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, 1998
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 02173
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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 _____
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of latest practicable date (April 24, 1998)
Common Stock, par value $.01 per share 3,212,282 shares
Page 1 of 18 pages, Exhibit Index appears on Page 12.
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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, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Operations for the
Three Months ended March 31, 1998 and March 31, 1997 4
Condensed Consolidated Statements of Cash Flows for
the Three Months ended March 31, 1998 and March 31, 1997 5
Notes to Condensed Consolidated Financial Statements
March 31, 1998 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II. OTHER INFORMATION 10
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THE DEWOLFE COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
March 31, 1998 December 31, 1997
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CURRENT ASSETS
Cash and cash equivalents $ 920,000 $ 2,542,000
Commissions receivable, net of allowance of $1,198,000 at
March 31, 1998 and $611,000 at December 31, 1997 25,504,000 12,490,000
Mortgage loans held for sale 19,140,000 12,508,000
Note and advance receivable from stockholder 66,000 91,000
Prepaid expenses and other current assets 904,000 522,000
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TOTAL CURRENT ASSETS 46,534,000 28,153,000
PROPERTY AND EQUIPMENT
Furniture and equipment 8,332,000 8,049,000
Land, building and improvements 4,466,000 4,565,000
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12,798,000 12,614,000
Accumulated depreciation (6,500,000) (6,374,000)
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NET PROPERTY AND EQUIPMENT 6,298,000 6,240,000
OTHER ASSETS
Excess of cost over value in net assets acquired, net of accumulated
amortization of $864,000 at March 31, 1998 and $807,000 at
December 31, 1997 5,151,000 1,709,000
Deposit for acquisition -- 1,500,000
Other assets 2,031,000 2,015,000
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$60,014,000 $39,617,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank $18,719,000 $12,194,000
Current portion of long term debt 5,436,000 1,408,000
Commissions payable 16,932,000 8,452,000
Accounts payable and accrued expenses 2,425,000 1,970,000
Deferred mortgage fee income 389,000 231,000
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TOTAL CURRENT LIABILITIES 43,901,000 24,255,000
LONG TERM DEBT, net of current portion 4,717,000 4,004,000
NON COMPETE AGREEMENTS AND CONSULTING
AGREEMENTS PAYABLE 456,000 560,000
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;
3,381,410 shares issued at March 31, 1998 and 3,379,082 shares
issued at December 31, 1997 34,000 34,000
Additional paid-in capital 6,498,000 6,488,000
Retained earnings 5,329,000 5,059,000
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TOTAL STOCKHOLDERS' EQUITY BEFORE TREASURY STOCK 11,861,000 11,581,000
Less Treasury Stock (165,711 shares at March 31, 1998
and 143,211 shares at December 31, 1997) at cost (921,000) (783,000)
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TOTAL STOCKHOLDERS' EQUITY 10,940,000 10,798,000
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$60,014,000 $39,617,000
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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,
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1998 1997
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Revenues:
Real estate brokerage, net $29,388,000 $21,931,000
Mortgage revenues 1,405,000 804,000
Other revenues 70,000 44,000
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TOTAL REVENUES 30,863,000 22,779,000
Commission Expense, net 19,031,000 14,084,000
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NET REVENUES 11,832,000 8,695,000
Operating Expenses:
Compensation and benefits 5,042,000 3,862,000
Facilities 1,562,000 1,302,000
General and administrative 2,540,000 1,891,000
Marketing and promotion 1,322,000 1,288,000
Communications 431,000 364,000
Acquisition related expenses 300,000 --
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TOTAL OPERATING EXPENSES 11,197,000 8,707,000
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OPERATING INCOME (LOSS) 635,000 (12,000)
Other Income (Expenses):
Interest expense (416,000) (210,000)
Interest income 272,000 106,000
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INCOME (LOSS) BEFORE INCOME TAXES 491,000 (116,000)
Income Tax Expense (Benefit) 221,000 (50,000)
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Net Income (Loss) $ 270,000 $ (66,000)
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Earnings (Loss) per Share $ 0.08 $ (0.02)
Earnings (Loss) per Share- Assuming Dilution $ 0.08 $ (0.02)
Weighted average shares outstanding 3,224,000 3,302,000
Weighted average shares outstanding- Assuming
Dilution 3,366,000 3,302,000
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,
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1998 1997
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Increase (Decrease) in Cash
OPERATING ACTIVITIES
Cash received from customers $ 21,595,000 $ 17,509,000
Commissions and compensation paid to co-brokers, sales
Associates and mortgage consultants (12,681,000) (10,731,000)
Operating expenses paid (10,928,000) (8,525,000)
Provision for doubtful accounts (847,000) (440,000)
Mortgage loans originated for sale (68,979,000) (34,547,000)
