 -- 1,132 --
Depreciation and amortization.......................... 820 742 2,133 1,758
Provision (recovery) for possible losses............... (12) 182 150 582
---------- ---------- ---------- ----------
11,968 9,635 31,639 24,311
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS)................................... 7,445 (2,420) 8,467 (2,499)
OTHER INCOME (EXPENSE)
Interest expense....................................... (863) (832) (2,167) (4,405)
Minority interest in financial fund management entities (415) -- (1,158) --
Other income, net...................................... 310 1,959 3,788 6,571
---------- ---------- ---------- ----------
(968) 1,127 463 2,166
----------- ---------- ---------- ----------
Income (loss) from continuing operations before taxes..... 6,477 (1,293) 8,930 (333)
Provision (benefit) for income taxes...................... 2,955 (439) 3,572 (113)
---------- ----------- ---------- -----------
Income (loss) from continuing operations.................. 3,522 (854) 5,358 (220)
Income (loss) from discontinued operations, net of tax.... (1,912) 3,700 12,281 12,571
---------- ---------- ---------- ----------
NET INCOME................................................ $ 1,610 $ 2,846 $ 17,639 $ 12,351
========== ========== ========== ==========
BASIC EARNINGS (LOSS) PER COMMON SHARE:
From continuing operations............................. $ 0.20 $ (0.05) $ 0.30 $ (0.01)
Discontinued operations................................ (0.11) 0.21 0.70 0.72
---------- ---------- ---------- ----------
Net income............................................. $ 0.09 $ 0.16 $ 1.00 $ 0.71
========== ========== ========== ==========
Weighted average shares outstanding.................... 17,716 17,452 17,582 17,393
========== ========== ========== ==========
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
From continuing operations............................. $ 0.19 $ (0.05) $ 0.28 $ (0.01)
Discontinued operations................................ (0.10) 0.20 0.65 0.69
---------- ---------- ---------- ----------
Net income............................................. $ 0.09 $ 0.15 $ 0.93 $ 0.68
========== ========== ========== ==========
Weighted average shares outstanding.................... 18,926 18,599 18,819 18,189
========== ========== ========== ==========
DIVIDENDS DECLARED PER COMMON SHARE....................... $ 0.05 $ 0.03 $ 0.15 $ 0.10
========== ========== ========== ==========
- -------------
(1) Includes $1.4 million and $1.8 million of revenues related to Resource
Capital Corp. for the three months ended June 30, 2005 and for the period
from March 8, 2005 (inception) through June 30, 2005, respectively.
See accompanying notes to consolidated financial statements
4
RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED JUNE 30, 2005
(in thousands, except share data)
(unaudited)
ACCUMULATED
COMMON STOCK ADDITIONAL TREASURY STOCK ESOP OTHER
-------------------------- PAID-IN ------------------------ LOAN COMPREHENSIVE
SHARES AMOUNT CAPITAL SHARES AMOUNT RECEIVABLE INCOME (LOSS)
------------------------------------------------------------------------------------------------------
Balance, October 1, 2004.... 25,547,632 $ 255 $ 247,865 (8,053,062) $ (77,667) $ (1,127) $ (1,575)
Common shares issued........ 465,157 5 6,413 -- -- -- --
Treasury shares issued...... -- -- 136 21,571 239 -- --
Other comprehensive
income................... -- -- -- -- -- -- 1,705
Cash dividends.............. -- -- -- -- -- -- --
Distribution of shares of
Atlas America, Inc........ -- -- -- -- -- -- 1,865
Repayment of ESOP loan...... -- -- -- -- -- 634 --
Net income.................. -- -- -- -- -- -- --
---------- --------- ----------- ----------- ---------- --------- ------------
Balance, June 30, 2005...... 26,012,789 $ 260 $ 254,414 (8,031,491) $ (77,428) $ (493) $ 1,995
========== ========= =========== ============ ========== ========= ============
TOTALS
RETAINED STOCKHOLDERS'
EARNINGS EQUITY
--------------------------------
Balance, October 1, 2004....
Common shares issued........ $ 90,164 $ 257,915
Treasury shares issued...... -- 6,418
Other comprehensive -- 375
income...................
Cash dividends.............. -- 1,705
Distribution of shares of (2,632) (2,632)
Atlas America, Inc........
Repayment of ESOP loan...... (93,244) (91,379)
Net income.................. -- 634
17,639 17,639
Balance, June 30, 2005...... ----------- -----------
$ 11,927 $ 190,675
=========== ===========
See accompanying notes to consolidated financial statements
5
RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
NINE MONTHS ENDED
JUNE 30,
---------------------------
2005 2004
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................... $ 17,639 $ 12,351
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization.................................................. 2,133 1,758
Amortization of discount on debt and deferred finance costs.................... 34 399
Accretion of discount.......................................................... (1,325) (2,345)
Collection of interest......................................................... 550 793
Provision for possible losses.................................................. 150 582
Equity in earnings of equity investees......................................... (7,395) (4,375)
Minority interest.............................................................. 1,158 --
Income from discontinued operations............................................ (12,281) (12,571)
Gain on sale of RAIT Investment Trust shares................................... (1,459) (7,095)
Net (gain) loss on asset resolutions........................................... (5,836) 1,181
Loan writedown................................................................. 369 --
Deferred income tax provision (benefit)........................................ 3,921 (12,365)
Non-cash compensation on long-term incentive plans............................. 375 216
Non-cash compensation for Resource Capital Corp. stock and options received.... (1,018) --
Non-cash compensation for Resource Capital Corp. stock and options issued...... 405 --
Tax benefit from the exercise of stock options................................. (138) --
Provision for deferred rent.................................................... 221 --
Net change in net assets of FIN 46 entities' and others held for sale............ (3,461) 1,050
Increase in equipment finance investments........................................ (31,163) (35,447)
Changes in operating assets and liabilities....................................... (8,986) 11,665
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES OF CONTINUING OPERATIONS.................... (46,107) (44,203)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................. (15,956) (820)
Payments received on real estate loans and real estate........................... 4,848 7,939
Investments in real estate loans and real estate................................. (3,552) (6,864)
Distributions from equity investees.............................................. 20,809 5,155
Financial fund management investments............................................ (8,300) (4,011)
Investment in Resource Capital Corp.............................................. (15,000) --
Proceeds from sale of financial fund management assets........................... 1,950 --
Proceeds from sale of RAIT Investment Trust shares............................... 2,924 15,233
Dividends received from Atlas America............................................ -- 52,133
--------- ---------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES OF CONTINUING OPERATIONS..... (12,277) 68,765
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings....................................................................... 193,386 111,478
Principal payments on borrowings................................................. (159,355) (169,115)
Distributions paid to minority holders........................................... (1,136) --
Investor contributions to financial fund management investments.................. 3,651 --
Dividends paid................................................................... (2,632) (1,743)
Proceeds from issuance of stock.................................................. 4,735 478
Increase in other assets......................................................... (204) (367)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES OF CONTINUING OPERATIONS..... 38,445 (59,269)
Net cash provided by discontinued operations..................................... 22,915 59,092
Net cash retained by Atlas America............................................... (29,192) --
--------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS................................ (26,216) 24,385
Cash and cash equivalents at beginning of period................................. 69,099 41,129
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....................................... $ 42,883 $ 65,514
========= =========
See accompanying notes to consolidated financial statements
6
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(UNAUDITED)
NOTE 1 - MANAGEMENT'S OPINION REGARDING INTERIM FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of the
Company and its subsidiaries, including certain variable interest entities
("VIEs") in which the Company has determined that it is the primary beneficiary
(see Note 6).
On June 30, 2005, the Company distributed its remaining 10.7 million
shares of Atlas America, Inc., our former energy subsidiary, ("Atlas America")
(Nasdaq: ATLS) to its stockholders in the form of a tax free dividend. Each
stockholder of the Company received 0.59367 shares of Atlas America for each
share of Company common stock owned as of June 24, 2005, the record date.
Although the distribution itself will be tax-free to our stockholders, as a
result of the deconsolidation there may be some tax liability arising from prior
unrelated corporate transactions among Atlas America and some of its
subsidiaries. We anticipate that any liability arising from this transaction
will be reimbursed to us by Atlas America. The Company no longer consolidates
with Atlas America as of June 30, 2005, and the results of Atlas America's
operations are reflected as discontinued operations in the Consolidated
Statements of Income.
The consolidated financial statements and the information and tables
contained in the notes thereto as of June 30, 2005 and for the three and nine
months ended June 30, 2005 and 2004 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 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 for the fiscal year ended September 30, 2004 ("fiscal 2004"). The results
of operations for the three months and nine months ended June 30, 2005 may not
necessarily be indicative of the results of operations for the full fiscal year
ending September 30, 2005 ("fiscal 2005").
Certain reclassifications have been made to the fiscal 2004
consolidated financial statements to conform to the fiscal 2005 presentation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUPPLEMENTAL CASH FLOW INFORMATION
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 (in thousands):
NINE MONTHS ENDED
JUNE 30,
-----------------------------
2005 2004
---------- ---------
Cash paid during the period for:
Interest........................................................................ $ 1,989 $ 4,249
Income taxes.................................................................... $ 10,800 $ --
Non-cash activities include the following:
Receipt of note upon resolution of a real estate loan treated as a FIN 46 asset. $ -- $ 8,772
Distribution of shares of Atlas America to shareholders......................... $ 91,379 $ --
7
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2005
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In May 2005, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 154, "Accounting Changes
and Error Corrections" ("SFAS 154"). SFAS 154 requires retrospective application
to prior periods' financial statements of changes in accounting principles. It
also requires that the new accounting principle be applied to the balances of
assets and liabilities as of the beginning of the earliest period for which
retrospective application is practicable and that a corresponding adjustment be
made to the opening balance of retained earnings for that period rather than
being reported in an income statement. The statement will be effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. The impact of SFAS 154 will depend on the nature and
extent of any voluntary accounting changes and correction of errors after the
effective date, but management does not currently expect SFAS 154 to have a
material impact on the Company's financial position or results of operations.
In December 2004, the FASB issued a revision of SFAS 123, "Share-Based
Payment," ("SFAS 123-R") which requires all share-based payments to employees to
be recognized in the income statement based on their fair values. The Company's
option grants to employees and directors, as well as any restricted stock awards
represent share-based payments. SFAS 123-R supersedes Accounting Principles
Board ("APB") Opinion 25, "Accounting for Stock Issued to Employees," and amends
SFAS 95, "Statement of Cash Flows." SFAS 123-R is effective for the Company
beginning with its fiscal year commencing October 1, 2005. The adoption of SFAS
123-R may have a material impact on its financial statements in fiscal 2006, but
the Company cannot reasonably estimate the impact of adoption because the
Company expects certain assumptions that can materially effect the calculation
of the value of share-based payments to recipients to change between now and the
time of adoption.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation plans under
the recognition and measurement principles of APB 25 and related
interpretations. For substantially all grants of stock options, no stock-based
employee compensation expense is reflected in net income since each option
granted had an exercise price equal to the market value of the underlying common
stock on the date of grant.
SFAS 123, "Accounting for Stock-Based Compensation," ("SFAS 123)
requires the disclosure of pro forma net income and earnings per share as if the
Company had adopted the fair value method for stock options granted after June
30, 1996. The following table provides the pro forma effects of recognizing
compensation expense in accordance with SFAS 123 (in thousands, except per share
data):
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ------------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Net income as reported.................................... $ 1,610 $ 2,846 $ 17,639 $ 12,351
Stock-based employee compensation determined under
the fair value-based method for all grants, net of tax (265) (636) (801) (1,921)
--------- --------- --------- ---------
Pro forma net income...................................... $ 1,345 $ 2,210 $ 16,838 $ 10,430
========= ========= ========= =========
Basic earnings per share:
As reported............................................ $ 0.09 $ 0.16 $ 1.00 $ 0.71
Pro forma.............................................. $ 0.08 $ 0.13 $ 0.96 $ 0.60
Diluted earnings per share:
As reported............................................ $ 0.09 $ 0.15 $ 0.93 $ 0.68
Pro forma.............................................. $ 0.07 $ 0.12 $ 0.89 $ 0.57
8
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2005
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of periodic temporary
investments of cash and cash equivalents. The Company places its temporary cash
investments in high-quality, short-term money market instruments and deposits
with high-quality financial institutions and brokerage firms. At June 30, 2005,
the Company had $46.1 million in deposits at various banks, of which $43.4
million was over the insurance limit of the Federal Deposit Insurance
Corporation. The Company has not incurred any losses on such investments.
INTEREST INCOME RECOGNITION - SECURITIES
The Company accounts for its interests in unconsolidated collateralized
debt obligations in accordance with Emerging Issues Task Force ("EITF") 99-20,
"Recognition of Interest Income and Impairment on Purchased and Retained
Beneficial Interests in Securitized Financial Assets," using the effective yield
method.
NOTE 3 - COMPREHENSIVE INCOME
Comprehensive income includes net income and all other changes in the
equity of a business during a period from transactions and other events and
circumstances from non-owner sources. These changes, other than net income, are
referred to as "other comprehensive income" and for the Company include changes
in the fair value, net of taxes, of its marketable securities and changes in
the value of hedges related to our energy operations through the date of the
spin-off of Atlas America.
