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 June 30, 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 (July 24, 1997)
Common Stock, par value $.01 per share 3,258,763 shares
Page 1 of 14 pages, Exhibit Index appears on Page 11.
<PAGE>
-2-
THE DEWOLFE COMPANIES, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Income for the Three
Months and Six Months ended June 30, 1997 and June 30, 1996 4
Condensed Consolidated Statements of Cash Flows for
the Six Months ended June 30, 1997 and June 30, 1996 5
Notes to Condensed Consolidated Financial Statements
June 30, 1997 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II. OTHER INFORMATION 9
<PAGE>
-3-
THE DEWOLFE COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,719,000 $ 2,586,000
Commissions receivable, net of allowance of $1,171,000 at
June 30, 1997 and $831,000 at December 31, 1996 23,415,000 12,589,000
Mortgage loans held for sale 13,956,000 6,735,000
Note and advance receivable from stockholder 66,000 66,000
Prepaid expenses and other current assets 442,000 327,000
----------- -----------
TOTAL CURRENT ASSETS 39,598,000 22,303,000
PROPERTY AND EQUIPMENT
Furniture and equipment 7,980,000 6,862,000
Land, building and improvements 4,878,000 4,523,000
----------- -----------
12,858,000 11,385,000
Accumulated depreciation (6,058,000) (4,921,000)
----------- -----------
NET PROPERTY AND EQUIPMENT 6,800,000 6,464,000
OTHER ASSETS
Excess of cost over value in net assets acquired, net of accumulated
amortization of $744,000 at June 30, 1997 and $682,000 at
December 31, 1996 1,772,000 1,834,000
Other Assets 2,051,000 1,996,000
----------- -----------
$ 50,221,000 $ 32,597,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank 13,600,000 $ 6,575,000
Current portion of long term debt 1,449,000 1,363,000
Commissions payable 15,758,000 8,451,000
Accounts payable and accrued expenses 2,875,000 1,796,000
Deferred mortgage fee income 277,000 202,000
----------- -----------
TOTAL CURRENT LIABILITIES 33,959,000 18,387,000
LONG TERM DEBT, net of current portion 4,443,000 3,215,000
NON COMPETE AGREEMENTS AND CONSULTING
AGREEMENTS PAYABLE 756,000 803,000
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; 3,359,791
shares issued at June 30, 1997 and
3,352,049 shares issued at December 31, 1996 34,000 34,000
Additional paid-in capital 6,408,000 6,375,000
Retained earnings 5,129,000 3,989,000
----------- -----------
TOTAL STOCKHOLDERS' EQUITY BEFORE TREASURY STOCK 11,571,000 10,398,000
Less Treasury Stock (91,063 shares at June 30, 1997
and 35,163 shares at December 31, 1996) at cost (508,000) (206,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 11,063,000 10,192,000
----------- -----------
$ 50,221,000 $ 32,597,000
============ ============
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
-4-
THE DEWOLFE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Real estate brokerage $29,537,000 $28,372,000 $52,158,000 $48,968,000
Mortgage 1,385,000 1,359,000 2,189,000 2,311,000
Other 434,000 353,000 478,000 386,000
----------- ----------- ----------- -----------
TOTAL REVENUES 31,356,000 30,084,000 54,825,000 51,665,000
Commission expense: 19,057,000 18,170,000 33,541,000 31,197,000
----------- ----------- ----------- -----------
NET REVENUES 12,299,000 11,914,000 21,284,000 20,468,000
Operating expenses:
Compensation and benefits 4,150,000 3,619,000 8,012,000 7,143,000
Facilities 1,324,000 1,188,000 2,626,000 2,341,000
General and administrative 2,344,000 2,085,000 4,235,000 3,696,000
Marketing and promotion 1,559,000 1,507,000 2,847,000 2,712,000
Communications 377,000 379,000 741,000 652,000
Provision for doubtful accounts 299,000 126,000 589,000 372,000
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 10,053,000 8,904,000 19,050,000 16,916,000
----------- ----------- ----------- -----------
OPERATING INCOME 2,246,000 3,010,000 2,234,000 3,552,000
Other income (expenses):
Interest expense (306,000) (297,000) (516,000) (539,000)
Interest income 248,000 151,000 354,000 237,000
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 2,188,000 2,864,000 2,072,000 3,250,000
Income Tax Expense 982,000 1,315,000 932,000 1,495,000
----------- ----------- ----------- -----------
NET INCOME $ 1,206,000 $ 1,549,000 $ 1,140,000 $ 1,755,000
=========== =========== ============ ============
Earnings Per Common Share $ 0.36 $ 0.44 $ 0.34 $ 0.50
Weighted average common shares outstanding 3,352,000 3,511,000 3,364,000 3,510,000
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
-5-
THE DEWOLFE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------
1997 1996
---- ----
<S> <C> <C>
Increase (Decrease) in Cash
OPERATING ACTIVITIES
Cash received from customers $ 44,381,000 $ 38,665,000
Commissions and compensation paid to co-brokers, sales
associates and mortgage consultants (27,046,000) (22,525,000)
Operating expenses paid (16,660,000) (14,333,000)
Provision for doubtful accounts (589,000) (372,000)
Mortgage loans originated for sale (88,328,000) (89,473,000)
Proceeds from mortgage loan sales 81,107,000 91,409,000
Net borrowings (repayment) on note payable, bank 7,025,000 (1,822,000)
Interest received 354,000 237,000
Interest paid (503,000) (541,000)
Income taxes paid (100,000) (838,000)
------------- ------------
Cash (used) for / provided by operating activities (359,000) 407,000
INVESTING ACTIVITIES
Expenditures for business combinations (100,000)
Expenditures for property and equipment (974,000) (495,000)
------------- ------------
Cash used for investing activities (1,074,000) (495,000)
FINANCING ACTIVITIES
Net borrowings under revolving line of credit 1,600,000 800,000
Principal payments on long term debt (765,000) (703,000)
Purchase of treasury stock (302,000)
Issuance of common stock 33,000 19,000
------------- ------------
Cash provided by financing activities 566,000 116,000
------------- ------------
NET (DECREASE)INCREASE IN CASH (867,000) 28,000
Cash at beginning of period 2,586,000 1,865,000
------------- ------------
CASH AT END OF PERIOD $ 1,719,000 $ 1,893,000
============= ===========
Supplemental Information:
Noncash investing and financing activities
Leases capitalized $ 479,000 $ 510,000
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
-6-
THE DEWOLFE COMPANIES, INC.
