<PAGE>
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 September 30, 1999
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 02421-7962
------------- ----------
(Address of principal executive offices) (Zip Code)
(781) 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 (October 29, 1999)
Common Stock, par value $.01 per share 3,371,148 shares
<PAGE>
THE DEWOLFE COMPANIES, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of 3
September 30, 1999 and December 31, 1998
Condensed Consolidated Statements of Income for the 4
Three Months and Nine Months ended September 30, 1999
and 1998
Condensed Consolidated Statements of Cash Flows for 5
the Nine Months ended September 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements 6
September 30, 1999
Item 2. Management's Discussion and Analysis of Financial Condition and 7
Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
2
<PAGE>
THE DEWOLFE COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS September 30, 1999 December 31, 1998
-------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 7,482,000 $ 6,171,000
Commissions receivable, net of allowance of $1,397,000 at September 30, 1999
and $826,000 at December 31, 1998 28,982,000 17,227,000
Mortgage loans held for sale 12,148,000 24,289,000
Note receivable from stockholder 66,000 66,000
Prepaid expenses and other current assets 1,314,000 548,000
------------ ------------
TOTAL CURRENT ASSETS 49,992,000 48,301,000
PROPERTY AND EQUIPMENT
Furniture and equipment 8,777,000 8,177,000
Land, building and improvements 4,038,000 4,230,000
------------ ------------
12,815,000 12,407,000
Accumulated depreciation and amortization (5,599,000) (5,622,000)
------------ ------------
NET PROPERTY AND EQUIPMENT 7,216,000 6,785,000
OTHER ASSETS
Excess of cost over value in net assets acquired, net of accumulated amortization
of $1,719,000 at September 30, 1999 and $1,206,000 at December 31, 1998 10,901,000 6,568,000
Other assets 3,312,000 1,998,000
------------ ------------
TOTAL ASSETS $ 71,421,000 $ 63,652,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank $ 9,944,000 $ 23,825,000
Current portion of long-term debt 1,612,000 896,000
Current portion of obligations under capital leases 790,000 1,037,000
Commissions payable 20,035,000 11,643,000
Accounts payable and accrued expenses 5,562,000 4,132,000
Deferred mortgage fee income 180,000 216,000
Dividend payable -- 389,000
------------ ------------
TOTAL CURRENT LIABILITIES 38,123,000 42,138,000
Long-term debt, net of current portion 14,210,000 7,091,000
Obligations under capital leases, net of current portion 558,000 1,104,000
Non-compete agreements and consulting agreements payable 325,000 248,000
------------ ------------
TOTAL LIABILITIES 53,216,000 50,581,000
Commitments and Contingencies
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;
3,619,628 shares issued at September 30, 1999 and 3,474,108 shares issued
at December 31, 1998 36,000 35,000
Additional paid-in capital 7,617,000 6,842,000
Retained earnings 12,869,000 7,903,000
Treasury stock (251,611 shares at September 30, 1999
and at December 31, 1998), at cost (1,439,000) (1,439,000)
Notes receivable from sale of stock (878,000) (270,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 18,205,000 13,071,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 71,421,000 $ 63,652,000
------------ ------------
------------ ------------
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE>
THE DEWOLFE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Real estate brokerage $44,290,000 $31,046,000 $134,936,000 $101,861,000
Mortgage 1,470,000 1,407,000 3,862,000 3,302,000
Insurance 297,000 203,000 917,000 349,000
Other 407,000 117,000 872,000 305,000
---------------------------------------------------------------------------------
TOTAL REVENUES 46,464,000 32,773,000 140,587,000 105,817,000
Commission Expense 29,578,000 19,690,000 89,581,000 65,305,000
---------------------------------------------------------------------------------
NET REVENUES 16,886,000 13,083,000 51,006,000 40,512,000
Operating Expenses:
Compensation and benefits 6,518,000 5,081,000 18,485,000 14,665,000
Facilities 1,969,000 1,570,000 5,668,000 4,728,000
General and administrative 3,693,000 2,785,000 10,099,000 8,255,000
Marketing and promotion 1,907,000 1,715,000 5,320,000 4,979,000
Communications 624,000 472,000 1,757,000 1,373,000
Acquisition related costs 243,000 30,000 504,000 390,000
---------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 14,954,000 11,653,000 41,833,000 34,390,000
---------------------------------------------------------------------------------
OPERATING INCOME 1,932,000 1,430,000 9,173,000 6,122,000
Other Income (Expenses):
Interest expense (592,000) (631,000) (1,592,000) (1,553,000)
Interest income 528,000 547,000 1,312,000 1,164,000
---------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,868,000 1,346,000 8,893,000 5,733,000
Income Taxes 766,000 581,000 3,927,000 2,555,000
---------------------------------------------------------------------------------
Net Income $1,102,000 $ 765,000 $ 4,966,000 $ 3,178,000