The following table presents comprehensive income, net of tax (in
thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ------------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Net income................................................ $ 1,610 $ 2,846 $ 17,639 $ 12,351
Other comprehensive income (loss):
Unrealized gains (losses) on investments in
marketable securities, net of tax of $(488), $675,
($1,058) and ($598).................................. 907 (1,448) 1,965 1,161
Reclassification for gains realized in net income, net
of tax of $0, $544, $511 and $2,412.................. -- (1,057) (948) (4,683)
Unrealized gains (losses) on hedging contracts, net of
tax of $323 and $(122)............................... (599) -- 227 --
Less: Reclassification Adjustment for losses realized in
net income, net of taxes of $(226) and $(248)........ 420 -- 461 --
--------- --------- --------- ---------
Comprehensive income...................................... $ 2,338 $ 341 $ 19,344 $ 8,829
========= ========= ========= =========
Accumulated other comprehensive income, net of tax, is related to the
following (in thousands):
JUNE 30, SEPTEMBER 30,
2005 2004
----------- -------------
Marketable securities - unrealized gains..................................... $ 1,995 $ 978
Unrealized energy hedging losses............................................. -- (2,553)
----------- -------------
$ 1,995 $ (1,575)
=========== =============
9
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2005
(UNAUDITED)
NOTE 4 - EARNINGS PER SHARE
Basic earnings per share ("Basic EPS") is determined by dividing net
income by the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share ("Diluted EPS") is computed by
dividing net income by the sum of the weighted average number of shares of
common stock outstanding after giving effect to the potential dilution from the
exercise of securities, such as stock options, into shares of common stock as if
those securities were exercised.
The following table presents a reconciliation of the components used in
the computation of Basic EPS and Diluted EPS (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ------------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Income (loss) from continuing operations.................. $ 3,522 $ (854) $ 5,358 $ (220)
Income (loss) from discontinued operations, net of tax.... (1,912) 3,700 12,281 12,571
--------- --------- --------- ---------
Net income................................................ $ 1,610 $ 2,846 $ 17,639 $ 12,351
========= ========= ========= =========
Basic shares outstanding.................................. 17,716 17,452 17,582 17,393
Dilutive effect of stock option and award plans........... 1,210 1,147 1,237 796
--------- --------- --------- ---------
Dilutive shares outstanding............................... 18,926 18,599 18,819 18,189
========= ========= ========= =========
NOTE 5 - INVESTMENTS IN EQUIPMENT FINANCE
The Company's investments in equipment finance include the following
(in thousands):
JUNE 30, SEPTEMBER 30,
2005 2004
---------- ----------
Direct financing leases, net............................................... $ 36,591 $ 20,845
Notes receivable, net...................................................... 13,892 2,822
Assets subject to operating leases, net of accumulated depreciation of
$263 and $22............................................................. 4,416 510
---------- ----------
$ 54,899 $ 24,177
========== ==========
The interest rates on notes receivable range from 8% to 10%.
The components of direct financing leases are as follows (in
thousands):
JUNE 30, SEPTEMBER 30,
2005 2004
---------- ----------
Total future minimum lease payments receivable............................. $ 43,541 $ 25,052
Initial direct costs, net of amortization.................................. 736 428
Unguaranteed residual...................................................... 580 87
Unearned income............................................................ (8,153) (4,722)
Security deposits.......................................................... (113) --
---------- ----------
$ 36,591 $ 20,845
========== ==========
10
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2005
(UNAUDITED)
NOTE 5 - INVESTMENTS IN EQUIPMENT FINANCE - (CONTINUED)
Although the lease terms extend over many years as indicated in the
following table, the Company routinely sells the leases it acquires to Lease
Equity Appreciation Funds I and II or to Merrill Lynch Equipment Finance, LLC
shortly after their origination in accordance with agreements with each party.
As a result of these routine sales of leases and the Company's credit
evaluations, management concluded that no allowance for possible losses was
needed at June 30, 2005 and September 30, 2004. The contractual future minimum
lease and note payments and related rental payments expected to be received on
direct financing non-cancelable leases, notes receivable and operating leases
for each of the five succeeding annual periods ending June 30 and thereafter are
as follows (in thousands):
DIRECT FINANCING NOTES OPERATING
LEASES RECEIVABLE LEASES
---------------- ---------- ---------
2006................................................... $ 9,962 $ 3,343 $ 1,259
2007................................................... 9,632 1,580 1,196
2008................................................... 8,818 1,665 904
2009................................................... 6,833 1,591 383
2010................................................... 5,373 1,650 279
Thereafter............................................. 2,923 4,063 7
------------- --------- --------
$ 43,541 $ 13,892 $ 4,028
============= ========= ========
NOTE 6 - INVESTMENTS IN REAL ESTATE
REAL ESTATE LOANS AND REAL ESTATE
The Company focuses its real estate operations on the sponsorship and
management of real estate investment programs and the management and resolution
of its investments in real estate. In the management of its real estate
investment programs, the Company receives fees for acquisitions, debt placements
and management services related to the properties acquired by these programs.
The following is a summary of the changes in the carrying value of its
investments in real estate for the periods presented (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ------------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Investments in real estate loans, beginning of period..... $ 23,140 $ 48,535 $ 24,066 $ 40,416
New loan............................................... -- -- -- 8,772
Additions to existing loans............................ -- 955 1,240 3,017
Loan writedown......................................... -- -- (369) --
Accretion of discount (net of collection of interest).. 299 574 775 1,552
Collection of principal................................ -- -- (2,273) --
Cost of loans resolved................................. -- -- -- (3,693)
--------- --------- --------- ----------
Investments in real estate loans, end of period........... 23,439 50,064 23,439 50,064
Real estate ventures...................................... 10,957 13,415 10,957 13,415
Real estate owned, net of accumulated depreciation of
$1,259 and $830........................................ 13,784 12,127 13,784 12,127
Allowance for possible losses............................. (770) (1,823) (770) (1,823)
--------- --------- --------- ----------
Investments in real estate................................ 23,971 23,719 23,971 23,719
--------- --------- --------- ----------
$ 47,410 $ 73,783 $ 47,410 $ 73,783
========= ========= ========= ==========
11
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2005
(UNAUDITED)
NOTE 6 - INVESTMENTS IN REAL ESTATE - (CONTINUED)
REAL ESTATE LOANS AND REAL ESTATE - (CONTINUED)
At June 30, 2005 and 2004, the Company held, for its own account, real
estate loans with aggregate face values of $59.1 million and $186.9 million,
respectively. Amounts receivable, net of senior lien interests, were $43.6
million and $103.1 million at June 30, 2005 and 2004, respectively.
In determining the Company's allowance for possible losses related to
its investments in real estate, 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 real estate. The value of
loans and real estate may also be affected by factors such as the cost of
compliance with regulations and liability under applicable environmental 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. The Company reduces
its investments in real estate loans and real estate by an allowance for amounts
that may become unrealizable in the future. Such allowance can be either
specific to a particular loan or property or general to all loans and real
estate.
The following is a summary of activity in the allowance for possible
losses related to investments in real estate (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2005 2004 2005 2004
------------ ------------ --------- -----------
Balance, beginning of period.............................. $ 770 $ 1,673 $ 989 $ 1,417
Provision for possible losses............................. -- 150 150 550
Write-downs............................................... -- -- (369) (144)
------------ ------------ --------- -----------
Balance, end of period.................................... $ 770 $ 1,823 $ 770 $ 1,823
============ ============ ========= ===========
VARIABLE INTEREST ENTITIES
Financial Interpretation Number ("FIN") 46-R ("FIN 46-R") issued by the
FASB in December 2003, provides guidance as to the definition of a VIE and
requires it to be consolidated by its primary beneficiary, generally the party
having an ownership or other contractual financial interest that is expected to
absorb the majority of the VIEs expected losses. If no party has exposure to the
majority of the VIE's expected losses, the primary beneficiary will be the
party, if any, entitled to receive the majority of the VIE's residual returns.
The primary beneficiary is required to consolidate the VIE's assets, liabilities
and non-controlling interest at fair value.
Certain entities relating to the Company's real estate business have
been consolidated in accordance with FIN 46-R. Due to the timing of the receipt
of financial information, the Company accounts for these entities' activities on
a one quarter lag, except when adjusting for the impact of significant events
such as a refinance or sale. The assets, liabilities, revenues and costs and
expenses of the consolidated VIEs are included in the Company's consolidated
financial statements where previously the Company's interests had been recorded
as real estate loans.
12
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2005
(UNAUDITED)
NOTE 6 - INVESTMENTS IN REAL ESTATE - (CONTINUED)
CONSOLIDATION OF VARIABLE INTEREST ENTITIES - (CONTINUED)
The assets, liabilities, revenues and costs and expenses of the VIEs
that are now included in the consolidated financial statements are not the
Company's. The liabilities of the VIEs will be satisfied from the cash flows of
the VIEs consolidated assets, not from the assets of the Company, which has no
legal obligation to satisfy those liabilities. The following tables provide
supplemental information about assets, liabilities, revenues and costs and
expenses associated with entities consolidated in accordance with FIN 46-R and
are not classified as held for sale at the dates indicated. The assets and
liabilities of these VIEs are included in the balance sheets as indicated (in
thousands):
JUNE 30, SEPTEMBER 30,
2005 2004
----------- ------------
ASSETS:
Cash and cash equivalents.............................................. $ 494 $ 1,306
Accounts receivable, prepaid expenses and other current assets......... 154 347
Property and equipment, net of accumulated depreciation of $1,793
and $1,462........................................................... 41,837 58,897
Other assets, net...................................................... -- 8
----------- ------------
$ 42,485 $ 60,558
=========== ============
LIABILITIES:
Current portion of long-term debt...................................... $ 686 $ 790
Accounts payable....................................................... 3,884 4,036
Accrued liabilities and other current liabilities...................... 471 481
Long-term debt......................................................... 18,001 22,849
Deferred revenue and other liabilities................................. 186 1,835
----------- ------------
$ 23,228 $ 29,991
=========== ============
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
CONTINUING OPERATIONS - FIN 46:
Revenues - real estate.............................. $ 3,725 $ 2,728 $ 9,435 $ 7,714
Costs and expenses:
Operating expenses - real estate.................. 2,780 1,459 6,426 4,488
Depreciation and amortization..................... 372 390 1,031 1,044
---------- ---------- ---------- ----------
Operating income.................................... 573 879 1,978 2,182
Interest expense.................................... 261 237 785 864
---------- ---------- ---------- ----------
Income from continuing operations before taxes.... $ 312 $ 642 $ 1,193 $ 1,318
========== ========== ========== ==========
Minimum future rental income under non-cancelable operating leases
associated with real estate rental properties owned by the Company or real
estate consolidated under FIN 46-R that have terms in excess of one year for
each of the five succeeding years ended June 30, are as follows: 2006 -
$715,000; 2007 - $673,000; 2008 - $679,000; 2009 - $644,000 and 2010 - $583,000.
13
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2005
(UNAUDITED)
NOTE 6 - INVESTMENTS IN REAL ESTATE - (CONTINUED)
VARIABLE INTEREST ENTITIES - (CONTINUED)
The following tables provide supplemental information about assets,
liabilities and discontinued operations associated with six entities that are
held for sale, substantially all of which are consolidated in accordance with
FIN 46-R (in thousands):
JUNE 30, SEPTEMBER 30,
2005 2004
------------ -----------
ASSETS:
Cash and cash equivalents............................................. $ 1,497 $ 5,073
Accounts receivable, prepaid expenses and other current assets........ 2,348 873
Property and equipment, net........................................... 99,930 94,717
Other assets, net..................................................... 1,006 2,300
------------ -----------
Total assets held for sale.......................................... $ 104,781 $ 102,963
============ ===========
LIABILITIES:
Mortgage loans........................................................ $ 69,116 $ 58,168
Other liabilities..................................................... 7,837 7,132
------------ -----------
Total liabilities associated with assets held for sale.............. $ 76,953 $ 65,300
============ ===========
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2005 2004 2005 2004
---------- ----------- ---------- -----------
LOSSES FROM DISCONTINUED OPERATIONS:
Revenues............................................ $ 4,025 $ 3,927 $ 12,112 $ 10,369
Costs and expenses.................................. 3,663 4,218 10,856 11,252
---------- ----------- ---------- -----------
Operating income (loss)............................. 362 (291) 1,256 (883)
Loss on disposals................................... (7,681) (25) (7,961) (1,860)
Income tax benefit.................................. 2,482 111 2,342 958
---------- ----------- ---------- -----------
Losses from discontinued operations............... $ (4,837) $ (205) $ (4,363) $ (1,785)
========== =========== ========== ===========
For further information, see Note 15 on discontinued operations and
Note 18 in the subsequent events footnote for loss on disposal.
14
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2005
(UNAUDITED)
NOTE 7 - INVESTMENT IN RESOURCE CAPITAL CORP.
In March 2005, the Company formed and sponsored Resource Capital Corp.
("RCC"), a real estate investment trust that is managed by the Company. RCC's
principal business activity is to purchase and manage a diversified portfolio of
real estate related securities and commercial finance assets. The Company
purchased 1.0 million shares of RCC common stock for $15.00 per share and was
granted 345,000 shares of RCC restricted common stock and options to purchase
651,666 common shares of RCC at an exercise price of $15.00 per share. As of
June 30, 2005, the Company has awarded 279,000 of these restricted shares to
certain members of RCC's management. The investment of $15.0 million is carried
at the lower cost or market.