Proceeds from mortgage loan sales 62,347,000 33,445,000
Interest received 272,000 106,000
Interest paid (392,000) (218,000)
Income taxes paid (32,000) (100,000)
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Cash used in operating activities (9,645,000) (3,501,000)
INVESTING ACTIVITIES
Expenditures for business combinations (2,468,000) --
Expenditures for property and equipment (318,000) (591,000)
Additions to mortgage servicing rights (117,000) (30,000)
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Cash used in investing activities (2,903,000) (621,000)
FINANCING ACTIVITIES
Net borrowings under revolving line of credit 900,000 1,900,000
Borrowing on term note 4,000,000 --
Principal payments on long term debt (396,000) (382,000)
Net borrowings on note payable, bank 6,525,000 1,078,000
Note receivable from stockholder 25,000 --
Purchase of treasury stock (138,000) (154,000)
Issuance of common stock 10,000 1,000
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Cash provided by financing activities 10,926,000 2,443,000
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NET DECREASE IN CASH (1,622,000) (1,679,000)
Cash at beginning of period 2,542,000 2,586,000
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CASH AT END OF PERIOD $ 920,000 $ 907,000
============= =============
Supplemental Information:
Noncash investing and financing activities
Leases capitalized $ 59,000 $ 365,000
See notes to condensed consolidated financial statements
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THE DEWOLFE COMPANIES, INC.
MARCH 31, 1998
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, 1998
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. 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, 1997. Certain prior year
balances have been reclassified to conform with current year presentation.
NOTE 2 - NEW ACCOUNTING STANDARD
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In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
Reporting Comprehensive Income, which is effective for fiscal years beginning
after December 15, 1997. The Company has no items of other comprehensive income
in any period presented.
NOTE 3- PURCHASE OF DOLLAR DRY DOCK REAL ESTATE, INC. ("DDD")
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On January 16, 1998 the Company acquired 100% of the stock of DDD and its wholly
owned subsidiary, The Heritage Group, Inc. for $4,000,000, which was funded
through a credit facility provided by BankBoston, N.A. The acquisition has been
accounted for by the purchase method and the Company recorded a cost in excess
of net assets acquired of $3.5 million which is being amortized over fifteen
years. The Company's consolidated results of operations for the three months
ended March 31, 1998 on an unaudited pro forma basis assuming the DDD
acquisition had occurred as of January 1, 1997 are not materially different from
the Company's consolidated results of operations and as such are not presented.
The Company's consolidated results of operations for the three months ended
March 31, 1997 on an unaudited pro forma basis, assuming the DDD acquisition had
occurred as of January 1, 1997, are as follows:
Quarter ended
March 31, 1997
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Revenues $24,553,000
Net Income $ (147,000)
Earnings per Share $ (0.04)
Earnings per Share-
assuming dilution $ (0.04)
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THE DEWOLFE COMPANIES, INC.
MARCH 31, 1998
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
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Net income in the first quarter of 1998 was $270 thousand as compared to a net
loss of $66 thousand in the first quarter of 1997. The increase in the 1998
earnings was primarily attributed to continued growth in the Company's existing
real estate and mortgage banking markets and revenues from Dollar Dry Dock Real
Estate, Inc. ("DDD") and its wholly owned subsidiary, The Heritage Group, Inc.
during the quarter.
Results of Operations
- ---------------------
Real Estate Brokerage Revenues:
Real estate brokerage revenues increased 34% in the first quarter of 1998 to
$29.4 million, an increase of $7.5 million over the first quarter of 1997. The
increase in real estate brokerage revenues is primarily attributed to the
continued increase in business in the Company's existing markets caused by the
continued low interest rate market and continued strong consumer confidence that
had a generally positive effect on residential real estate brokerage in 1998 and
1997 and revenues from DDD which the Company acquired in January, 1998.
Real estate brokerage revenues includes $1.5 million of income from relocation
services in the first quarter of 1998 as compared to $1.2 million in the first
quarter of 1997, an increase of 21%. 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 32% or $2.5 million in the
first quarter of 1998 to $10.4 million. Net real estate brokerage revenues as a
percentage of real estate brokerage revenues decreased to 35% for the first
quarter of 1998 as compared to 36% for the same period in 1997.
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 increased 75% in the first quarter of 1998 to $1.4 million, an
increase of $601 thousand compared to the first quarter of 1997. The increase is
primarily due to an increase in closed loan volume, which the Company believes
was caused by the continued low interest rate market and continued strong
consumer confidence, and improved pricing on loans. The Company's closed loan
volume totaled $82.9 million in the first quarter of 1998 compared to $49.7
million of closed loans for the first quarter of 1997.
