UNITED STATES 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, 2001 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: (952) 928-5900 -------------- Securities registered pursuant to Section 12(b) of the Act: N/A Title of each class Name of exchange ------------------- on which registered Common Stock, $0.01 ------------------- par value ("Common Stock") Nasdaq Stock Market 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_____ 8,722,942 shares of Common Stock were outstanding on April 26, 2001. TABLE OF CONTENTS Part I Item 1. Financial Statements Consolidated Balance Sheets................................................3 Consolidated Statements of Income..........................................4 Consolidated Statements of Cash Flows......................................5 Notes to Consolidated Financial Statements.................................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................8 Part II Item 1. Legal Proceedings.................................................11 Item 2. Changes in Securities.............................................11 Item 3. Default on 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 Part I Item 1. Financial Statements HOMESERVICES.COM INC. Consolidated Balance Sheets (in thousands, except share and per share amounts) As of March 31, December 31, 2001 2000 ------------- -------------- Assets (Unaudited) Current Assets: -------------- Cash and cash equivalents $ 10,803 $ 5,825 Commissions and other trade receivables, net of allowance of $427 and $386 13,376 8,856 Mortgage loans held for sale 2,965 5,548 Amounts held in trust 16,422 13,141 Income taxes receivable 2,592 731 Deferred income taxes 1,819 1,081 Other current assets 3,994 3,875 ------------- ----------- Total current assets 51,971 39,057 ------------- ----------- Other Assets: ------------ Office property and equipment, net 23,756 23,792 Intangible assets, net 104,405 102,613 Other assets 3,604 4,008 ------------ ----------- Total other assets 131,765 130,413 ------------ ----------- Total Assets $ 183,736 $ 169,470 ============ =========== Liabilities and Stockholders' Equity Current Liabilities: ------------------- Accounts and commissions payable $ 9,742 $ 9,045 Accrued expenses 11,467 10,940 Payable to affiliates 129 215 Amounts held in trust 16,422 13,141 Current portion of long-term debt 675 742 Other current liabilities 2,483 1,606 ------------ ----------- Total current liabilities 40,918 35,689 ------------ ----------- Other Liabilities: ----------------- Long-term debt 56,349 46,662 Agent profit-sharing 5,900 6,168 Deferred income taxes 932 21 Other noncurrent liabilities 377 294 ----------- ----------- Total other liabilities 63,558 53,145 ----------- ----------- Total liabilities 104,476 88,834 ----------- ----------- Minority interest 750 - ----------- ----------- Commitments and contingencies (Note 5) Stockholders' Equity: -------------------- Convertible preferred stock, $0.01 par value, 2,000,000 shares authorized; no shares issued at March 31, 2001 and December 31, 2000 - - Common stock, $0.01 par value, 38,000,000 shares authorized; 10,422,942 shares issued at March 31, 2001 and December 31, 2000 104 104 Additional paid-in capital 78,705 78,705 Notes receivable from shareholders (237) (317) Accumulated other comprehensive income (loss) 91 (2) Retained earnings 17,697 19,996 Less: Treasury stock, 1,700,000 common shares at cost (17,850) (17,850) ----------- ----------- Total stockholders' equity 78,510 80,636 ----------- ----------- Total Liabilities and Stockholders' Equity $ 183,736 $ 169,470 =========== =========== The accompanying notes are an integral part of these financial statements. HOMESERVICES.COM INC. Consolidated Statements of Income (in thousands, except per share amounts) (Unaudited) Three Months Ended March 31, ------------------------------------- 2001 2000 ------------------ --------------- Revenues: Commission revenue $ 84,228 $ 79,548 Mortgage fees 5,968 763 Title fees 5,485 3,999 Other 3,773 3,342 ---------- ---------- Total revenues 99,454 87,652 ---------- ---------- Operating expenses: Commission expense 60,608 55,218 Salaries and employee benefits 18,135 15,989 Occupancy 6,486 5,958 Business promotion and advertising 4,703 4,616 Professional and management fees 2,443 807 Other operating expenses 6,803 5,370 Amortization of pending real estate sales contracts 346 665 Depreciation and amortization 2,733 2,735 ---------- --------- Total operating expenses 102,257 91,358 ---------- --------- Other income (expense): Interest income 587 253 Interest expense (1,053) (969) ---------- --------- Total other income (expense), net (466) (716) ---------- --------- Loss before minority interest and income taxes (3,269) (4,422) Minority interest (500) - ---------- --------- Loss before income taxes (3,769) (4,422) Income tax benefit (1,470) (1,791) --------- --------- Net loss $ (2,299) $ (2,631) ========= ========= Net loss per share - basic and diluted $ (0.26) $ (0.28) ========= ========= Weighted average shares outstanding - Basic 8,723 9,298 ========= ========= Weighted average shares outstanding - Diluted 8,723 9,298 ========= ========= The accompanying notes are an integral part of these financial statements. HOMESERVICES.COM INC. Consolidated Statements of Cash Flows (in thousands) (Unaudited)

