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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, 2003
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
16,999,700 Shares August 1, 2003
RESOURCE AMERICA, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 2003 (Unaudited)
and September 30, 2002.................................................................... 2
Consolidated Statements of Income (Unaudited)
Three Months and Nine Months Ended June 30, 2003 and 2002................................. 3
Consolidated Statement of Changes in Stockholders' Equity (Unaudited)
Nine Months Ended June 30, 2003........................................................... 4
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended June 30, 2003 and 2002.................................................. 5
Notes to Consolidated Financial Statements - June 30, 2003 (Unaudited)....................... 6 - 19
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................. 20 - 30
Item 3. Quantitative and Qualitative Disclosures about Market Risk................................... 31 - 33
Item 4. Controls and Procedures...................................................................... 33
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................................................ 34
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 34
Item 6. Exhibits and Reports on Form 8-K............................................................. 35 - 36
SIGNATURES.................................................................................................... 37
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RESOURCE AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 30, September 30,
2003 2002
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 49,450 $ 25,736
Accounts receivable....................................................... 24,800 16,060
Assets held for disposal.................................................. - 5,488
Prepaid expenses and other current assets................................. 10,904 5,530
----------- -----------
Total current assets.................................................... 85,154 52,814
Investments in real estate loans and real estate.............................. 202,735 202,423
Investment in RAIT Investment Trust........................................... 24,998 29,580
Property and equipment:
Oil and gas properties and equipment (successful efforts)................. 145,651 126,983
Gas gathering and transmission facilities................................. 31,530 28,091
Other..................................................................... 8,839 8,390
----------- -----------
186,020 163,464
Less - accumulated depreciation, depletion and amortization................... (52,401) (44,287)
----------- -----------
Net property and equipment.............................................. 133,619 119,177
Goodwill...................................................................... 37,471 37,471
Intangible assets............................................................. 8,642 9,589
Other assets.................................................................. 18,809 16,444
----------- -----------
$ 511,428 $ 467,498
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................................... $ 5,290 $ 4,320
Secured revolving credit facilities-leasing............................... 14,622 -
Accounts payable.......................................................... 18,378 12,378
Liabilities associated with assets held for disposal...................... - 11,317
Accrued liabilities....................................................... 14,818 11,568
Estimated income taxes.................................................... 534 893
Deferred revenue on drilling contracts.................................... 13,827 4,948
----------- -----------
Total current liabilities............................................... 67,469 45,424
Long-term debt:
Senior.................................................................... 65,336 65,336
Non-recourse.............................................................. 49,529 68,220
Other..................................................................... 23,786 17,634
----------- -----------
138,651 151,190
Liabilities associated with assets held for disposal.......................... - 3,144
Asset retirement obligations.................................................. 3,449 -
Deferred revenue and other liabilities........................................ 589 1,074
Deferred income taxes......................................................... 18,408 13,733
Minority interest............................................................. 44,267 19,394
Commitments and contingencies................................................. - -
Stockholders' equity:
Preferred stock, $1.00 par value: 1,000,000 authorized shares............. - -
Common stock, $.01 par value; 49,000,000 authorized shares................ 251 250
Additional paid-in capital................................................ 223,883 223,824
Less treasury stock, at cost.............................................. (78,269) (74,828)
Less ESOP loan receivable................................................. (1,177) (1,201)
Accumulated other comprehensive income.................................... 7,689 5,911
Retained earnings......................................................... 86,218 79,583
----------- -----------
Total stockholders' equity.............................................. 238,595 233,539
----------- -----------
$ 511,428 $ 467,498
=========== ===========
See accompanying notes to consolidated financial statements
2
RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------ ------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
(in thousands, except per share data)
REVENUES:
Energy..................................................... $ 21,792 $ 19,024 $ 76,088 $ 74,451
Real estate finance........................................ 4,495 4,252 11,143 13,556
Leasing.................................................... 1,172 247 3,041 924
Equity earnings in Trapeza entities........................ 764 - 872 -
Interest and other......................................... 2,499 1,204 6,625 4,072
--------- --------- --------- ---------
30,722 24,727 97,769 93,003
COSTS AND EXPENSES:
Energy..................................................... 13,012 13,378 49,828 54,239
Real estate finance........................................ 931 693 2,714 1,680
Leasing.................................................... 1,468 159 3,870 441
General and administrative................................. 2,094 2,131 4,587 4,960
Provision for legal settlement............................. - - 1,185 -
Depreciation, depletion and amortization................... 3,247 2,823 9,333 8,203
Interest................................................... 3,203 3,078 9,612 9,490
Provision for possible losses.............................. 375 93 1,548 893
Minority interest in Atlas Pipeline Partners, L.P.......... 1,445 568 2,974 1,963
--------- --------- --------- ---------
25,775 22,923 85,651 81,869
--------- --------- --------- ---------
Income from continuing operations before income taxes......... 4,947 1,804 12,118 11,134
Provision for income taxes.................................... 1,461 476 3,756 3,563
--------- --------- --------- ---------
Income from continuing operations............................. 3,486 1,328 8,362 7,571
Discontinued operations:
Loss on discontinued operations, net of tax benefits of
$605 and $1,053.......................................... - (1,322) - (2,238)
--------- --------- --------- ---------
Net income.................................................... $ 3,486 $ 6 $ 8,362 $ 5,333
========= ========= ========= =========
Net income per common share - basic:
From continuing operations................................. $ .20 $ .08 $ .49 $ .44
From discontinued operations............................... - (.08) - (.13)
--------- --------- --------- ---------
Net income per common share - basic........................... $ .20 $ .00 $ .49 $ .31
========= ========= ========= =========
Weighted average common shares outstanding.................... 17,069 17,455 17,186 17,444
========= ========= ========= =========
Net income per common share - diluted:
From continuing operations................................. $ .20 $ .07 $ .48 $ .43
From discontinued operations............................... - (.07) - (.13)
--------- --------- --------- ---------
Net income per common share - diluted......................... $ .20 $ .00 $ .48 $ .30
========= ========= ========= =========
Weighted average common shares................................ 17,365 17,903 17,471 17,813
========= ========= ========= =========
See accompanying notes to consolidated financial statements
3
RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED JUNE 30, 2003
(Unaudited) (in thousands, except share data)
Common stock Additional Treasury Stock ESOP
--------------------------- Paid-In ----------------------------- Loan
Shares Amount Capital Shares Amount Receivable
------------------------------------------------------------------------------------
Balance, October 1, 2002.................. 25,044,066 $ 250 $ 223,824 (7,623,198) $ (74,828) $ (1,201)
Common shares issued...................... 55,373 1 397 - - -
Treasury shares issued.................... - - (338) 26,380 554 -
Purchase of treasury shares............... - - - (473,950) (3,995) -
Other comprehensive income................ - - - - - -
Cash dividends ($.099 per share).......... - - - - - -
Repayment of ESOP Loan.................... - - - - - 24
Net income................................ - - - - - -
------------------------------------------------------------------------------------
Balance, June 30, 2003.................... 25,099,439 $ 251 $ 223,883 (8,070,768) $ (78,269) $ (1,177)
========== ====== =========== ========== ========== =========
Accumulated
Other Totals
Comprehensive Retained Stockholders'
Income Earnings Equity
-----------------------------------------------
Balance, October 1, 2002.................. $ 5,911 $ 79,583 $ 233,539
Common shares issued...................... - - 398
Treasury shares issued.................... - - 216
Purchase of treasury shares............... - - (3,995)
Other comprehensive income................ 1,778 - 1,778
Cash dividends ($.099 per share).......... - (1,727) (1,727)
Repayment of ESOP Loan.................... - - 24
Net income................................ - 8,362 8,362
-----------------------------------------------
Balance, June 30, 2003.................... $ 7,689 $ 86,218 $ 238,595
========= ========== ===========
See accompanying notes to consolidated financial statements
4
RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
June 30,
---------------------------
2003 2002
---------- ----------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................................ $ 8,362 $ 5,333
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization............................................ 9,333 8,203
Amortization of discount on senior debt and deferred finance costs.................. 966 825
Provision for possible losses....................................................... 1,548 893
Equity earnings in Trapeza entities................................................. (872) -
Minority interest in Atlas Pipeline Partners, L.P................................... 2,974 1,963
Loss on discontinued operations..................................................... - 2,238
Gain on asset dispositions.......................................................... (719) (2,846)
Gain on sale of RAIT Investment Trust shares........................................ (3,603) -
Property impairments and abandonments............................................... 18 18
Deferred income taxes............................................................... 122 3,022
Accretion of discount............................................................... (1,492) (2,614)
Collection of interest.............................................................. 1,055 5,244
Non-cash compensation .............................................................. 216 312
Changes in operating assets and liabilities........................................... 992 (18,636)
---------- ----------
Net cash provided by operating activities............................................. 18,900 3,955
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................................. (18,679) (16,497)
Principal payments on notes receivable and proceeds from sales of assets.............. 8,641 24,190
Proceeds from sale (purchase of) RAIT Investment Trust shares......................... 10,896 (4,540)
Increase in other assets.............................................................. (927) (346)
Investments in real estate loans and ventures......................................... (5,031) (18,647)
---------- ----------
Net cash used in investing activities................................................. (5,100) (15,840)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings............................................................................ 84,271 109,538
Principal payments on borrowings...................................................... (84,641) (111,827)
Dividends paid ....................................................................... (1,727) (1,744)
Distributions paid to minority interests of Atlas Pipeline Partners, L.P.............. (2,660) (2,936)
Proceeds from Atlas Pipeline Partners, L.P. secondary offering, net................... 25,255 -
Purchase of treasury stock............................................................ (3,995) (989)
Repayment of ESOP loan................................................................ 24 56
Increase in other assets.............................................................. (1,014) (411)
Proceeds from issuance of stock....................................................... 25 17
---------- ----------
Net cash provided by (used in) financing activities................................... 15,538 (8,296)
---------- ----------
Net cash used in discontinued operations.............................................. (5,624) (1,617)
---------- ----------
Increase (decrease) in cash and cash equivalents...................................... 23,714 (21,798)
Cash and cash equivalents at beginning of period...................................... 25,736 48,648
---------- ----------
Cash and cash equivalents at end of period............................................ $ 49,450 $ 26,850
========== ==========
See accompanying notes to consolidated financial statements
5
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
NOTE 1 - MANAGEMENT'S OPINION REGARDING INTERIM FINANCIAL STATEMENTS
The consolidated financial statements of the Company and its
wholly-owned subsidiaries as of June 30, 2003 and for the three months and nine
months ended June 30, 2003 and 2002 are unaudited. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted in this Form 10-Q pursuant to the rules
and regulations of the Securities and Exchange Commission. However, in the
opinion of management, these interim financial statements include all the
necessary adjustments to fairly present the results of the interim periods
presented. The unaudited interim consolidated financial statements should be
read in conjunction with the audited financial statements included in the
Company's Annual Report on Form 10-K/A for the fiscal year ended September 30,
2002. The results of operations for the three months and nine months ended June
30, 2003 may not necessarily be indicative of the results of operations for the
full fiscal year ending September 30, 2003.
