<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 MARCH 31, 1997
[ ] 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
March 31, 1997.
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION Number
------
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets March 31,
1997 (Unaudited) and December 31, 1996 3
Condensed Consolidated Statements
of Operations for the three months
ended March 31, 1997 and 1996 (Unaudited) 5
Condensed Consolidated Statements of Cash
Flows for the three months ended March 31,
1997 and 1996 (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
March 31, December 31,
1997 1996
----------- ------------
(Unaudited)
ASSETS
Residential Real Estate Held for Sale
and Investment, net:
Homes under construction $12,245,000 $12,884,000
Model homes and furnishings 3,389,000 3,439,000
Land and land development 12,883,000 10,692,000
Raw land 3,317,000 6,403,000
----------- -----------
Total 31,834,000 33,418,000
Office Property and Equipment, less
accumulated depreciation of $577,000
and $804,000: 378,000 604,000
Other Assets:
Cash and cash equivalents 1,071,000 995,000
Restricted cash 738,000 667,000
Accounts receivable 315,000 235,000
Deferred tax asset 350,000 350,000
Other 376,000 381,000
----------- -----------
Total $35,062,000 $36,650,000
----------- -----------
----------- -----------
(Continued)
3
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
----------- ------------
(Unaudited)
LIABILITIES
Notes payable $14,280,000 $17,241,000
Accounts payable and accrued expenses 5,094,000 5,060,000
Accrued interest 430,000 428,000
----------- -----------
Total 19,804,000 22,729,000
STOCKHOLDERS' EQUITY (Note B)
Common stock, $.10 par value;
authorized, 10,000,000 shares;
7,354,600 and 7,354,600 shares
issued and outstanding 735,000 735,000
Additional paid-in capital 12,352,000 12,352,000
Retained Earnings 2,171,000 834,000
----------- -----------
Total Stockholders' Equity, net 15,258,000 13,921,000
----------- -----------
$35,062,000 $36,650,000
----------- -----------
----------- -----------
(Concluded)
See notes to consolidated financial statements.
4
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months
Ended March 31,
1997 1996
---- ----
Residential operations:
Revenue $10,642,000 $ 8,932,000
Cost of sales (8,612,000) (7,639,000)
Expenses (1,715,000) (1,464,000)
----------- -----------
Income (loss) from residential operations 315,000 (171,000)
Interest and other income, net 915,000 49,000
----------- -----------
Net income (loss) before extraordinary item 1,230,000 (122,000)
Extraordinary item - gain on early
extinguishment of debt 106,000
----------- -----------
Net income (loss) $1,336,000 $ (122,000)
----------- -----------
Earnings (loss) per share:
Continuing operations $0.17 ($0.02)
Extraordinary item 0.01 0.00
----------- -----------
Net earnings (loss) $0.18 ($0.02)
----------- -----------
----------- -----------
Weighted average number of shares
outstanding: 7,354,600 7,298,900
See notes to consolidated financial statements.
5
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months
Ended March 31,
1997 1996
---- ----
NET CASH PROVIDED BY OPERATING
ACTIVITIES:
3,123,000 $ 514,000
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of office property and equipment (86,000) (44,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 5,013,000 4,929,000
Principal payments on notes payable (7,974,000) (5,716,000)
Proceeds from the sale of common stock 83,000
----------- -----------
Net cash used in financing activities (2,961,000) (704,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 76,000 (234,000)
CASH AND CASH EQUIVALENTS, beginning of period 995,000 1,409,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,071,000 $ 1,175,000
----------- -----------
----------- -----------
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 March 31, 1997 and the related condensed
consolidated statements of operations and cash flows for the three month period
ended March 31, 1997 and 1996 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, 1996. 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.
In February, 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS #128) Earnings Per Share. This
statement is effective for annual periods ending after December 15, 1997. The
Company does not anticipate any material change to previously reported earnings
per share as a result of the adoption of this statement.
7
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FINANCIAL CONDITION
At March 31, 1997 the Company's backlog was 52 units which was consistent with
the December 31, 1996 backlog of 54. The backlog as of April 30, 1997 had
increased to 62 units. The aforementioned backlog numbers reflect current
stability in the market but a decrease from the Company's March 31, 1996 backlog
which was 87 units. Stronger sales during the fourth quarter of 1995 and the
first quarter of 1996 when compared to 1996 and 1997 account for this decrease.
The published forecasts for the Denver Metropolitan area predict a decrease in
housing starts. However, contrary to these predictions the overall Denver
Metropolitan area has posted gains in permits issued over the prior year through
the first quarter.
The Company's cost of homes under construction has remained relative to the
overall backlog numbers mentioned above and result in a decrease of
approximately $639,000 from the year end balance.
Model homes and furnishings also remain stable from year end as the Company
completed new models for its Summerhill project while marketing the existing
models previously utilized.