NOTE 8 - INVESTMENTS IN TRAPEZA ENTITIES
Investments in Trapeza entities are accounted for using the equity
method of accounting because the Company, as a 50% owner of the general partner
of these entities, has the ability to exercise significant influence over their
operating and financial decisions. The Company accounts for its share of equity
earnings using a one-quarter lag, as permissible by the accounting principles
generally accepted in the United States of America. The Company's combined
general and limited partner interests in these entities range from 13% to 18%.
NOTE 9 - INVESTMENTS IN FINANCIAL FUND MANAGEMENT ENTITIES
Investments in financial fund management entities contain the interests
in unconsolidated collateralized debt obligations owned by partnerships that the
Company controls and as a result, the entities are consolidated. The Company
accounts for these interests in accordance with EITF 99-20 and reflects the
interest owned by third parties as minority interest in financial fund
management on the consolidated balance sheets. The Company's combined general
and limited partner interests in these entities range from 15% to 36%.
NOTE 10 - PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation, depletion and
amortization is based on cost, less estimated salvage value, using the
straight-line method over the assets' estimated useful lives. Maintenance and
repairs are expensed as incurred. Major renewals and improvements that extend
the useful lives of property and equipment are capitalized.
The estimated service lives of property and equipment are as follows:
Leasehold improvements................................... 1-7 years
Land and buildings tenant-in-common interest............. 28 years
Real estate assets - FIN 46.............................. 40 years
Furniture and equipment.................................. 3-7 years
Energy property and equipment............................ 3-40 years
15
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2005
(UNAUDITED)
NOTE 10 - PROPERTY AND EQUIPMENT - (CONTINUED)
Property and equipment, net, consists of the following (in thousands):
JUNE 30, SEPTEMBER 30,
2005 2004
------------- --------------
Leasehold improvements..................................................... $ 571 $ 403
Land and buildings tenant-in-common interest............................... 14,022 --
Real estate assets - FIN 46................................................ 43,630 60,358
Furniture and equipment.................................................... 3,811 2,962
Energy property and equipment (see Note 1)................................. -- 379,939
------------- --------------
62,034 443,662
Accumulated depreciation, depletion and amortization:
Energy property and equipment.......................................... -- (66,847)
Other ................................................................. (3,566) (2,623)
------------- --------------
(3,566) (69,470)
------------- --------------
$ 58,468 $ 374,192
============= ==============
NOTE 11 - OTHER ASSETS
The following table provides information about other assets (in
thousands):
JUNE 30, SEPTEMBER 30,
2005 2004
------------- --------------
Investments in The Bancorp, Inc. common stock, at estimated fair value
including unrealized gains of $2,979 at June 30, 2005 and at cost at
September 30, 2004..................................................... $ 6,983 $ 4,004
Investment in RAIT Investment Trust, at estimated fair value including
unrealized gains of $90 and $1,483..................................... 169 3,026
Energy assets (see Note 1)................................................. -- 15,198
Other...................................................................... 9,962 7,276
------------- --------------
$ 17,114 $ 29,504
============= ==============
The Company accounts for its investments in The Bancorp, Inc. ("TBBK")
and RAIT Investment Trust ("RAIT") common shares in accordance with SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities." These
investments are classified as available-for-sale and, as such, are carried at
fair market value based on market quotes. Unrealized gains are reported as a
separate component of stockholders' equity. The cost of securities sold is based
on the specific identification method. The Company's investment in TBBK
preferred shares is valued at the lower of cost or market and is included in
other.
16
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2005
(UNAUDITED)
NOTE 12 - DEBT
Total debt consists of the following (in thousands):
JUNE 30, SEPTEMBER 30,
2005 2004
------------- -----------
Real estate - FIN 46 mortgage loans....................................... $ 18,687 $ 23,639
Mortgage payable tenant-in-common interest................................ 10,399 --
Equipment finance - revolving credit facilities........................... 45,625 18,083
Energy facilities and term loan (see Note 1).............................. -- 85,000
Other debt................................................................ 83 2,612
------------- -----------
Total debt............................................................ 74,794 129,334
Less current equipment finance - revolving credit facilities.............. 45,625 8,487
Less current maturities................................................... 700 6,151
------------- -----------
Long-term debt........................................................... $ 28,469 $ 114,696
============= ===========
Annual debt principal payments over the next five years ending June 30
are as follows (in thousands):
2006..................................... $ 46,325
2007..................................... 1,543
2008..................................... 739
2009..................................... 781
2010..................................... 14,220
NOTE 13 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In the ordinary course of its business operations, the Company has
ongoing relationships with several related parties. For a more detailed
description of these transactions, see the Company's annual report on Form 10-K
for the fiscal year ended September 30, 2004, at Note 5 of the "Notes to
Consolidated Financial Statements."
The following table details receivables from related parties (in
thousands):
JUNE 30, SEPTEMBER 30,
2005 2004
------------- ------------
Real estate investment partnerships....................................... $ 2,224 $ 509
Equipment finance partnerships............................................ 1,060 467
Atlas America............................................................. 1,297 --
Financial fund management entities........................................ 923 --
Other..................................................................... 18 --
------------- ------------
$ 5,522 $ 976
============= ============
17
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2005
(UNAUDITED)
NOTE 13 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS - (CONTINUED)
Relationship with Real Estate Investment Partnerships. In the three
months ended June 30, 2005 and 2004 and the nine months ended June 30, 2005 and
2004, the Company received fees from real estate investment partnerships in
which it was the general partner and manager of $1.8 million and $641,000,
respectively, and $3.2 million and $1.4 million, respectively.
Relationship with Equipment Finance Partnerships. In the three months
ended June 30, 2005 and 2004 and the nine months ended June 30, 2005 and 2004,
the Company received fees from equipment finance partnerships in which it was
the general partner and manager of $639,000 and $261,000, respectively, and $2.0
million and $701,000, respectively.
Relationship with Atlas America. On June 30, 2005, the Company
completed the spin-off of Atlas America. Certain operating expenditures totaling
$1.3 million that remain to be settled between the Company and Atlas America are
reflected in the consolidated balance sheets as receivables from related
parties. In connection with the spin-off, the Company and Atlas America have
entered into a series of agreements, including shared services and tax matters,
which will govern the future contractual obligations between the two companies.
Relationships with Trapeza and Structured Finance Fund ("SFF")
Partnerships. In the three months ended June 30, 2005 and 2004 and nine months
ended June 30, 2005 and 2004, the Company received fees from Trapeza and SFF
partnerships in which it was the general partner and manager of $1.2 million and
$329,000, respectively, and $2.6 million, and $1.6 million, respectively.
Relationship with RCC. In the three and nine months ended June 30,
2005, the Company received management fees and net equity compensation revenue
(See Note 7) of $1.4 million and $1.8 million, respectively, from RCC, which
began operations in March 2005. In addition, the Company was reimbursed $325,000
for operating expenses in the three and nine months ended June 30, 2005. The
Company is the external manager of RCC.
Other Relationships. In October 2003, the Company paid $200,000 to
Messrs. S. Schaeffer, D. Cohen and E. Cohen to reimburse them (without interest)
for costs that they had incurred in assuming title to a property in 1998,
facilitating the Company's maintenance of control of the property at that time.
In October 2003, the asset of an entity that is consolidated on the
Company's financial statements (as a result of the application of FIN 46-R) and
that underlies one of the Company's loans was sold to an entity of which D.
Cohen is a shareholder. The buyer was the highest bidder for the property. The
Company received $6.6 million in cash and recognized a gain of $78,000. Prior to
such sale, the FIN 46 entity's asset had been owned by a partnership in which
Messrs. E. Cohen, D. Cohen and Mrs. B. Cohen were limited partners.
In December 2003, RAIT provided the Company a standby commitment to
provide $10.0 million in bridge financing in connection with the retirement of
the Company's senior debt. RAIT received a $100,000 facilitation fee from the
Company in connection with providing this standby commitment. During January
2004, the Company borrowed and subsequently repaid the $10.0 million from RAIT.
18
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2005
(UNAUDITED)
NOTE 14 - OTHER INCOME
The Company's other income, net consists of the following (in
thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -------------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Settlement of claim against directors' and officers'
liability insurance carrier........................... $ -- $ -- $ 1,400 $ --
Gains on sales of RAIT shares............................. -- 1,601 1,459 7,095
Write-off of deferred finance costs and premium paid
on redemption of senior notes......................... -- -- -- (1,955)
Dividend income from RAIT................................. 2 177 10 848
Dividend income from TBBK................................. 38 -- 38 --
Interest income........................................... 256 98 700 307
Other..................................................... 14 83 181 276
---------- ---------- ---------- ----------
$ 310 $ 1,959 $ 3,788 $ 6,571
========== ========== ========== ==========
NOTE 15 - DISCONTINUED OPERATIONS
As a result of the spin-off of Atlas America, the results of its
operations are reflected as discontinued operations for all periods presented.
The loss on disposal included as part of discontinued operations reflects a
non-cash charge of $1.3 million related to the acceleration of stock options
held by Atlas America employees, in addition to legal, accounting and valuation
fees related to the spin-off.
Summarized operating results of energy operations of Atlas America are
as follows (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -------------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Income from discontinued operations before taxes.......... $ 9,634 $ 5,904 $ 31,450 $ 21,145
Loss on disposal.......................................... (2,130) -- (2,508) --
Provision for income taxes................................ (4,603) (1,999) (12,322) (7,181)
---------- ---------- ---------- ----------
Income from discontinued operations, net.................. $ 2,901 $ 3,905 $ 16,620 $ 13,964
========== ========== ========== ==========
The assets and liabilities of three and six real estate entities as of
June 30, 2005 and 2004, respectively, that are consolidated under the provisions
of FIN 46-R and three real estate properties owned have been classified as held
for sale based on the Company's intent to sell its interests in the properties
and in the VIE's real estate loans' underlying assets and liabilities included
in the Company's consolidated financial statements.
Summarized operating results of real estate held for sale are as
follows (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -------------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Income (loss) from discontinued operations before taxes... $ 362 $ (291) $ 1,256 $ (883)
Loss on disposal.......................................... (7,681) (25) (7,961) (1,860)
Income tax benefit........................................ 2,482 111 2,342 958
---------- ---------- ---------- ----------
Loss from discontinued operations, net.................... $ (4,837) $ (205) $ (4,363) $ (1,785)
========== ========== ========== ==========
19
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2005
(UNAUDITED)
NOTE 15 - DISCONTINUED OPERATIONS - (CONTINUED)
In September 1999, the Company adopted a plan to discontinue its
residential mortgage lending business, LowCostLoan.com, Inc. ("LCL"), formerly
Fidelity Mortgage Funding, Inc. The business was disposed of in November 2000.
Accordingly, LCL has been reported as a discontinued operation. Upon final
resolution of certain lease obligations and assets associated with LCL, the
Company had recognized a gain on disposal in the periods shown below. Summarized
results of LCL are as follows (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -------------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Gain on disposal.......................................... $ 36 $ -- $ 36 $ 602
Income tax provision...................................... (12) -- (12) (210)
---------- ---------- ---------- ----------
Income from discontinued operations, net.................. $ 24 $ -- $ 24 $ 392
========== ========== ========== ==========
Summarized results of discontinued energy, real estate and LCL
operations are as follows (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -------------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Income from discontinued operations before tax............ $ 9,996 $ 5,613 $ 32,706 $ 20,262
Loss on disposal.......................................... (9,775) (25) (10,433) (1,258)
Income tax provision...................................... (2,133) (1,888) (9,992) (6,433)
---------- ---------- ---------- ----------
Income (loss) from discontinued operations................ $ (1,912) $ 3,700 $ 12,281 $ 12,571
=========== ========== ========== ==========
NOTE 16 - OPERATING SEGMENTS
The Company's operations include three reportable operating segments
that reflect the way the Company manages its operations and makes business
decisions. In addition to its reporting operating segments, certain other
activities are reported in the "All other" category. Summarized operating
segment data are as follows (in thousands):
THREE MONTHS ENDED JUNE 30, 2005:
Revenues from Other significant
external Depreciation Segment items:
customers and amortization profit (loss) segment assets
--------- ---------------- ------------- --------------
Real estate..................... $ 11,104 $ 375 $ 6,216 $ 233,629
Equipment finance............... 3,481 372 98 70,706
Financial fund management....... 4,828 18 1,823 56,338
All other(a).................... -- 55 (1,660) 68,758
Eliminations.................... -- -- -- (45,260)
-------- ---------- ---------- -----------
Totals.......................... $ 19,413 $ 820 $ 6,477 $ 384,171
======== ========== ========== ===========
20
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2005
(UNAUDITED)
NOTE 16 - OPERATING SEGMENTS - (CONTINUED)
THREE MONTHS ENDED JUNE 30, 2004:
Revenues from Other significant
external Depreciation Segment items:
customers and amortization profit (loss) segment assets
--------- ---------------- ------------- --------------
Real estate..................... $ 4,921 $ 501 $ 1,645 $ 244,690
Equipment finance............... 1,326 200 (1,100) 55,055
Financial fund management....... 968 -- 278 8,687
All other(a).................... -- 41 (2,116) 367,214
Eliminations.................... -- -- -- (70,148)
-------- -------- -------- -----------
Totals.......................... $ 7,215 $ 742 $ (1,293) $ 605,498
======== ======== ======== ===========
NINE MONTHS ENDED JUNE 30, 2005:
Revenues from Other significant
external Depreciation Segment items:
customers and amortization profit (loss) segment assets
--------- ---------------- ------------- --------------
Real estate..................... $ 20,008 $ 1,174 $ 6,858 $ 233,629
Equipment finance............... 9,190 755 172 70,706
Financial fund management....... 10,908 46 3,851 56,338
All other(a).................... -- 158 (1,951) 68,758
Eliminations.................... -- -- -- (45,260)
-------- ---------- ---------- -----------
Totals.......................... $ 40,106 $ 2,133 $ 8,930 $ 384,171
======== ======== ======== ===========
NINE MONTHS ENDED JUNE 30, 2004:
Revenues from Other significant
external Depreciation Segment items:
customers and amortization profit (loss) segment assets
--------- ---------------- ------------- --------------
Real estate..................... $ 13,575 $ 1,329 $ 2,049 $ 244,690
Equipment finance............... 4,191 308 (2,569) 55,055
Financial fund management....... 4,046 -- 2,708 8,687
All other(a).................... -- 121 (2,521) 367,214
Eliminations.................... -- -- -- (70,148)
-------- ---------- ---------- ------------
Totals.......................... $ 21,812 $ 1,758 $ (333) $ 605,498
======== ========== ========== =============
- ------------
(a) Includes general corporate expenses and assets not allocable to any
particular segment and energy segment assets as of the three and nine months
ended June 30, 2004. There are no corresponding energy segment assets as of
June 30, 2005 due to the spin-off of Atlas America.
