<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 June 30, 2000
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 (July 31, 2000)
Common Stock, par value $.01 per share 3,387,693 shares
<PAGE>
THE DEWOLFE COMPANIES, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of 3
June 30, 2000 and December 31, 1999
Condensed Consolidated Statements of Income for the 4
Three Months and Six Months ended June 30, 2000
and June 30, 1999
Condensed Consolidated Statements of Cash Flows for the
Six Months ended June 30, 2000 and June 30, 1999
Notes to Condensed Consolidated Financial Statements 7
June 30, 2000
Item 2. Management's Discussion and Analysis of Financial Condition and 9
Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
2
<PAGE>
THE DEWOLFE COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS June 30, 2000 December 31, 1999
------------- -----------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $9,646,000 $ 9,604,000
Commissions receivable, net of allowance of $1,813,000 at June 30, 2000
and $933,000 at December 31, 1999 43,575,000 21,786,000
Mortgage loans held for sale 21,208,000 9,774,000
Advance receivable from stockholder --- 66,000
Prepaid expenses and other current assets 1,442,000 1,498,000
--------- ---------
TOTAL CURRENT ASSETS 75,871,000 42,728,000
PROPERTY AND EQUIPMENT
Property and equipment 15,919,000 13,828,000
Accumulated depreciation and amortization (7,890,000) (6,189,000)
---------- ----------
NET PROPERTY AND EQUIPMENT 8,029,000 7,639,000
OTHER ASSETS
Excess of cost over value in net assets acquired, net of accumulated amortization
of $2,364,000 at June 30, 2000 and $1,937,000 at December 31, 1999 11,461,000 11,559,000
Other assets 3,316,000 3,355,000
--------- ---------
TOTAL ASSETS $98,677,000 $65,281,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank $22,656,000 $9,027,000
Current portion of long-term debt 2,846,000 1,706,000
Current portion of obligations under capital leases 498,000 678,000
Commissions payable 29,851,000 15,183,000
Accounts payable and accrued expenses 5,257,000 4,674,000
Deferred mortgage fee income 403,000 133,000
Dividend payable --- 506,000
-------- -------
TOTAL CURRENT LIABILITIES 61,511,000 31,907,000
Long-term debt, net of current portion 15,098,000 14,962,000
Obligations under capital leases, net of current portion 229,000 434,000
Non-compete agreements and consulting agreements payable 245,000 279,000
------- -------
TOTAL LIABILITIES 77,083,000 47,582,000
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;
3,649,161 shares issued at June 30, 2000 and 3,623,245 shares issued at December 31, 1999 36,000 36,000
Additional paid-in capital 7,748,000 7,623,000
Retained earnings 16,199,000 12,381,000
Treasury stock (263,318 shares at June 30, 2000
and 251,611 shares at December 31, 1999), at cost (1,520,000) (1,470,000)
Notes receivable from sale of stock (869,000) (871,000)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 21,594,000 17,699,000
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $98,677,000 $65,281,000
=========== ===========
</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 June 30, Six Months Ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
Real estate brokerage $55,520,000 $54,850,000 $98,613,000 $90,646,000
Mortgage revenues 1,255,000 1,443,000 1,810,000 2,392,000
Insurance revenues 376,000 271,000 968,000 620,000
Other revenues 339,000 337,000 626,000 465,000
------- ------- ------- -------
TOTAL REVENUES 57,490,000 56,901,000 102,017,000 94,123,000
Commission Expense 36,603,000 36,173,000 64,802,000 60,003,000
---------- ---------- ---------- ----------
NET REVENUES 20,887,000 20,728,000 37,215,000 34,120,000
Operating Expenses:
Compensation and benefits 6,956,000 6,307,000 13,775,000 11,967,000
Facilities 2,098,000 1,942,000 4,197,000 3,699,000
General and administrative 3,591,000 3,582,000 7,133,000 6,406,000
Marketing and promotion 2,005,000 1,930,000 3,495,000 3,413,000
Communications 792,000 619,000 1,486,000 1,133,000
Acquisition related costs - 226,000 30,000 261,000
-------- ------- ------ -------
TOTAL OPERATING EXPENSES 15,442,000 14,606,000 30,116,000 26,879,000