Basic earnings per share $ 0.33 $ 0.23 $ 1.49 $ 0.98
Diluted earnings per share $ 0.30 $ 0.22 $ 1.39 $ 0.92
Basic weighted average shares outstanding
3,365,000 3,272,000 3,343,000 3,253,000
Diluted weighted average shares outstanding
3,618,000 3,466,000 3,579,000 3,438,000
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
THE DEWOLFE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 4,966,000 $ 3,178,000
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 2,281,000 2,437,000
Amortization 995,000 681,000
Additions to valuation allowance for mortgage servicing rights 31,000 87,000
Gain on sale of mortgage loans, net (3,684,000) (3,204,000)
Change in Assets and Liabilities:
Increase in commissions receivable (8,672,000) (6,601,000)
(Increase) decrease in prepaid expenses and other current assets (199,000) 1,684,000
Increase in other assets (223,000) (87,000)
Mortgage loans held for sale (285,533,000) (256,253,000)
Proceeds from mortgage loan sales 301,051,000 248,489,000
Increase in commissions payable 6,604,000 4,408,000
Increase in accounts payable and accrued expenses 784,000 1,619,000
(Decrease) increase in deferred mortgage fee income (36,000) 188,000
----------------- ----------------
Total Adjustments 13,399,000 (6,552,000)
----------------- ----------------
Cash provided by (used in) operating activities 18,365,000 (3,374,000)
INVESTING ACTIVITIES
Expenditures for business combinations, net of cash acquired (5,723,000) (4,997,000)
Expenditures for property and equipment (1,273,000) (1,330,000)
----------------- ----------------
Cash used in investing activities (6,996,000) (6,327,000)
FINANCING ACTIVITIES
Net borrowings under revolving line of credit --- (1,500,000)
Net borrowings on note payable, bank (13,881,000) 10,374,000
Note receivable from stockholder --- 25,000
Borrowing on acquisition line of credit 5,977,000 5,025,000
Notes receivable from sale of stock (608,000) (270,000)
Repayment of long-term debt (1,862,000) (1,487,000)
Purchase of treasury stock --- (418,000)
Issuance of common stock 705,000 351,000
Payment of common stock dividend (389,000) ---
----------------- ----------------
Cash (used in) provided by financing activities (10,058,000) 12,100,000
----------------- ----------------
Net increase in cash and cash equivalents 1,311,000 2,399,000
Cash and cash equivalents at beginning of period 6,171,000 2,542,000
----------------- ----------------
Cash and cash equivalents at end of period $ 7,482,000 $ 4,941,000
----------------- ----------------
----------------- ----------------
Supplemental disclosure of non-cash activities:
Leases capitalized and property and equipment financed $ 1,178,000 $ 765,000
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,519,000 $ 1,496,000
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
THE DEWOLFE COMPANIES, INC.
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 and nine month periods ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999. 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, 1998.
Certain prior year balances have been reclassified to conform with current year
presentation.
NOTE 2- SEGMENT REPORTING
The Company has three reportable operating segments, based upon its services:
real estate, including both real estate brokerage and relocation services;
mortgage banking; and insurance services. The Company evaluates its segments
based on pre-tax income. Financial information for the three operating segments
is provided in the following table.
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended
September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Real Estate $44,697,000 $31,163,000 $135,808,000 $102,166,000
Mortgage Banking 1,470,000 1,407,000 3,862,000 3,302,000
Insurance Services 297,000 203,000 917,000 349,000
----------- ----------- ------------ ------------
Total Segment Revenues $46,464,000 $32,773,000 $140,587,000 $105,817,000
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Pre-tax Income (Loss)
Real Estate $1,529,000 $ 919,000 $8,226,000 $5,064,000
Mortgage Banking 495,000 515,000 1,001,000 899,000
Insurance Services (156,000) (88,000) (334,000) (230,000)
----------- ----------- ------------ ------------
Total Segment Pre-tax Income $1,868,000 $1,346,000 $8,893,000 $5,733,000
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Balance at September 30:
Assets
Real Estate $53,007,000 $36,605,000
Mortgage Banking 16,514,000 26,831,000
Insurance Services 1,900,000 1,460,000
----------- -----------
Total Segment Assets $71,421,000 $64,896,000
----------- -----------
----------- -----------
</TABLE>
6
<PAGE>
THE DEWOLFE COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Net income in the third quarter of 1999 increased 44% to $1.1 million as
compared to net income of $765,000 in the third quarter of 1998. Net income for
the first nine months of 1999 increased 56% to $5.0 million as compared to net
income of $3.2 million for the first nine months of 1998. The increase in the
1999 earnings was primarily attributed to continued growth in the Company's
existing real estate markets and the effect of business combinations.