Segment profit (loss) represents income from continuing operations
before income taxes. Energy results have been reclassified as discontinued
operations and are therefore excluded from this presentation.
21
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30, 2005
(UNAUDITED)
NOTE 17 - COMMITMENTS AND CONTINGENCIES
In connection with the Company's sale on August 1, 2000 of its former
leasing subsidiary, Fidelity Leasing, Inc. and its subsidiary, JLA Credit
Corporation, the Company has been advised in April 2005 by the successor in
interest to the purchaser that the State of California has asserted a claim for
sales taxes, plus interest, of $4.0 million relating to JLA's operations for the
period from October 1996 through July 2000. Fidelity Leasing acquired JLA in
February 1999. The successor has asserted that payments, if any, with respect to
such claim are covered under indemnification provisions of the agreement of
sale. The Company believes it has meritorious defenses to any such
indemnification claim, as well as cross claims against the entities and persons
from whom it acquired JLA for that portion of any sales tax claim made by the
State of California relating to periods before the Company acquired JLA. The
Company also believes that JLA likely has meritorious defenses to the sales tax
claim purportedly being made by the State of California.
From time to time, the Company is named as a defendant in legal actions
arising from its normal business activities. Although the amount of any
liability that could arise with respect to currently pending actions cannot be
accurately predicted, the Company does not believe that the resolution of any
pending action will have a material adverse effect on its financial position,
results of operations or liquidity.
NOTE 18 - SUBSEQUENT EVENTS
On July 29, 2005, an Agreement of Sale among the Company and Scott
Schaeffer, as sellers, and ACP Mid-Atlantic LLC ("Buyer") became definitive.
Pursuant to the Agreement of Sale, (i) the Company agreed to sell to Buyer a
promissory note in the original principal amount of $31,000,000 made by ABB
South Street Associates, LLC ("ABB") (which owns the Alex Brown Building located
in Baltimore, Maryland), which note has a current principal balance of $56.3
million and which is secured by ownership interests in ABB; and (ii) the Company
agreed to sell to Buyer all of its equity interests in ABB. Scott Schaeffer also
agreed to sell certain equity interests to Buyer. Although the Company owns a
promissory note, ABB is a variable interest entity pursuant to FIN 46-R under
whose provisions ABB has been consolidated in the Company's financial statements
(see Note 6). In connection with the sale, the Company expects to receive net
proceeds of approximately $20.0 million and assumption by Buyer of $65.0
million of debt. Closing is contingent upon the approval of the lender holding
the mortgage loan on the Alex Brown Building and the approval of the other
equity holders. Based on the contract value and an estimate of remaining costs
and indemnities associated with the transaction, a write-down of $7.6 million
was recorded in the June 30, 2005 consolidated financial statements.
In July 2005, RCC filed a registration statement with the Securities
and Exchange Commission for an initial public offering of common stock. The
number of shares and pricing have not yet been determined.
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (UNAUDITED)
WHEN USED IN THIS FORM 10-Q, THE WORDS "BELIEVES" "ANTICIPATES,"
"EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES MORE
PARTICULARLY DESCRIBED IN ITEM 1, UNDER THE CAPTION "RISK FACTORS", IN OUR
ANNUAL REPORT ON FORM 10-K FOR FISCAL 2004. THESE RISKS AND UNCERTAINTIES COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. READERS ARE CAUTIONED NOT TO PLACE
UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE
DATE HEREOF. WE UNDERTAKE NO OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY
REVISIONS TO FORWARD-LOOKING STATEMENTS WHICH WE MAY MAKE TO REFLECT EVENTS OR
CIRCUMSTANCES AFTER THE DATE OF THIS FORM 10-Q OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.
OVERVIEW OF THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 2005 AND 2004
We completed the spin-off of Atlas America, Inc., our former energy
business, in our third fiscal quarter ended June 30, 2005. With the spin-off
completed, we no longer consolidate Atlas America's financial statements with
ours and, as a result, our assets, liabilities, stockholders' equity and
revenues and expenses have been substantially reduced. Although the distribution
itself will be tax-free to our stockholders, as a result of the deconsolidation
there may be some tax liability arising from prior unrelated corporate
transactions among Atlas America and some of its subsidiaries. We anticipate
that any liability arising from this transaction will be reimbursed to us by
Atlas America.
The initiatives we began in fiscal 2003 to expand our specialized asset
management businesses resulted in material growth in both revenues and assets
under management for those operations. Our total assets under management
increased from $2.7 billion at June 30, 2004 to $5.7 billion at June 30, 2005, a
113% increase. The growth was the result of an increase in real estate assets
managed on behalf of limited partnerships that we sponsor; an increase in
equipment finance assets managed on behalf of limited partnerships we sponsor
and on behalf of Merrill Lynch; and an increase in the financial fund management
assets we manage on behalf of individual and institutional investors and on
behalf of Resource Capital Corp. or RCC, an externally managed real estate
investment trust that we sponsored in March 2005.
The following table sets forth certain information relating to our
assets under management (in millions):
AS OF JUNE 30,
-------------------------------
2005 2004
----------- ------------
Real estate................................. $ 482 $ 439
Equipment finance........................... 291 139
Financial fund management................... 4,973 2,118
----------- ------------
$ 5,746 $ 2,696
=========== ============
Our revenues in each of our business segments are generated by the fees
we earn for structuring and managing the investment partnerships we sponsor on
behalf of individual and institutional investors and the income produced by
assets and investments we hold.
23
The following table set forth certain information related to the
revenues we recognized (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -------------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Finance and rental revenues(1)............................ $ 5,589 $ 4,642 $ 14,133 $ 12,466
Fund management revenues ((2))............................ 7,009 2,439 18,510 7,580
Other((3))................................................ 6,815 134 7,463 1,766
---------- ---------- ---------- ----------
$ 19,413 $ 7,215 $ 40,106 $ 21,812
========== ========== ========== ==========
- ---------------
(1) includes interest and accreted discount income from our real estate
operations, interest income from our equipment finance operations and
revenues from certain real estate assets;
(2) includes fees from each of our real estate, equipment finance and financial
fund management operations; our share of the income or loss from limited and
general partnership interests we own in our real estate and financial fund
management operations; as well as fees earned from our real estate and
equipment finance operations; and
(3) includes the resolution of loans and other property interests we hold in our
real estate segment; the disposition of leases in our equipment finance
operations; equity compensation earned in connection with the formation of
RCC and documentation; and late fee charges from our equipment finance
operations.
A detailed description of the revenues generated by each of our
business segments can be found under Results of Operations: Real Estate,
Equipment Finance and Financial Fund Management.
RESULTS OF OPERATIONS: REAL ESTATE
In real estate we manage two classes of assets:
o real estate loans, owned assets and ventures, known collectively as
our legacy portfolio; and
o real estate investment limited partnerships.
(in millions)
JUNE 30, JUNE 30,
2005 2004
---------- ----------
Legacy portfolio..................................... $ 307 $ 332
Real estate investment limited partnerships.......... 175 107
---------- ----------
$ 482 $ 439
========== ==========
During the twelve months ended June 30, 2005, we increased our total
assets under management to $481.6 million as compared to $438.6 million as of
June 30, 2004.
We have sponsored four real estate investment limited partnerships and
one tenant-in-common offering as of June 30, 2005 and three partnership
offerings as of June 30, 2004. We increased the amount of assets we managed on
behalf of the real estate investment limited partnerships we sponsored to $174.8
million at June 30, 2005 from $106.7 million at June 30, 2004.
As part of our strategic plan, we are continuing to resolve our real
estate loan portfolio through sales and loan resolutions. In the twelve months
ended June 30, 2005, we resolved loans with a book value of $23.9 million,
realizing $24.4 million in net proceeds. In addition, we refinanced the first
mortgage on a property accounted for by us as a FIN 46 asset and received net
proceeds of $8.6 million. The first mortgage on a real estate venture in which
we have a 50% interest was refinanced and received net proceeds of $13.6
million. As a result, the loans and real estate assets in our loan portfolio,
principally outstanding loan receivables, decreased from $331.9 million at June
30, 2004 to $306.8 million at June 30, 2005.
24
During the three and nine months ended June 30, 2005, our real estate
operations continued to be affected by three principal trends or events:
o we continued to selectively resolve the loans in our legacy
portfolio through repayments, sales, refinancings and
restructurings;
o we sought growth in our real estate business through the
sponsorship of real estate investment partnerships in which we are
also a minority investor; and
o the adoption of FIN 46-R.
The principal effects of the first two factors has been to reduce the
number of our real estate loans while increasing our interests in real property
and, as a result of repayments, sales, refinancings and restructurings, also
increasing our cash flow from loan resolutions. The principal effect of the
adoption of FIN 46-R has been to consolidate in our financial statements the
assets, liabilities, revenues and costs and expenses of a number of borrowers,
although not affecting our creditor-debtor legal relationship with these
borrowers and not causing these assets and obligations to become our legal
assets or obligations.
The following table sets forth certain information relating to the
revenues recognized and costs and expenses incurred in our real estate
operations (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ --------------------------
2005 2004 2005 2004
----------- ---------- ---------- ----------
Revenues:
FIN 46 revenues...................................... $ 3,725 $ 2,728 $ 9,435 $ 7,714
Fund management...................................... 1,669 641 3,184 1,371
Interest............................................. 149 225 550 792
Accreted loan discount (net of collection of
interest).......................................... 299 574 775 1,552
Gains on resolution of loans, FIN 46 assets and
ventures........................................... 5,733 -- 5,900 732
Earnings (losses) of equity investees
(net of depreciation of $490 and $219)............. (641) 96 (176) 473
Rental............................................... 170 657 340 941
---------- ---------- ---------- ----------
$ 11,104 $ 4,921 $ 20,008 $ 13,575
========== ========== ========== ==========
Costs and expenses:
Real estate general and administrative............... $ 1,462 $ 764 $ 4,588 $ 3,117
Rental............................................... -- (16) -- 36
FIN 46 operating expenses............................ 2,780 1,459 6,426 4,488
---------- ---------- ---------- ----------
$ 4,242 $ 2,207 $ 11,014 $ 7,641
========== ========== ========== ==========
25
Revenues - Three Months Ended June 30, 2005 as Compared to the Three Months
Ended June 30, 2004
Revenues increased $6.2 million (126%) for the three months ended June
30, 2005 as compared to the prior year period. We attribute the increase to the
following:
o a $997,000 increase (37%) in FIN 46 revenues. The increase is
primarily related to a hotel property in Savannah, Georgia that we
foreclosed on during the three months ended June 30, 2005; we
included five months of operating income in our results for the
three months ended June 30, 2005 as compared to three months for
the three months ended June 30, 2004;
o a $1.0 million increase (160%) in fund management revenues. We
earned fees for services provided to the real estate investment
partnerships which we sponsored relating to the purchase and third
party financing of three properties during the three months ended
June 30, 2005. These transaction fees totaled $1.3 million for the
three months ended June 30, 2005. Transaction fees related to the
purchase and third party financing of one property totaled $453,000
for three months ended June 30, 2004. Additionally, we earned
management fees for the properties owned by real estate investment
partnerships which we sponsored totaling $319,000 for the three
months ended June 30, 2005 as compared to $188,000 for the three
months ended June 30, 2004. We anticipate earning additional fees
from our existing partnerships and any future real estate
investment partnerships which we may sponsor; and
o a $5.7 million increase in gains on resolution of loans, FIN 46
assets and ventures. We recognized no gains during the three months
ended June 30, 2004. A partnership in which we own a 50% equity
interest refinanced its mortgage. We received net proceeds from the
refinancing of $13.6 million which was $4.2 million in excess of
the recorded value of our 50% interest. We recognized the $4.2
million as a gain. In addition, during the three months ended June
30, 2005 we foreclosed on a loan that was classified as a FIN 46
asset on our balance sheet. In connection with the foreclosure, we
acquired a note payable for $540,000 that was recorded on our books
as a FIN 46 liability in the amount of $1.6 million; as a result we
recognized a gain of $1.0 million. The foreclosed asset is recorded
as an investment in real estate at June 30, 2005.