Certain reclassifications have been made to the consolidated financial
statements as of and for the three months and nine months ended June 30, 2002 to
conform to the three months and nine months ended June 30, 2003 presentation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Comprehensive Income
The following table presents comprehensive income for the periods
indicated:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------ ------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
(in thousands)
Net income.................................................... $ 3,486 $ 6 $ 8,362 $ 5,333
Other comprehensive income (loss):
Unrealized gains on investment in RAIT Investment
Trust:
Unrealized holding gains arising during the period,
net of taxes of $1,313, $1,748, $2,037 and
$3,742................................................. 2,797 3,394 4,278 7,442
Less: reclassification adjustment for gains realized
in net income, net of taxes of $453 and $1,117......... (1,130) - (2,486) -
--------- --------- --------- ---------
1,667 3,394 1,792 7,442
Unrealized losses on natural gas futures:
Unrealized holding losses arising during the period,
net of taxes of $104, $9, $364 and $46................. (212) (12) (740) (123)
Less: reclassification adjustment for losses realized
in net income, net of taxes of $193 and $358........... 391 - 726 -
--------- --------- --------- ---------
179 (12) (14) (123)
--------- --------- --------- ---------
Comprehensive income.......................................... $ 5,332 $ 3,388 $ 10,140 $ 12,652
========= ========= ========= =========
6
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2003
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
At June 30, At September 30,
2003 2002
----------- -----------
(in thousands)
Accumulated other comprehensive income (loss) is related to
the following items, net of taxes:
Marketable securities - unrealized gains................................. $ 7,936 $ 6,144
Unrealized hedging losses................................................ (247) (233)
----------- -----------
$ 7,689 $ 5,911
=========== ===========
Investment in RAIT Investment Trust
The Company accounts for its investment in RAIT Investment Trust
("RAIT") in accordance with Statement of Financial Accounting Standard ("SFAS")
No. 115 "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS 115"). This investment is classified as available-for-sale and as such is
carried at fair market value based on market quotes. Unrealized gains and
losses, net of taxes, are reported as a separate component of stockholders'
equity. The cost of securities sold is based on the specific identification
method.
The following table discloses the pre-tax unrealized gains relating to
the Company's investment in RAIT at the dates indicated:
At June 30, At September 30,
2003 2002
----------- ----------
(in thousands)
Cost...................................................................... $ 12,975 $ 20,268
Unrealized gains.......................................................... 12,023 9,312
----------- ----------
Estimated fair value...................................................... $ 24,998 $ 29,580
=========== ==========
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in
estimating the fair value of each class of financial instruments for which it is
practicable to estimate fair value.
For cash and cash equivalents, receivables and payables, the carrying
amounts approximate the fair value because of the short maturity of these
instruments.
For investments in real estate loans, because each loan is a unique
transaction involving a discrete property it is impractical to determine their
fair values. However, the Company believes the carrying amounts of the loans are
recoverable based upon the estimated value of the underlying collateral.
For our leasing warehouse credit facilities, the carrying amounts
approximate the fair value because of the short term of these lines.
7
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2003
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Fair Value of Financial Instruments - (Continued)
The following table provides information about other financial
instruments at the dates indicated:
June 30, 2003 September 30, 2002
----------------------------- ----------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------- ------------ ---------- ------------
(in thousands) (in thousands)
Energy non-recourse debt................... $ 30,208 $ 30,208 $ 49,345 $ 49,345
Real estate finance debt................... 35,107 35,107 33,214 33,214
Senior debt................................ 65,336 67,623 65,336 67,623
Other debt................................. 13,290 13,290 7,615 7,615
----------- ------------ ---------- ------------
$ 143,941 $ 146,228 $ 155,510 $ 157,797
=========== ============ ========== ============
Earnings Per Share
The following table presents a reconciliation of the components used in
the computation of net income per common share-basic and net income per common
share-diluted for the periods indicated:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------ ------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
(in thousands)
Income from continuing operations............................. $ 3,486 $ 1,328 $ 8,362 $ 7,571
Loss from discontinued operations, net of taxes of $605
and $1,053................................................. - (1,322) - (2,238)
--------- --------- --------- ---------
Net income................................................. $ 3,486 $ 6 $ 8,362 $ 5,333
========= ========= ========= =========
Weighted average common shares outstanding-basic.............. 17,069 17,455 17,186 17,444
Dilutive effect of stock option and award plans............... 296 448 285 369
--------- --------- --------- ---------
Weighted average common shares-diluted........................ 17,365 17,903 17,471 17,813
========= ========= ========= =========
8
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2003
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Asset Retirement Obligations
SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS
143"), establishes requirements for the accounting for the removal costs
associated with asset retirements. The adoption of SFAS 143 on October 1, 2002
resulted in the recording of an additional cost basis of $3.3 million to oil and
gas properties and equipment representing the Company's share of estimated
future well plugging and abandonment costs (as discounted to the present value
at the dates the wells began operations) for wells in which it has a working
interest. In addition, the Company recorded a corresponding retirement
obligation liability of $3.3 million (which includes accretion of the discounted
present value to September 30, 2002). Accumulated depreciation and depletion did
not change as the additional cost basis associated with the plugging liability
was offset by the estimated salvage value to be realized upon the disposal of
the wells. The cumulative and pro forma effects of initially applying SFAS 143
were not material to the Company's Consolidated Statements of Income.
The Company has no assets legally restricted for purposes of settling
asset retirement obligations. Except for the item above, the Company has
determined that there are no other material retirement obligations associated
with tangible long-lived assets.
A reconciliation of the Company's liability for well plugging and
abandonment costs for the nine months ended June 30, 2003 is as follows (in
thousands):
Asset retirement obligations, September 30, 2002............. $ -
Adoption of SFAS 143......................................... 3,300
Accretion expense............................................ 149
---------
Asset retirement obligations, June 30, 2003.................. $ 3,449
=========
The above accretion expense is included in depreciation, depletion and
amortization in the Company's consolidated statements of income.
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:
Nine Months Ended
June 30,
------------------------
2003 2002
--------- ---------
(in thousands)
Cash paid during the period for:
Interest................................................................................ $ 6,821 $ 6,591
Income taxes (refunded) paid............................................................ $ (1,067) $ 3,499
Non-cash activities include the following:
Receipt of a note in connection with the sale of a real estate loan..................... $ 1,350 $ -
Receivable associated with leases transferred to LEAF's sponsored investment
partnership.......................................................................... $ 5,366 $ -
Real estate received in exchange for notes upon foreclosure on loans.................... $ 8,231 $ -
Assumption of debt upon foreclosure on loans............................................ $ 4,067 $ -
9
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2003
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Stock-Based Compensation
In December 2002, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" ("SFAS 148"). SFAS 148 which is generally effective for fiscal years
ending after December 15, 2002 requires quarterly disclosure of the effects that
would have occurred if the financial statements had applied the fair value
recognition principles of SFAS 123, "Accounting for Stock-Based Compensation."
The Company accounts for stock-based employee compensation plans under the
recognition and measurement principles of Accounting Principles Board Opinion
25, "Accounting for Stock Issued to Employees," and related interpretations. For
certain grants, no stock-based employee compensation cost 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. The following table
provides the pro forma effects of recognizing compensation expense in accordance
with SFAS 123:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------ ------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
(in thousands, except per share data)
Net income as reported........................................ $ 3,486 $ 6 $ 8,362 $ 5,333
Stock-based employee compensation expense reported
in net income, net of tax.................................. - - - -
Total stock-based employee compensation under fair
value method for all grants, net of tax.................... (984) (638) (1,735) (1,694)
--------- --------- --------- ---------
Pro forma net income.......................................... $ 2,502 $ (632) $ 6,627 $ 3,639
========= ========= ========= =========
Net income per common share:
Basic - as reported........................................... $ .20 $ .00 $ .49 $ .31
Basic - pro forma............................................. $ .15 $ (.04) $ .39 $ .21
Diluted - as reported......................................... $ .20 $ .00 $ .48 $ .30
Diluted - pro forma........................................... $ .14 $ (.04) $ .38 $ .20
10
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2003
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Recently Issued Financial Accounting Standards
In November 2002, the FASB issued Interpretation 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). ). FIN 45 clarifies the
requirements of FASB Statement of Financial Accounting Standards No. 5,
Accounting for Contingencies ("SFAS 5") relating to a guarantor's accounting
for, and disclosure of, the issuance of certain types of guarantees. FIN 45
provides for additional disclosure requirements related to guarantees which were
effective for financial periods ending after December 15, 2002. Additionally,
FIN 45 outlines provisions for initial recognition and measurement of the
liability incurred in providing a guarantee. The Company adopted the initial
recognition and measurement requirements for all guarantees as of January 1,
2003. The initial adoption of the recognition and measurement requirements of
FIN 45 did not have a significant impact on the results of operations or equity
of the Company.
In January 2003, the FASB issued Interpretation 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). This interpretation changes the method
of determining whether certain entities should be included in the Company's
consolidated financial statements. FIN 46's consolidation criteria are based on
analysis of risks and rewards, not control, and represent a significant and
complex modification of previous accounting principles. An entity is subject to
FIN 46 and is called a variable interest entity ("VIE") if it has (1) equity
that is insufficient to permit the entity to finance its activities without
additional subordinated financial support from other parties, or (2) equity
investors that cannot make significant decisions about the entity's operations,
or that do not absorb the expected losses or receive the expected returns of the
entity. All other entities are evaluated for consolidation in accordance with
SFAS No. 94, "Consolidation of All Majority-Owned Subsidiaries" ("SFAS 94"). A
VIE is consolidated by its primary beneficiary, which is the party involved with
the VIE that has exposure to a majority of the expected losses or a majority of
the expected residual returns or both.
The provisions of the interpretation are to be applied immediately to
VIEs created after January 31, 2003 and to VIEs in which an enterprise obtains
an interest after that date. For VIEs in which an enterprise holds a variable
interest that it acquired before February 1, 2003, FIN 46 is applicable
beginning July 1, 2003. For any VIEs that must be consolidated under FIN 46, the
assets, liabilities and noncontrolling interest of the VIE would be initially
measured at their carrying amounts with any difference between the net amount
added to the balance sheet and any previously recognized interest being
recognized as a cumulative effect of a change in accounting principle. If
determining the carrying amounts is not practicable, fair value at the date FIN
46 first applies may be used to measure the assets, liabilities and
noncontrolling interest of the VIE.
The Company is evaluating the impact of applying FIN 46 to existing
VIE's in which it has variable interests and has not yet completed this
analysis. In addition, the Company is also in the process of restructuring
certain VIE's. Upon completion of these restructurings, it is anticipated that
the restructured VIE's will not meet the criteria for consolidation by the
Company under FIN 46. Liabilities of consolidated VIE's resulting from the
adoption of FIN 46 will be with recourse only as to the VIE's assets underlying
these liabilities, and not to the general assets of the Company. As the Company
continues to evaluate the impact of applying FIN 46, additional entities may be
identified that would need to be consolidated by the Company.