BUSINESS COMBINATIONS
During the first nine months of 1999, the Company acquired seven real estate
companies in New England. The combined purchase price of these acquisitions was
$7.8 million in cash and guaranteed payments, plus contingent payments not to
exceed $2.1 million.
RESULTS OF OPERATIONS
REAL ESTATE BROKERAGE REVENUES:
Real estate brokerage revenues increased 43% in the third quarter of 1999 to
$44.3 million, an increase of $13.2 million over the third quarter of 1998. For
the first nine months of 1999, real estate brokerage revenues increased 32% to
$134.9 million, an increase of $33.1 million as compared to the first nine
months of 1998. The increase in real estate brokerage revenues is primarily
attributed to continued growth in the Company's existing markets and the effect
of business combinations. The Company's growth in its existing markets is
attributed to the continued strong economy and the generally low interest rate
environment combined with the Company's integrated homeownership service
marketing strategy.
Real estate brokerage revenues includes revenue from relocation services of $1.8
million in both the third quarter of 1999 and 1998. Real estate brokerage
revenues from relocation services were $5.7 million for the first nine months of
1999, as compared to $5.4 million for the first nine months of 1998, an increase
of 6%. The increase for the first nine months of 1999 was primarily due to an
increase in the number of corporate services clients as well as the Company's
expansion into new markets.
Net revenues from real estate brokerage increased 30% or $3.4 million in the
third quarter of 1999 to $14.7 million, and increased 24% or $8.8 million for
the first nine months of 1999 to $45.4 million. Net real estate brokerage
revenues as a percentage of real estate brokerage revenues were 33% and 37% for
the third quarter of 1999 and 1998, respectively and 34% and 36% for the first
nine months of 1999 and 1998, respectively. The decrease in net real estate
brokerage revenues as a percentage of real estate brokerage revenues for the
quarter and nine months ended September 30, 1999 is primarily due to lower net
margins in the Company's new markets from acquisitions as well as a higher
percentage of co-brokered home sales as compared to the same periods in 1998.
Net revenues from real estate brokerage are impacted by many factors, including
those beyond the Company's control, such as the number of co-brokered home sales
and prevailing market rates for sales associates commission structures.
MORTGAGE REVENUES:
Mortgage revenues increased 4% in the third quarter of 1999 to $1.5 million, an
increase of $63,000 compared to the third quarter of 1998. For the first nine
months of 1999, mortgage revenues increased
7
<PAGE>
THE DEWOLFE COMPANIES, INC.
17% to $3.9 million, an increase of $560,000 as compared to the same period in
1998. The increase for the quarter and nine months ended September 30, 1999 is
primarily due to an increase in closed loan volume, which the Company believes
was caused by the continued generally low interest rate market, and the
Company's expansion into new markets.
The Company's closed loan volume in the third quarter of 1999 and 1998 was
$128.8 million and $120.8 million, respectively. For the first nine months of
1999 and 1998 closed loan volume was $361.4 million and $312.5 million,
respectively.
INSURANCE REVENUES:
Insurance revenues increased 46% in the third quarter of 1999 to $297,000 an
increase of $94,000 from the third quarter of 1998. For the first nine months of
1999, insurance revenues increased 163% to $917,000, an increase of $568,000 as
compared to the first nine months of 1998. The increase for the third quarter
was primarily due to a higher percentage of real estate brokerage customers
purchasing their insurance through the Company. The increase for the first nine
months was primarily due to the acquisition of the personal lines business of
the Curtin Insurance Agency, Inc. in May 1998, as well as a higher percentage of
real estate brokerage customers purchasing their insurance through the Company.
OPERATING EXPENSES:
Operating expenses increased 28% in the third quarter of 1999 to $15.0 million,
an increase of $3.3 million from the third quarter of 1998. Operating expenses
increased 22% for the first nine months of 1999 to $41.8 million, an increase of
$7.4 million, compared to the first nine months of 1998. Operating expenses as a
percentage of net revenues were 89% for the third quarter of 1999 and 1998.
Operating expenses as a percentage of net revenues were 82% and 85% for the nine
months ending September 30, 1999 and 1998, respectively. The increase in
operating expenses in the third quarter and first nine months of 1999 are
primarily due to costs associated with the increase in the Company's overall
business and non-recurring expenses for costs related to acquisitions.
