SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2000
Commission File No. 1-9874
HomeServices.Com Inc.
(Exact name of registrant as specified in its charter)
Delaware 41-1945806
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6800 France Ave. South, Suite 600, Edina, Minnesota 55435
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 928-5900
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Securities registered pursuant to Section 12(b)of the Act:
Title of each class Name of exchange
-------------------------- on which registered
Common Stock, $0.01 -------------------
par value ("Common Stock") Nasdaq Stock Market
Securities registered pursuant to Section 12(g) of the Act: N/A
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
--- ---
10,422,942 shares of Common Stock were outstanding on August 10, 2000.
<PAGE>
TABLE OF CONTENTS
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PART I
Item 1. Financial Statements................................ 3
Consolidated Balance Sheets................................. 3
Consolidated Statements of Income........................... 4
Consolidated Statements of Cash Flows....................... 5
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial...
Condition and Results of Operations....................... 8
PART II
Item 1. Legal Proceedings................................... 13
Item 2. Changes in Securities............................... 13
Item 3. Default on Senior Securities........................ 13
Item 4. Submission of Matters to a Vote of Security Holders. 13
Item 5. Other Information................................... 13
Item 6. Exhibits and Reports on Form 8-K.................... 13
Signatures.................................................. 14
Exhibit Index............................................... 15
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<PAGE>
<TABLE>
<CAPTION>
HOMESERVICES.COM INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
AS OF
--------------------------------
JUNE 30, DECEMBER 31,
2000 1999
---------- ------------
ASSETS (UNAUDITED)
Current Assets:
---------------
<S> <C> <C>
Cash and cash equivalents .................................. $ 12,172 $ 10,318
Commissions and other trade receivables, net of allowance
of $446 and $1,332 ....................................... 14,147 7,077
Mortgage loans held for sale ............................... 4,562 2,974
Pending real estate sales contracts ........................ -- 673
Cash held in trust ......................................... 13,125 6,549
Income taxes receivable .................................... -- 534
Deferred income taxes ...................................... 1,952 1,571
Other current assets ....................................... 3,373 3,236
--------- ---------
Total current assets ..................................... 49,331 32,932
--------- ---------
Other Assets:
-------------
Office property and equipment, net ......................... 23,468 22,943
Intangible assets, net ..................................... 104,741 106,706
Other assets ............................................... 3,591 4,077
--------- ---------
Total other assets ....................................... 131,800 133,726
--------- ---------
TOTAL ASSETS ............................................... $ 181,131 $ 166,658
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
--------------------
Accounts and commissions payable ........................... $ 13,118 $ 7,172
Accrued expenses ........................................... 12,116 12,668
Payable to affiliates ...................................... -- 1,042
Cash held in trust ......................................... 13,125 6,549
Current portion of long-term debt .......................... 648 707
Income taxes payable ....................................... 3,435 --
Other current liabilities .................................. 1,840 862
--------- ---------
Total current liabilities ................................ 44,282 29,000
--------- ---------
Other Liabilities:
------------------
Long-term debt ............................................. 42,983 48,110
Agent profit-sharing ....................................... 6,344 6,282
Other noncurrent liabilities ............................... 259 914
--------- ---------
Total other liabilities .................................. 49,586 55,306
--------- ---------
Total liabilities ........................................ 93,868 84,306
--------- ---------
Commitments and contingencies (Note 4)
Stockholders' Equity:
---------------------
Common stock, $0.01 par value, 38,000,000 shares authorized;
10,422,942 shares issued and outstanding at
June 30, 2000 and December 31, 1999, respectively ........ 104 104
Additional paid-in capital ................................. 78,705 78,705
Notes receivable ........................................... (476) (651)
Accumulated other comprehensive income (loss) .............. 2 (24)
Retained earnings .......................................... 8,928 4,218
--------- ---------
Total stockholders' equity ............................... 87,263 82,352
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................. $ 181,131 $ 166,658
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
