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 March 31, 2000
Commission File No. 1-9874
HomeServices.Com Inc.
(Exact name of registrant as specified in its charter)
Delaware 41-1945806
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6800 France Ave. South, Suite 600, Edina, Minnesota 55435
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 928-5900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange
Common Stock, $0.01 on which registered
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_____
8,922,942 shares of Common Stock were outstanding on May 10, 2000.
<PAGE>
TABLE OF CONTENTS
Part I 3
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 11
Item 1. Legal Proceedings..................................................11
Item 2. Changes in Securities and Use of Proceeds..........................11
Item 3. Defaults upon Senior Securities....................................11
Item 4. Submission of Matters to a Vote of Security Holders................11
Item 5. Other Information..................................................11
Item 6. Exhibits and Reports on Form 8-K..................................11
Signatures................................................................12
Exhibit Index.............................................................13
<PAGE>
Part I
Item 1. Financial Statements.
<TABLE>
HOMESERVICES.COM INC.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
<CAPTION>
As of
-------------------------------------
March 31, December 31,
2000 1999
-------------- ---------------
Assets (Unaudited)
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 6,914 $ 10,318
Commissions and other trade receivables, net of allowance of $1,198 and $1,332 10,688 7,077
Mortgage loans held for sale 3,177 2,974
Pending real estate sales contracts - 673
Cash held in trust 13,088 6,549
Income taxes receivable 1,107 534
Deferred income taxes 1,559 1,571
Other current assets 3,210 3,236
--------- ----------
Total current assets 39,663 32,932
--------- ----------
Other Assets:
Office property and equipment, net 23,280 22,943
Intangible assets, net 105,709 106,706
Other assets 3,624 4,077
--------- ----------
Total other assets 132,613 133,726
--------- ----------
Total Assets $ 172,276 166,658
========= ==========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts and commissions payable $ 7,179 $ 7,172
Accrued expenses 10,873 12,668
Payable to affiliates 106 1,042
Cash held in trust 13,008 6,549
Current portion of long-term debt 698 707
Other current liabilities 1,409 862
--------- ----------
Total current liabilities 33,273 29,000
--------- ----------
Other Liabilities:
Long-term debt 53,014 48,110
Agent profit-sharing 6,020 6,282
Other noncurrent liabilities 152 914
--------- ----------
Total other liabilities 59,186 55,306
--------- ----------
Total liabilities 92,459 84,306
--------- ----------
Commitments and contingencies (Note 4)
Stockholders' Equity:
Convertible preferred stock, $0.01 par value, 2,000,000 shares authorized;
1,500 and 0 shares issued and outstanding at March 31, 2000 and December
31, 1999, respectively - -
Common stock, $0.01 par value, 38,000,000 shares authorized; 8,922,942 and
10,422,942 shares issued and outstanding at March 31, 2000 and
December 31, 1999, respectively 89 104
Additional paid-in capital 78,720 78,705
Notes receivable (555) (651)
Accumulated other comprehensive (loss) (24) (24)
Retained earnings 1,587 4,218
--------- ----------
Total stockholders' equity 79,817 82,352
--------- ----------
Total Liabilities and Stockholders' Equity $ 172,276 166,658
========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
HOMESERVICES.COM INC.
Consolidated Statements of Income
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended March 31,
--------------------------------
2000 1999
--------------------------------
Revenues:
Commission revenue $ 79,548 $ 56,566
Title fees 3,999 4,269
Other 4,105 3,850
---------- --------------
Total Revenues 87,652 64,685
---------- --------------
Operating expenses:
Commission expense 55,218 39,107
Salaries and employee benefits 15,989 11,664
Occupancy 5,958 4,516
Business promotion and advertising 4,616 2,750
Other operating expenses 6,177 6,211
Amortization of pending real estate
sales contracts 665 -
Depreciation and amortization 2,735 1,981
---------- --------------
Total operating expenses 91,358 66,229
---------- --------------
Other income (expense):
Interest income 253 254
Interest expense (969) (1,064)
---------- --------------
Total other income (expense), net (716) (810)
---------- --------------
Loss before income taxes (4,422) (2,354)
Income tax benefit (1,791) (927)
----------- --------------
Net loss $ (2,631) $ (1,427)
=========== ==============
Net loss per share - basic and diluted $ (0.28) $ (0.21)
=========== ==============
Weighted average shares outstanding -
Basic 9,298 6,779
=========== ==============
Weighted average shares outstanding -
Diluted 9,298 6,779
=========== ==============
The accompanying notes are an integral part of these financial statements.