11
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2003
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Recently Issued Financial Accounting Standards - (Continued)
In April 2003, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 149 ("SFAS 149") "Amendment of Statement 133 on Derivative Instruments
and Hedging Activates." SFAS 149 is effective for contracts entered into or
modified after June 30, 2003 and amends and clarifies financial accounting and
reporting for derivative instruments. The Company believes that adoption of SFAS
149 will not have a material effect on its financial position or results of
operations.
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." This
Statement requires that certain instruments that were previously classified as
equity on a company's statement of financial position now be classified as
liabilities. The Statement is effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003. The Company does not
expect that the adoption of this Statement will have a material impact on its
results of operations or financial position.
NOTE 3 - GOODWILL, INTANGIBLE ASSETS AND OTHER ASSETS
Goodwill
On October 1, 2001, the Company early-adopted SFAS 142 "Goodwill and
Other Intangible Assets," which requires that goodwill no longer be amortized,
but instead tested for impairment at least annually. The Company evaluates its
goodwill at each year end, and will reflect the impairment of goodwill, if any,
in operating income in the income statement in the period in which the
impairment is indicated. All goodwill recorded on the Company's balance sheets
is related to the Company's energy segment.
Intangible Assets
Partnership management and operating contracts and the Company's
equipment leasing operating system, or leasing platform, were acquired through
acquisitions and recorded at fair value on their acquisition dates. The Company
amortizes contracts acquired on a declining balance method over their respective
estimated lives, ranging from eight to thirteen years. The leasing platform is
amortized on the straight-line method over its remaining life of six years.
Amortization expense for the nine months ended June 30, 2003 was $987,000. The
aggregate estimated annual amortization expense is approximately $1.3 million
for each of the succeeding five years.
At June 30, At September 30,
2003 2002
----------- -----------
(in thousands)
Partnership management and operating contracts............................ $ 14,383 $ 14,343
Leasing platform.......................................................... 918 918
15,301 15,261
Accumulated amortization.................................................. (6,659) (5,672)
----------- -----------
Intangible assets, net.................................................... $ 8,642 $ 9,589
=========== ===========
12
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2003
(Unaudited)
NOTE 3 - GOODWILL, INTANGIBLE ASSETS AND OTHER ASSETS - (Continued)
Other Assets
The following table provides information about other assets at the
dates indicated.
At June 30, At September 30,
2003 2002
----------- -----------
(in thousands)
Deferred financing costs (net of accumulated amortization
of $4,708 and $3,742)................................................... $ 2,182 $ 2,122
Equity method investments in and advances to Trapeza entities............... 4,860 3,085
Investments at lower of cost or market...................................... 6,298 6,137
Other....................................................................... 5,469 5,100
----------- -----------
$ 18,809 $ 16,444
=========== ===========
Deferred financing costs are amortized over the terms of the related
loans (two to seven years).
Investments in Trapeza entities, issuers of collateralized debt
securities, are accounted for by the equity method of accounting since the
Company, as a 50% owner of the general partner of these entities, has the
ability to exercise significant influence over its operating and financial
decisions. The Company's combined general and limited partner interests in these
entities range from 16% to 18%.
Investments at the lower of cost or market include non-marketable
investments in entities in which the Company has less than a 20% ownership
interest, and in which it does not have the ability to exercise significant
influence over their operating and financial decisions. These investments
include approximately 9% of the outstanding shares of The Bancorp, Inc., a
related party as disclosed in Note 4 to the consolidated financial statements in
the Company's Annual Report on Form 10K/A for the fiscal year ended September
30, 2002.
NOTE 4 - INVESTMENTS IN REAL ESTATE LOANS AND REAL ESTATE
The Company focuses its real estate activities on managing its existing
real estate loan portfolio and on managing a real estate partnership it
sponsored which closed its initial transaction during the three months ended
March 31, 2003 and two further transactions during the three months ended June
30, 2003.
The Company's real estate loans generally were acquired at discounts
from both their face value and the appraisal value of the properties underlying
the loans. The Company records as income the accretion of a portion of the
difference between its cost basis in a real estate loan and the sum of projected
cash flows from it. This accretion of discount amounted to $83,000 and $428,000
during the three months ended June 30, 2003 and 2002 and $1.5 million and $2.6
million during the nine months ended June 30, 2003 and 2002, respectively. As
the Company sells senior lien interests or receives funds from refinancing of
loans by the borrowers, a portion of the cash received is employed to reduce the
cumulative accretion of discount included in the carrying value of the Company's
investments in real estate loans.
13
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2003
(Unaudited)
NOTE 4 - INVESTMENTS IN REAL ESTATE LOANS AND REAL ESTATE - (Continued)
At June 30, 2003, the Company held real estate loans having an
aggregate face value of $588.1 million. The investment in these loans at that
date was carried at an aggregate cost of $177.1 million, including cumulative
accretion. The following is a summary of the changes in the carrying value of
the Company's investments in real estate loans for the periods indicated.
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- --------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
(in thousands)
Loan balance, beginning of period............................. $ 187,728 $ 178,953 $ 187,542 $ 192,263
New loan...................................................... - - 1,350 -
Additions to existing loans................................... 2,214 9,799 4,635 17,147
Accretion of discount (net of collection of interest)......... 83 428 1,492 2,614
Write-downs................................................... (1,159) (60) (1,552) (560)
Collection of principal....................................... (4,941) - (9,542) -
Cost of loans resolved........................................ - (1,943) - (24,287)
Foreclosures transferred to real estate....................... (6,842) - (6,842) -
----------- ----------- ----------- -----------
Loan balance, end of period................................... $ 177,083 $ 187,177 $ 177,083 $ 187,177
Real estate balance, net, end of period....................... 26,894 17,676 26,894 17,676
Allowance for possible losses................................. (1,242) (2,979) (1,242) (2,979)
----------- ----------- ----------- -----------
Balance, loans and real estate, end of period................. $ 202,735 $ 201,874 $ 202,735 $ 201,874
=========== =========== =========== ===========
In determining the Company's allowance for possible losses related to
its real estate loans, the Company considers general and local economic
conditions, neighborhood values, competitive overbuilding, casualty losses and
other factors which may affect the value of its loans. The value of loans 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 identified. The Company reduces its
investment in real estate loans by an allowance for amounts that may become
unrealizable in the future. Such allowance can be either specific to a
particular loan or general to all loans.
The following is a summary of activity in the Company's allowance for
possible losses related to real estate loans and real estate for the periods
indicated:
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- --------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
(in thousands)
Balance, beginning of period.................................. $ 4,260 $ 2,829 $ 3,480 $ 2,529
Provision for possible losses................................. 375 210 1,548 1,010
Write-downs................................................... (1,159) (60) (1,552) (560)
Transfers to real estate upon foreclosure..................... (2,234) - (2,234) -
----------- ----------- ----------- -----------
Balance, end of period........................................ $ 1,242 $ 2,979 $ 1,242 $ 2,979
=========== =========== =========== ===========
14
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2003
(Unaudited)
NOTE 5 - DEBT
Total debt consists of the following:
At June 30, At September 30,
2003 2002
----------- -----------
(in thousands)
Senior debt............................................................... $ 65,336 $ 65,336
Non-recourse debt:
Energy:
Revolving and term bank loans....................................... 30,208 49,345
Real estate finance:
Revolving credit facilities......................................... 18,000 18,000
Other............................................................... 4,738 875
----------- -----------
Total non-recourse debt.......................................... 52,946 68,220
Other debt................................................................ 25,659 21,954
----------- -----------
143,941 155,510
Less current maturities................................................... 5,290 4,320
----------- -----------
$ 138,651 $ 151,190
=========== ===========
NOTE 6 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company, through its energy subsidiaries, enters into natural gas
futures and option contracts to hedge its exposure to changes in natural gas
prices. At any point in time, such contracts may include regulated New York
Mercantile Exchange ("NYMEX") futures and options contracts and non-regulated
over-the-counter futures contracts with qualified counterparties. NYMEX
contracts are generally settled with offsetting positions, but may be settled by
the delivery of natural gas.
The Company formally documents all relationships between hedging
instruments and the items being hedged, including the Company's risk management
objectives and strategy for undertaking the hedging transactions. This includes
matching the natural gas futures and options contracts to the hedged asset. The
Company assesses, both at the inception of the hedge and on an ongoing basis,
whether the derivatives are highly effective in offsetting changes in fair value
of hedged items. When it is determined that a derivative is not highly effective
as a hedge or it has ceased to be a highly effective hedge due to the loss of
correlation between changes in gas reference prices under a hedging instrument
and actual gas prices, the Company will discontinue hedge accounting for the
derivative and further changes in fair value for the derivative will be
recognized immediately into earnings. Gains or losses on these instruments are
accumulated in other comprehensive income (loss) to the extent that these hedges
are deemed to be highly effective as hedges, and are recognized in earnings in
the period in which the hedged item is recognized in earnings.
15
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2003
(Unaudited)
NOTE 6 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - (Continued)
At June 30, 2003, the Company had 67 open natural gas futures contracts
related to natural gas sales covering 201,000 dekatherms ("Dth") (net to the
Company) of natural gas, maturing through September 2003 at a combined average
settlement price of $3.63 per Dth. Based on quoted market prices, the fair value
of the Company's open natural gas futures contracts at June 30, 2003, is $1.1
million. As these contracts qualify and have been designated as cash flow
hedges, any gains or losses resulting from market price changes are deferred and
recognized as a component of sales revenues in the month the gas is sold, unless
the hedges are no longer "highly effective." Gains or losses on futures
contracts are determined as the difference between the contract price and a
reference price, generally prices on NYMEX. The Company's net unrealized loss
related to open NYMEX contracts was approximately $363,000 at June 30, 2003 and
$317,000 at September 30, 2002. The unrealized losses, net of applicable taxes,
have been recorded as a liability in the Company's Consolidated Balance Sheets
and in Stockholders' Equity as a component of Accumulated Other Comprehensive
Income. The Company recognized losses of $591,000 and $1.1 million on settled
contracts for the three months and nine months ended June 30, 2003. The Company
recognized no gains or losses during the three months and nine months ended June
30, 2003 for hedge ineffectiveness or as a result of the discontinuance of cash
flow hedges. As of June 30, 2003, all of the deferred net losses on derivative
instruments included in accumulated other comprehensive income (loss) are
expected to be reclassified to earnings during the next three months.
Although hedging provides the Company some protection against falling
prices, these activities could also reduce the potential benefits of price
increases, depending upon the instrument.
NOTE 7 - DISCONTINUED OPERATIONS
In June 2002, the Company adopted a plan to dispose of Optiron
Corporation ("Optiron"). The Company has reduced its 50% interest in Optiron to
10% through a sale to management which was completed in September 2002. In
connection with the sale, the Company forgave $4.3 million of the $5.9 million
of indebtedness owed by Optiron. The remaining $1.6 million was retained by the
Company in the form of a promissory note which is secured by all of Optiron's
assets and by the common stock of Optiron's 90% shareholder. The note bears
interest at the prime rate plus 1% payable monthly; an additional 1% will accrue
until the maturity date of the note in 2022.
In accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long Lived Assets," the results of operations have been prepared
under the financial reporting requirements for discontinued operations, pursuant
to which all historical results of Optiron are included in the results of
discontinued operations rather than the results of continuing operations for all
periods presented.
Summarized operating results of the discontinued Optiron operations are
as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- ---------------------------
2003 2002 2003 2002
---------- --------- ----------- -----------
(in thousands)
Loss from discontinued operations before
income taxes............................................. $ - $ (1,927) $ - $ (3,291)
Income tax benefit........................................... - 605 - 1,053
---------- --------- ----------- -----------
Loss from discontinued operations............................ $ - $ (1,322) $ - $ (2,238)
========== ========= =========== ===========
16
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2003
(Unaudited)
NOTE 8 - OPERATING SEGMENT AND MAJOR CUSTOMER INFORMATION
The Company's operations include five reportable operating segments. In
addition to the five reportable operating segments, certain other activities are
reported in the "Other energy" and "All other" categories. These operating
segments reflect the way the Company manages its operations and makes business
decisions. The Leasing and Trapeza segments first met the criteria for
reportable operating segments in the three months ended June 30, 2003, and
accordingly all prior periods have been restated to reflect these new segments.
The Company does not allocate income taxes to its operating segments. Operating
segment data for the periods indicated are as follows:
Nine Months Ended June 30, 2003 (in thousands)
Production
Well and Other Real Estate Trapeza All
Drilling Exploration Energy (a) Finance Leasing Entities Other Eliminations Total
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues from ........
external customers.. $ 38,166 $ 27,551 $ 10,759 $ 11,213 $ 3,092 $ 880 $ 6,265 $ (157) $ 97,769
Interest income....... - - 169 65 52 8 549 (157) 686
Interest expense...... - - 1,509 1,228 349 - 6,683 (157) 9,612
Depreciation and - 6,073 2,869 135 157 - 99 - 9,333
amortization......
Segment profit........ 3,889 13,132 (3,798) 5,490 (1,284) 473 (5,784) - 12,118
Other significant
items:
Segment assets.... 7,244 136,309 56,638 204,153 17,694 4,926 84,464 - 511,428
- ----------
(a) Revenues and expenses from segments below the quantitative thresholds are
attributable to two operating segments of the Company. Those segments
include well services and transportation. Theses segments have never met
any of the quantitative thresholds for determining reportable segments.
Three Months Ended June 30, 2003 (in thousands)
Production
Well and Other Real Estate Trapeza All
Drilling Exploration Energy (a) Finance Leasing Entities Other Eliminations Total
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues from ........
external customers.. $ 8,217 $ 10,066 $ 3,584 $ 4,530 $ 1,191 $ 772 $ 2,400 $ (38) $ 30,722
Interest income....... - - 31 30 13 8 260 (38) 304
Interest expense...... - - 450 424 155 - 2,212 (38) 3,203
Depreciation and - 2,107 980 68 60 - 32 - 3,247
amortization......
Segment profit........ 732 5,306 (2,166) 2,700 (491) 465 (1,599) - 4,947
- ----------
(a) Revenues and expenses from segments below the quantitative thresholds are
attributable to two operating segments of the Company. Those segments
include well services and transportation. Theses segments have never met
any of the quantitative thresholds for determining reportable segments.
17
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2003
(Unaudited)
NOTE 8 - OPERATING SEGMENT AND MAJOR CUSTOMER INFORMATION - (Continued)
Nine Months Ended June 30, 2002 (in thousands)
Production
Well and Other Real Estate Trapeza All
Drilling Exploration Energy (a) Finance Leasing Entities Other Eliminations Total
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues from ........
external customers.. $ 43,211 $ 21,200 $ 11,226 $ 13,603 $ 1,123 $ - $ 2,814 $ (174) $ 93,003
Interest income....... - - 449 79 113 - 406 (174) 873
Interest expense...... - - 1,546 1,404 1 - 6,713 (174) 9,490
Depreciation and - 5,447 2,564 101 11 - 80 - 8,203
amortization......
Segment profit........ 4,542 7,830 (2,285) 9,329 584 - (8,866) - 11,134
- ----------
(a) Revenues and expenses from segments below the quantitative thresholds are
attributable to two operating segments of the Company. Those segments
include well services and transportation. Theses segments have never met
any of the quantitative thresholds for determining reportable segments.
Three Months Ended June 30, 2002 (in thousands)
Production
Well and Other Real Estate Trapeza All
Drilling Exploration Energy (a) Finance Leasing Entities Other Eliminations Total
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues from
external customers.. $ 8,472 $ 7,304 $ 3,400 $ 4,250 $ 427 $ - $ 932 $ (58) $ 24,727
Interest income....... - - 87 16 37 - 122 (58) 204
Interest expense...... - - 533 385 - - 2,218 (58) 3,078
Depreciation and - 1,816 927 34 10 - 36 - 2,823
amortization......
Segment profit........ 811 2,680 (1,338) 2,894 134 - (3,377) - 1,804
- ----------
(a) Revenues and expenses from segments below the quantitative thresholds are
attributable to two operating segments of the Company. Those segments
include well services and transportation. Theses segments have never met
any of the quantitative thresholds for determining reportable segments.
18
RESOURCE AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2003
(Unaudited)
NOTE 8 - OPERATING SEGMENT AND MAJOR CUSTOMER INFORMATION - (Continued)
Operating profit (loss) per segment represents total revenues less
costs and expenses attributable thereto, including interest, provision for
possible losses and depreciation, depletion and amortization, excluding general
corporate expenses.
The Company markets its production on a competitive basis. Gas is sold
under various types of contracts ranging from life-of-the-well to short-term
contracts. The Company is party to a ten-year agreement which expires March 2009
to sell the majority of its existing and future production to an affiliate of
First Energy Corporation ("FEC"). Pricing under the contract is established by
index-based formulas which the Company negotiates annually. Approximately 80% of
the Company's current production was dedicated to the performance of this
agreement for the nine month period ended June 30, 2003. Payments from the
affiliate are guaranteed by its parent, FEC, a publicly-traded company
(NYSE:FE).
The Company anticipates that it will negotiate mutually agreeable
pricing terms for subsequent 12-month periods pursuant to the aforementioned
agreement. Management believes that the loss of any one customer would not have
a material adverse effect as it believes that, under current market conditions,
the Company's production could readily be absorbed by other purchasers.
NOTE 9 - LEGAL SETTLEMENT
The Company settled an action filed in the U.S. District Court for the
District of Oregon by the former chairman of TRM Corporation and his children.
The Company's chief executive officer and a former director and officer also had
been named as defendants. The plaintiffs' claims were for breach of contract and
fraud. The Company recorded a charge of $1.2 million, including related legal
fees, in the nine months ended June 30, 2003. The Company has made a claim under
its directors' and officers' insurance policy in connection with this
settlement.
NOTE 10 - PUBLIC OFFERING OF ATLAS PIPELINE PARTNERS, L.P. COMMON UNITS
On May 9, 2003, the Company's subsidiary, Atlas Pipeline Partners,
L.P., completed a secondary public offering of 1,092,500 common units of limited
partner interest. The net proceeds after underwriting discounts and commissions
were approximately $25.3 million. These proceeds were used in part to repay
existing indebtedness of $8.5 million. The Partnership intends to use the
balance of these proceeds to fund future capital projects and for working
capital. As a result of this offering, the Company now owns 39% of this
partnership through both its general partner interest and its subordinated
units.
19
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/A for fiscal 2002. These risks and uncertainties
could cause actual results to differ materially. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof. We undertake no obligation to publicly release the results of
any revisions to forward-looking statements which we may make to reflect events
or circumstances after the date of this Form 10-Q or to reflect the occurrence
of unanticipated events.
Overview of Three Months and Nine Months Ended June 30, 2003 and 2002
Although energy and real estate finance remain our principal business
operations, during the three and nine months ended June 30, 2003, we began to
expand our proprietary asset management operations into additional areas,
including the sponsorship of ventures involved in equipment leasing and the
trust preferred securities of banks and other financial institutions. This
growth is reflected in the following tables:
Revenues as a Percent of Total Revenues
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- -----------------
2003 2002 2003 2002
---- ---- ---- ----
Energy........................................................ 71% 77% 78% 80%
Real estate finance........................................... 15 17 11 15
Leasing....................................................... 4 1 3 1
Equity earnings in Trapeza entities........................... 2 - 1 -
All other (1)................................................. 8 5 7 4
--- --- --- ---
100% 100% 100% 100%
Assets as a Percent of Total Assets
June 30, September 30,
2003 2002
-------- -------------
(in thousands)
Energy.................................................................... 39% 39%
Real estate finance....................................................... 40 44
Leasing................................................................... 3 2
Trapeza entities.......................................................... 1 -
All other (2)............................................................. 17 15
--- ---
100% 100%
- ----------
(1) We attribute the balance to revenues derived from assets related to
operations which do not meet the definition of a business segment and
corporate assets such as cash, common shares held in RAIT Investment Trust
and other corporate investments.
(2) We attribute the balance to assets related to operations which do not meet
the definition of a business segment, as referred to in footnote (1) above.
20
Results of Operations: Energy
The following tables set forth information relating to revenues
recognized and costs and expenses incurred, daily production volumes, average
sales prices and production costs per equivalent unit in our energy operations
during the periods indicated:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------ --------------------------
2003 2002 2003 2002
-------- --------- ---------- ----------
(in thousands, except
sales prices and production cost data)
Revenues:
Production................................................ $ 10,066 $ 7,304 $ 27,551 $ 21,200
Well drilling............................................. 8,217 8,472 38,166 43,211
Well services............................................. 2,009 1,910 6,061 6,028
Transportation............................................ 1,500 1,338 4,310 4,012
-------- --------- ---------- ----------
$ 21,792 $ 19,024 $ 76,088 $ 74,451
======== ========= ========== ==========
Costs and expenses:
Production................................................ $ 1,700 $ 1,631 $ 4,879 $ 4,931
Exploration............................................... 305 580 1,314 1,236
Well drilling............................................. 7,145 7,374 33,188 37,769
Well services............................................. 1,031 1,085 2,971 2,993
Transportation............................................ 629 516 1,832 1,574
Non-direct................................................ 2,202 2,192 5,644 5,736
-------- --------- ---------- ----------
$ 13,012 $ 13,378 $ 49,828 $ 54,239
======== ========= ========== ==========
Production revenues(1):
Gas....................................................... $ 9,027 $ 6,392 $ 24,308 $ 18,752
Oil....................................................... $ 1,021 $ 930 $ 3,224 $ 2,443
Production volume:
Gas (mcf/day) (2) ........................................ 18,118 19,239 18,471 19,535
Oil (bbls/day) (2)........................................ 427 466 428 463
Average sales prices:
Gas (per mcf) (3)......................................... $ 5.47 $ 3.65 $ 4.82 $ 3.52
Oil (per bbl)............................................. $ 26.25 $ 21.96 $ 27.58 $ 19.34
Average production costs (4):
As a percent of production revenues....................... 17% 22% 18% 23%
Per mcfe (2).............................................. $ .90 $ .81 $ .85 $ .81
- ----------
(1) Excludes sales of residual gas and sales to landowners.
