UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File number 1-11278
THE DEWOLFE COMPANIES, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2895334
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
80 Hayden Avenue
Lexington, MA 02421-7962
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(Address of principal executive offices) (Zip Code)
(781) 863-5858
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of latest practicable date: (April 30, 2000)
Common Stock, par value $.01 per share 3,382,872 shares
THE DEWOLFE COMPANIES, INC.
INDEX
PART I. FINANCIAL INFORMATION
PAGE NO.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Income for the
Three Months ended March 31, 2000 and March 31, 1999 4
Condensed Consolidated Statements of Cash Flows for
the Three Months ended March 31, 2000 and March 31, 1999 5
Notes to Condensed Consolidated Financial Statements
March 31, 2000 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II. OTHER INFORMATION 11
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
March 31, 2000 December 31, 1999
------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 5,377,000 $ 9,604,000
Commissions receivable, net of allowance of $1,758,000 at March 31, 2000
and $933,000 at December 31, 1999 37,670,000 21,786,000
Mortgage loans held for sale 8,931,000 9,774,000
Advance receivable from stockholder - 66,000
Prepaid expenses and other current assets 1,683,000 1,498,000
------------------------------------
TOTAL CURRENT ASSETS 53,661,000 42,728,000
PROPERTY AND EQUIPMENT
Property and equipment 15,114,000 13,828,000
Accumulated depreciation and amortization (7,015,000) (6,189,000)
------------------------------------
NET PROPERTY AND EQUIPMENT 8,099,000 7,639,000
OTHER ASSETS
Excess of cost over value in net assets acquired, net of accumulated amortization
of $2,147,000 at March 31, 2000 and $1,937,000 at December 31, 1999 11,349,000 11,559,000
Other assets 3,301,000 3,355,000
------------------------------------
TOTAL ASSETS $ 76,410,000 $ 65,281,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable-bank $ 8,607,000 $ 9,027,000
Current portion of long-term debt 2,107,000 1,706,000
Current portion of obligations under capital leases 589,000 678,000
Commissions payable 26,042,000 15,183,000
Accounts payable and accrued expenses 4,198,000 4,674,000
Deferred mortgage fee income 379,000 133,000
Dividend payable - 506,000
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TOTAL CURRENT LIABILITIES 41,922,000 31,907,000
Long-term debt, net of current portion 15,388,000 14,962,000
Obligations under capital leases, net of current portion 318,000 434,000
Non compete agreements and consulting agreements payable 259,000 279,000
------------------------------------
TOTAL LIABILITIES 57,887,000 47,582,000
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; 3,000,000 shares authorized; none
outstanding Common stock, $.01 par value; 10,000,000 shares authorized;
3,627,403 shares issued at March 31, 2000 and 3,623,245 shares issued
at December 31, 1999 36,000 36,000
Additional paid-in capital 7,641,000 7,623,000
Retained earnings 13,227,000 12,381,000
Treasury stock (263,318 shares at March 31, 2000
and 256,111 shares at December 31, 1999), at cost (1,520,000) (1,470,000)
Notes receivable from sale of stock (861,000) (871,000)
------------------------------------
TOTAL STOCKHOLDERS' EQUITY 18,523,000 17,699,000
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 76,410,000 $ 65,281,000
====================================
See notes to condensed consolidated financial statements
3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended March 31,
2000 1999
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Revenues:
Real estate brokerage $ 43,093,000 $ 35,796,000
Mortgage revenues 555,000 949,000
Insurance revenues 592,000 349,000
Other revenues 287,000 128,000
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TOTAL REVENUES 44,527,000 37,222,000
Commission Expense 28,199,000 23,830,000
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NET REVENUES 16,328,000 13,392,000
Operating Expenses:
Compensation and benefits 6,819,000 5,660,000
Facilities 2,099,000 1,757,000
General and administrative 3,542,000 2,824,000
Marketing and promotion 1,490,000 1,483,000
Communications 694,000 514,000
Acquisition related costs 30,000 35,000
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TOTAL OPERATING EXPENSES 14,674,000 12,273,000
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OPERATING INCOME 1,654,000 1,119,000
Other Income (Expenses):
Interest expense (438,000) (450,000)
Interest income 295,000 360,000
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INCOME BEFORE INCOME TAXES 1,511,000 1,029,000
Income Taxes 665,000 463,000
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Net Income $ 846,000 $ 566,000
============ ============
Basic earnings per share $ 0.25 $ 0.17
Diluted earnings per share $ 0.24 $ 0.16
Basic weighted average shares outstanding 3,362,000 3,302,000
Diluted weighted average shares outstanding 3,545,000 3,544,000
See notes to condensed consolidated financial statements
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
2000 1999
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OPERATING ACTIVITIES
Net Income $ 846,000 $ 566,000
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation 826,000 720,000
Amortization 347,000 269,000
Additions to valuation allowance for mortgage servicing rights 3,000 11,000
Gain on sale of mortgage loans, net (484,000) (888,000)
Change in Assets and Liabilities:
Increase in commissions receivable (15,884,000) (12,644,000)
Increase in prepaid expenses and other current assets (185,000) (519,000)
Increase in other assets (56,000) (18,000)
Mortgage loans held for sale (39,836,000) (76,321,000)
Proceeds from mortgage loan sales 41,133,000 82,475,000
Increase in commissions payable 10,859,000 9,152,000
Decrease in advance receivable from stockholder 66,000 -
(Decrease) increase in accounts payable and accrued expenses (476,000) 1,131,000
Increase in deferred mortgage fee income 246,000 108,000
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Total Adjustments (3,441,000) 3,476,000
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Cash (used in) provided by operating activities (2,595,000) 4,042,000
INVESTING ACTIVITIES
Expenditures for business combinations, net of cash acquired - (4,414,000)
Expenditures for property and equipment - (365,000)
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Cash used in investing activities - (4,779,000)
FINANCING ACTIVITIES
Net borrowings under revolving line of credit - 300,000
Net borrowings on note payable, bank (420,000) (5,823,000)
Borrowing on acquisition line of credit - 2,875,000
Notes receivable from sale of stock 10,000 (608,000)
Repayment of long-term debt (684,000) (571,000)
Purchase of treasury stock (50,000) -
Issuance of common stock 18,000 670,000
Payment of common stock dividend (506,000) (389,000)
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Cash (used in) financing activities (1,632,000) (3,546,000)
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Net decrease in cash and cash equivalents (4,227,000) (4,283,000)
Cash and cash equivalents at beginning of period 9,604,000 6,171,000
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Cash and cash equivalents at end of period $ 5,377,000 $ 1,888,000
============ ============
Supplemental disclosure of non-cash activities:
Leases capitalized and property and equipment financed $ 1,286,000 $ 380,000
Supplemental disclosure of cash flow information:
Cash paid for interest $ 459,000 $ 529,000
See notes to condensed consolidated financial statements
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 2000
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1999.
NOTE 2- SEGMENT REPORTING
The Company has three reportable operating segments, based upon its services:
real estate, including both real estate brokerage and relocation services;
mortgage banking; and insurance services. The Company evaluates its segments
based on pre-tax income. Financial information for the three operating segments
is provided in the following table.