HOMESERVICES.COM INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Commission revenue ................ $ 126,425 $ 92,413 $ 205,973 $ 148,979
Title fees ........................ 6,380 6,375 10,379 10,644
Other ............................. 6,092 4,251 10,197 8,101
--------- --------- --------- ---------
TOTAL REVENUES .................... 138,897 103,039 226,549 167,724
--------- --------- --------- ---------
OPERATING EXPENSES:
Commission expense ................ 88,332 62,978 143,550 102,085
Salaries and employee benefits .... 16,746 12,608 32,735 24,272
Occupancy ......................... 5,538 4,510 11,496 9,026
Business promotion and advertising 5,211 4,468 9,827 7,218
Other operating expenses .......... 7,303 5,515 13,480 11,726
Amortization of pending real estate
sales contracts ................. -- -- 665 --
Depreciation and amortization ..... 2,774 1,737 5,509 3,718
--------- --------- --------- ---------
TOTAL OPERATING EXPENSES .......... 125,904 91,816 217,262 158,045
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income ................... 272 54 525 308
Interest expense .................. (768) (1,019) (1,737) (2,083)
--------- --------- --------- ---------
Total other income (expense), net . (496) (965) (1,212) (1,775)
--------- --------- --------- ---------
Income before income taxes ........ 12,497 10,258 8,075 7,904
Income tax expense ................ 5,156 4,205 3,365 3,278
--------- --------- --------- ---------
NET INCOME ........................ $ 7,341 $ 6,053 $ 4,710 $ 4,626
========= ========= ========= =========
NET INCOME PER SHARE:
Basic ............................. $ 0.82 $ 0.89 $ 0.52 $ 0.68
Diluted ........................... $ 0.69 $ 0.89 $ 0.44 $ 0.68
Weighted average shares
outstanding - Basic ............... 8,956 6,779 9,030 6,779
Weighted average shares
outstanding - Diluted ............. 10,585 6,779 10,617 6,779
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
HOMESERVICES.COM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
2000 1999
-------- ---------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income ........................................................... $ 4,710 $ 4,626
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ...................................... 5,509 3,718
Amortization of pending real estate sales contracts ................ 665 --
Earnings from equity method investments ............................ (1,082) --
Loss (gain) on sale or disposal of office property and equipment ... 434 (2)
Decrease in notes receivable ....................................... 175 143
Provision for deferred income taxes ................................ 727 2,415
Changes in assets and liabilities, net of effects from companies
purchased:
Commission and other trade receivables ........................... (7,070) (1,749)
Mortgage loans held for sale ..................................... (1,588) 6,661
Income taxes receivable .......................................... 3,969 2,470
Payable to affiliates ............................................ (1,042) --
Agent profit-sharing ............................................. 62 (5)
Accounts and commissions payable and accrued expenses ............ 5,394 (2,121)
Other assets and liabilities ..................................... 212 42
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............................ 11,075 16,198
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of companies, net of cash and cash equivalents acquired ..... (194) (800)
Purchases of office property and equipment ........................... (4,589) (4,938)
Purchases of held-to-maturity securities ............................. (215) (290)
Other investing ...................................................... 993 138
-------- --------
NET CASH USED IN INVESTING ACTIVITIES ................................ (4,005) (5,890)
CASH FLOWS USED IN FINANCING ACTIVITIES:
Payments of long term debt ........................................... (186) (378)
Net change in revolving credit facility .............................. (5,000) (1,500)
Loan costs ........................................................... (30) --
-------- --------
NET CASH USED IN FINANCING ACTIVITIES ................................ (5,216) (1,878)
Net increase in cash and cash equivalents ............................ 1,854 8,430
Cash and cash equivalents at beginning of period ..................... 10,318 3,114
-------- --------
Cash and cash equivalents at end of period ........................... $ 12,172 $ 11,544
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
HOMESERVICES.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL:
HomeServices.Com Inc. (the "Company" or "HomeServices") was formed on July 13,
1999, for the purpose of merging with MidAmerican Realty Services Company
("MidAmerican Realty"). On October 7, 1999, the Company merged with MidAmerican
Realty. The accompanying financial statements include the financial position,
results of operations and cash flows of HomeServices, MidAmerican Realty, and
their wholly owned subsidiaries as if the Company was consolidated for all
periods presented. Approximately 70% of the outstanding common stock of the
Company (69% on a fully diluted basis) is currently owned by MidAmerican Energy
Holdings Company ("MidAmerican Holdings").