JUNE 30, 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 six month period ended June 30, 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 dilated earnings per share
for the quarter and the six month period ended June 30, 1997 is not expected to
be material.
<PAGE>
-7-
THE DEWOLFE COMPANIES, INC.
JUNE 30, 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The net income in the second quarter of 1997 was $1.2 million as compared to a
net income of $1.5 million in the second quarter of 1996. Net income for the
first six months of 1997 was $1.1 million compared to a net income of $1.8
million for the first six months of 1996. The decrease in the 1997 earnings were
primarily attributed to a reduction in net revenue margins in real estate
brokerage and increased operating expenses.
Results of Operations
Real Estate Brokerage Revenues:
Real estate brokerage revenues increased 4% in the second quarter of 1997 to
$29.5 million, an increase of $1.2 million over the second quarter of 1996. For
the first six months of 1997 real estate brokerage revenues were $52.2 million,
an increase of 7% as compared to the first six months 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 revenue includes $1.6 million of income from relocation
services in the second quarter of 1997 as compared to $1.5 million in the second
quarter of 1996, an increase of 7%. Real estate brokerage revenues from
relocation services were $2.9 million the first six months of 1997, as compared
to $2.5 million for the first six months of 1996, an increase of 16%. The
increase was primarily due to an increase in the number of corporate accounts
and affinity groups that the Company serviced.
Net revenues from real estate brokerage increased 3% or $278 thousand in the
second quarter of 1997 to $10.5 million, and increased 5% or $846 thousand for
the first six months of 1997 to $18.6 million. Net real estate brokerage
revenues as a percentage of real estate brokerage revenues were 35.5% for the
second quarter of 1997 as compared to 36.0% in the second quarter of 1996 and
were 35.7% for the first six months of 1997 as compared to 36.3% for the first
six months of 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 increased 2% in the second quarter of 1997 to $1.4 million, an
increase of $226 thousand compared to the second quarter of 1996. For the first
six months of 1997 mortgage revenues were $2.2 million, a decrease of 5% or $122
thousand as compared to the same period in 1996. The increase in the second
quarter is primarily due to improved pricing on loans in the second quarter of
1997 as compared to 1996. The decrease in the first six months of 1997 is due to
a decrease in closed loans in the first six months of 1997 as compared to the
first six months of 1996, primarily in the first quarter of 1997 as compared to
1996.
Closed loan volume in the second quarter of 1997 and 1996 was $81.7 million and
$82.3 million, respectively. For the first six months of 1997 and 1996 closed
loan volume was $131.4 million and $138.2 million, respectively.
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 74% in the second quarter of 1997 compared to
73% in the second quarter of 1996 and 73% for the first six months of 1997
compared to 72% for the first six months of 1996.
<PAGE>
-8-
Operating Expenses:
Operating expenses for the second quarter of 1997 increased $1.1 million or 13%
from the second quarter of 1996. The increase is primarily due to cost increases
of approximately $810 thousand caused by the increase in the Company's overall
business, approximately $60 thousand of initial operating costs of the Company's
insurance agency and approximately $230 thousand in increased operating expenses
including investments to develop support services such as information systems
and marketing. Operating expenses as a percentage of net revenues were 82% in
the second quarter of 1997 compared to 75% in the second quarter of 1996.
Operating expenses increased 13% or $2.1 million for the first six months of
1997 compared to the first six months of 1996. The increase is primarily due to
cost increases of approximately $1.5 million caused by the increase in the
Company's overall business, approximately $100 thousand of initial operating
costs of the Company's insurance agency and approximately $500 thousand in
increased operating expenses including investments to develop support services
such as information systems and marketing. Operating expenses as a percentage of
net revenues increased from 83% to 90% for the six months of 1997 and 1996,
respectively.