Three Months Ended ~~September~~March 3031, ~~Nine Months Ended September 30,~~ ------------------------------------ 2001 2000 ----------------~~------------------~~ --------------- --Cash ~~-----------------~~flows ~~---------------~~used ~~---~~in ~~--------------~~operating ~~2000~~activities: ~~1999~~Net ~~2000~~loss ~~1999~~$ ~~--------------~~(2,299) ~~---------------~~$ ~~--------------~~(2,631) ~~---------------~~Adjustments ~~Revenues:~~to ~~Commission~~reconcile ~~revenue~~net $loss ~~121,399~~to $net ~~112,280~~cash $used ~~327,372~~in $operating ~~261,259~~activities: ~~Title~~Depreciation ~~fees~~and ~~6,265~~amortization 62,~~116~~733 162,~~644~~735 ~~16,760~~Amortization ~~Other~~of ~~6,450~~pending ~~4,977~~real ~~16,647~~estate ~~13,078~~sales ~~--------------~~contracts ~~---------------~~346 ~~--------------~~665 ~~---------------~~Earnings ~~Total~~in ~~Revenues~~unconsolidated ~~134,114~~entities ~~123,373~~(101) ~~360,663~~(161) ~~291,097~~Distributed ~~--------------~~earnings ~~---------------~~in ~~--------------~~unconsolidated entities 35 384 Minority interest 500 -~~--------------~~ ~~Operating~~Loss ~~expenses:~~(gain) ~~Commission~~on ~~expense~~sale ~~85,823~~or ~~78,324~~disposal ~~229,373~~of ~~180,409~~office ~~Salaries~~property and ~~employee~~equipment ~~benefits~~(1) ~~15,992~~363 ~~15,829~~Decrease ~~48,727~~in ~~40,101~~notes ~~Occupancy~~receivable ~~5,263~~from ~~4,860~~shareholders ~~16,759~~80 1396 Deferred income taxes 173 328 Changes in assets and liabilities,~~886~~ ~~Business~~net ~~promotion~~of effects from companies purchased: Commission and ~~advertising~~other 4trade receivables,~~560~~ net of allowance (4,~~623~~866) 14(3,~~387~~611) ~~11,841~~Mortgage ~~Other~~loans ~~operating~~held ~~expenses~~for ~~6,219~~sale 62,~~264~~583 ~~19,699~~(203) 17Income taxes receivable (1,~~990~~861) ~~Amortization~~(573) ofPayable ~~pending~~to ~~real~~affiliates ~~estate~~(86) ~~sales~~(936) ~~contracts~~Agent profit-sharing ~~2,157~~(268) ~~665~~(262) ~~2,157~~Accounts ~~Depreciation~~and commissions payable and ~~amortization~~accrued ~~2,791~~expenses 21,~~357~~225 8(1,~~300~~788) ~~6,075~~Other ~~--------------~~assets ~~---------------~~and liabilities 856 (49) -------------- -----------~~----~~ ~~Total~~Net cash used in operating ~~expenses~~activities ~~120,648~~(951) ~~114~~(5,~~414~~643) ~~337,910~~Cash ~~272,459~~flows ~~--------------~~used ~~---------------~~in ~~--------------~~investing ~~---------------~~activities: ~~Other~~Purchase ~~income~~of ~~(expense):~~companies, ~~Interest~~net ~~income~~of ~~343~~cash ~~354~~and ~~868~~cash ~~662~~equivalents ~~Interest~~acquired ~~expense~~(2,892) (~~503~~110) Purchases of office property and equipment (1,~~128~~594) (2,~~240~~329) Other investing 545 (~~3,211~~217) -------------- -----------~~----~~ ~~--------------~~Net ~~---------------~~cash ~~Total~~used ~~other~~in ~~income~~investing activities (~~expense~~3,941) (2,656) ~~net~~Cash flows provided by financing activities: Payments of long-term debt (~~160~~380) (~~774~~105) (1Net change in revolving credit facility 10,~~372)~~000 (25,~~549)~~000 ~~--------------~~Cash received from minority shareholder 250 -~~--------------~~ -------------- -----------~~----~~ ~~Income~~Net ~~before~~cash ~~income~~provided ~~taxes~~by ~~13,306~~financing ~~8,185~~activities 219,~~381~~870 164,~~089~~895 ~~Income~~Net ~~tax~~increase ~~expense~~(decrease) 5in cash and cash equivalents 4,~~433~~978 (3,~~320~~404) 8Cash and cash equivalents at beginning of period 5,~~798~~825 610,~~598~~318 -------------- -----------~~----~~ ~~--------------~~Cash ~~---------------~~and ~~Net~~cash ~~income~~equivalents $at ~~7,873~~end $of ~~4,865~~period $ 1210,~~583~~803 $ 96,~~491~~914 ============== =============== ============== =============== Net income per share: Basic $ 0.76 $ 0.62 $ 1.33 $ 1.32 Diluted $ 0.74 $ 0.62 $ 1.19 $ 1.32 Weighted average shares outstanding - Basic 10,423 7,871 9,437 7,216 Weighted average shares outstanding - Diluted 10,616 7,871 10,553 7,216 The accompanying notes are an integral part of these financial statements.

