<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
[ ] 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: 0-08305
THE WRITER CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-0510478
---------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.
27 Inverness Drive East, Englewood, Colorado 80112
------------------------------------------------------------------
(Address of principal executive offices) Zip Code
(303) 790-2870
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year, if change since
last report)
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
during the preceding 12 months (or for such shorter period that the
registrant is required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of Form 10-K or any
amendment to Form 10-K. /X/
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes / / No / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 7,354,600 shares as of
November 11, 1996.
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION Number
------
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
September 30, 1996 (Unaudited) and
December 31, 1995 3
Condensed Consolidated Statements
of Operations for the three and nine months
ended September 30, 1996 and 1995 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1996 and
1995 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION 12
2
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
---- ----
(Unaudited)
ASSETS
Residential real estate held for sale, net:
Homes under construction $14,809,000 $15,279,000
Model homes and furnishings 4,218,000 4,865,000
Land and land development 9,805,000 11,978,000
Unplatted land 5,883,000 5,883,000
----------- -----------
Total 34,715,000 38,005,000
Office property and equipment, less accumulated
depreciation of $777,000 and $1,049,000: 619,000 649,000
Other assets:
Cash and cash equivalents 1,629,000 1,409,000
Restricted cash 580,000 40,000
Accounts receivable and other assets 924,000 967,000
----------- -----------
Total $38,467,000 $41,070,000
----------- -----------
----------- -----------
(Continued)
3
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1996 1995
---- ----
(Unaudited)
LIABILITIES
Notes payable $19,076,000 $22,419,000
Accounts payable and accrued expenses 5,764,000 5,587,000
Accrued interest 459,000 527,000
----------- -----------
Total 25,299,000 28,533,000
STOCKHOLDERS' EQUITY
Common stock, $.10 par value; authorized,
10,000,000 shares; 7,354,600 and 7,247,100
shares issued and outstanding (Note B) 735,000 725,000
Additional paid-in capital 12,352,000 12,279,000
Retained Earnings (Deficit) 81,000 (467,000)
----------- -----------
Total Stockholders' equity, net 13,168,000 12,537,000
----------- -----------
Total $38,467,000 $41,070,000
----------- -----------
----------- -----------
(Concluded)
See notes to consolidated financial statements.
4
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Residential operations:
Revenue $ 12,990,000 $ 6,742,000 $ 32,920,000 $ 20,325,000
Cost of sales (10,931,000) (5,719,000) (27,728,000) (16,972,000)
Expenses (1,695,000) (1,640,000) (4,750,000) (4,885,000)
------------ ----------- ------------ ------------
Income (loss) from residential
operations 364,000 (617,000) 442,000 (1,532,000)
Interest and other income, net 6,000 78,000 115,000 128,000
------------ ----------- ------------ ------------
Net income (loss) before
income taxes 370,000 (539,000) 557,000 (1,404,000)
Income taxes (expense) benefit (9,000) 682,000 (9,000) 682,000
------------ ----------- ------------ ------------
Net income (loss) before
extraordinary item 361,000 143,000 548,000 (722,000)
Extraordinary item-gain on
extinguishment of debt 1,284,000 1,437,000
------------ ----------- ------------ ------------
Net income $ 361,000 $ 1,427,000 $ 548,000 $ 715,000
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
Earnings (loss) per share:
Continuing operations $ .05 $ .02 $ .07 $ (.12)
Extraordinary item - .20 - .24
------------ ----------- ------------ ------------
Net income $ .05 $ .22 $ .07 $ .12
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
Weighted average number of
shares Outstanding 7 ,383,231 6,485,400 7,367,858 5,974,600
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
For the Nine Months
Ended September 30,
1996 1995
---- ----
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES: $ 3,575,000 $ (2,369,000)
------------ -------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of office property and equipment (95,000) (41,000)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 18,173,000 17,255,000
Principal payments on notes payable (21,516,000) (17,811,000)
Proceeds from the sale of common stock 83,000 2,195,000
------------ -------------
Net cash provided by (used in) financing
activities (3,260,000) 1,639,000
------------ -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 220,000 (771,000)
CASH AND CASH EQUIVALENTS, beginning of period 1,409,000 1,305,000
------------ -------------
CASH AND CASH EQUIVALENTS, end of period $ 1,629,000 $ 534,000
------------ -------------
------------ -------------
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. ACCOUNTING POLICIES:
The consolidated balance sheet as of September 30, 1996, the related
condensed consolidated statements of operations for the three and nine month
periods ended September 30, 1996 and 1995 and the related condensed
consolidated statements of cash flows for the nine month periods ended
September 30, 1996 and 1995 are unaudited, but in management's opinion,
include all adjustments necessary for a fair presentation of such financial
statements. Such adjustments consisted only of normal recurring items.