(2) As used in this discussion, "mcf" and mmcf" means thousand cubic feet
and million cubic feet; "mcfe" and mmcfe" means thousand cubic feet
equivalent and million cubic feet equivalent, and "bbls" means barrels.
Bbls are converted to mcfes using the ratio of six mcfs to one bbl.
(3) Our average sales price per mcf before the effects of hedging was
$5.74 and $4.93 and $3.66 and $3.52 for the three months and
nine months ended June 30, 2003 and 2002, respectively.
(4) Production costs include labor to operate the wells and related
equipment, repairs and maintenance, materials and supplies, property
taxes, severance taxes, insurance, gathering charges and production
overhead.
21
Our natural gas revenues were $9.0 million and $24.3 million in the
three months and nine months ended June 30, 2003, an increase of $2.6 million
(41%) and $5.6 million (30%) from $6.4 million and $18.8 million in the three
months and nine months ended June 30, 2002, respectively. The increases were due
to increases in the average sales price of natural gas of 50% and 36% for the
three months and nine months ended June 30, 2003, which were partially offset by
decreases of 6% and 5% in the volume of natural gas we produced in the three
months and nine months ended June 30, 2003, respectively. The $2.6 million
increase in gas revenues in the three months ended June 30, 2003 as compared to
the prior period consisted of a $3.2 million increase attributable to increases
in natural gas sales prices, partially offset by a $558,000 decrease
attributable to decreased production volumes. The $5.6 million increase in
natural gas revenues in the nine months ended June 30, 2003 as compared to the
prior period consisted of a $7.0 million increase attributable to an increase in
natural gas sales prices, partially offset by $1.4 million decrease attributable
to decreased production volumes. Production volumes decreased because new wells
we had drilled in Crawford County, Pennsylvania, could not be brought on line
until the extension of our Crawford gathering system had been completed, and
because of the reduced number of wells drilled in the period. The Crawford
extension has since been complete, while the reduced number of wells resulted
principally from a timing difference in the completion of wells as compared to
the prior year periods. As a consequence current market conditions continue, we
believe that our natural gas production revenues will be higher in the remainder
of fiscal 2003 than in fiscal 2002.
Our oil revenues were $1.0 million and $3.2 million in the three month
and nine month periods ended June 30, 2003, an increase of $91,000 (10%) and
$781,000 (32%) from $930,000 and $2.4 million in the three months and nine
months ended June 30, 2002, primarily due to increases in the average sales
price of oil of 20% and 43%, for the respective periods. Oil production volume
decreased 8% during the three months and the nine months ended June 30, 2003 as
compared to the three months and nine months ended June 30, 2002. The $91,000
increase in oil revenues in the three months ended June 30, 2003 as compared to
the prior period consisted of increases of $182,000 attributable to increases in
oil sales prices partially offset by a $91,000 attributable to decreased
production volumes. The $781,000 increase in oil revenues for the nine months
ended June 30, 2003 as compared to the prior period consisted of increases of
$1,041,000 attributable to increases in oil sales prices partially offset by
$260,000 attributable to decreased production volumes. The decrease in oil
volumes is a result of the natural production decline inherent in the life of a
well. This decline was not offset by new wells added, as the majority of the
wells we have drilled during the past several years have targeted gas reserves.
Our well drilling revenues and expenses represent the billing and costs
associated with the completion of 29 and 189 net wells for partnerships
sponsored by Atlas America, Inc. in the three months and nine months ended June
30, 2003 as compared to 43 and 220 net wells in the three months and nine months
ended June 30, 2002, respectively. Our well drilling gross margin was $1.1
million and $5.0 million in the three months and nine months ended June 30,
2003, a decrease of $26,000 and $464,000 from $1.1 million and $5.4 million in
the three months and nine months ended June 30, 2002, respectively. In the three
months ended June 30, 2003, the decrease of $26,000 was attributable to a
decrease in the number of wells drilled ($518,000) partially offset by an
increase in the gross profit per well ($492,000). In the nine months ended June
30, 2003, the decrease of $464,000 was attributable to a decrease in the number
of wells drilled ($817,000) partially offset by an increase in the gross profit
per well ($353,000). Our gross profit per well increased as well drilling costs
increased since our drilling contracts are on a "cost plus" basis, typically
cost plus 13%. Costs increased as demand for drilling equipment and services
increased, resulting in an increase in the cost to us of obtaining equipment and
services in the three months and nine months ended June 30, 2003. Our average
cost per well increased $6,000 to $202,000 from $196,000 in the nine months
ended June 30, 2003 and 2002, respectively.
22
Our transportation revenues increased 12% and 7% in the three months
and nine months ended June 30, 2003, respectively, as compared to the similar
prior year periods. These increases resulted from higher gross volumes
transported due to the additional volumes associated with new partnership wells
drilled by us to our gathering system.
Our transportation expenses increased 22% and 16% in the three months
and nine months ended June 30, 2003, respectively, as compared to the similar
prior year periods. These increases resulted from higher compressor expenses due
to increased compressor lease rates and the addition of more compressors to
increase the capacity of our gathering systems.
Our exploration costs were $305,000 and $1.3 million in the three
months and nine months ended June 30, 2003, a decrease of $275,000 (47%) and
increase of $78,000 (6%) from the three months and nine months ended June 30,
2002. The decrease in the three months ended June 30, 2003 as compared to the
prior period was attributable to the timing of reimbursements from our
investment partnerships for leases contributed to these partnerships.
Results of Operations: Real Estate Finance
The following table sets forth certain information relating to the
revenues recognized and costs and expenses incurred in our real estate finance
operations during the periods indicated:
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- ------------------------
2003 2002 2003 2002
---------- ----------- ---------- ----------
(in thousands)
Revenues:
Interest.................................................. $ 2,044 $ 2,583 $ 5,774 $ 7,588
Accreted discount......................................... 83 428 1,492 2,614
Fee income................................................ 2,184 300 2,739 300
(Loss) gains on resolutions of loans ..................... (106) 757 707 2,398
Equity in earnings of equity investees.................... 154 48 193 316
Rental income............................................. 136 136 238 340
---------- ----------- ---------- ----------
$ 4,495 $ 4,252 $ 11,143 $ 13,556
========== =========== ========== ==========
Costs and expenses............................................ $ 931 $ 693 $ 2,714 $ 1,680
========== =========== ========== ==========
Revenues - Three Months Ended June 30, 2003 as Compared to the Three Months
Ended June 30, 2002
Revenues increased $243,000 (6%) from $4.3 million in the three months
ended June 30, 2002 to $4.5 million in the three months ended June 30, 2003. We
attribute the increase to the following:
o An increase of $1.9 million in fee income in the three months ended
June 30, 2003, as compared to the three months ended June 30, 2002,
to $2.2 million from $300,000. The increase resulted primarily from
fees we earned for services provided to the real estate investment
partnership which we sponsored relating to the purchases and third
party financing of two properties. We anticipate earning additional
fees from this partnership and any future real estate investment
partnerships which we may sponsor.
o An increase of $106,000 from our share of the operating results of
our unconsolidated real estate investments accounted for on the
equity method in the three months ended June 30, 2003 as compared to
the three months ended June 30, 2002. The increase was the result of
higher earnings from one of our investments.
The increases were partially offset by the following:
o A decrease in interest and accreted discount income of $884,000
(29%) resulting from the following:
- The resolution of two loans which decreased interest income by
$11,000 in the three months ended June 30, 2003 as compared to
the three months ended June 30, 2002.
23
- The completion of accretion of discount on two loans, which
decreased interest income by $499,000 in the three months ended
June 30, 2003 as compared to the three months ended June 30,
2002.
- A decrease in our average rate of accretion, resulting in a
decrease in interest income of $374,000 in the three months ended
June 30, 2003 as compared to the three months ended June 30,
2002.
o A decrease of $863,000 in gains on resolutions of loans and loan
payments in excess of carrying value in the three months ended June
30, 2003 compared to the three months ended June 30, 2002. In the
three months ended June 30, 2003, we resolved one loan having a book
value of $5.0 million for $4.9 million realizing a loss of $106,000
as compared to one loan sold in the three months ended June 30, 2002
having a book value of $1.0 million for $1.8 million, recognizing a
gain of $757,000.
Revenues - Nine Months Ended June 30, 2003 as Compared to the Nine Months Ended
June 30, 2002
Revenues decreased $2.4 million (18%) to $11.1 million in the nine
months ended June 30, 2003 from $13.5 million in the nine months ended June 30,
2002. We attribute the decrease to the following:
o A decrease in interest and accreted discount income of $2.9 million
(29%) resulting from the following:
- The resolution of four loans, which decreased interest income by
$1.2 million in the nine months ended June 30, 2003 as compared
to the nine months ended June 30, 2002.
- The completion of accretion of discount on four loans, which
decreased interest income by $1.7 million in the nine months
ended June 30, 2003 as compared to the nine months ended months
ended June 30, 2002.
- A decrease in our average rate of accretion, resulting in a
decreased in interest income of $69,000 in the nine months ended
June 30, 2003 as compared to the nine months ended June 30, 2002.
o A decrease of $1.7 million in gains on resolutions of loans. In the
nine months ended June 30, 2003, we resolved two loans, having book
values of $9.2 million, for $9.9 million, recognizing a gain of
$707,000, as compared to the resolution of two loans in the nine
months ended June 30, 2002 having a book value of $23.3 million for
$25.7 million, recognizing a gain of $2.4 million.
o A decrease of $123,000 from our share of the operating results of
our unconsolidated real estate investments accounted for on the
equity method in the nine months ended June 30, 2003 as compared to
the nine months ended June 30, 2002. The decrease was the result of
an increase in depreciation and an operating loss on a property in
which we acquired an interest in March 2002.
o These decreases were partially offset by the following:
o An increase of $2.4 million in fee income in the nine months ended
June 30, 2003 as compared to the nine months ended June 30, 2002 to
$2.7 million from $300,000. The increase resulted primarily from
fees we earned for services we provided to the real estate
investment partnership we sponsored relating to its purchase and
third party financing of three properties.
Gains on resolutions of loans (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.
24
Costs and Expenses
Costs and expenses of our real estate finance operations were $931,000
and $2.7 million in the three months and nine months ended June 30, 2003,
respectively, an increase of $238,000 (34%) and $1.0 million (62%) from $693,000
and $1.7 million in the same periods of the prior fiscal year. The increase
resulted from approximately $272,000 and $455,000 in non-recoverable payments
associated with loans which we charged to earnings. These payments were made to
protect our interests in certain properties underlying our investments in real
estate loans in the three months and nine months ended June 30, 2003,
respectively. In the three months ended June 30, 2003 we foreclosed on two
properties underlying two loans. Operating expenses associated with these
properties will be expensed as part of our real estate operations as they are
incurred. We may be required to exercise our foreclosure rights on additional
loans where the borrower is not in compliance with our forebearance agreements.