The accompanying notes are an integral part of these financial statements. HOMESERVICES.COM INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. General: HomeServices.Com Inc. (the "Company" or "HomeServices") was incorporated on July 13, 1999, and was the successor by merger to MidAmerican Realty Services Company on October 7, 1999. The seven leading name-brand real estate brokerage firms that currently comprise HomeServices have an average operating history of over 50 years. HomeServices is the second largest residential real estate brokerage firm in the United States (based on closed transaction sides), operating 166 branch offices with approximately 6,600 sales associates in twelve states. In addition to providing traditional residential real estate brokerage services, HomeServices cross sells integrated services such as mortgage origination, title and closing and facilitates the securing of other third party services such as home inspection, home warranty, property and casualty insurance, hook up utilities and related services, home maintenance and repair. Approximately 83% of the outstanding common stock of the Company is owned by MidAmerican Energy Holdings Company ("MidAmerican Holdings"). As a result, MidAmerican Holdings has the power to elect the entire board of directors and approve matters submitted to a vote of stockholders. 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, 2001 and the results of operations and cash flows for the three month periods ended March 31, 2001 and 2000. Due to seasonality factors, the results of operations and cash flows for periods presented are not necessarily indicative of the results to be expected for the full year. 2. Investment in Mortgage Lending Joint Ventures In January 2001, the Company acquired a controlling interest in certain mortgage joint ventures resulting in full consolidation for 2001. In 2000, these certain mortgage joint ventures were reported using equity method accounting. The unaudited pro forma financial results assuming these equity investments were consolidated for the quarter ended March 31, 2000 are as follows (dollars in thousands, except per share amounts): Quarter ended March 31, 2000 -------------------- Total Revenues $90,325 Net loss $(2,631) Earnings per share - diluted $ (0.28) 3. Comprehensive Income (Loss): Comprehensive income (loss) for the three months ended March 31, 2001 and 2000 was $(2,206,000) and $(2,631,000) net of tax, respectively. Comprehensive income (loss) differs from net income (loss) primarily due to changes in the fair market value of available-for-sale investment securities and the adoption of Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities," effective for the Company beginning January 1, 2001. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. As of January 1, 2001, the only derivative financial instrument held by the Company was a cash flow hedge interest rate swap agreement. The cumulative effect of adopting FAS 133 related to this interest rate swap resulted in an increase of $136,000 to other comprehensive income. During the quarter ended March 31, 2001, $41,000 was amortized to earnings and the remainder will be amortized to earnings by the maturity date of the interest rate swap of October 26, 2001. As of March 31, 2001, the fair market value of this interest rate swap was $77,000 and is included other current assets. 4. Earnings Per Share: The common stock equivalent shares related to stock options of 194,000 and 219,000 for the quarters ended March 31, 2001 and 2000, respectively and convertible preferred stock of 1,500,000 shares for the quarter ended March 31, 2000 are excluded from the calculation of weighted average diluted shares outstanding as their effect is antidilutive. 5. Commitments and Contingencies: 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. The Long Realty stock purchase agreement provides for earn-out payments of up to $1.5 million per year based on profitability levels achieved in years 1999 and 2000. A payment of $275,000 was made for the year ended December 31, 1999, and recorded as an additional cost of the acquisition. While the final determination of the obligation due for the year 2000 has not yet been made, it will be recorded as an additional cost of the acquisition. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations 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. Additionally, the timing of acquisitions may significantly impact the comparability of the results of operations of the Company. The results of operations reflect the revenues and expenses of each of the entities from their respective dates of acquisition. Results of Operations of HomeServices for the Three Months Ended March 31, 2001 and 2000 The following table presents selected consolidated financial data of the Company as of and for the periods ended March 31, 2001 and 2000 (in thousands except per share amounts). Three Months Ended March 31, 2001 2000 ------------- ------------- Statement of Income Data: Revenues: Commmission revenue $ 84,228 $ 79,548 Mortgage fees 5,968 763 Title fees 5,485 3,999 Other 3,773 3,342 ---------- ---------- Total Revenues 99,454 87,652 ---------- ---------- Operating expenses: Commission expense 60,608 55,218 All other operating expenses 38,570 32,740 Amortization of pending real estate contracts 346 665 Depreciation and amortization 2,733 2,735 ---------- ---------- Total operating expenses: 102,257 91,358 ---------- ---------- Total other income (expense), net (466) (716) ---------- ---------- Loss before minority interest and income taxes (3,269) (4,422) Minority interest (500) - ---------- ---------- Loss before income taxes (3,769) (4,422) Income tax benefit (1,470) (1,791) ---------- ---------- Net loss $ (2,299) $ (2,631) ========== ========== Net