Interim results are not necessarily indicative of results for a full year.
The consolidated financial statements include the accounts of The Writer
Corporation and its wholly owned subsidiaries (the Company). All significant
intercompany transactions and balances have been eliminated in consolidation.
The financial statements should be read in conjunction with the audited
Consolidated Financial Statements included in the annual report on Form 10-K
for the year ended December 31, 1995. Except as described herein, the
accounting policies utilized in the preparation of these financial statements
are the same as those set forth in the Company's annual financial statements
except as modified for interim accounting treatment.
B. STOCKHOLDERS' EQUITY:
The Company finalized its private placement of its common stock during the
first quarter of 1996. In total 1,637,516 shares of common stock were issued
under the placement. In 1996, 107,513 shares of stock were issued, including
51,180 shares issued as compensation to the underwriter.
7
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FINANCIAL CONDITION
The Company's financial condition has remained stable throughout the first
three quarters of 1996, consistent with the general marketing conditions in
the greater metropolitan Denver area. The September 30, 1996 backlog was 90
units, similar to the 96 units in backlog at June 30, 1996. The backlog
remains consistently higher than the December 31, 1995 backlog which was 66
units. The backlog at September 30, 1995 was 87 units.
During 1996 the Company's average sales price of closed units increased
steadily from the prior year comparable period as well as from year ended
December 31, 1995. These increases, coupled with the consistent unit
backlog, results in the September 30, 1996 dollar backlog of $19,585,000
which represents a 33% increase over the December 31, 1995 dollar backlog of
$14,766,000. The dollar backlog at September 30, 1995 consisting of 87 units
was $18,886,000. These improvements reflect the Company's efforts to move
toward a higher ratio of single family detached houses versus attached
townhomes. Although the mix continues to move in the direction desired by the
Company's management, the Company continues to maintain a relatively major
position both in terms of land holdings and construction activities in the
townhome sector in which it has traditionally been a market leader.
The balance in homes under construction decreased slightly by approximately
$470,000 or 3.1%, which reflects the stability in the work in process
inventory as well as the continued monitoring of speculative inventory homes.
Model homes and furnishings decreased by $647,000 or approximately 13%. This
decrease reflects the sale of seven models at four different projects, netted
with construction of two new models. This activity is consistent with the
Company's desire to reduce asset levels, in order to reduce associated
carrying costs and produce a higher return on assets. In addition, several
of the Company's model homes are currently being offered under a sale and
leaseback program which will further enhance this effort, if transactions can
be consummated. At September 30, 1996, three of the sold models mentioned
above have been "leased back" by the Company.
The decrease in land and land development of $2,173,000 reflects the transfer
of completed lots from land development to homes under construction, net of
new development expenditures. Also included in this decrease is the
establishment of a $475,000 impairment loss which reflects the change in
planned usage on a parcel of ground previously held for development which now
is being marketed to third parties. The Company has received a contingent
contract on the parcel and hopes to clear the contingencies prior to year
end. This impairment loss, along with certain nonrecurring credits arising
from the resolution of contingencies, are included in the cost of sales for
the quarter ended September 30, 1996. (See Discussion at Results of
Operations).
The Company's cash balances have increased by approximately $200,000 since
year end or 15.6% which reflects a build up of cash to be used for real
estate taxes and a land purchase pursuant to the Company's option agreement
for its Settler's Village townhome project. It is anticipated that a portion
of the purchase price will be made from the Company's equity supplemented
with an outside acquisition and development
8
<PAGE>
loan for the second phase of this project. The quarter and prior year end
cash balances also reflect the impact of the above average closing levels
which occurred at the end of these periods.
The Company's restricted cash balance reflects the growth of an escrow
account established pursuant to a development loan agreement which will be
used to fund future tap purchases for which the Company is obligated under
its tap purchase agreement with the Castle Pines North Metropolitan District.
This District provides water and sewer services to the Company's Castle
Pines North project. This fund had a balance of $378,000 as of September 30,
1996.
