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, 1997
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 02173
(Address of principal executive offices) (Zip Code)
(617) 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, 1997)
Common Stock, par value $.01 per share 3,274,302 shares
Page 1 of 13 pages, Exhibit Index appears on Page 11.
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THE DEWOLFE COMPANIES, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of
March 31, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations for the
Three Months ended March 31, 1997 and March 31, 1996 4
Condensed Consolidated Statements of Cash Flows for
the Three Months ended March 31, 1997 and March 31, 1996 5
Notes to Condensed Consolidated Financial Statements
March 31, 1997 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II. OTHER INFORMATION 9
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THE DEWOLFE COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
March 31, 1997 December 31, 1996
-------------- -----------------
CURRENT ASSETS
Cash $ 907,000 $ 2,586,000
Commissions receivable, net of allowance of $981,000 at
March 31, 1997 and $831,000 at December 31, 1996 19,743,000 12,589,000
Mortgage loans held for sale 7,837,000 6,735,000
Note and advance receivable from stockholder 66,000 66,000
Prepaid expenses and other current assets 567,000 327,000
----------- -----------
TOTAL CURRENT ASSETS 29,120,000 22,303,000
PROPERTY AND EQUIPMENT
Furniture and equipment 7,570,000 6,862,000
Land, building and improvements 4,771,000 4,523,000
----------- -----------
12,341,000 11,385,000
Accumulated depreciation (5,474,000) (4,921,000)
----------- -----------
NET PROPERTY AND EQUIPMENT 6,867,000 6,464,000
OTHER ASSETS
Excess of cost over value in net assets acquired, net of accumulated
amortization of $713,000 and $682,000 1,803,000 1,834,000
Other Assets 1,951,000 1,996,000
----------- -----------
$39,741,000 $32,597,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank $ 7,653,000 $ 6,575,000
Current portion of long term debt 1,591,000 1,363,000
Commissions payable 13,073,000 8,451,000
Accounts payable and accrued expenses 1,549,000 1,796,000
Deferred mortgage fee income 349,000 202,000
----------- -----------
TOTAL CURRENT LIABILITIES 24,215,000 18,387,000
LONG TERM DEBT, net of current portion 4,870,000 3,215,000
NON COMPETE AGREEMENTS AND CONSULTING
AGREEMENTS PAYABLE 683,000 803,000
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; 3,352,144
shares issued at March 31, 1997 and
3,352,049 shares issued at December 31, 1996 34,000 34,000
Additional paid-in capital 6,376,000 6,375,000
Retained earnings 3,923,000 3,989,000
----------- -----------
TOTAL STOCKHOLDERS' EQUITY BEFORE TREASURY STOCK 10,333,000 10,398,000
Less Treasury Stock (63,563 shares at March 31, 1997
and 35,163 shares at December 31, 1996) at cost (360,000) (206,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 9,973,000 10,192,000
----------- -----------
$39,741,000 $32,597,000
=========== ===========
See notes to condensed consolidated financial statements
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THE DEWOLFE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
Revenues:
Real estate brokerage $22,621,000 $20,596,000
Mortgage revenues 804,000 952,000
Other revenues 44,000 33,000
----------- -----------
TOTAL REVENUES 23,469,000 21,581,000
Commission Expense 14,484,000 13,027,000
----------- -----------
NET REVENUES 8,985,000 8,554,000
Operating Expenses:
Compensation and benefits 3,862,000 3,524,000
Facilities 1,302,000 1,153,000
General and administrative 1,891,000 1,611,000
Marketing and promotion 1,288,000 1,205,000
Communications 364,000 273,000
Provision for doubtful accounts 290,000 246,000
----------- -----------
TOTAL OPERATING EXPENSES 8,997,000 8,012,000
----------- -----------
OPERATING (LOSS) INCOME (12,000) 542,000
Other Income (Expenses):
Interest expense (210,000) (242,000)
Interest income 106,000 86,000
----------- -----------
(LOSS) INCOME BEFORE INCOME TAXES (116,000) 386,000
Income Tax (Benefit) Expense (50,000) 180,000
----------- -----------
NET (LOSS) INCOME $ (66,000) $ 206,000
=========== ===========