2000 1999
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For the three months ended March 31:
Revenues:
Real Estate $ 43,380,000 $ 35,924,000
Mortgage 555,000 949,000
Insurance Services 592,000 349,000
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Total Segment Revenues 44,527,000 $ 37,222,000
========== ============
Net Revenues:
Real Estate $ 15,181,000 $ 12,094,000
Mortgage Banking 555,000 949,000
Insurance Services 592,000 349,000
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Total Segment Net Revenues $ 16,328,000 $ 13,392,000
============ ============
Pre-tax Income (Loss):
Real Estate $ 1,740,000 $ 1,025,000
Mortgage (361,000) 52,000
Insurance Services 132,000 (48,000)
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Total Segment Pre-tax Income $ 1,511,000 $ 1,029,000
============ ============
Balance at March 31:
Assets:
Real Estate $ 61,615,000 $ 51,487,000
Mortgage 12,781,000 21,467,000
Insurance Services 2,014,000 1,466,000
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Total Segment Assets $ 76,410,000 $ 74,420,000
============ ============
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE
The following table sets forth the computation of basic earnings per share and
diluted earnings per share:
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
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Numerator:
Net Income $ 846,000 $ 566,000
Denominator:
Basic weighted- average shares 3,362,000 3,302,000
Effect of Stock Options 183,000 242,000
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3,545,000 3,544,000
========== ==========
Basic Earnings per Share $ 0.25 $ 0.17
========== ==========
Diluted Earnings Per Share $ 0.24 $ 0.16
========== ==========
7
THE DEWOLFE COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Net income in the first quarter of 2000 was $846,000 as compared to net income
of $566,000 in the first quarter of 1999. The increase in the 2000 earnings was
primarily attributed to continued growth in the Company's existing real estate
markets and the positive effect of the integration of the prior years
acquisitions.
RESULTS OF OPERATIONS
REAL ESTATE BROKERAGE REVENUES:
Real estate brokerage revenues increased 20% in the first quarter of 2000 to
$43.1 million, an increase of $7.3 million over the first quarter of 1999. The
increase in real estate brokerage revenues is primarily attributed to continued
growth in the Company's existing markets and the positive effect of the
integration of the prior year acquisitions. The Company's growth in its existing
markets is attributed to the continued strong economy combined with the
Company's integrated homeownership service marketing strategy.
Real estate brokerage revenues includes $2.0 million of revenues from relocation
services in the first quarter of 2000 as compared to $1.4 million in the first
quarter of 1999, an increase of 38%. The increase was primarily due to an
increase in the number of corporate services clients as well as the Company's
expansion into new markets.
Net revenues from real estate brokerage increased 24% or $2.9 million in the
first quarter of 2000 to $14.9 million. Net real estate brokerage revenues as a
percentage of real estate brokerage revenues increased to 34.6% for the first
quarter of 2000 as compared to 33.4% for the same period in 1999.
Net revenues from real estate brokerage are impacted by many factors, including
those beyond the Company's control, such as the number of co-brokered home sales
and changes to the commission structures in order to attract and retain
qualified sales associates.
MORTGAGE REVENUES:
Mortgage revenues decreased 42% in the first quarter of 2000 to $555,000 a
decrease of $394,000 compared to the first quarter of 1999. The decrease is
primarily due to a decrease in closed loan volume and lower margins on loans,
which the Company believes was caused by a higher interest rate market and
increased competion in the mortgage industry. The Company's closed loan volume
totaled $75.3 million in the first quarter of 2000 compared to $89.6 million of
closed loans for the first quarter of 1999.
8
INSURANCE REVENUES:
Insurance revenues increased 70% in the first quarter of 2000 to $592,000, an
increase of $243,000 from the first quarter of 1999. The increase was primarily
due to a higher percentage of homebuyers purchasing their insurance through the
Company.
OTHER REVENUES
Other revenues increased 124% in the first quarter of 2000 to $287,000, an
increase of $159,000 over 1999. The increase is primarily due to revenues
related to reimbursement of real estate expenditures and services.
OPERATING EXPENSES:
Operating expenses increased 20% in the first quarter of 2000 to $14.7 million,
an increase of $2.4 million from the first quarter of 1999. Operating expenses
as a percentage of net revenues were 90% in the first quarter of 2000 compared
to 92% in the first quarter of 1999. The increase in operating expenses is
primarily due to costs associated with the increase in the Company's overall
business.
INTEREST EXPENSE AND INTEREST INCOME:
Interest expense decreased by $12,000 in the first quarter of 2000 as compared
to 1999. The decrease is primarily due to a decrease of $104,000 in interest
expense related to the mortgage line of credit due to the decrease in loan
closings partially offset by additional interest expense, due to increased
interest expense from borrowings related to the financing of 1999 acquisitions.