In addition, the Company has maintained a $300,000 restricted fund which is
used only for foundation improvements in order to expedite the Company's
start process. As the Company's operations have improved, the relationships
with the construction lenders have also improved and the Company repaid half
of the fund due to the more streamlined start process currently in place with
the construction lenders. The remaining fund of $150,000 will continue to be
available to the Company to expedite its start process and of this amount
$93,000 was available for use at September 30, 1996.
The accounts payable and accrued expenses increased by $177,000 which
reflects the net activity of several accounts. Those of significance
include amounts due to development lenders which were previously deferred and
have been paid as cash flow improved, reserves for contingent warranty items
released to income, and property taxes paid. In addition, customer earnest
money deposits increased commensurate with sales activity, trade payables
processed but pending construction loan funding increased as did equipment
lease liabilities, which cover new computer equipment at all sales offices.
The decrease in notes payable of approximately $3,343,000 or 15.0% reflects
the reduced inventory levels for speculative homes which were substantially
complete in prior periods as well as the accelerated paydowns on land
development debt at various projects.
The Company finalized a private placement of its common stock during the
first quarter of 1996. In total 1,637,516 shares of common stock were issued
under the placement. In 1996, 107,513 shares of stock were issued, including
51,180 shares issued as compensation to the underwriter. The net proceeds
coupled with the results of operations reflected herein represent the net
change in stockholders equity during the periods presented.
RESULTS OF OPERATIONS
The Company has recorded a 39% increase in closed units as compared to the
nine month period ending September 30, 1996. The Company recorded the sale
of 60 and 153 units for the three and nine month periods ended September 30,
1996 as compared to 36 and 110 units for the comparable periods in 1995. This
increased revenue by $6,248,000 or 93% for the quarter and $12,595,000 or 62%
for the nine months over the prior year respective periods. For the third
quarter the average sales price of closed units was $216,500 as compared to
$211,500 for the previous quarter and $194,900 for the year ended December
31, 1995. The average sales price for the nine months ended September 30,
1995 was $175,600. This increase in average sales price from the prior
periods is due to the change in the mix of townhomes, single family and
cluster homes sold, and an overall increase in selling prices for all of the
Company's product. The table below illustrates this mix.
9
<PAGE>
Closings Townhomes Cluster Homes Single Family Total
- -------- --------- ------------- ------------- -----
3 month period ended
Sept. 30, 1996 24 6 30 60
3 month period ended
Sept. 30, 1995 19 3 14 36
9 month period ended
Sept. 30, 1996 56 13 84 153
9 month period ended
Sept. 30, 1995 69 9 32 110
Cost of sales and gross profit increased during the three and nine month
periods commensurate with the higher revenue levels of 1996 and the change in
mix of product sold. However, during the quarter the Company decided to sell
a parcel of partially developed land previously held for development, and in
marketing the parcel, has received contingent offers that are less than its
carrying amount. Accordingly, the Company recorded a $475,000 impairment
loss against this parcel. This impairment loss, along with certain
nonrecurring credits arising from resolution of contingencies, are included
in the cost of sales for the quarter ended September 30, 1996. Had these
nonrecurring, noncash items not occurred, the Company's gross profit on sales
would have been 17.6% and 16.5% for the three and nine months periods ended
September 30, 1996, respectively as compared to gross profits of 15.2% and
15.8% for the three and nine month periods ended September 30, 1995. In
addition, the income before Extraordinary Items would have improved to
$586,000 and $773,000 for the three and nine month periods ended September
30, 1996, had these nonrecurring, noncash items not occurred, as compared to
income of $143,000 for the three months ended September 30, 1995 and a loss
of $722,000 for the nine months ended September 30, 1995.
During the third quarter of 1995, the Company recorded an approximate
$2,000,000 gain on the extinguishment of an unsecured debt. As a result of
this gain the valuation allowance on the deferred tax asset was adjusted,
which resulted in a tax benefit from continuing operations of $682,000. The
extraordinary gain is shown net of the related tax effect.
LIQUIDITY AND CAPITAL RESOURCES
During the first three quarters of 1996, the Company's liquidity has improved
as operations have returned to profitability. During the first nine months
of 1996 the Company has generated $3,575,000 of cash from its operating
activities. This cash was generated primarily by the movement of assets
through the development process into homes under construction and ultimately
via sales to third parties. This activity provided approximately $3,177,000
of cash net of advances, which was used to repay outstanding loans. During
this same time frame the Company's trade accounts payable to subcontractors
and suppliers remained relatively stable, even though the construction
activities of the Company have increased. The Company continues to focus its
resources on the reduction of its liabilities, particularly with respect to
the trade accounts payable and notes payable.