<TABLE>
HOMESERVICES.COM INC.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<CAPTION>
Three Months Ended March 31,
------------------------------------
2000 1999
----------------- ---------------
Cash flows provided by (used in) operating activities:
<S> <C> <C>
Net loss $ (2,631) $ (1,427)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization 2,735 1,981
Amortization of pending real estate sales contracts 665 -
Earnings from equity method investments (161) -
Loss (gain) on sale or disposal of office property and equipment 363 (2)
Decrease in notes receivable 96 14
Provision for deferred income taxes 328 (797)
Changes in assets and liabilities, net of effects from companies purchased:
Commission and other trade receivables (3,611) (4,072)
Mortgage loans held for sale (203) 7,973
Income taxes receivable (573) 1,003
Payable to affiliates (936)
Agent profit-sharing (262) (336)
Accounts and commissions payable and accrued expenses (1,788) (2,108)
Other assets and liabilities (50) (45)
------------- -------------
Net cash provided by (used in) operating activities (6,028) 2,184
Cash flows used in investing activities:
Purchase of companies, net of cash and cash equivalents acquired (110) (800)
Purchases of office property and equipment (2,329) (1,306)
Purchases of held-to-maturity securities (215) (197)
Other investing 383 80
------------- -------------
Net cash used in investing activities (2,271) (2,223)
Cash flows provided by (used in) financing activities:
Payments of long term debt (105) (177)
Net change in revolving credit facility 5,000 -
------------- -------------
Net cash provided by (used in) financing activities 4,895 (177)
Net decrease in cash and cash equivalents (3,404) (216)
Cash and cash equivalents at beginning of period 10,318 3,114
------------- -------------
Cash and cash equivalents at end of period $ 6,914 $ 2,898
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<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 81.5% of the outstanding common stock of the
Company (67% 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
March 31, 2000, the results of operations and cash flows for the three months
ended March 31, 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 Loss:
Comprehensive loss for the three months ended March 31, 2000 and 1999 was
$2,631,000 and $1,452,000, respectively. Comprehensive income (loss) differs
from net income (loss) due to changes in the fair market value of
available-for-sale investment securities.
3. Earnings Per Share:
Diluted net loss per share excludes the impact of vested common stock options
outstanding of 400,000 shares and the conversion of 1,500 shares of preferred
stock to 1,500,000 shares of common stock, as they are anti-dilutive.
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 acquisition. For the year ended December
31, 1999, there was no obligation because certain profitability levels were not
achieved.
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 acquisition upon achieving such
profitability levels.
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.
These payments are 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 acquisition.
<PAGE>
5. Subsequent Event:
On April 14, 2000, MidAmerican Holdings purchased an additional 500,000
outstanding common shares in a block trade at the market price from U.S. Bancorp
Piper Jaffray increasing its ownership to approximately 81.5% of HomeServices'
outstanding common stock.
<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 Ended March 31, 2000
and 1999
The following table presents selected consolidated financial data of the Company
as of and for the periods ended March 31, 2000 and 1999 (in thousands except per
share amounts).