In the opinion of management, the accompanying unaudited consolidated financial
statements of HomeServices contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial position as of
June 30, 2000, the results of operations for the three month and six month
periods ended June 30, 2000 and 1999 and cash flows for the six month period
ended June 30, 2000 and 1999. The results of operations for periods presented
are not necessarily indicative of the results to be expected for the full year.
2. COMPREHENSIVE INCOME:
Comprehensive income for the three months ended June 30, 2000 and 1999 was
$7,343,000 and $6,053,000, respectively, and for the six months ended June 30,
2000 and 1999 was $4,736,000 and $4,601,000. Comprehensive income differs from
net income due to changes in the fair market value of available-for-sale
investment securities.
3. EARNINGS PER SHARE:
Diluted net income per share includes the dilutive impact of vested common stock
options for the three months and six months ended June 30, 2000 of 161,561 and
194,430, respectively. In addition, there is a dilutive impact related to the
conversion of 1,500 shares of preferred stock to 1,500,000 shares of common
stock for the three months and six months ended June 30, 2000 of 1,467,033 and
1,392,857, respectively. For the three and six month periods ended June 30,
1999, basic and dilutive shares were equal.
4. COMMITMENTS AND CONTINGENCIES:
The Company is a party to a number of lawsuits, claims and assessments arising
from the operations of its business. While the results of lawsuits or other
matters against the Company cannot be predicted with certainty, management, in
consultation with legal counsel, does not expect these matters to have a
material adverse effect on the financial position, results of operations or cash
flows of the Company.
The J.C. Nichols Residential asset purchase agreement requires installment
payments to be made based on certain profitability levels achieved. The payments
are required 60 days after each close of calendar years 1999 and 2000. The
maximum amount payable under the agreement is $500,000 per year. These payments
will be recorded as additional costs of the acquisition. For the year ended
December 31, 1999, there was no obligation payable.
The Long Realty stock purchase agreement also requires that installment payments
be made after the closing date, if certain profitability levels are achieved.
These payments are required after the close of calendar years 1999 and 2000. The
maximum amount payable under the agreement is $1.5 million per year. These
payments will be recorded as additional costs of the acquisition. The
calculation of this amount for 1999 has not yet been finalized but is not
expected to be significant.
The Champion Realty asset purchase agreement requires a payment to be made based
on certain EBITDA levels achieved in the fiscal year ending December 31, 2000.
This payment is required within 120 days after the close of the calendar year
2000. The maximum amount payable under the agreement is $400,000. The payment
will be recorded as additional costs of the acquisition.
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<PAGE>
5. ACCOUNTING PRONOUNCEMENT:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which was delayed by SFAS No. 137 and
amended by SFAS No. 138. SFAS 133 establishes accounting and reporting standards
for derivative instruments and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This statement is effective for the Company beginning January 1, 2001. The
Company is in the process of evaluating the impact of this accounting
pronouncement.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Results of operations of the Company are significantly influenced by the timing
of when entities are acquired. The results of operations reflect the revenues
and expenses of each of the entities from their respective dates of acquisition.
The Company's real estate brokerage business is subject to seasonal fluctuations
because more home sale transactions tend to close during the second and third
quarters of the year. As a result, the Company's operating results and
profitability are typically higher in the second and third quarters relative to
the remainder of the year.
RESULTS OF OPERATIONS OF HOMESERVICES FOR THE THREE MONTHS AND SIX MONTHS ENDED
JUNE 30, 2000 AND 1999
The following table presents selected consolidated financial data of the Company
as of and for the periods ended June 30, 2000 and 1999 (in thousands except per
share amounts).