The increase was partially offset by the following:
o a $351,000 decrease (44%) in interest and accreted discount income
for the three months ended June 30, 2005 as compared to the three
months ended June 30, 2004 resulting from the resolution of four
loans which decreased interest income by $369,000;
o a $737,000 decrease (768%) in our share of the operating results of
our unconsolidated real estate investments accounted for on the
equity method. The decrease for the three months ended June 30,
2005 was primarily due to losses incurred through equity
investments in our real estate investment partnerships made
subsequent to June 30, 2004 and the loss from an equity investment
which was converted from a loan during fiscal 2004. We support our
real estate investment partnerships by making long-term limited
partnership investments. In addition, from time-to-time, we make
bridge investments in the underlying properties to facilitate
acquisitions. We record losses on our equity method investments
primarily as a result of depreciation and amortization expense
recorded by the real estate investment partnerships. As additional
investors are admitted to the real estate investment partnerships,
we transfer our bridge investment in the real estate investment
partnerships to new investors at our original cost and recognize a
gain approximately equal to the previously recognized losses
incurred; and
o a $487,000 decrease (74%) in rental income reflecting the sale of a
real estate investment during the fourth quarter of fiscal 2004.
26
Gain on resolution of loans, FIN 46 assets and other real estate assets
(if any) and the amount of fees received (if any) vary by each transaction and,
accordingly, there may be significant variations in our gains on resolutions and
fee income from period to period.
Costs and Expenses - Three Months Ended June 30, 2005 as Compared to the Three
Months Ended June 30, 2004
Costs and expenses of our real estate operations were $4.2 million for
the three months ended June 30, 2005, an increase of $2.0 million (92%) as
compared to the three months ended June 30, 2004. We attribute the increase to
the following:
o a $698,000 increase (91%) in real estate general and administrative
expenses. The increase resulted primarily from the following:
- a $216,000 increase in wages and benefits as a result of the
addition of personnel in our real estate subsidiary to manage our
existing portfolio of commercial loans and real estate and to
expand our real estate operations through the sponsorship of real
estate investment partnerships;
- a $97,000 increase in sales and marketing expenses (none for the
three months ended June 30, 2004) reflecting the efforts of
in-house marketing personnel and external wholesale
representatives to sell interests in our real estate investment
partnerships and an increase in travel costs of $88,000 due to
the increased acquisition activity associated with our management
of our real estate investment programs;
- a $144,000 increase in property management expenses related to
real estate investment partnerships; and
- a $153,000 net increase in outside services and office expenses.
o an increase of $1.3 million (91%) in FIN 46 operating expenses. The
increase is primarily related to a hotel property in Savannah,
Georgia that we foreclosed on during the three months ended June 30,
2005; we included five months of operating expenses in our results
for the three months ended June 30, 2005 as compared to three months
for the three months ended June 30, 2004.
Revenues - Nine months Ended June 30, 2005 as Compared to the Nine months Ended
June 30, 2004
Revenues increased $6.4 million (47%) to $20.0 million in the nine
months ended June 30, 2005 from $13.6 million in the nine months ended June 30,
2004. We attribute the increase to the following:
o a $1.7 million increase (22%) in FIN 46 revenues for the nine
months ended June 30, 2005, as compared to the nine months ended
June 30, 2004. The increase is primarily related to a hotel
property in Savannah, Georgia that we foreclosed on during the nine
months ended June 30, 2005; we included eleven months of operating
income in our results for the nine months ended June 30, 2005 as
compared to nine months for the nine months ended June 30, 2004;
o a $1.8 million increase (132%) in fund management revenues for the
nine months ended June 30, 2005 as compared to the nine months
ended June 30, 2004. We earned fees for services provided to the
real estate investment partnerships which we sponsored relating to
the purchase and third party financing of five properties in the
nine months ended June 30, 2005 and two properties in the nine
months ended June 30, 2004. The transaction fees totaled $2.4
million for the nine months ended June 30, 2005 and $846,000 for
the nine months ended June 30, 2004. Additionally, we earned
management fees for the properties owned by real estate investment
partnerships which we sponsored totaling $814,000 for the nine
months ended June 30, 2005 and $525,000 for the nine months ended
June 30, 2004; and
27
o a $5.2 million increase (706%) in gains on resolutions of loans, FIN
46 assets and real estate assets. A partnership in which we own a
50% equity interest refinanced its mortgage. We received net
proceeds from the refinancing of $13.6 million which was $4.2
million in excess of the recorded value of our 50% interest. We
recognized the $4.2 million as a gain. In addition, during the nine
months ended June 30, 2005, we foreclosed on a loan that was
classified as a FIN 46 asset on our balance sheet. In connection
with the foreclosure, we acquired a note payable for $540,000 that
was recorded on our books as a FIN 46 liability in the amount of
$1.6 million; as a result we recognized a gain of $1.0 million. The
foreclosed asset is recorded as an investment in real estate at June
30, 2005. We recognized an additional gain of $85,000 in connection
with the resolution of an asset that was originally resolved during
fiscal year 2004. We recognized an aggregate gain of $518,000 on the
sale of two investments in our real estate investment partnerships
during fiscal year 2005. In the nine months ended June 30, 2004, we
resolved three loans having an aggregate book value of $3.7 million
for $3.5 million, recognizing losses of $109,000. We also received
$3.4 million for the sale of our investment in one venture resulting
in a gain of $841,000.
The increases were partially offset by the following:
o a $1.0 million decrease (43%) in interest and accreted discount
income resulting from the resolution of six loans since June 30,
2004. The decrease relates principally to one loan resolved during
fiscal 2004;
o an $649,000 decrease (137%) in our share of the operating results of
our unconsolidated real estate investments accounted for on the
equity method for the nine months ended June 30, 2005 as compared to
the nine months ended June 30, 2004. The decrease for the nine
months ended June 30, 2005 was primarily due to losses incurred
through equity investments in our real estate investment
partnerships made subsequent to June 30, 2004 and the loss from an
equity investment which was converted from a loan during fiscal
2004. We support our real estate investment partnerships by making
long-term limited partnership investments. In addition, from
time-to-time, we make bridge investments in the underlying
properties to facilitate acquisitions. We record losses on our
equity method investments primarily as a result of depreciation and
amortization expense recorded by the real estate investment
partnerships. As additional investors are admitted to the real
estate investment partnerships, we transfer the bridge investment in
the real estate investment partnership to new investors at our
original cost and recognize a gain approximately equal to the
previously recognized losses incurred; and
o a $601,000 decrease (64%) in rental income for the nine months ended
June 30, 2005 as compared to the nine months ended June 30, 2004
because of the sale of a real estate investment during the fourth
quarter of fiscal 2004.
Gains on resolutions of loans, FIN 46 assets and other real estate
assets (if any) and the amount of fees received (if any) vary from transaction
to transaction and there may be significant variations in our gains on
resolutions and fee income from period to period.
Costs and Expenses - Nine Months Ended June 30, 2005 as Compared to the Nine
Months Ended June 30, 2004
Costs and expenses of our real estate operations were $11.0 million for
the nine months ended June 30, 2005, an increase of $3.4 million (44%) as
compared to the nine months ended June 30, 2004.
We attribute the increase to the following:
o an increase of $1.5 million (47%) in real estate general and
administrative expenses in the nine months ended June 30, 2005, as
compared to the nine months ended June 30, 2004. The increase
resulted primarily from the following:
- a $1.3 million increase in wages and benefits and $22,000 in
office expenses as a result of the addition of personnel in our
real estate subsidiary to manage our existing portfolio of
commercial loans and real estate and to expand our real estate
operations through the sponsorship of real estate investment
partnerships;
28
- a $113,000 increase in both property management expenses related
to real estate investment partnerships and $164,000 of travel
costs due to the increased acquisition activity associated with
managing our real estate investment programs;
- a $183,000 increase in sales and marketing expenses reflecting
the efforts of in-house marketing personnel and external
wholesale representatives to sell interests in our real estate
investment partnerships;
- a $262,000 decrease in outside services, primarily legal and
consulting; and
o a $1.9 million increase (43%) in FIN 46 operating expenses for the
nine months ended June 30, 2005 as compared to the nine months ended
June 30, 2004. The increase is primarily related to a hotel property
in Savannah, Georgia that we foreclosed on during the three months
ended June 30, 2005; we included five months of operating expense in
our results for the three months ended June 30, 2005 as compared to
three months for the three months ended June 30, 2004.
RESULTS OF OPERATIONS: EQUIPMENT FINANCE
During the twelve months ended June 30, 2005, we continued to increase
our assets under management to $290.7 million as compared to $138.9 million as
of June 30, 2004, an increase of $151.8 million (109%). Our equipment finance
origination growth was driven by our March 2005 acquisition of the business and
lease portfolio of Allco Enterprises totaling $28.0 million, new vendor programs
as well as expansion of our sales staff. This growth was facilitated by our
relationships with Merrill Lynch and our investment partnerships.
In December 2004, we began the $60.0 million offering of our second
investment partnership Lease Equity Appreciation Fund II ("LEAF II"). On April
14, 2005, we sold the required number of units to break escrow and commenced
operations. As of June 30, 2005, LEAF II has raised $4.8 million. As of June 30,
2005, Lease Equity Appreciation Fund I ("LEAF I"), our first investment
partnership, has approached full investment and has $92.3 million in equipment
finance assets. In March 2005, our agreement with Merrill Lynch Equipment
Finance LLC ("Merrill Lynch") was extended for two more years until April 2007.
The following table sets forth certain information relating to assets
managed on behalf of our investment partnerships, Merrill Lynch and ourselves
(in thousands):
JUNE 30, JUNE 30,
2005 2004
------------- -----------
LEAF Financial......................... $ 54,899 $ 41,860
LEAF I................................. 92,314 36,753
LEAF II................................ 5,899 --
Merrill Lynch.......................... 137,571 60,266
------------- -----------
$ 290,683 $ 138,879
============= ===========
The following table sets forth certain information related to the types
of businesses in which our equipment finance assets are used and the
concentration by type of equipment finance assets under management as of June
30, 2005, as a percentage of our total managed portfolio:
LESSEE BUSINESS EQUIPMENT UNDER LEASE
- --------------- ---------------------
Services 51% Industrial 25%
Manufacturing services 12% Medical 22%
Retail trade services 12% Computers 17%
Wholesaler trade 5% Office equipment 10%
Transportation / Communication 5% Software 7%
Finance / Insurance 5% Garment care 7%
Construction 5% Communication 4%
Agriculture 2% Building systems 4%
Other 3% Other 4%
-------- -------
100% 100%
======== =======
29
The revenues from our equipment finance operations consist primarily of
finance revenues from financings (leases and loans) owned by us before they are
sold; asset acquisition fees which are earned when equipment finance assets are
sold to one of the investment partnerships; or Merrill Lynch and asset
management fees which are earned over the life of the lease after a lease is
sold. The following table sets forth certain information relating to the
revenues recognized and costs and expenses incurred in our equipment finance
operations (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- --------------------------
2005 2004 2005 2004
---------- ---------- ----------- ----------
Revenues:
Finance.............................................. $ 1,246 $ 458 $ 3,033 $ 1,467
Fund management fees................................. 1,968 869 5,626 2,245
Other................................................ 267 (1) 531 479
---------- ---------- ---------- ----------
$ 3,481 $ 1,326 $ 9,190 $ 4,191
========== ========== ========== ==========
Costs and expenses...................................... $ 2,467 $ 1,975 $ 6,976 $ 5,627
========== ========== ========== ==========
Revenues - Three Months Ended June 30, 2005 as Compared to the Three Months
Ended June 30, 2004
Revenue increased $2.2 million (163%) for the three months ended June
30, 2005 as compared to the prior year period. We attribute this increase to the
following:
o $788,000 (172%) increase in finance revenues for the three months
ended June 30, 2005 as compared to the three months ended June 30,
2004 due to the growth in lease originations;
o $1.1 million (126%) increase in fund management fees for the three
months ended June 30, 2005 as compared to the three months ended
June 30, 2004. This increase resulted primarily from the following:
- $932,000 (453%) increase in asset management fees for the three
months ended June 30, 2005 as compared to the three months ended
June 30, 2004 resulting from the increase in assets under
management of our affiliated partnerships and Merrill Lynch
($290.7 million as compared to $138.9 million as of June 30, 2005
and 2004 respectively);
- $167,000 (25%) increase in asset acquisition fees for the three
months ended June 30, 2005 as compared to the three months ended
June 30, 2004 resulting from the increase in leases sold to our
affiliated partnerships and Merrill Lynch; and
o $268,000 increase in other income for the three month period June
30, 2005 as compared to the three months ended June 30, 2004. This
increase is due to gains on lease dispositions of $131,000, an
increase in documentation fees and late charges of $61,000 and
interest income of $70,000.
Costs and Expenses - Three Months Ended June 30, 2005 as Compared to the Three
Months Ended June 30, 2004
Costs and expenses increased $492,000 (25%) for the three month period
ended June 30, 2005 as compared to the prior year period. We attribute this
increase to the following:
o $586,000 increase in salary expense for the three months ended June
30, 2005 as compared to the three month period ended June 30, 2004.