During the first quarter of 1997, the Company's land and land development
increased by a net of approximately $2,191,000 which reflects the transfer
of raw land costs to development, and new development expenditures which are
reflective of the Company's continuing effort to move assets into production
as quickly as possible. During the quarter the Company began development on
a 141 lot filing at its Castle Pines North project. In addition, during
January of 1997 the Company sold 12 developed lots which were scattered
throughout the Castle Pines North project. This sale was made to close out
prior active filings so efforts could be focused on more contiguous sites.
The Company is also developing the second phase of its Settler's Village
community in Highlands Ranch.
The increase in land and land development corresponds to the decrease in raw
land as the cost of raw land is transferred to the development category as
production begins.
The Company's office properties and equipment decreased during the first quarter
by $226,000. This amount reflects the netting of approximately $85,000 which
the Company has expended to purchase a new management information system, with
the sale of the Company's office building and corporate headquarters. A
significant gain on sale and reduction in debt resulted from the sale of the
office building as discussed below.
The Company's cash position remained consistent with its year end balances. The
restricted cash accounts have increased slightly due to the required escrowing
of funds related to the Company's development agreement for its Castle Pines
North project. Under the terms of the development loan agreement, the Company
is required to maintain cash balances equal to its annual tap obligation and
certain other monies to support outstanding letters of credit related to the
development work at the project. On April 30, 1997 the Company disbursed
$190,000 from this restricted cash account to fulfill its current obligation
under the aforementioned tap purchase agreement.
8
<PAGE>
The Company's accounts receivable balance increased by approximately $80,000,
related primarily to the recording of the receivable for taps which were sold
pursuant to the aforementioned lot sale. The other assets decreased slightly
during the quarter, which was attributable primarily to amortization of
prepaid expenses.
Liabilities, including notes payable and accrued costs, decreased by
$2,925,000 during the quarter as cash from operations was applied to debt and
because inventory levels decreased in the quarter. Virtually all of the
Company's work in process inventory is financed.
RESULTS OF OPERATIONS
The Company closed 44 units during the three month period ended March 31,
1997, compared to 41 units in the prior year first quarter. In addition the
average sales price of homes sold, excluding the revenue generated from the 12
lot sales was $226,000, an increase of approximately $8,000 over the previous
year period. Combination of these factors resulted in total revenue increase of
approximately $1,700,000, which represents a 19% improvement over the prior year
quarter. The increase on average sales price reflects the change in the mix of
single family and cluster homes sold during the periods. The Company continues
to emphasize its single family product notwithstanding the Company's mix of land
inventory which is weighted toward attached product. The table below
illustrates the Company's sales mix for the periods presented.
<TABLE>
Closings Townhomes Cluster Homes Single Family Total
- -------- --------- ------------- ------------- -----
<S> <C> <C> <C> <C>
3 month period ended Mar. 31, 1997 15 2 27 44
3 month period ended Mar. 31, 1996 15 4 22 41
</TABLE>
Although, the cost of sales increased by $973,000, or approximately 13% from the
prior year first quarter including the cost of the 12 lots marketed, due to
increased sales revenue, the Company had a gross profit of approximately
$2,030,000 versus $1,293,000 in the prior year. In addition, the quarterly
gross profit percentage improved by approximately 4.6% to 19.1% in the first
quarter, up from 14.5% in 1996. Included in the gross profit for the first
quarter was approximately $206,000 related to the previously mentioned lot
sales.
The Company's construction costs were approximately 71.7% of revenue during
the first quarter of 1997 versus 73.6% during 1996. Improvement in direct
construction costs, as a percentage of revenue, reflects the Company's
ongoing efforts to maximize its efficiencies within the design, purchasing,
scheduling and production processes. In addition to the improvement in the
direct construction costs, the Company's indirect costs, as a percentage of
revenue, which are capitalized to inventory and subsequently expensed were
also reduced during 1996. This trend continued in the first quarter of 1997
which reflects the overall decrease in development and construction costs
incurred through the periods.
The factors above resulted in income from residential operations of $315,000
during the quarter compared to a loss of $171,000 in the prior year period.
9
<PAGE>
Because many competitors in the Company's primary marketing area have been
aggressive in order to gain or maintain market share, the Company anticipates
continued pressure on its gross margins due to this competition as well as an
overall anticipated slow down in the market place.
The Company's operating expenses remain relatively consistent between the first
quarters of 1997 and 1996. As a percentage of revenue, these costs were reduced
by approximately 0.3% of revenue when compared to the prior year first quarter.
The Company continues to focus on areas to reduce costs.
On March 15, 1997, the Company finalized a transaction to sell its office
building. A gain on the sale of approximately $542,000 was recorded as other
income in the quarterly results presented herewith. In addition to this gain,
the Company retired the debt which was collateralized by the office building at
a discount which created income as discussed below. Also included in the other
income category is $342,000, which represents a one time refund of impact fees
previously paid as the Company obtained building permits over the last several
years in Douglas County.
The first quarter results also reflect $106,000 related to the extraordinary
gain on the early extinguishment of debt. This amount is the discount the
Company received on the early payoff of the debt which collateralized the
Company's office facilities.