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------------- -------------------------------------------
2000 1999 2000 1999
------------------ ------------------ ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commission revenue........... $ 126,425 91.0% $ 92,413 89.7% $ 205,973 90.9% $ 148,979 88.8%
Title fees................... 6,380 4.6% 6,375 6.2% 10,379 4.6% 10,644 6.4%
Other........................ 6,092 4.4% 4,251 4.1% 10,197 4.5% 8,101 4.8%
--------- -------- --------- ---------
Total revenues............... 138,897 100.0% 103,039 100.0% 226,549 100.0% 167,724 100.0%
--------- -------- --------- ---------
Commission expense........... 88,332 63.6% 62,978 61.1% 143,550 63.4% 102,085 60.9%
All other operating expense.. 34,798 25.0% 27,101 26.3% 67,538 29.8% 52,242 31.1%
Amortization of pending
real estate sales contracts.. - - - - 665 0.3% - -
Depreciation and amortization 2,774 2.0% 1,737 1.7% 5,509 2.4% 3,718 2.2%
-------- -------- -------- --------
Total operating expenses..... 125,904 90.6% 91,816 89.1% 217,262 95.9% 158,045 94.2%
-------- -------- -------- --------
Other income (expense), net.. (496) (0.4%) (965) (0.9%) (1,212) (0.5%) (1,775) (1.1%)
Income before income taxes... 12,497 9.0% 10,258 10.0% 8,075 3.6% 7,904 4.7%
Income tax expense........... 5,156 3.7% 4,205 4.1% 3,365 1.5% 3,278 2.0%
-------- -------- --------- --------
Net income................... $ 7,341 5.3% $ 6,053 5.9% $ 4,710 2.1% $ 4,626 2.7%
======== ======== ========= ========
Net income per share:
Basic........................ $ 0.82 $ 0.89 $ 0.52 $ 0.68
======== ======== ========= =======
Diluted...................... $ 0.69 $ 0.89 $ 0.44 $ 0.68
======== ======== ========= =======
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: As of As of
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
Cash and cash equivalents.... $ 12,172 $ 10,318
Total assets................. $181,131 $166,658
Long-term debt including
current portion.............. $ 43,631 $ 48,817
Stockholders'equity.......... $ 87,263 $ 82,352
</TABLE>
RESULTS OF OPERATIONS OF HOMESERVICES FOR THE SIX MONTHS ENDED JUNE 30, 2000
Revenues. Total revenues for the six months ended June 30, 2000 were $226.5
million, an increase of $58.8 million or 35.1% compared to the same period in
1999. Total revenue from companies acquired after June 30, 1999 was $49.9
million in the six months ended June 30, 2000. Commission revenue for the six
months ended June 30, 2000 was $206.0 million or 90.9% of total revenues, an
increase of $57.0 million or 38.3% compared to the same period in 1999.
Commission revenues from companies acquired after June 30, 1999 were $48.3
million in the six months ended June 30, 2000. Total closed transactions for the
six months ended June 30, 2000 were 43,279, an increase of 9,886 or 29.6%
primarily attributed
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<PAGE>
to companies acquired after June 30, 1999. The average home sales price
increased from $146,000 in the first half of 1999 to $158,100 in the first half
of 2000, an increase of 8.3%. The combination of the increase in closed
transactions and the higher average home sales price resulted in a 40.3%
increase in closed transaction volume to $6.8 billion for the six months ended
June 30, 2000 compared to the same period in 1999.
Title fees for the six months ended June 30, 2000 and 1999 were $10.4 million or
4.6% of total revenues, and $10.6 million or 6.4% of total revenues,
respectively. The decrease in title fees is due to the decline in the refinance
business partially offset by the title fees from companies acquired after June
30, 1999.