(Loss) Earnings per Common Share $ (.02) $ .06
=========== ===========
Weighted Average common shares outstanding 3,302,000 3,441,000
See notes to condensed consolidated financial statements
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THE DEWOLFE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
Increase (Decrease) in Cash
OPERATING ACTIVITIES
Cash received from customers $16,462,000 $13,362,000
Commissions and compensation paid to co-brokers, sales
associates and mortgage consultants (10,124,000) (7,807,000)
Operating expenses paid (8,265,000) (6,858,000)
Provision for doubtful accounts (290,000) (246,000)
Mortgage loans originated for sale (34,547,000) (43,433,000)
Proceeds from mortgage loan sales 33,445,000 44,791,000
Net borrowings (repayment) on note payable, bank 1,078,000 (1,313,000)
Interest received 106,000 86,000
Interest paid (218,000) (249,000)
Income taxes paid (100,000) -
----------- -----------
Cash used by operating activities (2,453,000) (1,667,000)
INVESTING ACTIVITIES
Expenditures for property and equipment (591,000) (140,000)
----------- -----------
Cash used by investing activities (591,000) (140,000)
FINANCING ACTIVITIES
Net borrowings under revolving line of credit 1,900,000 1,300,000
Principal payments on long term debt (382,000) (347,000)
Purchase of treasury stock (154,000) -
Issuance of common stock 1,000 18,000
----------- -----------
Cash provided by financing activities 1,365,000 971,000
----------- -----------
NET DECREASE IN CASH (1,679,000) (836,000)
Cash at beginning of period 2,586,000 1,865,000
----------- -----------
CASH AT END OF PERIOD $ 907,000 $ 1,029,000
=========== ===========
Supplemental Information:
Noncash investing and financing activities
Leases capitalized $ 365,000 $ 194,000
See notes to condensed consolidated financial statements
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THE DEWOLFE COMPANIES, INC.
MARCH 31, 1997
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, 1997
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1997. 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, 1996.
NOTE 2 - CHANGE IN ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. The impact of
Statement 128 on the calculation of primary and fully diluted earnings per share
for the quarter is not expected to be material.
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THE DEWOLFE COMPANIES, INC.
MARCH 31, 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The loss in the first quarter of 1997 was $66 thousand as compared to a net
income of $206 thousand in the first quarter of 1996. The decrease in the 1997
earnings was primarily attributed to a reduction in net revenue margins in real
estate brokerage, lower mortgage revenues, and increased operating expenses.
Results of Operations
Real Estate Brokerage Revenues:
Real estate brokerage revenues increased 10% in the first quarter of 1997 to
$22.6 million, an increase of $2.0 million over the first quarter of 1996. The
increase in real estate brokerage revenues is primarily attributed to the
continued increase in business in the Company's existing markets caused by a
general improvement in consumer confidence that had a generally positive effect
on residential real estate brokerage in 1996 and 1997.
Real estate brokerage revenues includes $1.2 million of income from relocation
services in the first quarter of 1997 as compared to $1.0 million in the first
quarter of 1996, an increase of 20%. The increase is primarily due to an
increase in the number of corporate accounts and affinity groups that the
Company services.
Net revenues from real estate brokerage increased 8% or $569 thousand in the
first quarter of 1997 to $8.1 million. Net real estate brokerage revenues as a
percentage of real estate brokerage revenues decreased to 36% for the first
quarter of 1997 as compared to 37% for the same period in 1996.
Net revenues from real estate brokerage income are impacted by many factors,
including those beyond the Company's control, such as the number of co-brokered
home sales and pressure on the Company to change commission structures necessary
to attract and retain qualified sales associates.