In addition, wages and benefits increased $71,000 and $346,000 in the
in the three months and nine months ended June 30, 2003, respectively, as
compared to the prior year periods as a result of the addition of a new
president and other personnel in our real estate subsidiary in connection with
the expansion of our real estate operations through the sponsorship of real
estate investment partnerships as well as the on-going management of our
existing portfolio of commercial loans and real estate.
Results of Operations: Leasing
In fiscal 2002 we began to pursue expansion of our equipment leasing
operations through sponsorship of equipment leasing programs. Our first such
program commenced operations in March 2003. We also manage equipment leasing
assets through a company we acquired in 1995 that acts as the general partner
and manager of four public equipment leasing programs. We intend to further
develop our equipment leasing operations through the sponsorship of subsequent
equipment leasing programs. In addition, in April 2003, we entered into a
multi-year agreement to originate and service leases on behalf of Merrill Lynch.
Our leasing revenues were $1.2 million and $3.0 million in the three
months and nine month periods ended June 30, 2003, an increase of $925,000 and
$2.1 million from $247,000 and $924,000 in the three months and nine months
ended June 30, 2002, primarily due to lease income and fees associated with of
our new leasing investment program.
Our leasing expenses were $1.5 million and $3.9 million in the three
months and nine month periods ended June 30, 2003, an increase of $1.3 million
and $3.4 million from $159,000 and $441,000 in the three months and nine months
ended June 30, 2002, primarily due to expenses associated with the startup of
our operations in connection with our new leasing program.
Results of Operations: Trapeza Entities
We manage trust preferred securities through our 50% interest in
Trapeza Capital Management and the Trapeza general partner entities. For a
description of the general structure of our Trapeza operations see Item 1;
"Business-Financial Services" in our Annual Report on Form 10K/A for 2002. Since
November 2002, Trapeza has issued $1.05 billion of trust preferred securities
under management. We receive fees as the collateral manager of these securities
and a 20% carried interest in the sponsor of each collateralized debt
obligations backed by the trust preferred securities. Since we own 50% of the
general partners of these entities and have the ability to exercise significant
influence over their operating and financial decisions, we account for them by
the equity method.
25
Results of Operations: Other Revenues, Costs and Expenses
Our interest and other income was $2.5 million and $6.6 million in the
three months and nine months ended June 30, 2003, respectively, an increase of
$1.3 million (108%) and $2.5 million (63%), respectively, as compared to $1.2
million and $4.1 million during the three months and nine months ended June 30,
2002, respectively. The following table sets forth information relating to
interest and other income during the periods indicated:
Three Months Ended Nine months Ended
June 30, June 30,
------------------------- ------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
(in thousands)
Interest income............................................... $ 304 $ 204 $ 686 $ 873
Dividend income............................................... 585 849 2,046 2,416
Gains (losses) on sales of assets............................. 1,440 (40) 3,614 472
Other......................................................... 170 191 279 311
---------- ---------- ---------- ----------
$ 2,499 $ 1,204 $ 6,625 $ 4,072
========== ========== ========== ==========
Gains on sale of assets for the three months and nine months ended June
30, 2003 were $1.4 million and $3.6 million as compared to a loss of $ 40,000
and a gain of $472,000 for the three months and nine months ended June 30, 2002,
respectively. This primarily reflects the sale of 140,000 and 492,600 shares in
RAIT Investment Trust from which we received net proceeds of $3.5 million and
$10.9 million, respectively, and realized gains of $1.5 million and $3.6 million
in the three and nine months ended June 30, 2003, respectively. These sales of
RAIT Investment Trust shares have accordingly reduced our dividend income in the
current year periods as compared to the prior year periods.
Our provision for legal settlement represents the estimated costs
associated with the settlement of an action filed by the former chairman of TRM
Corporation as described in Note 9 of our consolidated financial statements. To
the extent that our actual cost (because of insurance recovery) is less than the
provision, it will be recorded as a reduction to our expenses in the period so
determined.
Our depletion, depreciation and amortization consist mainly of
depletion of oil and gas properties and amortization of contracts acquired. Our
depletion as a percentage of oil and gas production revenues was 20% and 22% in
the three months and nine months ended June 30, 2003 compared to 22% and 23% in
the three months and nine months ended June 30, 2002, respectively. The variance
from period to period is directly attributable to changes in our oil and gas
reserve quantities, product prices, and fluctuations in the depletable cost
basis of oil and gas properties.
As a result of the secondary public offering by Atlas Pipeline Partners
in May 2003, we now own 39% of this partnership through both our general partner
interest and our subordinated units. The minority interest in Atlas Pipeline
Partners is the interest of Atlas Pipeline Partners' common unit holders. As
general partner, we control Atlas Pipeline Partners, therefore we include it in
our consolidated financial statements and show the ownership by the public as a
minority interest. The minority interest in Atlas Pipeline Partners earnings was
$1.4 million and $3.0 million in the three months and nine months ended June 30,
2003, as compared to $568,000 and $2.0 million in the three months and nine
months ended June 30, 2002, an increase of $877,000 (154%) and $1.0 million
(52%), respectively. This increase was the result of an increase in Atlas
Pipeline Partners' net income principally caused by increases in transportation
fees received and an increase in the amount of Atlas Pipeline Partners earnings
attributable to minority interests as a result of its public offering.
Our provision for possible losses increased $282,000 and $655,000 to
$375,000 and $1.5 million in the three months and nine months ended June 30,
2003, respectively, as compared to $93,000 and $893,000 in the three months and
nine months ended June 30, 2002, respectively. These increases resulted
primarily from estimated future operating expenses associated with a property
underlying one of our loans. In the three months ended June 30, 2003, we
foreclosed on the property underlying this loan and one other loan. In addition,
in the three months ended June 30, 2002, we realized $117,000 previously written
off due to the bankruptcy filing of an energy customer, thus reducing our
expense in the prior period.
26
Discontinued Operations
In accordance with Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long Lived Assets," our decision
in fiscal 2002 to dispose of Optiron Corporation, our former energy technology
subsidiary, resulted in the presentation of Optiron as a discontinued operation.
We had held a 50% interest in Optiron; as a result of the disposition, we
currently hold a 10% interest in Optiron.
Liquidity and Capital Resources
General. Our major sources of liquidity have been funds generated by
operations, funds raised and fees earned from investment partnerships,
resolutions of real estate loans, borrowings under our existing energy, real
estate finance, leasing and corporate credit facilities and sale of our RAIT
Investment Trust shares. We have employed these funds principally in the
expansion of our energy operations, the repurchase of our common stock and the
acquisition of senior lien interests relating to our real estate loans. The
following table sets forth our sources and uses of cash for the periods
indicated:
Nine Months Ended
June 01
---------------------------------
2003 2002
----------- -----------
(in thousands)
Provided by operations........................................................ $ 18,900 $ 3,955
Used in investing activities.................................................. (5,100) (15,840)
Provided by (used in) financing activities.................................... 15,538 (8,296)
Used in discontinued operations............................................... (5,624) (1,617)
----------- -----------
$ 23,714 $ (21,798)
=========== ===========
We had $49.4 million in cash and cash equivalents on hand at June 30,
2003, as compared to $25.7 million at September 30, 2002. Our ratio of earnings
from continuing operations before income taxes, minority interest and interest
expense to fixed charges was 2.6 to 1.0 in the nine months ended June 30, 2003
as compared to 2.3 to 1.0 in the nine months ended June 30, 2002. Our working
capital at June 30, 2003 was $17.7 million compared to $7.4 million at September
30, 2002. The increase was primarily due to a decrease in net liabilities
associated with assets held for disposal, partially offset by increases in
accounts payable and deferred revenue on drilling contracts as a result of our
sponsored investment drilling programs. Our debt (including current maturities)
to total capital was 66% and 67% at June 30, 2003 and September 30, 2002.
Our liquidity is affected by national, regional and local economic
trends and uncertainties as well as trends and uncertainties more particular to
us, including national gas prices, interest rates, our ability to raise funds
through our sponsorship of investment partnerships and the maturity in 2004 of
substantial amounts of debt. While the current favorable natural gas pricing and
interest rate environment have been positive contributors to our liquidity and
lead us to believe that we will be able to refinance, or renew, our indebtedness
as it matures, there are numerous risks and uncertainties involved. Factors
affecting our liquidity, as well as the risks and uncertainties relating to our
ability to generate this liquidity, are described in "-Results of Operations,"
and "-Contractual Obligations and Commercial Commitments," as well as in Item 1,
"Business-Risk Factors" in our Annual Report on Form 10K/A for 2002.
Cash Flows from Operating Activities. Cash provided by operations is an
important source of short-term liquidity for us. It is directly affected by
changes in the price of natural gas and oil, interest rates, our ability to
raise funds for our drilling investment partnerships and the strength of the
market for rentals of the types of properties secured by our real estate loans
and real estate. Net cash provided by operating activities increased $14.9
million in the nine months ended June 30, 2003 to $18.9 million from $4.0
million in the nine months ended June 30, 2002, substantially as a result of the
following:
o Changes in operating assets and liabilities increased operating cash
flow by $19.6 million in the nine months ended June 30, 2003,
compared to the nine months ended June 30, 2002, primarily due to
decreases at June 30, 2002 and subsequent increases at June 30, 2003
in the level of accounts payable and accrued liabilities. These
levels of liabilities are dependent upon the remaining amount of our
drilling obligations at any balance sheet date, which is dependent
upon the timing of funds raised through our investment partnerships.
27
o Changes in our leasing operating assets and liabilities decreased
cash flow due to the increase in net current assets associated with
its increased activity.
Cash Flows from Investing Activities. Net cash used in our investing
activities decreased $10.7 million in the nine months ended June 30, 2003 as
compared to the nine months ended June 30, 2002 as a result of the following:
o Investments in real estate loans and real estate decreased $13.6
million due to the purchase of five participations in loans where we
previously held junior interests for $12.9 million in the prior
fiscal period that did not recur in the current fiscal periods. We
also invested $4.2 million in existing loans in the nine months
ended June 30, 2002. In addition, in fiscal 2002, we invested $1.5
million in one real estate joint venture. In the current fiscal
period we invested $4.6 million in existing loans.
o Principal payments on notes receivable and proceeds from sales of
assets net of investments in real estate loans and ventures
decreased by $15.5 million in the nine months ended June 30, 2003 as
compared to the nine months ended June 30, 2002. Principal payment
on notes vary from transaction to transaction and are normally
discretionary on the borrowers part.
o Changes in proceeds and purchases of RAIT Investment Trust shares
increased cash flow by $15.4 million in the nine months ended June
30, 2003 as compared to the nine months ended June 30, 2002.
Cash Flows from Financing Activities. Net cash provided by our
financing activities increased $23.8 million in the nine months ended June 30,
2003 as compared to the nine months ended June 30, 2002, as a result of the
following:
o Net proceeds from Atlas Pipeline Partners secondary public offering
increased cashflow by $25.3 million.
o Purchases of treasury shares increased cash used by $3.0 million due
to our continued share buyback program.