Other revenues for the six months ended June 30, 2000 were $10.2 million or 4.5%
of total revenues, an increase of $2.1 million or 25.9% compared to the same
period in 1999. The increase is primarily attributed to an increase in the
broker's administrative commission and mortgage origination fees as well as
companies acquired after June 30, 1999.
Commission Expense. Commission expense from the real estate brokerage operations
for the six months ended June 30, 2000 was $143.6 million, an increase of $41.5
million or 40.6% compared to the same period in 1999. The increase in commission
expense is due to higher volume resulting from companies acquired after June 30,
1999 and paying a higher percentage of commission revenue to the agents due
primarily to higher sales associate productivity. Commission expense as a
percentage of commission revenue increased from 68.5% for the six months ended
June 30, 1999 to 69.7% for the same period in 2000.
All Other Operating Expenses. All other operating expenses for the six months
ended June 30, 2000 was $67.5 million, an increase of $15.3 million or 29.3%
compared to the same period in 1999. The increase is primarily attributed to
companies acquired after June 30, 1999 and to a lesser extent, higher activity
levels related to the e-commerce initiatives.
Amortization of Pending Real Estate Sales Contracts. Amortization of pending
real estate sales contracts was $0.7 million for the six months ended June 30,
2000 due to the acquisition of Champion Realty in December 1999.
Depreciation and Amortization. Depreciation and amortization for the six months
ended June 30, 2000 was $5.5 million, excluding the amortization of pending real
estate sales contracts, an increase of $1.8 million or 48.2% compared to the
same period in 1999, primarily as a result of business acquisitions.
Other Income (Expense), Net. Other income (expense), net for the six months
ended June 30, 2000 and 1999 consisted primarily of interest expense. Interest
expense for the six months ended June 30, 2000 was $1.7 million, a decrease of
$0.3 million or 16.6% compared to the same period in 1999. The decrease is
attributed to lower borrowings under the revolving credit facility partially
offset by an increase in the blended average interest rate as compared to the
same period in 1999.
Income Tax Expense. The higher income tax expense for the six months ended June
30, 2000 as compared to the same period in 1999 is primarily due to higher
pre-tax income.
Net Income. Net income for the six months ended June 30, 2000 was $4.7 million,
an increase of $0.1 million or 1.8% compared to the net income for the same
period in 1999.
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) for the
six months ended June 30, 2000 and 1999 was $15.5 million and $13.4 million,
respectively. EBITDA is defined as net income (loss) before income taxes,
interest and other income (expense), net, and depreciation and amortization
including amortization of pending real estate sales contracts.
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<PAGE>
SIX MONTHS ENDED JUNE 30,
-------------------------
(in thousands) 2000 1999
------- -------
Net income $ 4,710 $ 4,626
Income tax expense 3,365 3,278
Interest and other (income) expense, net 1,212 1,775
------- -------
Operating income 9,287 9,679
Amortization of pending real estate sales contracts 665 -
Depreciation and amortization 5,509 3,718
------- -------
EBITDA $15,461 $13,397
======= =======
RESULTS OF OPERATIONS OF HOMESERVICES FOR THE THREE MONTHS ENDED JUNE 30, 2000
Revenues. Total revenues for the three months ended June 30, 2000 were $138.9
million, an increase of $35.9 million or 34.8% compared to the same period in
1999. Total revenue from companies acquired after June 30, 1999 was $29.5
million in the three months ended June 30, 2000. Commission revenue for the
three months ended June 30, 2000 was $126.4 million or 91.0% of total revenues,
an increase of $34.0 million or 36.8% compared to the same period in 1999.
Commission revenues from companies acquired after June 30, 1999 were $28.5
million in the three months ended June 30, 2000. Total closed transactions for
the three months ended June 30, 2000 were 25,915, an increase of 5,875 or 29.3%
primarily attributed to companies acquired after June 30, 1999. The average home
sales price increased from $154,200 in the second quarter of 1999 to $162,200 in
the second quarter of 2000, an increase of 5.2%. The combination of the increase
in closed transactions and the higher average home sales price resulted in a
36.0% increase in closed transaction volume to $4.2 billion for the three months
ended June 30, 2000 compared to the same period in 1999.