Interest income decreased by $65,000 in the first quarter of 2000 as compared to
1999. The decrease is primarily due to lower interest earned on mortgage loans.
The decrease in mortgage loan interest was due to the decreased mortgage loan
closings.
LIQUIDITY AND SOURCES OF CAPITAL
Cash and cash equivalents at March 31, 2000 and December 31, 1999 were $5.4
million and $9.6 million, respectively. Cash used in operating activities for
the first quarter of 2000 was $2.6 million as compared to cash provided by
operating activities of $4.0 million for the first quarter of 1999. The changes
in cash used in and provided by operating activities in the first quarter of
2000 and 1999 were primarily due to the increases and decreases in the Company's
mortgage loans held for sale which were funded by the Company's mortgage
warehouse line of credit with First Union National Bank. Net cash provided
relating to decreases in mortgage loans held for sale was $1.3 million for the
first quarter of 2000 as compared to $6.2 million for the first quarter of 1999.
Expenditures for property and equipment totaled $1,286,000 in the first quarter
of 2000 and $745,000 in the first quarter of 1999. Capital spending during this
period was primarily attributed to the Company's investment in improvements to
acquired and existing sales offices and upgrades to systems and technology. The
Company intends to continue to make expenditures for property and equipment in
order to maintain the standards for a quality appearance and processing systems
in all of the Company's locations.
The Company has various credit arrangements with BankBoston, N.A., including a
$20.0 million acquisition line of credit a revolving line of credit of $5.0
million, a term note of $725,000, and an equipment lease line of credit and
chattel mortgage financing of $5.0 million.
9
The outstanding amount of the acquisition line of credit was $11.5 million at
March 31, 2000 and December 31, 1999. The remaining outstanding balance of the
term note was $150,000 and $225,000 at March 31, 2000 and December 31, 1999,
respectively. The Company had outstanding balances under lease lines of credit
and chattel mortgage financing of $3.9 million and $3.0 million at March 31,
2000 and December 31, 1999, respectively.
In connection with the mortgage loan activity, the Company maintains a $40.0
million mortgage warehouse line of credit with First Union National Bank that is
used to finance mortgage loans that it originates. The credit line had
outstanding balances of $8.6 million and $9.0 million at March 31, 2000 and
December 31, 1999, respectively. The maturity date of the line is May 2000. The
Company expects that the line will be renewed.
In May of 1998, the Company authorized an increase in the amount of the
Company's stock that may be repurchased under its stock repurchase plan to a
total of $1.9 million. At March 31, 2000 the Company had acquired a total of
$1.4 million of stock under the plan, $50,000 of which was acquired during the
first quarter of 2000.
The Company considers its cash flow from operations combined with its credit
arrangements with BankBoston, N.A. and First Union National Bank, to be adequate
to fund continuing operations. However, the Company expects to continue to
expand its existing businesses, which may include opening new real estate sales
offices as well as making investments in or acquiring other real estate and or
insurance businesses. As a result, the Company from time-to-time may seek
additional or alternate sources of debt or equity financing which may include
the issuance of shares of the Company's capital stock.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements, which are not historical fact, including, but not limited
to, statements concerning financing of the Company's mortgage line of credit may
be deemed to be forward looking statements. There are many important factors
that would cause the Company's actual results to differ materially form those
indicated in the forward-looking statements. Such factors include, but are not
limited to, interest rates and economic conditions generally, regulatory changes
(legislative or otherwise) affecting the residential real estate and mortgage
lending industries, competition, and prevailing rates for sales associate
commission structures.
10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following Exhibits are included herein:
See Exhibit Index on page 13 of this report
(b) Reports on Form 8-K:
None
11
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.
Date: May 4, 2000 THE DEWOLFE COMPANIES, INC.
By: /s/ JAMES A. MARCOTTE
---------------------------
James A. Marcotte
Senior Vice President
and Chief Financial Officer
12
EXHIBIT INDEX
10-Q
ITEM DESCRIPTION LOCATION
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27.0 Financial Data Schedule Page 14
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