Non-recurring expenses related to acquisitions were $243,000 and $30,000 for the
quarter ended September 30, 1999 and 1998, respectively and $504,000 and
$390,000 for the nine months ending September 30, 1999 and 1998, respectively.
INTEREST EXPENSE AND INTEREST INCOME:
Interest expense decreased by $39,000 in the third quarter of 1999 as compared
to 1998 and increased by $39,000 for the first nine months of 1999 as compared
to 1998. The decrease in the third quarter of 1999 as compared to 1998 is
primarily due to a decrease of $156,000 in interest on the mortgage warehouse
line of credit, offset by additional interest of $117,000 related to financing
of acquisitions. The increase for the first nine months of 1999 as compared to
1998 is primarily due to an increase of $239,000 in interest related to the
financing of acquisitions partially offset by a decrease of $200,000 in interest
on the mortgage warehouse line of credit. The changes in interest on the
mortgage warehouse line of credit were primarily due to the average balances on
the mortgage loans held for sale for the three months and nine months ending
September 30, 1999, as compared to the same periods in 1998.
Interest income decreased by $19,000 in the third quarter of 1999 as compared to
1998 and increased by $148,000 for the first nine months of 1999 as compared to
1998. The decrease in the third quarter of 1999 was primarily due to decreased
interest earned on originated mortgage loans held for sale partially offset by
net additional interest earned on bank accounts. The increase for the first nine
months of 1999 was primarily due to additional interest earned on originated
mortgage loans held for sale of $102,000 and $46,000 in net additional interest
earned on bank accounts. The changes in mortgage loan interest were primarily
due to the average balances on the mortgage loans held for sale for the three
months and nine months ending September 30, 1999, as compared to the same
periods in 1998. The change in net interest earned on bank accounts was
primarily due to balances kept in escrow and operating bank
8
<PAGE>
THE DEWOLFE COMPANIES, INC.
accounts and interest rates earned on these accounts.
LIQUIDITY AND SOURCES OF CAPITAL
Cash and cash equivalents at September 30, 1999 and 1998 were $7.5 million and
$4.9 million, respectively. Cash provided by operating activities for the first
nine months of 1999 was $18.4 million as compared to cash used in operating
activities of $3.4 million for the first nine months of 1998. The changes in
cash provided by or used in operating activities in the first nine months of
1999 and 1998 were primarily due to the decreases or increases in the Company's
mortgage loans held for sale which were funded by the Company's mortgage
warehouse line of credit with First Union National Bank and by cash generated by
net earnings. Net cash provided relating to decreases in mortgage loans held for
sale was $15.5 million for the first nine months of 1999 as compared to net cash
used of $7.8 million for the first nine months of 1998.
Cash expenditures for property and equipment totaled $1.3 million in the first
nine months of 1999 and 1998. Capital spending during this period was primarily
attributed to the Company's investment in improvements to acquired and existing
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., including a
$20.0 million acquisition line of credit and a revolving line of credit of $5.0
million. Additionally, the arrangements provide for a term note of $725,000 and
an equipment lease line of credit and chattel mortgage financing of $4.0
million. In October, 1999, the terms of the $20.0 million acquisition line of
credit were amended to extend the borrowing period to March, 2001, at which
time the line will be converted to a five year term note.
The outstanding amount of the acquisition line of credit was $11.1 million and
$5.0 million at September 30, 1999 and 1998, respectively. There was no
outstanding amount under the revolving line of credit at September 30, 1999 and
1998. The remaining outstanding balance of the term note was $300,000 and
$600,000 at September 30, 1999 and 1998, respectively. The Company had
outstanding balances under lease lines of credit and chattel mortgage financing
of $2.8 million and $2.3 million at September 30, 1999 and 1998, respectively.
In connection with the mortgage loan activity, the Company maintains a $40.0
million mortgage warehouse line of credit with First Union National Bank that is
used to finance mortgage loans that it originates. The credit line had
outstanding balances of $9.9 million and $22.6 million at September 30, 1999 and
1998, respectively.
In May of 1998, the Company authorized an increase in the amount of the
Company's stock that may be repurchased under its stock repurchase plan to a
total of $1.9 million. At September 30, 1999 the Company had acquired a total of
$1.3 million of stock under the plan. There were no repurchases during the first
nine months of 1999.
The Company considers its cash flow from operations combined with its credit
arrangements with BankBoston, N.A. and First Union National Bank, 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 and/or insurance
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.
9
<PAGE>
THE DEWOLFE COMPANIES, INC.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements, which are not historical fact, may be deemed to be forward
looking statements. There are many important factors that could cause the
Company's actual results to differ materially from 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.