loss per share: Basic and diluted $ (0.26) $ (0.28) ========== ========== Balance Sheet Data: March 31, 2001 December 31, 2000 ------------------- ----------------- Cash and cash equivalents $ 10,803 $ 5,825 Total assets $ 183,736 $ 169,470 Long-term debt including current portion $ 57,024 $ 47,404 Stockholders' Equity $ 78,510 $ 80,636 Results of Operations of HomeServices for the Three Months Ended March 31, 2001 and 2000 Revenues. Total revenues for the three months ended March 31, 2001 were $99.5 million, an increase of $11.8 million or 13.5% compared to the same period in 2000. On a pro forma basis, assuming full consolidation of the mortgage origination joint venture revenue for the quarter ended March 31,2000, total revenues increased by $9.1 million or 10.1%. Commission revenue for the three months ended March 31, 2001 was $84.2 million or 84.7% of total revenues, an increase of $4.7 million or 5.9% compared to the same period in 2000. Closed transaction volume for the quarter increased to $2.8 billion, as compared to $2.6 billion in the same period of 2000. The average home sales price of $164,400 increased 8% from 2000, with closed-transaction sides declining slightly to 17,089 as compared to 17,364 in 2000. Mortgage fees for the three months ended March 31, 2001 and 2000 were $6.0 million or 6.0% of total revenues, and $0.8 million or 0.9% of total revenues, respectively. In January 2001, the Company acquired a controlling interest in certain mortgage joint ventures that were accounted for using the equity method in 2000. On a pro forma basis, assuming full consolidation of the mortgage origination joint venture for the 2000 period, mortgage fees increased by $2.5 million or 73.7%. The increase in mortgage fees is due to an increase in the market share and an increase in the refinance business. Title fees for the three months ended March 31, 2001 and 2000 were $5.5 million or 5.5% of total revenues, and $4.0 million or 4.6% of total revenues, respectively. The increase in title fees is due to the addition of title services in several markets and increased refinance business. Other revenues for the three months ended March 31, 2001 and 2000 were $3.8 million and $3.3 million, respectively, and accounted for 3.8% of total revenues in each period. The increase of $0.5 million is primarily attributed to an increase in broker administrative commissions. Commission Expense. Commission expense for the three months ended March 31, 2001 was $60.6 million, an increase of $5.4 million or 9.8% compared to the same period in 2000. The increase in commission expense is due to the increase in dollar volume of closed transactions, a higher percentage payout to the agents and the addition of commission payments related to the full consolidation of the mortgage origination joint venture. Brokerage commission expense as a percentage of brokerage commission revenue increased from 69.4% for the three months ended March 31, 2000 to 70.0% for the same period in 2001. All Other Operating Expenses. All other operating expenses for the three months ended March 31, 2001 were $38.6 million, an increase of $5.8 million or 17.8% compared to the same period in 2000. On a pro forma basis, assuming full consolidation of the mortgage origination joint venture for the 2000 period, all other operating expenses increased by $3.9 million or 11.3%. All other operating expenses include expenses such as salaries and employee benefits, occupancy and business promotion and advertising, and professional and management fees. The increase is primarily attributed to increased activities associated with increased revenues. Amortization of Pending Real Estate Sales Contracts. Amortization of pending real estate sales contracts was $0.3 million for the three months ended March 31, 2001 attributable to the acquisition of the residential division of Tucson Realty and Trust Company in January 2001. Amortization of pending real estate sales contracts was $0.7 million for the three months ended March 2000 attributable to the acquisition of Champion Realty Inc. in December of 1999. Depreciation and Amortization. Depreciation and amortization, excluding the amortization of pending real estate sales contracts, for the three months ended March 31, 2001 was $2.7 million, unchanged from the same period in 2000. Other Income (Expense), Net. Other income (expense), net for the three months ended March 31, 2001 and 2000 consisted primarily of interest expense and interest income. Interest expense for the three months ended March 31, 2001 was $1.1 million, an increase of $0.1 million compared to the same period in 2000. The increase is attributed primarily due to higher borrowings under the revolving credit facility, partially offset by lower interest rates. Income Tax Benefit. The lower income tax benefit for the three months ended March 31, 2001 as compared to the same period in 2000 is primarily the result of the difference in loss before income tax benefit between the periods. Minority Interest. The minority interest is the result of the Company acquiring