As a result of these aforementioned factors, the Company posted net income of
$1,336,000 of which $315,000 resulted from residential operations, versus a loss
of $122,000 in the prior year first quarter.
LIQUIDITY AND CAPITAL RESOURCES
During December of 1996, the Company finalized an agreement with one of its
lenders under which it obtained a $1,700,000 working capital line of credit.
The line is secured with the collateral value of the Company's Castle Pines
North project, primarily related to the lots which are currently undeveloped.
The facility matures on December 30, 1998. Management believes that this
facility provides adequate liquidity to support the managed growth which the
Company intends to pursue in the near future. Because of the liquidity provided
by the line, the Company used operating funds to repay a loan which it
previously had with three affiliates of the Company. This loan which was used
specifically to install foundations prior to construction loan set ups was
repaid in full in January of 1997.
In addition during the first quarter the Company generated $3,123,000 of cash
from its operating activities. These funds were used primarily to repay
outstanding debt and maintain the balance of other accrued liabilities.
Because the Company's earnings and cash flows have been positive over the last
fiscal year and during the first quarter of 1997, the Company now enjoys a debt
to equity ratio which is less than one to one. Management believes that this
demonstrates significant strength within the Company's balance sheet which
management believes will assist us in obtaining more favorable financing for
both construction and development activities. The Company continues to limit
its interest and administrative costs by focusing on more traditional and
comprehensive lending relationships which are now available to it.
10
<PAGE>
The Company currently has a $15,000,000 revolving construction facility
committed to by one of its national lenders. This facility matures during the
second quarter of 1997 and the Company is currently negotiating the renewal of
this facility which will be important in order to sustain the gains the Company
has made in reducing its interest carry and operating costs.
Management believes it will be able to expand its current development facility
during the second quarter to include the funds necessary for Phase II of its
Settler's Village townhome project. An increase in this facility will be
necessary in order to provide an uninterrupted supply of lots for building at
this project.
The Company intends to finish the development and building at its Greenbrook
project and is currently investigating both development and construction
financing sources which will be necessary for that project. Approximately
100 partially developed lots remain at that project, and all significant
development infrastructure is complete, including a community center, pool
and tennis courts. If suitable financing can be arranged, it is anticipated
that development will begin during the second or third quarter of 1997.
In addition, the Company entered into a contract for the purchase of 119 lots
at a new development site in Metropolitan Denver. Acquisition and
development financing is currently being sought for this project, and
several contingencies in the contract must be resolved prior to closing.
Management anticipates the need for an equity contribution by the Company in
order to close the land acquisition and finance the development of this
project. At this time the amount of required equity has not been determined,
but it is anticipated that it would be generated from operations or through
the use of the Company's working capital line of credit.
The Company's liquidity picture has improved greatly during the last two
years. However, the Company will continue to utilize most of the cash it
generates in its operations. In addition, the Company has purchased new
software for its management information purposes and will acquire the
complimenting computer hardware necessary for the system during the second
quarter of 1997. Although the cash resources of the Company are sufficient
to provide for this purchase, alternative sources including leasing are being
investigated.
Throughout 1997 the Company anticipates new model complexes opening at
several of its projects. The Company will be required to provide equity for
the model furnishings and the sales office for use at these sites, the level
of which can not be determined at this time. It is anticipated that this
equity will be provided through operations and or in combination with
advances from the Company's working capital line.
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 three months ended
March 31, 1997.
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: May 5, 1997 /s/ DANIEL J. NICKLESS
---------------------------------------
By: Daniel J. Nickless
Sr. Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,809,000<F1>
<SECURITIES> 0
<RECEIVABLES> 315,000
<ALLOWANCES> 0
<INVENTORY> 31,834,000<F2>
<CURRENT-ASSETS> 0
<PP&E> 955,000
<DEPRECIATION> 577,000
<TOTAL-ASSETS> 35,062,000<F3>
<CURRENT-LIABILITIES> 5,524,000
<BONDS> 14,280,000
0
0
<COMMON> 735,000
<OTHER-SE> 14,523,000
<TOTAL-LIABILITY-AND-EQUITY> 35,062,000
<SALES> 10,642,000
<TOTAL-REVENUES> 10,642,000
<CGS> (8,612,000)
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (800,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,230,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,230,000
<DISCONTINUED> 0
<EXTRAORDINARY> 106,000
<CHANGES> 0
<NET-INCOME> 1,336,000
<EPS-PRIMARY> .18
<EPS-DILUTED> 0
<FN>
<F1>CASH INCLUDES $738,000 OF RESTRICTED CASH
<F2>INVENTORY INCLUDES HOMES UNDER CONSTRUCTION $12,245,000, MODEL HOMES
AND FURNISHINGS $3,389,000, LAND AND LAND DEVELOPMENT $12,883,000, UNPLOTTED
LAND $3,317,000
<F3>TOTAL ASSETS INCLUDES OTHER ASSETS OF $726,000
</FN>
</TABLE>