YEAR 2000 DISCLOSURES
The Year 2000 issue ("Y2000") results from computer programs written using two
digits rather than four to define the applicable year. Computer programs that
have date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of the Company's operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities. The Company has
completed its assessment of Y2000 risks and a summary of this assessment
follows. This assessment should be deemed as a forward looking statement and as
such the Company cannot assure that the actual impact of Y2000 on the Company's
operating results and the costs to minimize such impact will not be more or less
than these identified in the assessment.
STATE OF READINESS AND COST: The majority of the Company's various hardware
systems were scheduled for replacement as part of the Company's ongoing
technology upgrade. The total cost to update these systems related to Y2000
approximates $400,000. The hardware upgrade has been substantially completed and
the most critical elements were completed during the first quarter of 1999. As
such, the Company does not feel that these upgrades will materially affect the
Company's business or capital requirements.
The Company does not believe the cost to update its information software systems
related to Y2000 to be material. Several of the Company's systems, which are not
yet Y2000 compliant, are currently in process of being replaced as part of the
Company's ongoing technology upgrade. The Company has substantially completed
replacing the systems which were not Y2000 compliant at September 30. The
Company expects to be fully compliant early in the fourth quarter.
The Company has reviewed the state of readiness of third party vendors and
believes that these systems either are compliant or the vendor has plans to make
the systems Y2000 compliant.
RISKS: If due to a hardware or software problem the Company's systems were not
able to operate due to Y2000, the Company believes it would face the following
risks: additional costs to correct the problem and loss of revenue due to an
inability to deliver customer services. The Company believes it is taking the
necessary steps to eliminate or reduce these risks where possible.
CONTINGENCY PLAN: The Company has developed a contingency plan related to the
Y2000 issue and will continue to evaluate the plan during 1999.
10
<PAGE>
THE DEWOLFE COMPANIES, INC.
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:
None
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: November 10, 1999 THE DEWOLFE COMPANIES, INC.
By: /s/ James A. Marcotte
---------------------------
James A. Marcotte
Senior Vice President
and Chief Financial Officer
11
<PAGE>
THE DEWOLFE COMPANIES, INC.
EXHIBIT INDEX
September 30, 1999 Form 10-Q
<TABLE>
<CAPTION>
ITEM DESCRIPTION
<S> <C>
10 First Amendment to Second Amended and Restated
Credit and Security Agreement dated October 1,
1999 by and among The DeWolfe Company, Inc.,
DeWolfe Relocation Services, Inc., Referral
Associates of New England, Inc., The DeWolfe
Insurance Agency, Inc., Hillshire House, Inc.,
and Real Estate Referral, Inc., J.W. Riker
Northern RI Inc., Mark Stimson Associates, and
Paul G. Jevne, Inc., The DeWolfe Companies, Inc.,
and BankBoston, N.A.
11 Statement re: Computation of Basic earnings per share and
Diluted earnings per share
27 Financial Data Schedule
</TABLE>
12
<PAGE>
EXHIBIT (10)
FIRST AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AND SECURITY
AGREEMENT (this "AMENDMENT"), dated as of October 1, 1999, is between The
DeWolfe Company, Inc., DeWolfe Relocation Services, Inc., Referral Associates of
New England, Inc., The DeWolfe Insurance Agency, Inc., Hillshire House, Inc.,
and Real Estate Referral, Inc. (collectively, the "EXISTING BORROWERS"), J.W.
Riker Northern RI, Inc., Mark Stimson Associates, and Paul G. Jevne, Inc.
(collectively with the Existing Borrowers, the "BORROWERS"), The DeWolfe
Companies, Inc., (the "GUARANTOR" and, together with the Borrowers, the "CREDIT
PARTIES"), and BankBoston, N.A. (the "BANK").
W I T N E S S E T H:
WHEREAS, the Existing Borrowers, Dollar Dry Dock Real Estate, Inc., The
Heritage Group, Inc., the Guarantor and the Bank are parties to that certain
Second Amended and Restated Credit and Security Agreement dated as of May 8,
1998 (as amended, the "CREDIT AGREEMENT"); and
WHEREAS, capitalized terms used herein without definition shall have
the meanings ascribed to such terms in the Credit Agreement; and
WHEREAS, Dollar Dry Dock Real Estate, Inc. and The Heritage Group,
Inc. have been merged into Hillshire House, Inc. and no longer exist as separate
entities; and
WHEREAS, the Credit Parties have requested that the Bank amend the
Credit Agreement as hereinafter provided; and
WHEREAS, the Bank has agreed, subject to the terms and conditions of
this Amendment, to amend the Credit Agreement as hereinafter provided;
NOW, THEREFORE, for valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
1. The parties hereto hereby agree that J.W. Riker Northern RI, Inc.,
Mark Stimson Associates, and Paul G. Jevne, Inc. (collectively, the "NEW
BORROWERS") shall be added to the Credit Agreement as joint and several
borrowers. The New Borrowers hereby agree to be bound by all of the terms and
conditions of the Credit Agreement, the Notes and the Loans. All references to
the terms "Borrower", "Borrowers", "Credit Party" and "Credit Parties" in the
Credit Agreement and the Notes shall be deemed to include each of the New
Borrowers.