---------- ---------- ---------- ----------
OPERATING INCOME 5,445,000 6,122,000 7,099,000 7,241,000
Other Income (Expenses):
Interest expense (560,000) (550,000) (998,000) (1,000,000)
Interest income 422,000 424,000 717,000 784,000
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 5,307,000 5,996,000 6,818,000 7,025,000
Income Taxes 2,335,000 2,698,000 3,000,000 3,161,000
--------- --------- --------- ---------
Net Income $2,972,000 $3,298,000 $3,818,000 $3,864,000
========== ========== ========== ==========
Basic earnings per share $ 0.88 $ 0.98 $ 1.13 $ 1.16
Diluted earnings per share $ 0.82 $ 0.92 $ 1.07 $ 1.08
Basic weighted average shares outstanding 3,379,000 3,361,000 3,371,000 3,331,000
Diluted weighted average shares outstanding 3,614,000 3,575,000 3,574,000 3,569,000
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
THE DEWOLFE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 3,818,000 $ 3,864,000
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation 1,700,000 1,508,000
Amortization 701,000 632,000
Additions to valuation allowance for mortgage servicing rights 8,000 24,000
Gain on sale of mortgage loans, net (1,672,000) (2,280,000)
Change in Assets and Liabilities:
Increase in commissions receivable (21,698,000) (22,266,000)
Decrease (increase) in prepaid expenses and other current assets 56,000 (594,000)
Increase in other assets (154,000) (151,000)
Mortgage loans held for sale (119,336,000) (191,172,000)
Proceeds from mortgage loan sales 109,496,000 188,081,000
Increase in commissions payable 14,668,000 15,455,000
Decrease in advance receivable from stockholder 66,000 ---
Increase in accounts payable and accrued expenses 570,000 1,747,000
Increase in deferred mortgage fee income 270,000 140,000
------- -------
Total Adjustments (15,325,000) (8,876,000)
----------- ----------
Cash used in operating activities (11,507,000) (5,012,000)
INVESTING ACTIVITIES
Expenditures for business combinations, net of cash acquired (200,000) (4,923,000)
Expenditures for property and equipment (178,000) (841,000)
-------- --------
Cash used in investing activities (378,000) (5,764,000)
FINANCING ACTIVITIES
Net borrowings on note payable, bank 13,629,000 4,856,000
Note receivable from stockholder 19,000 ---
Borrowing on acquisition line of credit 200,000 5,177,000
Notes receivable from sale of stock 17,000 (608,000)
Repayment of long-term debt (1,474,000) (1,201,000)
Purchase of treasury stock (50,000) ---
Issuance of common stock 92,000 698,000
Payment of common stock dividend (506,000) (389,000)
-------- --------
Cash provided by financing activities 11,927,000 8,533,000
---------- ---------
Net increase (decrease) in cash and cash equivalents 42,000 (2,243,000)
Cash and cash equivalents at beginning of period 9,604,000 6,171,000
--------- ---------
Cash and cash equivalents at end of period $ 9,646,000 $ 3,928,000
============= ============
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
THE DEWOLFE COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
---- ----
<S> <C> <C>
Supplemental disclosure of non-cash activities:
Leases capitalized and property and equipment financed $ 1,905,000 $ 897,000
Supplemental disclosure of cash flow information:
Cash paid for interest $ 959,000 $ 1,010,000
Six Months Ended June 30,
2000 1999
---- ----
SUPPLEMENTAL CASH FLOW INFORMATION
Expenditures for business combinations, net of cash acquired
Commissions receivable $ (91,000) $(2,661,000)
Property and equipment, net (8,000) (231,000)
Excess of cost over value in net assets acquired (329,000) (4,109,000)
Non-compete and consulting agreements (10,000) (1,040,000)
Other assets -- (481,000)
Commissions payable -- 1,541,000
Long-term debt 225,000 1,420,000
Other liabilities 8,000 597,000
Additional paid-in capital 5,000 41,000
----- ------
$ (200,000) $(4,923,000)
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements
6
<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 six month periods ended June
30, 2000 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2000. 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, 1999.