This increase is a result of additional personnel needed to support
the expansion of our operations; and
o $94,000 decrease in general and administrative expenses for the
three month period ended June 30, 2005 as compared to the three
months ended June 30, 2004. This decrease resulted primarily from
the following:
- a onetime $359,000 liquidation expense incurred in 2004 as a
result of dissolving other affiliated partnerships; and
- an increase in the expenses reimbursed from our investment
partnerships of $104,000 which results in a decrease to general
and administrative expenses.
30
These decreases were partially offset by the following:
o an increase in professional fees of $136,000 related to accounting,
legal and consulting. These increases are the result of the over all
expansion of our operation;
o an $88,000 increase in UCC filing fees which is related to the
increase in assets under management;
o a $79,000 increase in travel and entertainment as result of the
expansion of our business development activities; and
o a $52,000 increase in business development expenses.
Revenues - Nine Months Ended June 30, 2005 as Compared to the Nine Months Ended
June 30, 2004
Revenues increased $5.0 million (119%) to $9.2 million in the nine
months ended June 30, 2005 as compared to the prior year period. We attribute
the increase to the following:
o $1.6 million increase in finance revenues for the nine month period
ended June 30, 2005 as compared to the nine month period ended June
30, 2004. This increase is primarily due to an increase of $71.8
million in lease originations for the nine month period ended June
30, 2005 as compared to the prior year period;
o $3.4 million (151%) increase in fund management fees for the nine
month period ended June 30, 2005 as compared to the nine month
period ended June 30, 2004. We attribute this increase to the
following:
- $2.0 million increase in asset management fees for the nine month
period ended June 30, 2005 as compared to the nine month period
ended June 30, 2004. This increase is directly related to our
increase in assets under management;
- $1.4 million increase in asset acquisition fees for the nine
month period ended June 30, 2005 as compared to the nine month
period ended June 30, 2004. Our increase in lease originations
allowed us to increase our sales to our affiliated partnerships
and Merrill Lynch for which we are paid acquisition fees; and
o $52,000 increase in other income for the nine month period ended
June 30, 2005 as compared to the nine month period ended June 30,
2004. This increase is primarily due to an increase in our fee
income offset by a decrease in gains on dispositions of lease
assets.
Costs and Expenses - Nine Months Ended June 30, 2005 as Compared to the Nine
Months Ended June 30, 2004
Costs and expenses increased $1.3 million (24%) for the nine months
ended June 30, 2005 as compared to the nine months ended June 30, 2004.
We attribute this increase to the following:
o $1.8 million increase in salary, wages and benefits for the nine
months ended June 30, 2005 as compared to the nine months ended June
30, 2004. This increase is due to additional personnel for further
expansion of our operations;
o $485,000 decrease in general and administrative expenses for the
nine month period ended June 30, 2005 as compared to the nine months
ended June 30, 2004. We attribute this decrease to the following:
- $1.2 million decrease in offering and organization expenses
related to our affiliated partnerships for the nine months ended
June 30, 2005 as compared to the nine months ended June 30, 2004;
and
- $360,000 decrease in liquidation expense as a result of a one
time charge in 2004 as a result of dissolving other affiliated
partnerships.
The decreases were partially offset by the following:
o $473,000 decrease in expenses reimbursed to us by our investment
partnerships;
o $206,000 increase in travel and entertainment expenses resulting
from the expansion of our business development activities;
31
o $183,000 increase in professional fees related to accounting, legal
and consulting. This increase is directly related the over all
expansion of our operations;
o $124,000 increase in credit report fees as a result of our increased
lease originations; and
o $41,000 increase in insurance resulting from the overall expansion
of our operations for the nine months ended June 30, 2005 as
compared to the nine months ended June 30, 2004.
RESULTS OF OPERATIONS: FINANCIAL FUND MANAGEMENT
In financial fund management, we manage the following types of
securities and loans:
o bank and bank holding company and insurance trust preferred
securities ("Trapeza");
o asset-backed securities ("Ischus");
o syndicated loans ("Apidos"); and
o mezzanine and B notes ("Resource Real Estate").
During the twelve months ended June 30, 2005, we continued to increase
our assets under management to $5.0 billion as compared to $2.1 billion as of
June 30, 2004. The following table sets forth certain information relating to
assets managed on behalf of institutions and individual investors and assets
managed on behalf of a newly formed mortgage REIT, Resource Capital Corp.
("RCC"), which is managed by us (in millions).
AS OF JUNE 30, 2005
---------------------------------------------------
INSTITUTIONAL AND
INDIVIDUAL
INVESTORS RCC TOTAL BY TYPE
----------------- ---------- -------------
Assets Under Management:
Trapeza............................................. $ 2,643 $ -- $ 2,643
Ischus.............................................. 859 1,257 2,116
Apidos.............................................. 34 155 189
Resource Real Estate................................ -- 25 25
--------- ---------- --------
$ 3,536 $ 1,437 $ 4,973
========= ========== ========
Through management of these assets we earn management fees,
administration fees and reimbursements as follows:
Assets managed on behalf of institutional and individual investors
o collateral management fees - these vary by CDO issuer, but have
ranged from between 0.25% and 0.60% of the aggregate principal
balance of the collateral securities owned by the CDO issuers
collateralized debt obligations ("CDO"); and
o administration fees - these vary by limited partnership, but have
ranged from between 0.75% and 2.00% of the partnership capital
balance.
Assets managed on behalf of RCC
o base management fee - 1.50% annually of RCC's equity, paid monthly,
as defined under the Management Agreement, dated March 8, 2005,
between Resource Capital Manager, Inc. ("RCM"), an indirect
wholly-owned subsidiary, and RCC;
o incentive management fee - 25% of RCC's net income (as defined in
the Management Agreement) in excess of the greater of a return of
8.00% or the 10 year Treasury rate plus 2.00%; and
o reimbursements - we receive expense reimbursements from RCC on a
monthly basis for certain out-of-pocket expenses that relate to RCC.
32
TRAPEZA
We have co-sponsored, structured and currently co-manage seven CDO
issuers holding approximately $2.4 billion in bank and bank holding company
trust preferred securities. At June 30, 2005, we managed $244.2 million in bank
and bank holding company and insurance trust preferred securities for our eighth
CDO and anticipate closing this CDO in August 2005 after fully ramping the
warehouse line to include $300.0 million of these securities when closed. The
Company anticipates that it will make an equity investment in this transaction.
We own a 50% interest in an entity that manages five CDO issuers in
this series with collateral pools consisting of the trust preferred securities
of financial institutions and a 33.33% interest in another entity that manages
two collateral pools of trust preferred CDO issuers. We also own a 50% interest
in the general partners of the limited partnerships (the "Trapeza Partnerships")
that own the equity interest of the five Trapeza CDO issuers. We also have
invested as a limited partner in each of these limited partnerships.
We derive revenues from these CDO operations through management and
administration fees. We also receive distributions on amounts we invest in the
limited partnerships. Management fees vary by CDO issuer, but have ranged from
between 0.25% and 0.60% of the aggregate principal balance of the collateral
securities owned by the CDO issuers. These fees are also shared with our
co-sponsors. The fees are payable monthly, quarterly or semi-annually, as long
as the Trapeza management entity continues as the collateral manager of the CDO
issuer. Our interest in distributions from the CDO issuers varies with the
amount of our investment in a particular limited partnership and with the terms
of our general partner interest. We have incentive distribution interests in
four of the partnerships.
ISCHUS
In June 2004, we formed Ischus to focus on selecting, managing and
investing in and managing asset-backed securities ("ABS") (primarily real estate
asset-backed securities) including residential mortgage-backed securities and
commercial mortgage backed securities. In December 2004, we closed Ischus CDO I
Ltd, a CDO with approximately $400.0 million in ABS collateral. At June 30,
2005, we managed $459.2 million of asset-backed securities for Ischus III and
anticipate closing this CDO after fully ramping the warehouse line to include
$1.5 billion of these securities when closed. The Company anticipates making an
equity investment in this transaction. Ischus acts as collateral manager for
CDO I and will act as collateral manager for Ischus III.
We own a 50% interest in the general partner and manager of Structured
Finance Fund, L.P. and Structured Finance Fund II, L.P., ("SFF"). These
partnerships own a portion of the equity interests of three Trapeza CDO issuers
and Ischus CDO I, Ltd. We also have invested as a limited partner in each of
these limited partnerships.
We derive revenues from these CDO operations through management and
administration fees. We also receive distributions on amounts we invest in the
limited partnerships. Ischus receives management fees of 0.35% of the aggregate
principal balance of the collateral securities owned by the CDO issuer of which
a portion is subordinated. Our interest in distributions from the CDO issuer
varies with the amount of our investment in a particular limited partnership and
with the terms of our general partner interest.
APIDOS
In January 2005, we formed Apidos to focus on selecting, investing and
managing syndicated loans. Apidos intends to leverage our expertise and
experience as a CDO collateral manager. At June 30, 2005, we managed $34.5
million of these types of loans for Apidos II and anticipate closing a CDO after
fully ramping the warehouse line to include $350.0 million of these types of
loans. Apidos will act as collateral manager for the CDO. The Company
anticipates making an equity investment in this transaction.
33
RCC
In March 2005, we formed RCC, a real estate investment trust,
externally managed by RCM. The offering generated gross proceeds of
approximately $230.0 million and net proceeds of approximately $214.2 million to
RCC, after deducting the initial purchaser's discount and placement fees and
estimated offering expenses. RCC's principal business activity is to purchase
and manage a diversified portfolio of real estate related securities and
commercial finance assets.
We derive revenues from RCC through its management agreement with RCM.
In return for certain investment and advisory services, RCM is entitled to
receive a base management fee, an incentive management fee and a reimbursement
for certain out-of-pocket expenses that relate to RCC. In addition, we have
invested $15.0 million in RCC and expect to receive dividends on our investment
in the future.
At June 30, 2005, we managed a portfolio of over $1.4 billion of
diversified real estate related securities and commercial finance assets,
including $936.5 million of agency and $321.0 million of non-agency (Ischus II)
asset-backed securities managed by Ischus, $154.5 million of syndicated loans
(Apidos I) managed by Apidos, and $25.2 million of mezzanine B notes managed by
Resource Real Estate.
In connection with the formation of RCC, we were granted 345,000 shares
of restricted common stock and options to purchase 651,666 common shares at an
exercise price of $15.00 per share. We subsequently transferred 279,000 of
restricted shares to certain members of RCC's management.
The following table sets forth certain information relating to the
revenues recognized and costs and expenses incurred in our financial fund
management operations (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Revenues:
Fund management fees............................... $ 1,035 $ 493 $ 2,862 $ 1,242
Earnings of consolidated partnerships.............. 556 -- 1,719 --
Limited and general partner interests.............. 1,756 340 3,890 2,249
RCC management fee and equity compensation......... 1,386 -- 1,800 --
Other.............................................. 95 135 637 555
---------- ----------- ---------- ----------
$ 4,828 $ 968 $ 10,908 $ 4,046
========== ========== ========== ==========
Costs and expenses:
General and administrative......................... $ 1,893 $ 689 $ 4,196 $ 1,300
Equity compensation expense........................ 349 -- 405 --
Expenses of consolidated partnerships.............. 21 -- 119 --
---------- ---------- ---------- ----------
$ 2,263 $ 689 $ 4,720 $ 1,300
========== ========== ========== ==========
Revenues - Three Months Ended June 30, 2005 as Compared to the Three Months
Ended June 30, 2004
Revenues increased $3.9 million (399%) to $4.8 million in the three
months ended June 30, 2005 from $968,000 in the three months ended June 30,
2004. We attribute the increase to the following:
o a $542,000 increase in fund management fees for the three months
ended June 30, 2005 as compared to the three months ended June 30,
2004 was as a result of a full quarter in the three months ended
June 30, 2005 of fund management fees for our sixth and seventh
Trapeza CDO issuer and our first Ischus CDO issuer;
o a $556,000 increase in earnings of consolidated partnerships
resulting from the following:
- in May 2004, SFF invested $6.9 million in Trapeza CDO V and VI.
In December 2004, SFF invested $4.5 million in Ischus CDO I. In
January 2005, SFF invested $1.3 million in Trapeza CDO VII. We
began to consolidate SFF on October 1, 2004, when we assumed
control. Interest income from SFF investments in unconsolidated
CDO issuers of $343,000 was recognized in the three months ended
June 30, 2005; and
34
- in December 2004, we invested $2.5 million in Ischus CDO I which
resulted in the recognition of $217,000 of net interest income in
the three months ended June 30, 2005. In April 2005, we sold $2.0
million of our interest in Ischus CDO I and incurred a loss of
$64,000.
o a $1.4 million increase in limited and general partner interests for
the three months ended June 30, 2005 as compared to the three months
ended June 30, 2004. The increase resulted primarily from an
increase in net unrealized appreciation on the mark-to-market of
securities and swap agreements of $1.2 million. In addition, an
increase of $162,000 in our share of the operating results of our
unconsolidated Trapeza Partnerships for the three months ended June
30, 2005 as compared to the three months ended June 30, 2004. This
increase was primarily due to the result of higher interest spreads
generated from our investments in Trapeza CDOs;
o a $1.4 million increase in RCC management fees and equity
compensation. The increase resulted primarily from the following:
- a $574,000 increase in RCC management fees for the three months
ended June 30, 2005 as compared to the three months ended June
30, 2004 as RCC. These fees are the result of the management
agreement, dated March 8, 2005, between RCM and RCC; and
- an $812,000 increase in RCC equity compensation for the three
months ended June 30, 2005 as compared to the three months ended
June 30, 2004. In connection with the formation of RCC, we were
granted 345,000 shares of restricted common stock and options to
purchase 651,666 common shares at an exercise price of $15.00 per
share.
o a $40,000 decrease in other revenue. The decrease resulted primarily
from the following:
- a $303,000 decrease in net reimbursement fees in the three months
ended June 30, 2005 as compared to the three months June 30,
2004. The fees accrued in the three months ended June 30, 2004
were due to the anticipation of the completion of Trapeza CDO VI.