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 1998 and 1997.
Operating Expenses:
Operating expenses for the first quarter of 1998 increased $2.5 million or 29%
from the first quarter of 1997. Operating expenses as a percentage of net
revenues were 95% in the first quarter of 1998 compared to 100% in the
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first quarter of 1997. The increase of $2.5 million is primarily due to cost
associated with the increase in the Company's overall business (including the
addition of Dollar Dry Dock). Approximately $300,000 of costs related to the
acquisition and combination of DDD were incurred in the first quarter of 1998.
Interest Expense and Interest Income:
Interest expense increased by $206 thousand in the first quarter of 1998 as
compared to 1997. The increase is primarily due to additional interest of $103
thousand related to the mortgage warehouse line of credit due to increased loan
closings and additional interest of $78 thousand due to financing of the Dollar
Dry Dock acquisition. The remaining interest expense increase is primarily due
to borrowings under the revolving line of credit.
The increase of $166 thousand in interest income in the first quarter of 1998 is
primarily due to additional interest earned on mortgage loans due to the
increased loan closings of $100 thousand and additional interest earned from
balances kept in operating bank accounts of $66 thousand.
Liquidity and Sources of Capital
Cash balances at March 31, 1998 and March 31, 1997 were $920,000 and $907,000,
respectively. Cash used by operations for the first quarter of 1998 was $9.6
million as compared to $3.5 million for the first quarter of 1997. The changes
in cash used for operations and cash provided from operations in the first
quarter of 1998 and 1997 were primarily due to the increases and decreases in
the Company's mortgage loans held for sale which are funded by the Company's $25
million credit line with CoreStates Bank, N.A. Cash provided from operations
excluding the net impact of increases and decreases related to mortgage loans
held for sale were $3.1 million and $2.4 million in the first quarter of 1998
and 1997, respectively.
Expenditures for property and equipment totaled $318,000 in the first quarter of
1998 and $591,000 in the first quarter of 1997. Capital spending during this
period was primarily attributed to the Company's investment in improvements to
existing and acquired 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. 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 remaining outstanding balance of the term note was $750,000 at March 31,
1998 and $1.1 million at March 31, 1997. At March 31, 1998 and 1997, the Company
had outstanding balances under lease lines of credit of $2.1 million and $2.5
million, respectively. The Company had $2.4 million outstanding under the
revolving line of credit at March 31, 1998 and $1.9 million at March 31, 1997.
Additionally, the Company financed the acquisition of DDD through a $4.0 million
one year interest only term loan with BankBoston, N.A.
In connection with the mortgage loan activity the Company maintains a $25
million credit line with CoreStates Bank, N.A. that is used to finance mortgage
loans that it originates. During the first quarter of 1998, the Company obtained
a temporary increase to $35 million in the line of credit until May 31, 1998.
This additional credit was in anticipation of temporary increased volume in the
mortgage banking market. The Company's borrowings under the credit line had an
outstanding balance of $18.7 million at March 31, 1998 and $7.7 million at March
31, 1997.
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, 1998, the Company had acquired a total of $800 thousand of stock under the
plan, $138 thousand of which was acquired during the quarter.
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THE DEWOLFE COMPANIES, INC.
MARCH 31, 1998
The Company considers its future cash flow from operations combined with its
credit arrangements with BankBoston, N.A. and CoreStates Bank, N.A. 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.
Cautionary statement for purposes of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995
Certain statements made by the Company, which are not historical fact, 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.
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THE DEWOLFE COMPANIES, INC.
MARCH 31, 1998
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 12 of this report
(b) Reports on Form 8-K:
On February 2, 1998 the Company filed a report on Form
8-K with respect to the Company's acquisition of Dollar
Dry Dock Real Estate, Inc. and its wholly owned
subsidiary, The Heritage Group, Inc.
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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 6, 1998 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, 1998
EXHIBIT INDEX
10-Q
ITEM DESCRIPTION LOCATION
- ---- ----------- --------
10.0 Term note dated January 16, 1998 of The DeWolfe Company, Page 13 to 16 of this report
Inc., DeWolfe Relocation Services, Inc., Referral
Associates of New England, Inc., Hillshire House,
Inc., The DeWolfe Insurance Agency, Inc., Dollar
Dry Dock Real Estate, Inc., and The Heritage
Group, Inc., to BankBoston, N.A.
11.0 Statement re: Computation of Earnings per share and Page 17
Earnings per share-assuming dilution
27.0 Financial Data Schedule Page 18