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, 2001
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
------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
80 Hayden Avenue
Lexington, MA 02421-7962
------------- ----------
(Address of principal executive offices) (Zip Code)
(781) 863-5858
---------------
(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 _____
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of latest practicable date: (April 30, 2001)
Common Stock, par value $.01 per share 3,434,537 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, 2001 and December 31, 2000 3
Condensed Consolidated Statements of Operations for the
Three Months ended March 31, 2001 and March 31, 2000 4
Condensed Consolidated Statements of Cash Flows for
the Three Months ended March 31, 2001 and March 31, 2000 5
Notes to Condensed Consolidated Financial Statements
March 31, 2001 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION 13
THE DEWOLFE COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
March 31, 2001 December 31, 2000
------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 8,830,000 $ 14,537,000
Mortgage loans held for sale 41,437,000 24,668,000
Prepaid expenses and other current assets 4,919,000 2,148,000
------------------------------------
TOTAL CURRENT ASSETS 55,186,000 41,353,000
PROPERTY AND EQUIPMENT
Property and equipment 17,490,000 16,692,000
Accumulated depreciation and amortization (9,750,000) (8,866,000)
------------------------------------
NET PROPERTY AND EQUIPMENT 7,740,000 7,826,000
OTHER ASSETS
Excess of cost over value in net assets acquired, net of accumulated amortization
of $3,047,000 at March 31, 2001 and $2,817,000 at December 31, 2000 11,562,000 11,792,000
Other assets 6,381,000 6,041,000
------------------------------------
TOTAL ASSETS $ 80,869,000 $ 67,012,000
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable-bank $ 39,529,000 $ 22,911,000
Current portion of long-term debt 2,329,000 4,194,000
Current portion of obligations under capital leases 270,000 314,000
Accounts payable and accrued expenses 5,553,000 5,332,000
Deferred mortgage fee income 424,000 251,000
Dividend payable - 610,000
------------------------------------
TOTAL CURRENT LIABILITIES 48,105,000 33,612,000
Long-term debt, net of current portion 15,361,000 14,046,000
Obligations under capital leases, net of current portion 83,000 121,000
Non compete agreements and consulting agreements payable 163,000 169,000
------------------------------------
TOTAL LIABILITIES 63,712,000 47,948,000
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; 3,697,071 shares
issued at March 31, 2001 and 3,658,544 shares issued at December 31, 2000 37,000 37,000
Additional paid-in capital 8,039,000 7,832,000
Retained earnings 11,253,000 13,509,000
Accumulated other comprehensive income, net 289,000 75,000
Treasury stock (263,318 shares at March 31, 2001
and 263,318 shares at December 31, 2000), at cost (1,520,000) (1,520,000)
Notes receivable from sale of stock (941,000) (869,000)
------------------------------------
TOTAL STOCKHOLDERS' EQUITY 17,157,000 19,064,000
------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 80,869,000 $ 67,012,000
====================================
See notes to condensed consolidated financial statements
3
THE DEWOLFE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31,
2001 2000
---- ----
REVENUES:
Real estate brokerage $ 28,012,000 $ 27,132,000
Mortgage revenues 972,000 555,000
Insurance revenues 739,000 592,000
Other revenues 319,000 287,000
------------- -------------
TOTAL REVENUES 30,042,000 28,566,000
Commission Expense 18,038,000 17,340,000
------------- -------------
NET REVENUES 12,004,000 11,226,000
OPERATING EXPENSES:
Compensation and benefits 7,148,000 6,819,000
Facilities 2,150,000 2,099,000
General and administrative 4,045,000 3,542,000
Marketing and promotion 1,933,000 1,490,000
Communications 767,000 694,000
Acquisition related costs - 30,000
------------- -------------
TOTAL OPERATING EXPENSES 16,043,000 14,674,000
------------- -------------
OPERATING LOSS (4,039,000) (3,448,000)
OTHER INCOME (EXPENSES):
Interest expense (675,000) (438,000)
Interest income 686,000 295,000
------------- -------------
LOSS BEFORE INCOME TAXES (4,028,000) (3,591,000)
Income Tax Benefit (1,772,000) (1,580,000)
------------- -------------
LOSS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (2,256,000) (2,011,000)
Cumulative effect of change in accounting principle
(net of tax benefit of $2,637,000) - (3,715,000)
------------- -------------
NET LOSS $ (2,256,000) $ (5,726,000)
============= =============
BASIC AND DILUTED
LOSS PER SHARE
Loss before cumulative effect of
change in accounting principle $ (0.66) $ (0.60)