2. As security for the payment and performance of all Obligations of the
Credit Parties to the Bank, each of the New Borrowers hereby grants to the Bank
a continuing security interest in and lien on all personal property of the New
Borrowers of every kind and description, tangible or intangible, whether now or
hereafter existing, whether now owned or hereafter acquired, and wherever
located, including but not limited to the following: all inventory of the New
Borrowers; all furniture, and similar property of the New Borrowers; all
Accounts of the New Borrowers; all contract rights of the New Borrowers; all
other rights of the New Borrowers, including, without limitation, amounts due
from Affiliates, tax refunds, and insurance proceeds; all files, records
(including, without limitation, computer programs, tapes and related electronic
data processing software) and writings of the New Borrowers or in which any of
the New Borrowers has an interest in any way relating to the foregoing property;
all goods, instruments, documents of title, policies and certificates of
insurance, securities, chattel paper, deposits, cash or other property owned by
the New Borrowers or in which any of the New Borrowers has an interest
(excluding Escrowed Funds other than Pledged Escrow Proceeds) which are now or
may hereafter be in the possession of the Bank or as to which the Bank may now
or hereafter control possession by documents of title or otherwise; all general
intangibles of the New Borrowers (including, without limitation, all patents,
trademarks, trade names, service marks, copyrights and applications for any of
the foregoing; all rights to use patents, trademarks, trade names, service
marks, and copyrights of any person; and any rights of the New Borrowers to
retrieval from third parties of electronically processed and recorded
information pertaining to any of the types of Collateral); any other property,
real or personal, tangible or intangible, in which any of the New Borrowers now
has or hereafter acquires a interest or which is now or may hereafter be in the
possession of the Bank; any sums at any time credited by or due from the Bank to
the New Borrowers, including deposits; and all proceeds and products of all of
the foregoing.
3. Effective as of the date hereof, the Credit Agreement shall be amended
as follows:
(a) Section 1.1 of the Credit Agreement is hereby amended as follows:
(i) inserting the following new definitions in the order
required by alphabetical order:
-1-
<PAGE>
(1) "APPLICABLE MARGIN. With respect to Acquisition
Facility Loan for any Payment Period (as defined below), the respective rates
indicated below set forth opposite the applicable Leverage Ratio indicated below
for such Payment Period (or as provided in the final paragraph of this
definition, for part of a Payment Period):
<TABLE>
<CAPTION>
Applicable Margin
Leverage Ratio (% per annum)
-------------- -------------
<S> <C>
Greater than or equal to 2.00:1.00 2.00%
Greater than or equal to 1.25:1.00 and 1.50%
less than 2.00:1.00
Less than 1.25:1.00 1.25%
</TABLE>
For purposes hereof, a "PAYMENT PERIOD" means the period commencing on
the first day of each fiscal quarter of the Credit Parties through but not
including the fifth Business Day following the earlier of the due date of the
report of chief financial officer for such fiscal quarter as required to be
delivered by the Credit Parties to the Bank pursuant to Subsection 5.1(c)
concurrently with the delivery by the Credit Parties of the financial statements
required by Subsections 5.1(a) and 5.1(b), or the date of actual receipt by the
Bank of such report of chief financial officer. Subject to and in accordance
with the final paragraph of this definition, the Applicable Margin shall be
effective for each Payment Period (or in the circumstances described in the
final paragraph of this definition, such portion of a Payment Period) whether or
not such Payment Period coincides with a LIBOR Period.
The Leverage Ratio for any Payment Period shall be determined on the
basis of the report of chief financial officer for the fiscal quarter then most
recently ended, as required to be delivered to the Bank pursuant to Subsection
5.1(c) concurrently with the delivery by the Credit Parties of the financial
statements required by Subsections 5.1(a) and 5.1(b) setting forth, among other
things, a calculation of the Leverage Ratio.
Anything herein to the contrary notwithstanding, the Applicable Margin
shall be the highest rate provided for above (i) during any period when an Event
of Default shall have occurred and be continuing or (ii) if any report of chief
financial officer shall not be delivered when required by Subsection 5.1(c) (but
only, in the case of this clause (ii), with respect to the portion of such
Payment Period prior to the delivery of such report)."