Title fees for the three months ended June 30, 2000 and 1999 were $6.4 million
or 4.6% of total revenues, and $6.4 million or 6.2% of total revenues,
respectively. The decrease in title fees as a percent of total revenues is due
to title fees being the same in 2000 and 1999 as a result of the decline in the
refinance business offset by the title fees from companies acquired after June
30, 1999.
Other revenues for the three months ended June 30, 2000 were $6.1 million or
4.4% of total revenues, an increase of $1.8 million or 43.3% compared to the
same period in 1999. The increase is primarily attributed to an increase in
broker's administrative commission and mortgage origination fees as well as
companies acquired after June 30, 1999.
Commission Expense. Commission expense from the real estate brokerage operations
for the three months ended June 30, 2000 was $88.3 million, an increase of $25.4
million or 40.3% compared to the same period in 1999. The increase in commission
expense is due to higher volume resulting from companies acquired after June 30,
1999 and paying a higher percentage of commission revenue to the agents due
primarily to higher sales associate productivity. Commission expense as a
percentage of commission revenue increased from 68.1% for the three months ended
June 30, 1999 to 69.9% for the same period in 2000.
All Other Operating Expenses. All other operating expenses for the three months
ended June 30, 2000 was $34.8 million, an increase of $7.7 million or 28.4%
compared to the same period in 1999. The increase is primarily attributed to
companies acquired after June 30, 1999 and, to a lesser extent, higher activity
levels related to the e-commerce initiatives.
Depreciation and Amortization. Depreciation and amortization for the three
months ended June 30, 2000 was $2.8 million, an increase of $1.0 million or
59.7% compared to the same period in 1999, primarily as a result of business
acquisitions.
Other Income (Expense), Net. Other income (expense), net for the three months
ended June 30, 2000 and 1999 consisted primarily of interest expense. Interest
expense for the three months ended June 30, 2000 was $0.8 million, a decrease of
$0.3 million or 24.6% compared to the same period in 1999. The decrease is
attributed to lower borrowings under the revolving credit facility partially
offset by an increase in the blended average interest rate as compared to the
same period in 1999.
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<PAGE>
Income Tax Expense. The higher income tax expense for the three months ended
June 30, 2000 as compared to the same period in 1999 is primarily due to higher
pre-tax income.
Net Income. Net income for the three months ended June 30, 2000 was $7.3
million, an increase of $1.3 million or 21.3% compared to the net income for the
same period in 1999.
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) for the
three months ended June 30, 2000 and 1999 was $15.8 million and $13.0 million,
respectively. EBITDA is defined as net income (loss) before income taxes,
interest and other income (expense), net, and depreciation and amortization
including amortization of pending real estate sales contracts.
THREE MONTHS ENDED JUNE 30,
---------------------------
(in thousands) 2000 1999
------- -------
Net income $ 7,341 $ 6,053
Income tax expense 5,156 4,205
Interest and other (income) expense, net 496 965
------- -------
Operating income 12,993 11,223
Depreciation and amortization 2,774 1,737
------- -------
EBITDA $15,767 $12,960
======= =======
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements consist primarily of working capital, capital
expenditures and acquisitions. Historically, the Company has funded its working
capital and capital expenditures using cash and cash equivalents on hand.
Acquisitions have historically been financed through the Company's initial
public offering, borrowings under its revolving credit facility, the private
placement of the 7.12% senior notes, loans from MidAmerican Holdings, capital
contributions and cash on hand. The Company's cash and cash equivalents totaled
$12.2 million as of June 30, 2000.
The Company's cash provided by operating activities was $11.1 million and $16.2
million for the six months ended June 30, 2000 and 1999, respectively. In the
first half of 1999, cash flows from mortgage loans held for sale were positively
impacted by the timing of the sale of 1998 mortgage loans delayed into 1999 due
to increased mortgage volume and system conversions by major investors in
December 1998.