Cumulative effect of change in
accounting principle - (1.10)
------------- -------------
NET LOSS $ (0.66) $ (1.70)
============= =============
Basic and diluted weighted average shares outstanding 3,406,000 3,362,000
See notes to condensed consolidated financial statements
4
THE DEWOLFE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
2001 2000
---- ----
OPERATING ACTIVITIES
Net Loss $ (2,256,000) $ (5,726,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 884,000 826,000
Amortization 356,000 347,000
Additions to valuation allowance for mortgage servicing rights 8,000 3,000
Gain on sale of mortgage loans, net (888,000) (484,000)
Change in Assets and Liabilities:
Decrease in commissions receivable - 21,786,000
Increase in prepaid expenses and other current assets (2,748,000) (360,000)
Increase in other assets (201,000) (4,163,000)
Mortgage loans held for sale (96,378,000) (39,836,000)
Proceeds from mortgage loan sales 80,416,000 41,133,000
Decrease in commissions payable - (15,293,000)
Increase (decrease) in accounts payable and accrued expenses 220,000 (1,140,000)
Increase in deferred mortgage fee income 173,000 246,000
-------------- --------------
Total adjustments (18,158,000) 3,065,000
-------------- --------------
Cash used in operating activities (20,414,000) (2,661,000)
INVESTING ACTIVITIES
Expenditures for property and equipment (513,000) -
-------------- --------------
Cash used in investing activities (513,000) -
FINANCING ACTIVITIES
Net borrowings on note payable-bank 16,618,000 (420,000)
Repayment of long-term debt (922,000) (684,000)
Decrease in advance receivable from stockholder - 66,000
Repayment of notes receivable from sale of stock 22,000 10,000
Purchase of treasury stock - (50,000)
Issuance of common stock 112,000 18,000
Payment of cash dividend (610,000) (506,000)
-------------- --------------
Cash provided by (used in) financing activities 15,220,000 (1,566,000)
-------------- --------------
Net decrease in cash and cash equivalents (5,707,000) (4,227,000)
Cash and cash equivalents at beginning of period 14,537,000 9,604,000
-------------- --------------
Cash and cash equivalents at end of period $ 8,830,000 $ 5,377,000
============== ==============
Supplemental disclosure of non-cash activities:
Leases capitalized and property and equipment financed $ 285,000 $ 1,286,000
Issuance of notes receivable from sale of stock $ (95,000) $ -
Cancellation of stock options exercised $ (14,000) $ -
Supplemental disclosure of cash flow information:
Cash paid for interest $ 741,000 $ 459,000
See notes to condensed consolidated financial statements
5
THE DEWOLFE COMPANIES, INC.
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 accounting principles generally accepted in the
United States 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 accounting principles generally
accepted in the United States 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, 2001 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2001. 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, 2000.
NOTE 2 - DERIVATIVE FINANCIAL INSTRUMENTS
As of January 1, 2001, the Company adopted Financial Accounting Standards Board
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
(Statement 133) which was issued in June, 1998 and its amendments Statements
137, Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133 and 138, Accounting for Derivative
Instruments and Certain Hedging Activities issued in June 1999 and June 2000,
respectively (collectively referred to as Statement 133).
As a result of adoption of Statement 133, the Company recognizes all derivative
financial instruments, such as interest rate swap contracts and forward
commitments, in the consolidated financial statements at fair value regardless
of the purpose or intent for holding the instrument. Changes in the fair value
of derivative financial instruments are either recognized periodically in income
or in shareholders' equity as a component of comprehensive income depending on
whether the derivative financial instrument qualifies for hedge accounting, and
if so, whether it qualifies as a fair value or cash flow hedge.
The Company accounted for the adoption of Statement 133 as a cumulative effect
of a change in accounting principle, which resulted in an increase of $26,000,
net of applicable income taxes of $21,000, to other comprehensive income.
The Company does not account for outstanding commitments to extend credit as
derivatives. The Financial Accounting Standards Board's Derivatives
Implementation Group is currently evaluating whether such commitments should be
accounted for as derivatives. The outcome of these deliberations could result in
a change in the Company's accounting in a future period.