Mortgage Revenues:
Mortgage revenues decreased 16% in the first quarter of 1997 to $804 thousand, a
decrease of $148 thousand compared to the first quarter of 1996. The decrease is
primarily due to closed loan volume of $49.7 million in the first quarter of
1997 compared to $55.9 million of closed loans for the first quarter of 1996.
Net revenues from mortgage income (mortgage revenues less expenses associated
with commissions payable to the Company's mortgage consultants) as a percentage
of total mortgage revenues were 70% in the first quarter of 1997 compared to 69%
in the first quarter of 1996.
Operating Expenses:
Operating expenses for the first quarter of 1997 increased $985 thousand or 12%
from the first quarter of 1996. Operating expenses as a percentage of net
revenues were 100% in the first quarter of 1997 compared to 94% in the first
quarter of 1996. The increase of $985 thousand is primarily due to cost
increases of approximately $624 thousand caused by the increase in the Company's
overall business, approximately $50 thousand of initial operating costs of the
Company's insurance agency and $312 thousand in increased operating expenses
including investments to develop support services such as information systems
and marketing.
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Interest Expense and Interest Income:
Interest expense decreased by $32 thousand in the first quarter of 1997 as
compared to 1996. The decrease is primarily due to interest expense from
borrowings under the revolving line of credit and term note. Interest expense
from these borrowings was $27 thousand in the first quarter of 1997 and $70
thousand for the first quarter of 1996. The remaining interest expense increase
is primarily due to the borrowings under capital leases.
The increase of $20 thousand in interest income in the first quarter of 1997 is
primarily due to an increase in the amount of interest earned from balances kept
in operating bank accounts.
Liquidity and Sources of Capital
Cash balances at March 31, 1997 and March 31, 1996 were $907,000 and $1,029,000,
respectively. Cash used by operations for the first quarter of 1997 was $2.5
million as compared to cash used by operations for the first quarter of 1996 of
$1.7 million.
The Company has various credit arrangements with the First National Bank of
Boston. The arrangements provide for a term note of $1.5 million which was used
to finance the acquisition of Hillshire House, Inc. in December 1994 and
requires $25,000 monthly principal payments, an equipment lease line of credit
of $4.0 million, and a revolving credit line of $3.0 million. The Company's
borrowings under the revolving line of credit had an outstanding balance of $1.9
million at March 31, 1997 and $1.7 million at March 31, 1996.
The Company's lease line with the First National Bank of Boston was increased
from $2.6 million to $4.0 million during the first quarter of 1997 in
anticipation of future acquisitions of capital assets in order to continue to
upgrade the Company's information systems, upgrade existing facilities and
provide for future growth. At March 31, 1997 and 1996 the Company had $2.5
million and $2.3 million, respectively, outstanding under lease lines of credit.
In connection with the mortgage loan activity the Company maintains a credit
line of $25 million that is used to finance mortgage loans that it originates.
The Company's borrowings under the credit line had an outstanding balance of
$7.7 million at March 31, 1997 and $9.4 million at March 31, 1996.
In 1996, the Company approved a stock repurchase plan authorizing the Company to
acquire up to $1 million of the Company's outstanding common stock. As of March
31, 1997, the Company had acquired a total of $239 thousand of stock under the
plan, $154 thousand of which was acquired during the quarter.
The Company considers its future cash flow from operations combined with its
credit arrangement with the First National Bank of Boston 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 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 or treasury stock.
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THE DEWOLFE COMPANIES, INC.
MARCH 31, 1997
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 11 of this report
(b) Reports on Form 8-K:
None
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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 12, 1997 THE DEWOLFE COMPANIES, INC.
By: /s/ James A. Marcotte
---------------------
James A. Marcotte
Senior Vice President
and Chief Financial Officer
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THE DEWOLFE COMPANIES, INC.
MARCH 31, 1997
EXHIBIT INDEX
10-Q
ITEM DESCRIPTION
11.0 Statement re: Computation of Per Share Earnings
27.0 Financial Data Schedule