No such fees were accrued in the three months ended June 30,
2005, which was partially offset by;
- a $169,000 increase in net operating expenses for the three
months ended June 30, 2004; and
- a $92,000 increase in consulting and advisory fees for the three
months ended June 30, 2005, as compared to the three months ended
June 30, 2004. These fees are the result of consulting services
relating to structuring of financing transactions.
Costs and Expenses - Three Months Ended June 30, 2005 as Compared to the Three
Months Ended June 30, 2004
Costs and expenses of our financial fund management operations
increased $1.6 million (228%) for the three months ended June 30, 2005 as
compared to the three months ended June 30, 2004. We attribute the increase to
the following:
o a $1.2 million increase in general and administrative expenses. The
increase resulted primarily from the following:
- a $992,000 increase in wages and benefits as a result of the
addition of collateral management personnel to select, invest,
and manage our existing portfolio of asset-backed securities and
syndicated loans;
- a $230,000 increase in financial service fees and publications as
a result of the implementation of new asset management systems in
response to our growing assets under management;
- a $431,000 increase in other operating expenses, primarily from
increased rent allocations and other general and administrative
expenses related to the addition of personnel; and
35
- a decrease of $23,000 in outside services, primarily in
professional fees.
These increases were partially offset by reimbursed expenses of $80,000
and $325,000 from our Trapeza operations and RCC, respectively, for the three
months ended June 30, 2005.
o a $349,000 increase in equity compensation expense. The increase
resulted from the amortization for the three months ended June 30,
2005 relating to the transfer of 279,000 restricted shares of RCC
held by RCM to certain members of management.
o a $21,000 increase in expense of consolidated partnerships. The
increase resulted primarily from $19,000 of professional services
incurred during the three months ended June 30, 2005. The minority
interest share of the operating results of the limited partners of
our consolidated partnerships for the three months ended June 30,
2005 is shown as a separate line item on the consolidated statements
of income as minority interest expense.
Expenses totaling $309,000 have been specifically identified as
relating to RCC start-up costs in the consolidated statement of income for the
three months ended June 30, 2005.
Revenues - Nine Months Ended June 30, 2005 as Compared to the Nine Months Ended
June 30, 2004
Revenues increased $6.9 million (170%) to $10.9 million in the nine
months ended June 30, 2005 from $4.0 million in the nine months ended June 30,
2004. We attribute the increase to the following:
o a $1.6 million increase in fund management fees for the nine months
ended June 30, 2005 as compared to the nine months ended June 30,
2004 which was principally caused by the completion of our seventh
Trapeza CDO issuer and our first Ischus CDO issuer, coupled with
nine months of collateral management fees for our fourth, fifth and
sixth Trapeza CDO issuers;
o a $1.7 million increase in our earnings from consolidated
partnerships resulting from the following:
- in May 2004, SFF invested $6.9 million in Trapeza CDO V and VI.
In December 2004, SFF invested $4.5 million in Ischus CDO I. In
January 2005, SFF invested $1.3 million in Trapeza CDO VII. We
began to consolidate SFF on October 1, 2004 when we assumed
control. Interest income from SFF investments in unconsolidated
CDO issuers of $1.2 million was recognized in the nine months
ended June 30, 2005; and
- in December 2004, we invested $2.5 million in Ischus CDO I, which
resulted in the recognition of $444,000 of interest income in the
nine months ended June 30, 2005. In April 2005, we sold $2.0
million of our interest in Ischus CDO I.
o a $1.6 million increase in limited and general partner interests for
the nine months ended June 30, 2005 as compared to the nine months
ended June 30, 2004 resulting from the following:
- a $1.4 million increase in net unrealized appreciation on the
mark-to-market of securities and swap agreements in the nine
months ended June 30, 2005 as compared to the nine months ended
June 30, 2004; and
- a $466,000 increase from our limited and general partner share of
the operating results of our unconsolidated Trapeza Partnerships
for the nine months ended June 30, 2005 as compared to the nine
months ended June 30, 2004. The increase was the result of having
five Trapeza Partnerships for the entire nine months ended June
30, 2005 as compared to three Trapeza Partnerships for the entire
nine months ended June 30, 2004 in addition to higher interest
spreads generated from our investments in Trapeza CDOs; which was
partially offset by;
- a $147,000 decrease in net reimbursement fees in the nine months
ended June 30, 2005 as compared to the nine months June 30, 2004.
The fees accrued in the nine months ended June 30, 2004 were due
to the anticipation of the completion of Trapeza CDO VI. No such
fees were accrued in other revenue in the nine months ended June
30, 2005;
36
- a $83,000 decrease in net interest income for the nine months
ended June 30, 2005 as compared to the nine months ended June 30,
2004 due to securities held by Trapeza Partnerships for the nine
months ended June 30, 2004. These securities were subsequently
sold to Trapeza CDOs. No such securities were held by Trapeza
Partnerships for the nine months ended June 30, 2005.
o a $1.8 million increase in RCC management fees and equity
compensation. RCC was formed in March 2005. The increase resulted
primarily from the following:
- a $782,000 increase in RCC management fees for the nine months
ended June 30, 2005 as compared to the nine months ended June 30,
2004. These fees are the result of the management agreement,
dated March 8, 2005, between RCM and RCC, previously described.
These fees are paid on a monthly basis;
- a $1.0 million increase in RCC equity compensation for the nine
months ended June 30, 2005 as compared to the nine months ended
June 30, 2004. In connection with the formation of RCC, we were
granted 345,000 shares of restricted common stock and options to
purchase 651,666 common shares at an exercise price of $15.00 per
share; and
o an $82,000 increase in other revenue. The increase resulted
primarily from the following:
- a $623,000 increase in consulting and advisory fees for the nine
months ended June 30, 2005 as compared to the nine months ended
June 30, 2004. These fees are the result of consulting services
relating to structuring of financing transactions; which was
partially offset by;
- an $817,000 decrease in net reimbursement fees in the nine months
ended June 30, 2005 as compared to the nine months June 30, 2004.
The fees accrued in the nine months ended June 30, 2004 were due
to the anticipation of the completion of Trapeza CDO VI. No such
fees were accrued in the nine months ended June 30, 2005. These
fees were partially offset by an increase in net operating
expenses of $262,000 in the nine months ended June 30, 2004.
Costs and Expenses - Nine Months Ended June 30, 2005 as Compared to the Nine
Months Ended June 30, 2004
Costs and expenses of our financial fund management operations
increased $3.4 million (263%) for the nine months ended June 30, 2005 as
compared to the nine months ended June 30, 2004. We attribute the increases to
the following:
o a $2.9 million increase in general and administrative expenses. The
increase resulted primarily from the following:
- a $2.5 million increase in wages and benefits as a result of the
addition of collateral management personnel to manage our
existing portfolio of asset-backed securities and syndicated
loans.
- a $1.2 million increase in other operating expenses, primarily
from increased rent allocations and other general and
administrative expenses related to the addition of personnel.
- a $555,000 increase in outside services, primarily in
professional fees.
- a $368,000 increase in financial software programs and
publications as a result of the implementation of new asset
management systems in response to our growing assets under
management.
37
These increases were partially offset by reimbursed expenses of $1.3
million from our Trapeza and Ischus operations and $325,000 from RCC, for the
nine months ended June 30, 2005.
o a $405,000 increase in equity compensation expense. The increase
resulted from the amortization for the nine months ended June 30,
2005 related to the transfer of 279,000 RCM's restricted shares to
certain members of RCC's management; and
o a $119,000 increase in expenses of consolidated partnerships. The
increase resulted primarily from $109,000 of professional services
incurred and $8,000 of state, city and miscellaneous taxes. The
minority interest share of the operating results of the limited
partners of our consolidated partnerships for the nine months ended
June 30, 2005 is shown as a separate line item in the consolidated
statements of income as minority interest expense.
In addition, expenses totaling $1.1 million have been specifically
identified as relating to RCC start-up costs in the consolidated statements of
income for the nine months ended June 30, 2005.
RESULTS OF OPERATIONS: OTHER COSTS AND EXPENSES AND OTHER INCOME (EXPENSE)
General and administrative costs were $1.9 million and $5.5 million for
the three and nine months ended June 30, 2005, respectively, a decrease of $2.0
million (51%) and $1.9 million (26%) as compared to $3.8 million and $7.4
million for the three and nine months ended June 30, 2004. In the three and nine
months ended June 30, 2004, we incurred $1.5 million of reorganization expenses
and spin-off costs in connection with the initial public offering and planned
spin-off of Atlas America. Costs related to the spin-off of Atlas America are
included in discontinued operations for the three and nine months ended June 30,
2005. In addition in the three months and nine months ended June 30, 2004, our
corporate operations incurred legal and accounting fees which in the three
months and nine months ended June 30, 2005 were allocated to our operating
units. These decreases were in part offset by additional accounting and
consulting fees related to our compliance with Section 404 of the Sarbanes-Oxley
Act of 2002.
Depreciation and amortization expense was $820,000 and $2.1 million for
the three and nine months ended June 30, 2005, respectively, an increase of
$78,000 (11%) and $375,000 (21%) as compared to $742,000 and $1.8 million for
the three and nine months ended June 30, 2004, respectively. This increase arose
primarily from our equipment finance operations which increased their operating
lease assets owned to $4.7 million at June 30, 2005 from $532,000 at June 30,
2004.
Our provision for possible losses decreased due to a recovery of
$12,000 and a provision of $150,000 for the three and nine months ended June 30,
2005, respectively, from a provision of $182,000 and $582,000 for the three and
nine months ended June 30, 2004, respectively. These decreases reflect primarily
our decreased investment in our real estate loan portfolio and other real estate
assets owned through the repayment of loans and property resolutions during the
last twelve months.
Interest expense was $863,000 and $2.2 million for the three and nine
months ended June 30, 2005, respectively, an increase of $31,000 and a decrease
of $2.2 million, as compared to $832,000 and $4.4 million for the three and nine
months ended June 30, 2004, respectively. The decrease in interest expense for
the nine months reflects the $1.4 million reduction of interest from the prior
year redemption of our 12% senior notes and the repayment of other debt related
to our real estate operations.
At June 30, 2005, we owned a 15.1% and 36.1% limited partner interest
in Structured Finance Fund, L.P. and Structured Finance Fund II, L.P., ("SFF"),
respectively, limited partnerships formed to invest in the equity of CDO issuers
we have formed. We also own a 50% interest in Structured Finance Management, LLC
and Structured Finance Fund GP LLC, the manager and general partner,
respectively, of SFF. As the general partner, we control the operations of SFF
and, therefore, include it in our consolidated financial statements and reflect
the ownership of the partners as a minority interest. For the three and nine
months ended June 30, 2005, we recorded $415,000 and $1.2 million of minority
interest related to these entities. As of June 30, 2004, these entities were not
yet formed.
38
Other income, net, was $310,000 and $3.8 million for the three and nine
months ended June 30, 2005, respectively, a decrease of $1.6 million and $2.8
million, as compared to $2.0 million and $6.6 million for the three and nine
months ended June 30, 2004, respectively. During the nine months ended June 30,
2005 and 2004, we sold 105,000 and 597,700 shares, respectively, of RAIT and
recorded gains of $1.5 million and $7.1 million, respectively. Dividend income
from RAIT decreased by $838,000 to $10,000 for the nine months ended June 30,
2005 from $848,000 for the nine months ended June 30, 2004 as a result of these
sales. As of June 30, 2005, we own approximately 5,600 shares of RAIT. The nine
months ended June 30, 2004 reflected charges of $2.0 million related to the
write-off of deferred finance costs and the premium paid on the redemption of
our 12% senior notes.
Our effective tax rate was 46% and 40% for the three and nine months
ended June 30, 2005, respectively, a 12% and 6% increase as compared to the 34%
effective rate for the three and nine months ended June 30, 2004. The increase
in our tax rate results primarily from an increase in our state tax provision as
a result of an increase in the pre-tax income of our continuing businesses.
DISCONTINUED OPERATIONS
In accordance with SFAS 144, "Accounting for the Impairment or Disposal
of Long Lived Assets," our decision to dispose of certain real estate
investments and to spin-off Atlas America, our former energy subsidiary,
resulted in the presentation of these operations as discontinued. On June 30,
2005, we distributed our remaining 10.7 million shares of Atlas America to our
stockholders in the form of a tax free dividend. In addition, we classified
three FIN 46 entities and three real estate properties owned as held for sale at
June 30, 2005. We have reported their operations as discontinued.