6
THE DEWOLFE COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - COMPREHENSIVE LOSS
The following table summarizes the Company's comprehensive loss for the three
months ended March 31, 2001 and 2000:
2001 2000
----------------- ---------------
Net Loss $(2,256,000) $(5,726,000)
Unrealized appreciation on marketable
securities, net of applicable income
tax of $16,000 22,000 -
Cumulative effect of change in
accounting for derivative financial
instruments, net of applicable income
tax of $21,000 26,000 -
Change in fair value of derivative
financial instruments, net of applicable income
tax of $130,000 166,000 -
----------------- ---------------
Comprehensive Loss $(2,042,000) $(5,726,000)
================= ===============
7
THE DEWOLFE COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - 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.
For the three months ended March 31: 2001 2000
------------ ------------
Revenues:
Real Estate $28,331,000 $27,419,000
Mortgage Banking 972,000 555,000
Insurance Services 739,000 592,000
------------ ------------
Total Segment Revenues $30,042,000 $28,566,000
============ ============
Net Revenues:
Real Estate $10,293,000 $10,079,000
Mortgage Banking 972,000 555,000
Insurance Services 739,000 592,000
------------ ------------
Total Segment Net Revenues $12,004,000 $11,226,000
============ ============
Pre-tax Income (Loss):
Real Estate $(4,383,000) $(3,362,000)
Mortgage Banking 137,000 (361,000)
Insurance Services 218,000 132,000
------------ ------------
Total Segment Pre-tax Income (Loss): $(4,028,000) $(3,591,000)
============ ============
Balance at March 31:
Assets
Real Estate $34,404,000 $52,217,000
Mortgage Banking 44,717,000 12,781,000
Insurance Services 1,748,000 2,014,000
------------ ------------
Total Segment Assets $80,869,000 $67,012,000
============ ============
8
THE DEWOLFE COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE
The following table sets forth the computation of basic loss per share and
diluted loss per share:
Three Months Ended March 31,
2001 2000
----------- -----------
Numerator:
Loss before Cumulative Effect of Change
in Accounting Principle $(2,256,000) $(2,011,000)
Cumulative Effect of Change in Accounting
Principle - (3,715,000)
----------- -----------
Net Loss $(2,256,000) $(5,726,000)
=========== ===========
Denominator:
Basic weighted average shares 3,406,000 3,362,000
Effect of Stock Options - -
----------- -----------
Diluted weighted average shares 3,406,000 3,362,000
=========== ===========
Basic Loss per Share:
Loss before Cumulative Effect of Change
in Accounting Principle $(0.66) $(0.60)
Cumulative Effect of Change in Accounting
Principle - (1.10)
----------- -----------
Net Loss $(0.66) $(1.70)
=========== ===========
Diluted Loss per Share:
Loss before Cumulative Effect of Change
in Accounting Principle $(0.66) $(0.60)
Cumulative Effect of Change in Accounting
Principle - (1.10)
----------- -----------
Net Loss $(0.66) $(1.70)
=========== ===========
The effect of stock options was anti-dilutive for the periods presented.
9
THE DEWOLFE COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The first quarter of 2001 showed a net loss of $2.3 million as compared to a
net loss of $5.7 million in the first quarter of 2000.
The $5.7 million loss in 2000 included a one-time, non-cash charge of $3.7
million due to the Company's adoption of the U.S. Securities and Exchange
Commission's Staff Accounting Bulletin No. 101 (SAB 101) in 2000. The adjustment
represented the one-time reversal of net real estate commissions receivable at
January 1, 2000. These net revenues were subsequently recorded in revenue as
collected in future periods. The first quarter net loss before the cumulative
effect of the change in accounting principle in 2000 was $2.0 million as
compared to a loss of $2.3 million in 2001.
RESULTS OF OPERATIONS
Real Estate Brokerage Revenues:
Real estate brokerage revenues increased 3% in the first quarter of 2001 to
$28.0 million, an increase of $880,000 over the first quarter of 2000. The
increase in real estate brokerage revenues is primarily attributed to continued
growth in the Company's existing markets. The Company's growth in its existing
markets is attributed to the current low interest rate environment, additional
acquisitions and the Company's integrated homeownership service marketing
strategy.
Real estate brokerage revenues include $1.9 million of revenues from relocation
services in the first quarter of 2001 as compared to $1.7 million in the first
quarter of 2000, an increase of 12%. 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 for these services.