(2) "INTEREST RATE PROTECTION PRODUCTS.
Any interest rate cap agreements, interest rate swap agreements, interest rate
collar agreements, interest rate insurance and other agreements or arrangements
designed to provide protection against fluctuations in interest rates."
(ii) the definition of "Acquisition Facility
Conversion Date" is hereby deleted in its entirety and replaced with the
following new definition:
"ACQUISITION FACILITY CONVERSION DATE.
March 31, 2001."
(iii) the definition of "Acquisition Facility
Maturity Date" is hereby deleted in its entirety and replaced with the following
new definition:
"ACQUISITION FACILITY MATURITY DATE
March 31, 2006."
(iv) the definition of "Indebtedness" is hereby
amended by deleting the word "and" before clause (f) and inserting the following
language after the word "Subsidiaries" at the end of clause (f):
", and (g) all obligations under Interest
Rate Protection Products. For purposes of
calculating the outstanding amount of
Indebtedness, the "principal amount" of the
obligations of the Credit Parties and their
Subsidiaries in respect of any Interest Rate
Protection Product at any time shall be the
maximum aggregate amount (giving effect to
any netting agreements) that the Credit
Parties and their Subsidiaries would be
required to pay if such Interest Rate
Protection Product were terminated at such
time."
(v) the definition of "Obligations is hereby
deleted in its entirety and replaced with the following new definition:
"OBLIGATIONS. Any and all obligations of the
Credit Parties to the Bank of every kind and
description, direct or indirect, absolute or
contingent, primary or secondary, due or to
become due, now existing or hereafter
arising, regardless of how they arise or by
what agreement or instrument, if any,
including without limitation any Interest
Rate Protection Product, and including
obligations to perform acts and refrain from
taking action as well as obligations to pay
money."
(b) Subsection 2.7(b) is hereby in its entirety and
replaced with the following:
-2-
<PAGE>
"(b) From October 1, 1999 through and
including the Acquisition Facility
Conversion Date, each Acquisition Loan shall
bear interest on the outstanding principal
amount thereof at a rate per annum equal to
either (i) the Base Rate, or (ii) the LIBOR
Rate plus the Applicable Margin."
(c) Subsection 2.8(b) is hereby deleted in its
entirety and replaced with the following:
"(b) The Borrowers shall pay to the Bank
during the Acquisition Facility Commitment
Period a commitment fee, which shall accrue
at a rate per annum (computed on the basis
of the actual number of days elapsed over a
360-day year) equal to the percentage set
forth below opposite the applicable Leverage
Ratio for the fiscal quarter then most
recently ended for which financial
statements have been delivered pursuant to
Subsections 5.1(a) and 5.1(b), on the
average daily amount of the unborrowed
portion of the Acquisition Facility
Commitment, payable monthly in arrears on
the last day of each month.
<TABLE>
<CAPTION>
Leverage Ratio Commitment Fee Rate
-------------- -------------------
<S> <C>
Greater than or equal to 2.00:1.00 .375%
Greater than or equal to 1.25:1.00 and .325%
less than 2.00:1.00
Less than 1.25:1.00 .250%
</TABLE>
The applicable Leverage Ratio shall be
determined on the basis of the report of
chief financial officer for the fiscal
quarter then most recently ended, as
required to be delivered to the Bank
pursuant to Subsection 5.1(c) concurrently
with the delivery by the Credit Parties of
the financial statements required by
Subsections 5.1(a) and 5.1(b) setting forth,
among other things, a calculation of the
Leverage Ratio. Anything herein to the
contrary notwithstanding, the commitment fee
rate shall be the highest rate provided for
above during any period when an Event of
Default shall have occurred and be
continuing."
(d) Section 5.7 is hereby amended by deleting
clause (c) in its entirety and substituting in lieu thereof the following:
"(c) as at the end of each fiscal quarter
during Fiscal Year 2000 and each fiscal
quarter thereafter of not greater than
2.50:1.00."
(e) Section 6.1 is hereby amended by deleting
the word "and" at the end of Subsection 6.1(g) and by deleting Subsection 6.1(h)
in its entirety and substituting in lieu thereof the following:
"(h) Interest Rate Protection Products for
the purpose of hedging in the ordinary
course of business on terms and conditions
acceptable to the Bank; and
(i) other Indebtedness incurred by the
Credit Parties after the date of this
Agreement with prior approval of the Bank."
4. Each of the Credit Parties hereby represents and warrants to the
Bank that as of the date hereof all of the representations and warranties of the
Credit Parties set forth in the Credit Agreement are true and correct and no
Default or Event of Default has occurred and is continuing.