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 June 30, Six Months Ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Real Estate $ 55,859,000 $ 55,187,000 $ 99,239,000 $ 91,111,000
Mortgage Banking 1,255,000 1,443,000 1,810,000 2,392,000
Insurance Services 376,000 271,000 968,000 620,000
------- ------- ------- -------
Total Segment Revenues $ 57,490,000 $ 56,901,000 $ 102,017,000 $ 94,123,000
============= ============= ============= =============
Pre-tax Income (Loss)
Real Estate $ 5,153,000 $ 5,672,000 $ 6,893,000 $ 6,697,000
Mortgage Banking 300,000 454,000 (61,000) 506,000
Insurance Services (146,000) (130,000) (14,000) (178,000)
-------- -------- ------- --------
Total Segment Pre-tax Income $ 5,307,000 $ 5,996,000 $ 6,818,000 $ 7,025,000
============= ============= ============= =============
Balance at June 30:
Assets
Real Estate $ 69,646,000 $ 63,823,000
Mortgage Banking 27,172,000 32,526,000
Insurance Services 1,859,000 1,625,000
--------- ---------
Total Segment Assets $ 98,677,000 $ 97,974,000
============= =============
</TABLE>
7
<PAGE>
THE DEWOLFE COMPANIES, INC.
NOTE 3:
Statement Re: Computation of Basic Earnings Per Share and Diluted
Earnings per Share
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net Income $2,972,000 $3,298,000 $3,818,000 $3,864,000
Denominator:
Basic weighted average shares 3,379,000 3,361,000 3,371,000 3,331,000
Effect of Stock Options 235,000 214,000 203,000 238,000
------- ------- ------- -------
Diluted weighted average shares 3,614,000 3,575,000 3,574,000 3,569,000
========= ========= ========= =========
Basic Earnings per Share $ 0.88 $ 0.98 $ 1.13 $ 1.16
========== ========== ========== ==========
Diluted Earnings Per Share $ 0.82 $ 0.92 $ 1.07 $ 1.08
========== ========== ========== ==========
</TABLE>
8
<PAGE>
THE DEWOLFE COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Net income in the second quarter of 2000 decreased 10% to $3.0 million, as
compared to net income of $3.3 million in the second quarter of 1999. Net
income for the first six months of 2000 was $3.8 million as compared to net
income of $3.9 million for the first six months of 1999, a reduction of 1%.
The decrease in the 2000 earnings was primarily attributed to a lower level
of growth in the Company's existing real estate markets offset by increased
expenditures.
RESULTS OF OPERATIONS
REAL ESTATE BROKERAGE REVENUES:
Real estate brokerage revenues increased 1% in the second quarter of 2000 to
$55.5 million, an increase of $670 thousand over the second quarter of 1999. For
the first six months of 2000, real estate brokerage revenues increased 9% to
$98.6 million, an increase of $8.0 million as compared to the first six months
of 1999. 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 combined with the Company's integrated homeownership
service marketing strategy. The Company's lower rate of growth in the second
quarter was due to a slowdown in home sales caused primarily by rising interest
rates.
Real estate brokerage revenues includes $2.4 million of revenue from relocation
services in the second quarter of 2000 as compared to $2.5 million in the second
quarter of 1999, a decrease of 4%. Real estate brokerage revenues from
relocation services were $3.4 million for the first six months of 2000, as
compared to $3.9 million for the first six months of 1999, a decrease of 11%.
The decrease was primarily due to a decrease in the number of corporate services
customers who completed transactions during the period.
Net revenues from real estate brokerage, calculated as real estate brokerage
revenue less commission expense, increased 1% or $240 thousand in the second
quarter of 2000 to $18.9 million, and increased 10% or $3.2 million for the
first six months of 1999 to $33.8 million. Net real estate brokerage revenues as
a percentage of real estate brokerage revenues were 34% for the second quarter
and first six months of 2000 and 1999.
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 rates for sales associates commission structures.
MORTGAGE REVENUES:
Mortgage revenues decreased 13% in the second quarter of 2000 to $1.3 million, a
decrease of $188 thousand compared to the second quarter of 1999. For the first
six months of 2000, mortgage revenues decreased 24% to $1.8 million, a decrease
of $582 thousand as compared to the same period in 1999. The decrease is
primarily due to a decrease in closed loan volume and lower margins on loans
which the Company believes was caused by a higher interest rate market, and
increased competition in the mortgage industry.