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------------------------------------------
2000 1999
----------------------------------- ---------------------------------
Statement of Income Data:
<S> <C> <C> <C> <C>
Commission revenue $ 79,548 90.7% $ 56,566 87.4%
Title fees 3,999 4.6% 4,269 6.6%
Other 4,105 4.7% 3,850 6.0%
----- -------------- ----- -------------
Total revenues 87,652 100.0% 64,685 100.0%
----- -------------- ----- -------------
Commission expense 55,218 63.0% 39,107 60.4%
Amortization of pending real estate
sales contracts 665 0.8% - -
Depreciation and amortization 2,735 3.1% 1,981 3.1%
All other operating expenses 32,740 37.3% 25,141 38.9%
----- -------------- ----- -------------
Total operating expenses 91,358 104.2% 66,229 102.4%
----- -------------- ----- -------------
Other income (expense), net (716) (0.8)% (810) (1.2)%
----- -------------- ----- -------------
Loss before income taxes (4,422) (5.0)% (2,354) (3.6)%
Income tax benefit (1,791) 2.0 % (927) 1.4 %
----- -------------- ----- -------------
Net loss $ (2,631) (3.0)% $ (1,427) (2.2)%
===== ============== ===== =============
Net loss per share - basic and diluted
$ (0.28) $ (0.21)
===== ============== ===== =============
Balance Sheet Data:
Cash and cash equivalents $ 6,914 $ 10,318
Total assets $ 172,276 $ 166,658
Long-term debt including current portion
Stockholders' equity $ 79,817 $ 82,352
</TABLE>
Revenues. Total revenue for the three months ended March 31, 2000 was $87.7
million, an increase of $23.0 million or 35.5% compared to the same period in
1999. Total revenue from companies acquired after March 31, 1999 was $20.4
million in the three months ended March 31, 2000. Commission revenue for the
three months ended March 31, 2000 was $79.5 million or 90.7% of total revenues,
an increase of $23.0 million or 40.6% compared to the same period in 1999.
Commission revenues from companies acquired after March 31, 1999 were $19.8
million in the three months ended March 31, 2000. Total closed transactions for
the three months ended March 31, 2000 were 17,364, an increase of 4,011 or 30.0%
primarily attributed to companies acquired after March 31, 1999. The average
home sales price increased from $133,700 in the first quarter of 1999 to
$151,900 in the first quarter of 2000, an increase of 13.6%. The combination of
the increase in closed transactions and the higher average home sales price
resulted in a 48% increase in closed transaction volume to $2.6 billion for the
three months ended March 31, 2000 compared to the same period in 1999.
<PAGE>
Title fees for the three months ended March 31, 2000 were $4.0 million or 4.6%
of total revenues, a decrease of $0.3 million or 6.3% compared to the same
period in 1999. The title fee decrease is primarily due to a decrease in title
orders as a result of the decline in the refinance business, partially offset by
an increase of $0.2 million attributed to companies acquired after March 31,
1999.
Other revenues for the three months ended March 31, 2000 were $4.1 million or
4.7% of total revenues, an increase of $0.3 million or 6.6% compared to the same
period in 1999. The increase is primarily attributed to companies acquired after
March 31, 1999.
Commission Expense. Commission expense from the real estate brokerage operations
for the three months ended March 31, 2000 was $55.2 million, an increase of
$16.1 million or 41.2% compared to the same period in 1999. The increase in
commission expense is due to higher volume resulting from companies acquired
after March 31, 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 69.1% for the three months
ended March 31, 1999 to 69.4% for the same period in 2000.
Amortization of Pending Real Estate Sales Contracts. Amortization of pending
real estate sales contracts was $0.7 million for the three months ended March
31, 2000 due to the acquisition of Champion Realty in December 1999.
Depreciation and Amortization. Depreciation and amortization for the three
months ended March 31, 2000 was $2.7 million, excluding the amortization of
pending real estate sales contracts, an increase of $0.8 million or 38.1%
compared to the same period in 1999, primarily as a result of business
acquisitions.
All Other Operating Expenses. All other operating expenses for the three months
ended March 31, 2000 was $32.7 million, an increase of $7.6 million or 30.2%
compared to the same period in 1999. The increase is primarily attributed to
companies acquired after March 31, 1999 and to a lesser extent higher activity
levels related to the e-commerce initiatives.