a controlling interest in certain mortgage joint ventures that were accounted for using the equity method in 2000. Net Loss. Net loss for the three months ended March 31, 2001 was $2.3 million, a decrease of $0.3 million, or 12.6% compared to the net loss for the same period in 2000. Liquidity and Capital Resources The Company's capital requirements consist primarily of working capital, capital expenditures and acquisitions. Historically, the Company has funded its working capital and capital expenditures using cash and cash equivalents on hand. Acquisitions have historically been financed through the Company's initial public offering, borrowings under its revolving credit facility, the private placement of the 7.12% senior notes, loans from MidAmerican Energy Holdings Company, capital contributions prior to the IPO and cash on hand. As of March 31, 2001, cash and cash equivalents totaled $10.8 million, and $45.0 million was available under the revolving credit facility. The Company's cash used by operating activities was $1.0 million and $5.6 million for the three months ended March 31, 2001 and 2000, respectively. In the first three months of 2001, cash flows from mortgage loans held for sale were positively impacted by the combining of the mortgage originations business of its wholly owned Kansas City subsidiary, Plaza Mortgage, into its mortgage origination joint venture with Wells Fargo Home Mortgage, a subsidiary of Wells Fargo & Company. The Company's cash used in investing activities was $3.9 million and $2.7 million for the three months ended March 31, 2001 and 2000, respectively. The Company's cash used in investing activities for the three months ended March 31, 2001 was primarily attributable to $2.9 million for the acquisition of brokerage companies. The Company's cash used in investing activities for the three months ended March 31, 2000 was primarily attributable to the purchase of office property and equipment. The Company's cash provided by financing activities was $9.9 million and $4.9 million for the three months ended March 31, 2001 and 2000, respectively. The Company's cash provided by financing activities for both periods was primarily a result of advances under the revolving credit agreement. The Company believes that the cash flow from operations and available borrowings under its $65 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. However, future acquisition growth may result in the 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 16, 2001, incorporated herein by reference, for a description of certain risk factors. The Company assumes no responsibility to update forward-looking information contained herein. 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 None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - None (b) A current report on Form 8-K dated March 16, 2001 was filed relating to cautionary statements for Registrant. 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 26th day of April, 2001. HOMESERVICES.COM INC. By: /s/ Galen K. Johnson ------------------------- Senior Vice President and Chief Financial Officer

Nine Months Ended September 30, ---------------------------------- ------------- -------------- 2000 1999 ------------- -------------- Cash flows provided by operating activities: Net income $ 12,583 $ 9,491 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,300 6,075 Amortization of pending real estate sales contracts 665 2,157 Undistributed earnings in unconsolidated affiliates (237) (843) Loss (gain) on sale or disposal of office property and equipment 434 (2) Decrease in notes receivable 254 97 Provision for deferred income taxes 1,327 2,070 Changes in assets and liabilities, net of effects from companies purchased: Commission and other trade receivables (6,760) (2,480) Mortgage loans held for sale (2,359) 11,865 Income taxes receivable (payable) 5,235 (607) Payable to affiliates (957) - Agent profit-sharing 279 (5) Accounts and commissions payable and accrued expenses 4,442 1,735 Other assets and liabilities 209 (875) ------------- -------------- Net cash provided by operating activities 23,415 28,678 Cash flows used in investing activities: Purchase of companies, net of cash and cash equivalents acquired (532) (29,014) Purchases of office property and equipment (5,492) (6,778) Purchases of held-to-maturity securities (215) (290) Other investing 60 (54) ------------- -------------- Net cash used in investing activities (6,179) (36,136) Cash flows (used in) provided by financing activities: Payments of long term debt (321) (266) Net change in revolving credit facility (11,000) 6,500 Proceeds from capital transactions - 8,500 Loan costs (30) (494) ------------- -------------- Net cash (used in) provided by financing activities (11,351) 14,240 Net increase in cash and cash equivalents 5,885 6,782 Cash and cash equivalents at beginning of period 10,318 3,114 ------------- -------------- Cash and cash equivalents at end of period $ 16,203 $ 9,896 ============= ============== The accompanying notes are an integral part of these financial statements.