In October of 1996, the Company renewed its credit facility with one of its
primary lenders and increased the facility from the existing $12,000,000 to
$15,000,000. This facility, which carries more attractive interest rates and
fee structures, will be used to fund the construction costs at three townhome
and two single family projects.
Under the terms of the new facility, the Company will pay a .5% commitment
fee and will be charged a rate of prime plus 1% on amounts outstanding.
Because no additional loan fees are required, management
10
<PAGE>
believes this facility will assist in lowering overall finance costs. In
addition, the facility will provide financing for a specific number of models
and speculative inventory units, and will greatly streamline the existing
start process. Management anticipates that this facility will enhance the
liquidity of the Company through faster starts and lower costs.
The Company has agreements to acquire finished sites for building homes from
other developers usually on quarterly acquisition schedules. The Company can
not always obtain 100% financing to make these acquisitions and therefore
some equity is required to meet these ongoing obligations. As previously
mentioned cash balances have been increased in anticipation of a parcel
takedown under one of the Company's option agreements which is due in
November of 1996.
Sustained profitable operations are expected to provide equity necessary for
the current commitments which the Company has to purchase additional sites.
Because of the cyclical nature of the homebuilding and development industry,
no assurance can be given that profitable operations will be sustained
indefinitely. In order to mitigate the potential volatility in the market,
management has developed additional strategies as discussed below.
Management believes there is equity in many of its land positions which
currently are fully encumbered in support of the Company's development debt.
This equity is difficult to borrow against notwithstanding the fact that it
represents excess collateral value when compared to the corresponding
outstanding debt. In addition, the Company continues to require equity to
fund the investigation and potential acquisition of new project opportunities.
In response to the aforementioned equity needs, the Company has initiated
discussions with one of its existing lenders in order to obtain a working
capital line which would be secured by the excess equity or collateral value
in its land and development holdings. Management can not provide any
assurance at this time that this type of working capital line will be
available to the Company, because several factors including a formal
appraisal of the collateral properties will need to be finalized prior to
consummation of any formal arrangement. Management of the Company is
optimistic, however that some level of working capital borrowing will
ultimately be secured by excess collateral values.
In addition to the formal request for a working capital line, the Company is
also marketing certain land holdings which based on current absorptions and
projections will not be effectively utilized for three to four years. A
small group of lots in the Company's Castle Pines project is currently under
contract with the expectation of closing the sale of these lots in 1996.
These lots are components of the overall collateral currently supporting an
existing development loan and these sales will not generate significant
working capital, but will accelerate the debt repayment for the project. In
addition, a group of 62 lots are being marketed and the Company has received
a contingent contract at its asking price. If this sale can be consummated,
which is not anticipated before the first quarter of 1997, the significance
of obtaining the working capital request mentioned above will be somewhat
diminished and the overall availability reduced because this portion of the
collateral will no longer be available to support a credit facility.
11
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) There were no reports on Form 8-K filed for the six months ended
September 30, 1996.
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.
THE WRITER CORPORATION
(Registrant)
Date: November 11, 1996 By: /s/ Daniel J. Nickless
------------------------
Daniel J. Nickless
Sr. Vice President and
Chief Financial Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,209,000<F1>
<SECURITIES> 0
<RECEIVABLES> 214,000
<ALLOWANCES> 0
<INVENTORY> 34,715,000<F2>
<CURRENT-ASSETS> 0
<PP&E> 1,396,000
<DEPRECIATION> 777,000
<TOTAL-ASSETS> 38,467,000<F3>
<CURRENT-LIABILITIES> 6,223,000
<BONDS> 19,076,000
0
0
<COMMON> 735,000
<OTHER-SE> 12,433,000
<TOTAL-LIABILITY-AND-EQUITY> 38,467,000
<SALES> 12,990,000
<TOTAL-REVENUES> 12,990,000
<CGS> (10,931,000)
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (1,689,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 370,000
<INCOME-TAX> 9,000
<INCOME-CONTINUING> 361,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 361,000
<EPS-PRIMARY> .05
<EPS-DILUTED> 0
<FN>
<F1>Cash includes $580,000 of restricted cash
<F2>Inventory includes homes under construction 14,809,000, Model Home & Furnishing
4,218,000, land and land development 9,805,000, unplatted land 5,883,000
<F3>Total assets includes other assets of $710,000
</FN>
</TABLE>