9
<PAGE>
The Company's closed loan volume in the second quarter of 2000 and 1999 was
$132.6 million and $142.9 million, respectively. For the first six months of
2000 and 1999 closed loan volume was $207.9 million and $232.5 million,
respectively.
INSURANCE REVENUES:
Insurance revenues increased 39% in the second quarter of 2000 to $376 thousand,
an increase of $105 thousand from the second quarter of 1999. For the first six
months of 2000, insurance revenues increased 56%, an increase of $348 thousand
as compared to the first six months of 1999. The increase was primarily due to a
higher percentage of real estate brokerage customers purchasing their insurance
through the Company as well as growth in the Company's group insurance business.
OTHER REVENUES:
Other revenues increased 35% for the first six months of 2000 to $626 thousand
as compared to the first six months of 1999. The increase is primarily due to
revenues related to reimbursement of real estate expenditures and services in
the first quarter of 2000.
OPERATING EXPENSES:
Operating expenses increased 6% in the second quarter of 2000 to $15.4 million,
an increase of $836 thousand from the second quarter of 1999. Operating expenses
increased 12% for the first six months of 2000 to $30.1 million, an increase of
$3.2 million, compared to the first six months of 1999. Operating expenses as a
percentage of net revenues were 74% and 70% for the second quarter of 2000 and
1999, respectively. Operating expenses as a percentage of net revenues were 81%
and 79% for the six months ending June 30, 2000 and 1999, respectively. The
increase in operating expenses in the second quarter and first six months of
2000 are primarily due to costs associated with the increase in the Company's
overall business, implementation of new marketing strategies, investments in
technology and communications, and costs associated with acquired operations.
INTEREST EXPENSE AND INTEREST INCOME:
Interest expense and interest income for the second quarter and first six months
of 2000 and 1999 remained primarily unchanged.
LIQUIDITY AND SOURCES OF CAPITAL
Cash and cash equivalents at June 30, 2000 and December 31, 1999 were $9.6
million. Cash used in operating activities for the first six months of 2000 was
$11.6 million as compared to $5.0 million for the first six months of 1999. The
changes in cash used in operating activities in the first six months of 2000 and
1999 were primarily due to the increases and decreases 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. Net cash used relating to increases in
mortgage loans held for sale was $9.8 million for the first six months of 2000
as compared to $3.1 million for the first six months of 1999.
Expenditures for property and equipment totaled $2.1 million in the first six
months of 2000 and $1.7 million in the first quarter of 2000. 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.
10
<PAGE>
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, a term note of $725,000 and equipment lease line of credit and
chattel mortgage financing of $5.0 million.
The outstanding amount of the acquisition line of credit was $11.7 million at
June 30, 2000 and $11.5 million at December 31, 1999. The remaining outstanding
balance of the term note was $75 thousand and $225 thousand at June 30, 2000 and
December 31, 1999, respectively. The company had outstanding balances under
lease lines of credit and chattel mortgage financing of $4.0 million and $3.0
million at June 30, 2000 and December 31, 1999 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 $22.7 million and $9.0 million at June 30, 2000 and
December 31, 1999, 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 June 30, 2000 the Company had acquired a total of $1.4
million of stock under the plan.
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.
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.
11
<PAGE>
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 16,
2000 in Newton, 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 14 of this report
(b) Reports on Form 8-K:
None
12
<PAGE>
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, 2000 THE DEWOLFE COMPANIES, INC.
By: /s/ JAMES A. MARCOTTE
----------------------
James A. Marcotte
Senior Vice President
and Chief Financial Officer
13
<PAGE>
EXHIBIT INDEX
June 30, 2000 Form 10-Q
ITEM DESCRIPTION
---- -----------
10 Amended and Restated Credit Agreement and Security
Agreement dated June 30, 2000 between DeWolfe
Mortgage Services, Inc. and First Union National
Bank.
22 Published Report Regarding Matters Submitted to a
Vote of Security Holders
27 Financial Data Schedule
14