Three Months Ended September 30, Nine Months Ended September 30, ----------------------------------------------- ---------------------------------------------- 2000 1999 2000 1999 --------------------- --------------------- --------------------- --------------------- Commission revenue $ 121,399 90.5% $ 112,280 91.0% $ 327,372 90.8% $ 261,259 89.7% Title fees 6,265 4.7% 6,116 5.0% 16,644 4.6% 16,760 5.8% Other 6,450 4.8% 4,977 4.0% 16,647 4.6% 13,078 4.5% ----------- ----------- ----------- ----------- Total revenues 134,114 100.0% 123,373 100.0% 360,663 100.0% 291,097 100.0% ----------- ----------- ----------- ----------- Commission expense 85,823 64.0% 78,324 63.5% 229,373 63.6% 180,409 62.0% All other operating expenses 32,034 23.9% 31,576 25.6% 99,572 27.6% 83,818 28.8% Amortization of pending real estate sales contracts - - 2,157 1.7% 665 0.2% 2,157 0.7% Depreciation and amortization 2,791 2.1% 2,357 1.9% 8,300 2.3% 6,075 2.1% ----------- ----------- ----------- ----------- Total operating expenses 120,648 90.0% 114,414 92.7% 337,910 93.7% 272,459 93.6% ----------- ----------- ----------- ----------- Other income (expense), net (160) (0.1%) (774) (0.7%) (1,372) (0.4%) (2,549) (0.9%) ----------- ----------- ----------- ----------- Income before income taxes 13,306 9.9% 8,185 6.6% 21,381 5.9% 16,089 5.5% Income tax expense 5,433 4.0% 3,320 2.7% 8,798 2.4% 6,598 2.2% ----------- ----------- ----------- ----------- Net income $ 7,873 5.9% $ 4,865 3.9% $ 12,583 3.5% $ 9,491 3.3% =========== =========== =========== =========== Net income per share: Basic $ 0.76 $ 0.62 $ 1.33 $ 1.32 =========== =========== =========== =========== Diluted $ 0.74 $ 0.62 $ 1.19 $ 1.32 =========== =========== =========== ===========

Nine Months Ended September 30, -------------------------------------------------- (in thousands) 2000 1999 ------------------------ ---------------------- Net income $ 12,583 $ 9,491 Income tax expense 8,798 6,598 Interest and other (income) expense, net 1,372 2,549 ------------------------ ---------------------- Operating income 22,753 18,638 Amortization of pending real estate sales contracts 665 2,157 Depreciation and amortization 8,300 6,075 ------------------------ ---------------------- EBITDA $ 31,718 $ 26,870 ======================== ======================

Three Months Ended September 30, -------------------------------------------------- (in thousands) 2000 1999 ------------------------ ---------------------- Net income $ 7,873 $ 4,865 Income tax expense 5,433 3,320 Interest and other (income) expense, net 160 774 ------------------------ ---------------------- Operating income 13,466 8,959 Amortization of pending real estate sales contracts - 2,157 Depreciation and amortization 2,791 2,357 ------------------------ ---------------------- EBITDA $ 16,257 $ 13,473 ======================== ======================

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