Capital Requirements
During the nine months ended June 30, 2003 and 2002, our capital
expenditures related primarily to our investments in our drilling partnerships
and pipeline expansions, in which we invested $17.5 million and $16.1 million,
respectively. For the nine months ended June 30, 2003 and the remaining quarters
of fiscal 2003, we funded and expect to continue to fund these capital
expenditures through cash on hand, borrowings under our credit facilities, and
from operations. Through our energy subsidiaries, we have established two credit
facilities to facilitate the funding of our capital expenditures. In July 2002,
we obtained an increase in our borrowing base on our energy credit facility
administered by Wachovia Bank to $52.5 million. In addition, we replaced our
$10.0 million PNC Bank credit facility with a new $15.0 million credit facility
with Wachovia Bank.
The level of capital expenditures we must devote to our energy
operations are dependent upon the level of funds raised through our drilling
investment partnerships. We have budgeted to raise up to $60.0 million in fiscal
2003 through drilling partnerships. Through the nine months ended June 30, 2003
we have raised $47.5 million. We believe cash flow from operations and amounts
available under our credit facilities will be adequate to fund our contributions
to these partnerships. However, the amount of funds we raise and the level of
our capital expenditures will vary in the future depending on market conditions
for natural gas and other factors.
We continuously evaluate acquisitions of gas and oil and pipeline
assets. In order to make any acquisition, we believe we will be required to
access outside capital either through debt or equity placements or through joint
venture partners. There can be no assurance that we will be successful in our
efforts to obtain outside capital.
28
Contractual Obligations and Commercial Commitments
The following tables set forth our obligations and commitments as of
June 30, 2003.
Payments Due By Period
(in thousands)
----------------------------------------------------------------
Contractual cash obligations: Less than 1 - 3 4 - 5 After 5
Total 1 Year Years Years Years
------------- -------------- --------------- ------------ -----------
Long-term debt........................... $ 143,941 $ 5,290 $ 82,681 $ 55,078 $ 892
Secured revolving credit facilities...... 14,622 14,622 - - -
Operating lease obligations.............. 4,616 1,334 1,190 977 1,115
Capital lease obligations................ - - - - -
Unconditional purchase obligations....... - - - - -
Other long-term obligations.............. - - - - -
----------- ----------- ----------- ---------- ----------
Total contractual cash obligations....... $ 163,179 $ 21,246 $ 83,871 $ 56,055 $ 2,007
=========== =========== =========== ========== ==========
Amount of Commitment Expiration Per Period
(in thousands)
----------------------------------------------------------------
Other commercial commitments: Less than 1 - 3 4 - 5 After 5
Total 1 Year Years Years Years
-------------- -------------- --------------- ------------ -----------
Standby letters of credit................ $ 275 $ - $ 275 $ - $ -
Guarantees............................... 1,753 90 1,663 - -
Standby replacement commitments.......... 6,396 3,221 3,175 - -
Other commercial commitments............. 257,204 7,992 71,331 56,194 121,687
----------- ----------- ------------ ---------- ----------
Total commercial commitments............. $ 265,628 $ 11,303 $ 76,444 $ 56,194 $ 121,687
=========== =========== ============ ========== ==========
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 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.
For a detailed discussion on the application of policies critical to our
business operations and other accounting policies, see Note 2 of the "Notes to
Consolidated Financial Statements" in our Annual Report on Form 10-K/A.
Recently Issued Financial Accounting Standards
In December 2002, the Financial Accounting Standards Board, which we
refer to as the FASB, issued Statement of Financial Accounting Standards No.
148, "Accounting for Stock-Based Compensation - Transition and Disclosure". SFAS
148 is generally effective for fiscal years ending after December 15, 2002 and,
as to certain disclosure requirements, for interim periods beginning after
December 15, 2002. The adoption of SFAS 148 did not have a material effect on
our consolidated financial position or results of operations.
29
In November 2002, the FASB issued Interpretation 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). ). FIN 45 clarifies the
requirements of FASB Statement of Financial Accounting Standards No. 5,
Accounting for Contingencies ("SFAS 5") relating to a guarantor's accounting
for, and disclosure of, the issuance of certain types of guarantees. FIN 45
provides for additional disclosure requirements related to guarantees which were
effective for financial periods ending after December 15, 2002. Additionally,
FIN 45 outlines provisions for initial recognition and measurement of the
liability incurred in providing a guarantee. We adopted the initial recognition
and measurement requirements for all guarantees as of January 1, 2003. The
initial adoption of the recognition and measurement requirements of FIN 45 did
not have a material impact on our results of operations or equity.
In January 2003, the FASB issued Interpretation 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). This interpretation changes the method
of determining whether certain entities should be included in the Company's
consolidated financial statements. FIN 46's consolidation criteria are based on
analysis of risks and rewards, not control, and represent a significant and
complex modification of previous accounting principles. An entity is subject to
FIN 46 and is called a variable interest entity ("VIE") if it has (1) equity
that is insufficient to permit the entity to finance its activities without
additional subordinated financial support from other parties, or (2) equity
investors that cannot make significant decisions about the entity's operations,
or that do not absorb the expected losses or receive the expected returns of the
entity. All other entities are evaluated for consolidation in accordance with
SFAS No. 94, "Consolidation of All Majority-Owned Subsidiaries" ("SFAS 94"). A
VIE is consolidated by its primary beneficiary, which is the party involved with
the VIE that has exposure to a majority of the expected losses or a majority of
the expected residual returns or both.
The provisions of the interpretation are to be applied immediately to
VIEs created after January 31, 2003, and to VIEs in which an enterprise obtains
an interest after that date. For VIEs in which an enterprise holds a variable
interest that it acquired before February 1, 2003, FIN 46 is applicable
beginning July 1, 2003. For any VIEs that must be consolidated under FIN 46, the
assets, liabilities and noncontrolling interest of the VIE would be initially
measured at their carrying amounts with any difference between the net amount
added to the balance sheet and any previously recognized interest being
recognized as a cumulative effect of a change in accounting principle. If
determining the carrying amounts is not practicable, fair value at the date FIN
46 first applies may be used to measure the assets, liabilities and
noncontrolling interest of the VIE.
We are evaluating the impact of applying FIN 46 to existing VIEs in
which we have variable interests and have not yet completed this analysis. In
addition, we are also in the process of restructuring certain VIEs. Upon
completion of these restructurings, it is anticipated that these investments
will not meet the criteria for treatment under FIN 46. Liabilities associated
with the adoption of FIN 46 will be with recourse as only to the assets
underlying these liabilities, and not to our general assets. As we continue to
evaluate the impact of applying FIN 46, additional entities may be identified
that would need to be consolidated by us.
In April 2003, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 149 ("SFAS 149") "Amendment of Statement 133 on Derivative Instruments
and Hedging Activates." SFAS 149 is effective for contracts entered into or
modified after June 30, 2003 and amends and clarifies financial accounting and
reporting for derivative instruments. We believe that adoption of SFAS 149 will
not have a material effect on our financial position or results of operations.
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." This
Statement requires that certain instruments that were previously classified as
equity on a company's statement of financial position now be classified as
liabilities. The Statement is effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003. We do not expect that
the adoption of this Statement will have a material impact on our results of
operations or financial position.
30
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of the following information is to provide
forward-looking quantitative and qualitative information about our potential
exposure to market risks. The term "market risk" refers to the risk of loss
arising from adverse changes in interest rates and oil and gas prices. The
disclosures are not meant to be precise indicators of expected future losses,
but rather indicators of reasonable possible losses. This forward-looking
information provides indicators of how we view and manage our ongoing market
risk exposures. All of our market risk sensitive instruments were entered into
for purposes other than trading.
General
We are exposed to various market risks, principally fluctuating
interest rates and changes in commodity prices. These risks can impact our
results of operations, cash flows and financial position. We manage these risks
through regular operating and financing activities and periodically use
derivative financial instruments.
The following analysis presents the effect on our earnings, cash flows
and financial position as if the hypothetical changes in market risk factors
occurred on June 30, 2003. Only the potential impacts of hypothetical
assumptions are analyzed. The analysis does not consider other possible effects
that could impact our business.
Energy
Interest Rate Risk. At June 30, 2003, the amount outstanding under a
revolving loan attributable to our energy operations had decreased to $30.0
million from $43.7 million at September 30, 2002. The weighted average interest
rate for this facility decreased from 3.9% at September 30, 2002 to 3.05% at
June 30, 2003 due to a decrease in interest rates. Holding all other variables
constant, if interest rates hypothetically increased or decreased by 10%, our
net annual income would change by approximately $63,000.
We have a $15.0 million revolving credit facility to fund the expansion
of Atlas Pipeline Partners' existing gathering systems and the acquisitions of
other gas gathering systems. In the nine months ended June 30, 2003, we drew
$2.9 million under this facility. At June 30, 2003 we had no borrowings
outstanding under this facility. The weighted average interest rate was 3.27% at
September 30, 2002.
Commodity Price Risk. Our major market risk exposure in commodities is
fluctuations in the pricing of our gas and oil production. Realized pricing is
primarily driven by the prevailing worldwide prices for crude oil and spot
market prices applicable to United States natural gas production. Pricing for
gas and oil production has been volatile and unpredictable for many years. To
hedge exposure to changing natural gas prices, we use financial hedges. Through
our hedges, we seek to provide a measure of stability in the volatile
environment of natural gas prices. Our risk management objective is to lock in a
range of pricing for a portion of expected production volumes, allowing us to
forecast future earnings within a more predictable range.
Our contract with an affiliate of First Energy Corporation allows us
from time to time to "lock in" the sales price for some of our natural gas
production volumes to be delivered in either the current month or in future
months, rather than selling those same production volumes at contract prices in
the month produced. Annually, we negotiate with certain other purchasers to
deliver a portion of natural gas produced for the upcoming twelve months. Most
of these contracts are index-based and the price we receive for our gas changes
as the underlying index changes. Through the year, at our discretion, we are
permitted to designate a portion of our negotiated production volumes to be
purchased at the prevailing contract price at that time, for delivery in either
the current month or in future production months. For the fiscal year ended
September 30, 2002, approximately 38% of produced volumes were sold in this
manner. For the fiscal year ending September 30, 2003, we estimate in excess of
64% of our produced natural gas volumes will be sold in this manner, leaving the
remaining 36% of our produced volumes to be sold at contract prices in the month
produced or at spot market prices. Considering those volumes already designated
for the fiscal year ending September 30, 2003 and current indices, a theoretical
10% upward or downward change in the price of natural gas would result in
approximately a 3% change in our natural gas revenues.
31
Energy - (Continued)
We periodically enter into financial hedging activities with respect to
a portion of our projected gas production. We recognize gains and losses from
the settlement of these hedges in gas revenues when the associated production
occurs. The gains and losses realized as a result of hedging are substantially
offset in the market when we deliver the associated natural gas. We do not hold
or issue derivative instruments for trading purposes.