Other Income (Expense), Net. Other income (expense), net for the three months
ended March 31, 2000 and 1999 consisted primarily of interest expense. Interest
expense for the three months ended March 31, 2000 was $1.0 million, a decrease
of $0.1 million or 8.9%. The decrease is attributed to lower borrowings under
the revolving credit facility partially offset by a 1.0% increase in the blended
average interest rate as compared to the same period in 1999.
Income Tax Benefit. The higher income tax benefit for the three months ended
March 31, 2000 as compared to the same period in 1999 is primarily the result of
the difference in loss before income tax benefit between the periods.
Net Loss. Net loss for the three months ended March 31, 2000 was $2.6 million,
an increase of $1.2 million or 84.4% compared to the net loss for the same
period in 1999.
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) for the
three months ended March 31, 2000 and 1999 was ($0.3) million and $0.4 million,
respectively. EBITDA is defined as net income (loss) before income taxes,
interest and other income (expense), net, plus depreciation and amortization
including amortization of pending real estate sales contracts.
<PAGE>
Three Months Ended March 31,
-----------------------------
(in thousands) 2000 1999
-------------- -------------
Net loss $ (2,631) $ (1,427)
Income tax benefit (1,791) (927)
Interest and other (income) expense, net 716 810
-------------- -------------
Operating loss (3,706) (1,544)
Amortization of pending real estate sales contracts 665 -
Depreciation and amortization 2,735 1,981
-------------- -------------
EBITDA $ (306) $ 437
============== =============
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 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 $6.9 million and $2.9 million March
31, 2000 and 1999, respectively. On October 14, 1999, the Company closed the
initial public offering of its common stock. Net proceeds to the Company from
the offering were approximately $27.1 million.
The Company's cash provided by (used in) operating activities was ($6.0) million
and $2.2 million for the three months ended March 31, 2000 and 1999,
respectively. In first quarter 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 $2.3 million and $2.2
million for the three months ended March 31, 2000 and 1999, respectively. The
Company's cash used in investing activities for the three months ended March 31,
2000 and 1999 were primarily attributable to the purchase of office property and
equipment of $2.3 million and $1.3 million, respectively. In the first quarter
1999, the Company also had $0.8 million of acquisition payments as required in
the original purchase agreements.
The Company's cash provided by (used in) financing activities was $4.9 million
and ($0.2) million for the three months ended March 31, 2000 and 1999,
respectively. The Company's cash provided by financing activities for the three
months ended 2000 was primarily a result of advances 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 and 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.
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.
<PAGE>
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
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) See Exhibit Index.
(b) A current report and Form 8-K dated January 12, 2000 was filed relating
to the Registrant issuing 1,500 shares of the Company's Series A
Non-Voting Convertible Preferred Stock to U.S. Bancorp Piper Jaffray in
exchange for 1,500,000 shares of the Registrant's common stock
A current report and Form 8-K dated March 17, 2000 was filed relating
to cautionary statements for Registrant.
<PAGE>
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 15th day of May, 2000.
HOMESERVICES.COM INC.
By: /s/ Dwayne J. Coben
Dwayne J. Coben
Senior Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. No.
27 Financial Data Schedule 14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,914
<SECURITIES> 0
<RECEIVABLES> 11,886
<ALLOWANCES> 1,198
<INVENTORY> 0
<CURRENT-ASSETS> 39,663
<PP&E> 32,246
<DEPRECIATION> 8,996
<TOTAL-ASSETS> 172,276
<CURRENT-LIABILITIES> 33,273
<BONDS> 53,712
0
0
<COMMON> 89
<OTHER-SE> 79,728
<TOTAL-LIABILITY-AND-EQUITY> 172,276
<SALES> 0
<TOTAL-REVENUES> 87,652
<CGS> 0
<TOTAL-COSTS> 55,218
<OTHER-EXPENSES> 36,140
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 716
<INCOME-PRETAX> (4,422)
<INCOME-TAX> (1,791)
<INCOME-CONTINUING> (2,631)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,631)
<EPS-BASIC> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