LIQUIDITY AND CAPITAL RESOURCES
General. Our major sources of liquidity have historically been cash
generated by operations of Atlas America, resolutions of real estate loans and
investments, borrowings under our existing credit facilities and sales of our
RAIT shares. We have employed these funds principally to expand our specialized
asset management operations and to reduce our outstanding debt and in fiscal
2004, for the redemption of our senior notes. We expect to fund our asset
management business from a combination of cash to be generated by operations,
our working capital, and borrowings under our existing credit facilities. The
following table sets forth our sources and uses of cash for the periods
presented (in thousands):
NINE MONTHS ENDED
JUNE 30,
-------------------------------
2005 2004
----------- -----------
Used in operating activities of continuing operations...................... $ (46,107) $ (44,203)
(Used in) provided by investing activities of continuing operations........ (12,277) 68,765
Provided by (used in) financing activities of continuing operations........ 38,445 (59,269)
Provided by discontinued operations........................................ 22,915 59,092
Net cash retained by Atlas America......................................... (29,192) --
----------- -----------
$ (26,216) $ 24,385
=========== ===========
We had $42.9 million in cash and cash equivalents at June 30, 2005
compared to $69.1 million at September 30, 2004. Our ratio of earnings from
continuing operations before income taxes, minority interest and interest
expense to fixed charges was 11.5 to 1.0 for the nine months ended June 30, 2005
as compared to 1.1 to 1.0 for the nine months ended June 30, 2004. Our working
capital was $73.0 million as of June 30, 2005 as compared to $54.5 million at
September 30, 2004. The increase of $22.1 million primarily reflected our
reduction in current liabilities principally as a result of the spin-off of
Atlas America. Our ratio of long-term debt (including current maturities) to
equity was 39% and 50% at June 30, 2005 and September 30, 2004, respectively.
39
Cash Flows from Operating Activities. Net cash used in operating
activities increased $1.9 million for the nine months ended June 30, 2005 to
$46.1 million from $44.2 million for the nine months ended June 30, 2004,
substantially as a result of the following:
o changes in operating assets, liabilities and taxes accounted for
$9.0 million use of cash, principally in connection with the
purchase of a tenant-in-common or TIC interests offering sponsored
by Resource Real Estate; offset in part by
o a source of cash as a result of a $2.8 million decrease in net loss
as adjusted to reconcile net income to net cash from operating
activities; and
o a decrease of $4.3 million in the cash used in our equipment finance
operations.
Cash Flows from Investing Activities. Net cash provided by our
investing activities of continuing operations decreased by $81.0 million for the
nine months ended June 30, 2005 as compared to the nine months ended June 30,
2004, primarily as a result of the following:
o in the nine months ended June 30, 2004, we received dividends from
Atlas America of $52.1 million. No such dividends were received in
the nine months ended June 30, 2005;
o a $15.1 million increase in capital expenditures, of which $14.0
million related to the TIC; and
o a decrease of $12.3 million in net proceeds received from the sale
of shares we held of RAIT to $2.9 million for the nine months ended
June 30, 2005 as compared to the nine months ended June 30, 2004.
Cash Flows from Financing Activities. Net cash provided by our
financing activities of continuing operations increased by $97.7 million for the
nine months ended June 30, 2005 as compared to the nine months ended June 30,
2004. This increase in our cash flows is principally reflective of the
following:
o an increase in our borrowings, net of repayments, of $91.7 million
in the nine months ended June 30, 2005, principally reflecting the
redemption of $54.0 million of our outstanding senior notes during
the nine months ended June 30, 2004; and
o an increase of $4.3 million of additional proceeds from the issuance
of common stock as a result of the exercise of employee stock
options.
Cash Flows from Discontinued Operations. Net cash provided by
discontinued operations decreased by $65.4 million for the nine months ended
June 30, 2005 as compared to the nine months ended June 30, 2004. This decrease
included $29.2 million of cash retained by Atlas America in the spin-off of
their business and a $25.9 million decrease in proceeds received from the
resolution of real estate investments. We received $34.5 million principally
from the sale of two FIN 46 assets offset by cash outlays for certain other
discontinued assets in the nine months ended June 30, 2004 as compared to $8.6
million from the net proceeds received from the refinancing of a first mortgage
on a FIN 46 property offset by cash outlays for other discontinued assets in the
nine months ended June 30, 2004.
Capital Requirements
The amount of funds we must commit to investments in our real estate,
equipment finance and financial fund management operations depends upon the
level of funds raised through real estate, equipment finance and financial fund
management programs. We believe cash flows from operations, cash and other
working capital and amounts available under our real estate and equipment
finance credit facilities will be adequate to fund our contribution to these
programs. However, the amount of funds we raise and the level of our investments
will vary in the future depending on market conditions.
40
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following tables summarize our contractual obligations and
commitments at June 30, 2005 (in thousands):
PAYMENTS DUE BY PERIOD
------------------------------------------------------
LESS THAN 1 - 3 4 - 5 AFTER 5
CONTRACTUAL CASH OBLIGATIONS: TOTAL 1 YEAR YEARS YEARS YEARS
----------- ---------- --------- --------- ----------
Long-term debt (1)..................... $ 29,086 $ 686 $ 2,253 $ 14,961 $ 11,186
Secured revolving credit facilities.... 45,625 45,625 -- -- --
Operating lease obligations............ 4,931 1,227 2,339 1,365 --
Capital lease obligations.............. 83 14 29 40 --
Unconditional purchase obligations..... -- -- -- -- --
Other long-term obligations............ -- -- -- -- --
----------- ---------- --------- --------- ----------
Total contractual cash obligations..... $ 79,725 $ 47,552 $ 4,621 $ 16,366 $ 11,186
=========== ========== ========= ========= ==========
- --------------
(1) Not included in the table above are estimated interest payments calculated
at rates in effect at June 30, 2005; Less than 1 year: $2.3 million; 1-3
years: $2.3 million; 4-5 years: $1.8 million and After 5 years; $655,000.
AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
------------------------------------------------------
LESS THAN 1 - 3 4 - 5 AFTER 5
OTHER COMMERCIAL COMMITMENTS: TOTAL 1 YEAR YEARS YEARS YEARS
----------- ---------- --------- --------- ----------
Standby letters of credit.............. $ -- $ -- $ -- $ -- $ --
Guarantees............................. 338 338 -- -- --
Standby replacement commitments........ 3,536 2,381 1,155 -- --
Other commercial commitments........... 327,230 3,607 68,206 68,996 186,421
----------- ----------- ---------- --------- ----------
Total commercial commitments........... $ 331,104 $ 6,326 $ 69,361 $ 68,996 $ 186,421
=========== =========== ========== ========= ==========
Real estate investment partnerships in which we have general partner
interests have obtained senior lien financing with respect to eleven properties.
The senior liens are with recourse only to the properties securing them subject
to certain standard exceptions, which we have guaranteed. These guarantees
expire as the related indebtedness is paid down over the next ten years. In
addition, property owners have obtained senior lien financing with respect to
six of our real estate investments. The senior liens are with recourse only to
the properties securing them subject to certain standard exceptions, which we
have guaranteed. These guarantees expire as the related indebtedness is paid
down over the next five years.
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 of America. 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 the 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.
41
For a detailed discussion on the application of policies critical to
our business operations and other accounting policies, see our annual report on
Form 10-K for fiscal 2004, at Note 2 of the "Notes to Consolidated Financial
Statements."
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In May 2005, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 154, "Accounting
Changes and Error Corrections" ("SFAS 154"). SFAS 154 requires retrospective
application to prior periods' financial statements of changes in accounting
principles. It also requires that the new accounting principle be applied to the
balances of assets and liabilities as of the beginning of the earliest period
for which retrospective application is practicable and that a corresponding
adjustment be made to the opening balance of retained earnings for that period
rather than being reported in an income statement. The statement will be
effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005. The impact of SFAS 154 will depend on the
nature and extent of any voluntary accounting changes and correction of errors
after the effective date, but management does not currently expect SFAS 154 to
have a material impact on the Company's financial position or results of
operations.
In December 2004, the FASB issued a revision of SFAS 123, "Share-Based
Payment" or SFAS 123-R which requires all share-based payments to employees to
be recognized in the income statement based on their fair values. The Company's
option grants to employees and directors, as well as any restricted stock awards
represent share-based payments. SFAS 123-R supersedes Accounting Principles
Board or APB Opinion 25, "Accounting for Stock Issued to Employees," and amends
SFAS 95, "Statement of Cash Flows." SFAS 123-R is effective for the Company
beginning with its fiscal year commencing October 1, 2005. The adoption of SFAS
123-R may have a material impact on its financial statements in that fiscal
year, but cannot now reasonably estimate the impact of adoption because the
Company expects certain assumptions that can materially effect the calculation
of the value of share-based payments to recipients to change between now and the
time of adoption.
42
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 following discussion is not meant to be a precise
indicator of expected future losses, but rather an indicator 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. These risks can impact our results of operations, cash flows and
financial position. We manage these risks through regular operating and
financing activities.
The following analysis presents the effect on our earnings, cash flows
and financial position as if hypothetical changes in market risk factors
occurred at June 30, 2005. We analyze only the potential impacts of hypothetical
assumptions. Our analysis does not consider other possible effects that could
impact our business.
REAL ESTATE
Portfolio Loans and Related Senior Liens. We believe that none of the
four loans held in our portfolio as of June 30, 2005 (including loans treated in
our consolidated financial statements as FIN 46 entities) is sensitive to
changes in interest rates since:
o the loans are subject to forbearance or other agreements that
require all of the operating cash flow from the properties
underlying the loans, after debt service on senior lien interests,
to be paid to us and thus are not currently being paid based on the
stated interest rates of the loans;
o the senior lien interests ahead of our interests are at fixed rates
and are thus not subject to interest rate fluctuation that would
affect payments to us; and
o each loan has significant accrued and unpaid interest and other
charges outstanding to which cash flow from the underlying property
would be applied even if cash flow were to exceed the interest due,
as originally underwritten.
FIN 46 Loans. Three loans we treat as FIN 46 liabilities upon adoption
of FIN 46-R, and currently included in long-term debt, are at fixed interest
rates and are thus not subject to interest rate fluctuations.
Mortgage payable tenant-in-common interest. This mortgage is at a fixed
rate and thus not subject to interest rate fluctuations.
EQUIPMENT FINANCE
At June 30, 2005, the amount outstanding on the $45.0 million LEAF
credit facility with National City Bank was $39.8 million at a weighted average
interest rate of 5.7% while the amount outstanding on its $15.0 million credit
facility with Commerce Bank was $5.8 million at a weighted average interest rate
of 5.9%. A hypothetical 10% change in the weighted average interest rates on
these facilities would change our annual net income by approximately $110,000.
43
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our periodic reports
required under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and our Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
our management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and our management necessarily was required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures.
Under the supervision of our Chief Executive Officer and Chief
Financial Officer and with the participation of our disclosure committee
appointed by such officers, we have carried out an evaluation of the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report. Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures are effective at the reasonable assurance level.
There have been no significant changes in our internal controls over
financial reporting that have partially affected, or are reasonably likely to
materially affect, our internal control over financial reporting during our most
recent fiscal quarter.
44
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on May 11, 2005,
the stockholders of the Company elected two directors of the Company and
approved the adoption of the Resource America, Inc. 2005 Omnibus Equity
Compensation Plan. The stockholders voted 7,338,137 shares for, 3,471,684 shares
against, and 59,264 shares abstained for the Plan adoption.
Mr. Edward E. Cohen and Mr. Carlos C. Campbell were elected to serve as
directors at the meeting. The voting results were 14,864,576 shares for and
1,742,079 shares withheld for Mr. Cohen and 16,323,875 shares for and 282,870
shares withheld for Mr. Campbell. Messrs. Michael J. Bradley, Jonathan Z. Cohen,
Kenneth A. Kind, Andrew M. Lubin and John S. White continue to serve their terms
as directors.
ITEM 6. EXHIBITS
Exhibit No. Description
----------- -----------
3.1 Restated Certificate of Incorporation of Resource
America. (1)
3.2 Amended and Restated Bylaws of Resource America. (1)
10.1 Fourth Modification, dated June 30, 2005, of Revolving
Credit Agreement, Revolving Credit Loan and Security
Agreement dated July 27, 1999 by and between Resource
Properties, Inc., Resource Properties 53, Inc., Resource
Properties XXIV, Inc., Resource Properties XL, Inc. and
Sovereign Bank.
10.2(a) Seventh Amendment dated March 18, 2005, to Revolving Credit
Agreement and Assignment Revolving Credit Agreement and
Assignment between LEAF Financial Corporation and National
City Bank, and related guaranty of Resource America, Inc.,
dated June 11, 2002.
10.2(b) Second Amendment to Guaranty of Payment Dated March 2005
between Resource America, Inc. and National City Bank.
10.2(c) Eighth Amendment to Revolving Credit Agreement and
Assignment dated June 29, 2005.
10.15 2005 Equity Compensation Plan. (2)
31.1 Certification Pursuant to Rule 13a-15(e)/15(d) - 15 (e).
31.2 Certification Pursuant to Rule 13a-15(e)/15(d) - 15 (e).
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of
2002.
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of
2002.
- -----------
(1) 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.
(2) Filed as an exhibit to our Proxy Statement on Schedule 14A on April 11, 2005
and by this reference incorporated herein.
45
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RESOURCE AMERICA, INC.
(REGISTRANT)
Date: August 9, 2005 By: /s/ Steven J. Kessler
---------------------
STEVEN J. KESSLER
Executive Vice President and Chief Financial
Officer
Date: August 9, 2005 By: /s/ Arthur J. Miller
--------------------
ARTHUR J. MILLER
Vice President and Chief Accounting Officer
46