As of June 30, 2003, we had gas hedges in place covering 201,000
dekatherms, or dths, maturing through September 30, 2003. We included an
adjustment of $363,000 on our balance sheet to mark these hedges to their fair
value. "Fair value" represents the amount that we estimate we would have
realized if we had terminated the hedges on that date. As these contracts
qualify and have been designated as cash flow hedges, we determine gains and
losses on them resulting from market price changes monthly and reflect them in
accumulated other comprehensive income (loss) until the month in which we sell
the hedged production. At that time, the amount included in accumulated other
comprehensive income (loss) related to the production sold is included in
production revenues. We determine gains or losses on open and closed hedging
transactions as the difference between the contract price and a reference price,
generally closing prices on NYMEX. Net losses relating to these hedging
contracts in the three and nine months ended June 30, 2003 were $591,000 and
$1.1 million, respectively.
We set forth in the following table our natural gas hedge transactions
in place as of June 30, 2003. A 10% variation in the market price of natural gas
from its levels at June 30, 2003 would not have a material impact on our net
assets, net earnings or cash flows.
Volumes of Settlement Date Weighted Average Unrealized
Open Contracts Natural Gas (Dth) Quarter Ended Price Per Dth Losses
- -------------- ----------------- --------------- ---------------- ----------
67 201,000 September 2003 $ 3.63 $ 363,000
Real Estate Finance
Portfolio Loans and Related Senior Liens. The following information is
based on our loans that are not interest rate sensitive. During the nine months
ended June 30, 2003, our outstanding loans receivable (to our interest)
decreased $14.1 million (5%) to $283.2 million in the aggregate and the carried
cost of our loans decreased $11.3 million (8%) to $137.6 million in the
aggregate. The principal balance of related senior lien interests decreased $7.1
million (4%) to $195.2 million in the aggregate.
Debt. The interest rates on our real estate and corporate revolving
lines of credit and term loans are at the prime rate minus 1% for the
outstanding balance of $6.4 million under our term loan at Hudson United Bank
and at the prime rate for the outstanding $18.0 million and $5.0 million
balances on our lines of credit at Sovereign Bank. These interest rates
decreased during the nine months ended June 30, 2003 because the defined prime
rate decreased. This defined rate was the "prime rate" as reported in The Wall
Street Journal (4.25% at June 30, 2003). A hypothetical 10% change in the
average interest rate applicable to these lines of credit would change our net
income by approximately $104,000.
We also have a $10.0 million term loan agreement. The loan bears
interest at the three month LIBOR rate plus 350 basis points, adjusted annually.
Principal and interest is payable monthly based on a five year amortization
schedule maturing on October 31, 2006. At June 30, 2003, $6.6 million was
outstanding on this loan at an interest rate of 4.9%. A hypothetical 10% change
in the average interest rate applicable to this loan would change our net income
by approximately $22,000.
32
Leasing
In June 2002, LEAF Financial Corporation, our equipment-leasing
subsidiary, entered into a $10.0 million secured revolving credit facility with
National City Bank (NCB). The facility is due September 30, 2003, unless
renewed. Outstanding loans bear interest at one of two rates, elected at LEAF's
option: the lender's prime rate plus 200 basis points, or LIBOR plus 300 basis
points. In May 2003, LEAF obtained a $10.0 million credit facility from Commerce
Bank, under similar terms as the NCB facility, that expires in June 2004. As of
June 30, 2003, the balances outstanding were $8.1 million and $6.5 million on
the NCB and Commerce Bank credit facilities, respectively, at an average
interest rate of 4.32%. A hypothetical 10% change in the average interest rate
applicable to these facilities would change our net income by approximately
$44,000.
Other
We have a $5.0 million revolving line of credit with Commerce Bank. The
facility expires in June 2004 and bears interest at one of two rates, elected at
the borrower's option; the prime rate, or LIBOR plus 250 basis points. Each rate
is subject to a floor of 5.5% and a ceiling of 9.0%. As of June 30, 2003, the
balance outstanding was $5.0 million at an average rate of 5.5%. A hypothetical
10% change in the average interest rate on this facility would change our net
income by approximately $19,000.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated
our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act) within 90 days prior to the filing
of this report. Based upon this evaluation, these officers believe that our
disclosure controls and procedures are effective.
Changes in Internal Controls
There were no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
the last evaluation of our internal controls by our Chief Executive Officer and
Chief Financial Officer.
33
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April 2003, the Company reached a settlement in the previously
disclosed action filed in the U.S. District Court for the District of
Oregon in July 2000 by the former chairman of TRM Corporation and his
children against the Company, the Company's chief executive officer
and a former director and officer pursuant to which the Company's
total cost of the litigation will be approximately $1.2 million. The
Company is pursuing a claim under its directors and officers insurance
policy in connection with the settlement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 22, 2003, the Company held its annual meeting of shareholders
at which the following matters were voted on:
1. Election of directors:
a) Jonathan Z. Cohen
FOR: 14,997,407
WITHHELD: 1,267,123
b) John S. White
FOR: 15,749,452
WITHHELD: 495,078
2. Approval of amendment to the Company's 1997 Non-Employee Director
Deferred Stock and Deferred Compensation Plan to modify the vesting
provision thereof:
FOR: 15,089,670
AGAINST: 1,128,660
WITHHELD: 26,200
3. Approval of amendment to the Company's 2002 Non-Employee Director
Deferred Stock and Deferred Compensation Plan to modify the vesting
provision thereof:
FOR: 15,077,022
AGAINST: 1,140,296
WITHHELD: 27,212
34
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 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 Employment Agreement between Edward E. Cohen and Resource America, dated March 11, 1997. (2)
10.2 Indenture, dated as of July 22, 1997, between Resource America and The Bank of New York. (3)
10.3 Revolving Credit Loan Agreement dated July 27, 1999 by and between Resource America, Inc.
and Sovereign Bank. (4)
10.4 Revolving Credit Loan and Security Agreement, dated July 27, 1999, among Resource
Properties, Inc., Resource Properties 53, Inc., Resource Properties XXIV, Inc. Resource
Properties, XL, Inc. and Sovereign Bank. (4)
10.4(a) Modification of Revolving Credit Loan and Security Agreement dated March 30, 2000. (4)
10.5 Employment Agreement between Steven J. Kessler and Resource America, dated October 5, 1999.(1)
10.6 Employment Agreement between Nancy J. McGurk and Resource America, dated October 5, 1999. (1)
10.7 Employment Agreement between Jonathan Z. Cohen and Resource America, dated October 5, 1999.
(4)
10.8 Amended and Restated Loan Agreement, dated December 14, 1999, among Resource Properties
XXXII, Inc., Resource Properties XXXVIII, Inc., Resource Properties II, Inc., Resource
Properties 51, Inc., Resource Properties, Inc., Resource America and Jefferson Bank (now
known as Hudson United Bank). (4)
10.9 Term Loan Agreement between Resource Properties, Inc. and Miller & Schroeder Investments
Corporation, dated November 15, 2000. (4)
10.10 Revolving Credit Agreement and Assignment between LEAF Financial Corporation and National
City Bank, and related guaranty from Resource America, Inc., dated June 11, 2002. (4)
10.11 Credit Agreement among Atlas America, Inc., Resource America, Inc., Wachovia Bank, National
Association, and other banks party thereto, dated July 31, 2002. (5)
10.12 Agreement between Resource Financial Fund Management, Inc. and 9 Henmar LLC, dated October
23, 2002. (5)
10.13 Credit Agreement among Atlas Pipeline Partners, L.P., Wachovia Bank, National Association,
and the other parties thereto, dated December 27, 2002. (7)
10.13(a) Second Amendment to Credit Agreement, dated March 28, 2003. (13)
10.14 Settlement Agreement between Resource America, Inc., FLI Holdings, Inc., AEL Leasing Co.,
Inc. and Citibank, N.A., dated December 31, 2002. (7)
10.15 Agreement between Resource Financial Fund Management, Inc. and 9 Henmar LLC, dated January
30, 2003.
10.16 1997 Key Employee Stock Option Plan. (8)
10.17 1997 Non-Employee Director Deferred Stock and Deferred Compensation Plan. (8)
10.17(a) Amendment to Plan. (9)
10.18 1999 Key Employee Stock Option Plan. (10)
10.19 2002 Non-Employee Director Deferred Stock and Deferred Compensation Plan. (11)
10.19(a) Amendment to Plan. (9)
10.20 2002 Key Employee Stock Option Plan. (12)
10.21 Agreement between Resource Financial Fund Management, Inc. and 9 Henmar LLC, dated April 15,
2003. (13)
35
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.
(b) Reports on Form 8-K
During the quarter ended June 30, 2003, the Company filed two
current reports on Form 8-K as follows:
o We filed a Form 8-K dated May 8, 2003 regarding our earnings
for the quarter ended March 31, 2003.
o We filed a Form 8-K dated April 30, 2003 regarding the
resignation of Dr. Alan Schreiber from the Company's Board of
Directors effective April 30, 2003.
- ----------
(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 previously as an exhibit to our Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997 and by this reference incorporated herein.
(3) Filed previously as an exhibit to our Registration Statement on Form S-4
(File No. 333-40231) and by this reference incorporated herein.
(4) Filed previously as an exhibit to our Annual Report on Form 10-K for the
year ended September 30, 2000 and by this reference incorporated herein.
(5) Filed previously as an exhibit to our Annual Report on Form 10-K for the
year ended September 30, 2002 and by this reference incorporated here.
(6) Filed previously as an exhibit to our Annual Report on Form 10-K for the
year ended September 30, 1999 and by this reference incorporated herein.
(7) Filed previously as an exhibit to our Quarterly Report on Form 10-Q for
the quarter ended December 31, 2002 and by this reference incorporated
herein.
(8) Filed previously as an exhibit to our Quarterly Report on Form 10-Q for
the quarter ended June 30,, 1997 and by this reference incorporated
herein.
(9) Filed previously as an exhibit to our Definitive Proxy Statement on
Schedule 14A for the 2003 annual meeting of stockholders and by this
reference incorporated herein.
(10) Files previously as an exhibit to our Definitive Proxy Statement on
Schedule 14A for the 1999 annual meeting of stockholders and by this
reference incorporated herein.
(11) Filed previously as an exhibit to our Registration Statement on Form S-8
(File No. 333-98507) and by this reference incorporated herein.
(12) Filed previously as an exhibit to our Registration Statement on Form S-8
(File No. 333-98505) and by this reference incorporated herein.
(13) Filed previously as an exhibit to our Quarterly Report on Form 10-Q for
the quarter ended March 31, 2003 and by this reference incorporated
herein.
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RESOURCE AMERICA, INC.
(Registrant)
Date: August 14, 2003 By: /s/ Steven J. Kessler
---------------------------
STEVEN J. KESSLER
Senior Vice President and
Chief Financial Officer
Date: August 14, 2003 By: /s/ Nancy J. McGurk
---------------------------
NANCY J. McGURK
Vice President-Finance and
Chief Accounting Officer
37