Interest Expense and Interest Income:
Interest expense increased by $9 thousand in the second quarter of 1997 as
compared to 1996 and decreased by $23 thousand for the first six months of 1997
as compared to 1996. The interest expense variances are primarily due to the
financing of capital lease obligations and the borrowing under the revolving
line of credit.
The increase of $97 thousand in interest income in the second quarter of 1997 as
compared to 1996, as well as the increase of $117 thousand for the first six
months of 1997 compared to 1996, is primarily due to an increase in interest
rates earned and balances kept in the Company's bank accounts.
Liquidity and Sources of Capital
Cash balances at June 30, 1997 and June 30, 1996 were $1.7 million and $2.6
million, respectively. Cash used by operations for the first six months of 1997
was $359 thousand as compared to cash provided by operations for the first six
months of 1996 of $407 thousand.
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 remaining outstanding balance of the term note was $975 thousand at June 30,
1997 and $1.3 million at June 30, 1996. At June 30, 1997 and 1996, the Company
had outstanding under lease lines of credit of $2.3 million and $2.4 million,
respectively. The Company's borrowings under the revolving line of credit had an
outstanding balance of $1.6 million at June 30, 1997 and $1.2 million at June
30, 1996.
In connection with the mortgage loan activity the Company maintains a $25
million credit line that is used to finance mortgage loans that it originates
and had an outstanding balance of $13.6 million and $8.9 million at June 30,
1997 and 1996, respectively.
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 June
30, 1997, the Company had acquired a total of $388 thousand of stock under the
plan, $149 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 business. 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.
<PAGE>
-9-
THE DEWOLFE COMPANIES, INC.
June 30, 1997
PART II. OTHER INFORMATION
Item 4 Submissions of Matters to a vote of Security Holders
The annual meeting of the shareholders was held on May 13, 1997 in
Randolph, Massachusetts. A brief description of each matter voted upon at
the meeting and a tabulation of votes with respect to each such matter is
attached as Exhibit (22).
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
<PAGE>
-10-
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: August 11, 1997 THE DEWOLFE COMPANIES, INC.
By: /s/James A. Marcotte
-----------------------------
James A. Marcotte
Senior Vice President
and Chief Financial Officer
<PAGE>
-11-
THE DEWOLFE COMPANIES, INC.
June 30, 1997
EXHIBIT INDEX
10-Q
<TABLE>
<CAPTION>
ITEM DESCRIPTION LOCATION
- ---- ----------- --------
<S> <C> <C>
11.0 Statement re: Computation of Per Share Earnings Page 12 of this report
22.0 Published Report Regarding Matters Submitted to a Vote of Page 13 of this report
Security Holders
27.0 Financial Data Schedule
</TABLE>
-12-
THE DEWOLFE COMPANIES, INC
Exhibit 11.0 Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted Average
Shares Outstanding 3,279,000 3,296,000 3,291,000 3,294,000
Net effect of dilutive stock
options-based on the treasury
stock method using
the period end market price if
higher than average market price 73,000 215,000 73,000 216,000
--------- ---------- ---------- ----------
Total 3,352,000 3,511,000 3,364,000 3,510,000
========= ========== ========== ==========
Net Income $1,206,000 $1,549,000 $1,140,000 $1,755,000
========= ========== ========== ==========
Net Income Per Share $0.36 $0.44 $0.34 $0.50
========= ========== ========== ==========
</TABLE>
-13-
July 14, 1997
James A. Marcotte
Senior VP & CFO
The DeWolfe Companies
80 Hayden Ave.
Lexington, MA 02173
Dear Jim:
As requested, we have tabulated the vote cast at the Annual Meeting of
Shareholders, of The DeWolfe Companies held on May 13, 1997 we tabulated proxies
representing 2,854,866.562 shares of Common Stock or 86.040% of the total
outstanding shares voted in the following manner:
We certify that the number of shares issued, outstanding and eligible to vote as
of the record date of March 21, 1997 were 3,318,088.
1. PROPOSAL I
Election of Directors.
Number of Shares/Votes
For Authority Withheld
Richard B. DeWolfe 2,853,121.2970 1,745.2650
A. Clinton Allen 2,853,174.0760 1,692.4860
Paul R. Del Rossi 2,853,174.0760 1,692.4860
R. Robert Popeo 2,853,174.0760 1,692.4860
2. PROPOSAL II
To ratify the Selection of Ernst & Young LLP as the Company's
Independent Auditors.
For 2,852,200.799
Against 682.885
Abstain 982.878
Broker non-votes -0-
Sincerely,
Stacey N. Seremetis
Account Manager
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEET (UNAUDITED) AND CONDENSED CONSOLIDATED STATEMENTS OF
INCOME (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<CIK> 0000888138
<NAME> THE DEWOLFE COMPANIES, INC.
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<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
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</TABLE>