Net revenues from real estate brokerage increased 2% or $182,000 in the first
quarter of 2001 to $10.0 million. Net real estate brokerage revenues as a
percentage of real estate brokerage revenues decreased to 35.6% for the first
quarter of 2001 as compared to 36.1% for the same period in 2000. 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 increased 75% in the first quarter of 2001 to $972,000, an
increase of $417,000 compared to the first quarter of 2000. The increase is
primarily due to an increase in closed loan volume, which the Company believes
was caused by a lower interest rate market and expansion of the sales staff. The
Company's closed loan volume totaled $119.4 million in the first quarter of 2001
compared to $75.3 million of closed loans for the first quarter of 2000.
10
Insurance Revenues:
Insurance revenues increased 25% in the first quarter of 2001 to $739,000, an
increase of $147,000 from the first quarter of 2000. The increase was primarily
due to a higher percentage of homebuyers purchasing their insurance through the
Company as well as growth in the Company's group insurance business, and growth
in the Company's renewal book of business.
Other Revenues
Other revenues, which primarily consist of revenues related to reimbursement of
real estate expenditures and services, increased 11% in the first quarter of
2001 to $319,000, an increase of $32,000 over 2000. The increase was primarily
due to growth in the Company's real estate markets.
Operating Expenses:
Operating expenses increased 9% in the first quarter of 2001 to $16.0 million,
an increase of $1.4 million from the first quarter of 2000. The increase in
operating expenses is primarily due to costs associated with the increase in the
Company's overall business, along with implementation of new marketing
strategies and investments in technologies and communications.
Interest Expense and Interest Income:
Interest expense increased by $237,000 in the first quarter of 2001 as compared
to 2000. The increase is primarily due to an increase of $220,000 in interest
expense related to the mortgage line of credit due to the increase in loan
closings.
Interest income increased by $391,000 in the first quarter of 2001 as compared
to 2000. The increase is primarily due to an increase of $232,000 in interest
income related to the mortgage line of credit due to the increase in loan
closings and additional interest earned on bank accounts of $159,000. The change
in interest earned on bank accounts was primarily due to higher average balances
kept in bank accounts.
Liquidity and Sources of Capital
Cash and cash equivalents at March 31, 2001 and December 31, 2000 were $8.8
million and $14.5 million, respectively. Cash used in operating activities for
the first quarter of 2001 was $20.4 million as compared to $2.7 million for the
first quarter of 2000. The changes in cash used in operating activities in the
first quarter of 2001 and 2000 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 used
relating to increases in mortgage loans held for sale was $16.0 million for the
first quarter of 2001 as compared to cash provided of $1.3 million for the first
quarter of 2000.
Expenditures for property and equipment totaled $513,000 in the first quarter of
2001. 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 FleetBank, N.A., including a
$20.0 million acquisition line of credit, a revolving line of credit of $5.0
million, a relocation revolving line of credit of $5.0 million, and an
equipment lease line of credit and chattel mortgage financing of $5.0 million.
11
The outstanding amount of the acquisition line of credit was $12.4 million at
March 31, 2001 and December 31, 2000. There was no outstanding amount under
the revolving line of credit or the relocation revolving line of credit at
March 31, 2001 and December 31, 2000. The Company had outstanding balances
under lease lines of credit and chattel mortgage financing of $2.9 million
and $3.1 million at March 31, 2001 and December 31, 2000, 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 line was temporarily
increased to $50.0 million from March 2001 until June 2001 to accommodate
increased loan closing volume. The credit line had outstanding balances of $39.5
million and $22.9 million at March 31, 2001 and December 31, 2000, respectively.
The maturity date of the line is June 2001. 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, 2001 the Company had acquired a total of
$1.4 million of stock under the plan. There were no repurchases of stock during
the first quarter of 2001.
The Company considers its cash flow from operations combined with its credit
arrangements with FleetBank, 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 expenditures for property and equipment, financing of
the Company's mortgage line of credit and expansion of its business may be
deemed to be forward looking statements. There are many important factors that
would cause the Company's actual results to differ materially from 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.
12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K:
None
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 3, 2001 THE DEWOLFE COMPANIES, INC.
By: /s/ James A. Marcotte
-----------------------------
James A. Marcotte
Senior Vice President
and Chief Financial Officer
13