5. Except as otherwise expressly set forth in this Amendment, nothing
herein shall be deemed to constitute an amendment, modification or waiver of any
of the terms and conditions of the Credit Agreement or the Notes, all of which
terms and conditions shall remain in full force and effect as originally
constituted and the undersigned shall remain obligated thereunder.
6. This Amendment shall be deemed to be a contract made under seal and
shall be governed by, and construed and enforced in accordance with the laws of
The Commonwealth of Massachusetts, without regard to choice of law principles.
7. This Amendment may be executed in any number of counterparts, each
of which, when executed and delivered, shall be an original, but all
counterparts shall together constitute one instrument.
8. This Amendment shall be effective as of the date on which each of
the Borrowers and the Bank shall have executed and delivered to the Bank this
Amendment.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this First Amendment to Second
Amended and Restated Credit and Security Agreement to be executed by their duly
authorized officers as a sealed instrument as of the date first above written.
"BORROWERS"
THE DEWOLFE COMPANY, INC.
By: /s/ Paul J. Harrington
Name: Paul J. Harrington
Title: President
DEWOLFE RELOCATION SERVICES, INC.
By: /s/ Patricia A. Griffin
Name: Patricia Griffin
Title: President
REFERRAL ASSOCIATES OF NEW ENGLAND, INC.
By: /s/ Patricia A. Griffin
Name: Patricia Griffin
Title: President
THE DEWOLFE INSURANCE AGENCY, INC.
By: /s/ Richard A. Pucci
Name: Richard Pucci
Title: President
HILLSHIRE HOUSE, INC.
By: /s/ Paul J. Harrington
Name: Paul J. Harrington
Title: President
REAL ESTATE REFERRAL, INC.
By: /s/ Richard B. DeWolfe
Name: Richard B. DeWolfe
Title: President
J.W. RIKER NORTHERN RI, INC.
By: /s/ Paul J. Harrington
Name: Paul J. Harrington
Title: President
MARK STIMSON ASSOCIATES
-4-
<PAGE>
By: /s/ Paul J. Harrington
Name: Paul J. Harrington
Title: President
PAUL G. JEVNE, INC.
By: /s/ Paul J. Harrington
Name: Paul J. Harrington
Title: President
"GUARANTOR"
THE DEWOLFE COMPANIES, INC.
By: /s/ Richard B. DeWolfe
Name: Richard B. DeWolfe
Title: President
"BANK"
BANKBOSTON, N.A.
By: /s/ Patricia Conry
Name: Patricia Conry
Title: Director
-5-
<PAGE>
THE DEWOLFE COMPANIES, INC.
Exhibit (11) Statement Re: Computation of Basic Earnings Per Share and Diluted
Earnings per Share
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net Income $1,102,000 $ 765,000 $4,966,000 $3,178,000
Denominator:
Basic weighted average shares 3,365,000 3,272,000 3,343,000 3,253,000
Effect of Stock Options 253,000 194,000 236,000 185,000
----------- ---------- ----------- -----------
Diluted weighted average shares 3,618,000 3,466,000 3,579,000 3,438,000
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Basic Earnings per Share $ 0.33 $ 0.23 $ 1.49 $ 0.98
----------- ---------- ----------- -----------
Diluted Earnings Per Share $ 0.30 $ 0.22 $ 1.39 $ 0.92
----------- ---------- ----------- -----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BANLANCE SHEET (UNAUDITED) AND CONDENSED CONSOLIDATED STATEMENT OF
INCOME (UNAUDITED), AS REFLECTED ON THE COMPANY'S FORM 10Q FOR THE QUARTER ENDED
SEPTEMBER 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<CIK> 0000888138
<NAME> THE DEWOLFE COMPANIES, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 7,482
<SECURITIES> 0
<RECEIVABLES> 30,379
<ALLOWANCES> 1,397
<INVENTORY> 0
<CURRENT-ASSETS> 49,992
<PP&E> 12,815
<DEPRECIATION> 5,599
<TOTAL-ASSETS> 71,421
<CURRENT-LIABILITIES> 38,123
<BONDS> 17,495
0
0
<COMMON> 36
<OTHER-SE> 18,169
<TOTAL-LIABILITY-AND-EQUITY> 71,421
<SALES> 0
<TOTAL-REVENUES> 140,587
<CGS> 0
<TOTAL-COSTS> 89,581
<OTHER-EXPENSES> 41,833
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,592
<INCOME-PRETAX> 8,893
<INCOME-TAX> 3,927
<INCOME-CONTINUING> 4,966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,966
<EPS-BASIC> 1.49
<EPS-DILUTED> 1.39
</TABLE>