The Company's cash used in investing activities was $4.0 million and $5.9
million for the six months ended June 30, 2000 and 1999, respectively. The
Company's cash used in investing activities for the six months ended June 30,
2000 and 1999 were primarily attributable to the purchase of office property and
equipment of $4.6 million and $4.9 million, respectively. In the first half of
2000 and 1999, the Company also had $0.2 million and $0.8 million, respectively,
of acquisition payments as required in the original purchase agreements.
The Company's cash used in financing activities was $5.2 million and $1.9
million for the six months ended June 30, 2000 and 1999, respectively. The
Company's cash used in financing activities for the six months ended 2000 was
primarily a result of payments under the revolving credit agreement.
The Company believes that the net proceeds that it received from its initial
public offering of common stock, together with its cash flow from operations and
available borrowings under its $75 million revolving credit facility, will be
adequate to meet its needs for working capital, capital expenditures, debt
service, planned acquisitions and the continued development of its e-commerce
platform. If, however, net proceeds from the offering, cash flow from operations
and borrowings under the Company's revolving credit facility are insufficient to
satisfy the Company's liquidity requirements, it may need to raise additional
funds through public or private financings or the formation of strategic
ventures.
In June 2000, U.S. Bancorp Piper Jaffray Inc. exercised its option to convert
1,500 shares of the Company's Series A Non-Voting Convertible Preferred Stock
into 1,500,000 shares of the Company's common stock.
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NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which was delayed by SFAS No. 137 and
amended by SFAS No. 138. SFAS 133 establishes accounting and reporting standards
for derivative instruments and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This statement is effective for the Company beginning January 1, 2001. The
Company is in the process of evaluating the impact of this accounting
pronouncement.
FORWARD-LOOKING STATEMENTS
Certain information included in this report contains forward-looking statements
made pursuant to the Private Securities Litigation Reform Act of 1995 ("Reform
Act"). Such statements are based on current expectations and involve a number of
known and unknown risks and uncertainties that could cause the actual results
and performance of the Company to differ materially from any expected future
results or performance, expressed or implied, by the forward-looking statements.
In connection with the safe harbor provisions of the Reform Act, the Company has
identified important factors that could cause actual results to differ
materially from such expectations, including operating uncertainty, acquisition
uncertainty, uncertainties relating to economic and political conditions and
uncertainties regarding the impact of regulations, changes in government policy
and competition. Reference is made to all of the Company's SEC filings,
including the Company's Report on Form 8-K dated March 17, 2000, incorporated
herein by reference, for a description of certain risk factors. The Company
assumes no responsibility to update forward-looking information contained
herein.
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PART II
ITEM 1. LEGAL PROCEEDINGS.
In the ordinary course of business, HomeServices and its subsidiaries are
involved in legal proceedings incidental to their operations. HomeServices and
its subsidiaries are not currently involved in any legal proceedings that
management believes would have a material adverse effect on the operations or
financial condition of HomeServices and its subsidiaries taken as a whole.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULT ON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION
Effective August 11, 2000, Dwayne J. Coben, former Chief Financial Officer,
resigned from his position to pursue other interests. The Company has commenced
a search for a replacement Chief Financial Officer. Pending Mr. Coben's
replacement, the Company's Controller, Ms. Cindy Sattler, will assume Mr.
Coben's responsibilities as acting Chief Financial Officer with assistance and
support provided by the accounting and finance departments of MidAmerican Energy
Holdings Company, the Company's majority shareholder.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See Exhibit Index.
(b) Reports on Form 8-K - none.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Edina, State
of Minnesota, on this 10th day of August, 2000.
HOMESERVICES.COM INC.
By: /s/ Dwayne J. Coben
------------------------
Dwayne J. Coben
Senior Vice President and
Chief Financial Officer
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EXHIBIT INDEX
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Exhibit Page
No. No.
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27 Financial Data Schedule 14
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