<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996, 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)
Registrant's telephone number, including area code: (303) 790-2870
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
$.10 PAR VALUE COMMON STOCK
----------------------------
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 _____
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 this Form 10-K or any amendment to this
Form 10-K. __X__
The aggregate market value of The Writer Corporation common shares on March 7,
1997 (based upon the average between the reported bid and asked prices of these
shares traded over-the-counter) held by non-affiliates was approximately
$4,539,813.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. As of March 15, 1997,
7,354,590 shares of The Writer Corporation's $.10 par value common stock were
outstanding.
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PART I
ITEM 1. BUSINESS.
The Writer Corporation is a developer and builder of planned residential
communities in the metropolitan Denver, Colorado area. The Company has received
local and national recognition for the design of its planned residential
communities which integrate single family homes and townhomes with extensive
greenbelts, bicycle and walking paths, winding streets and family recreation
facilities to create a beneficial lifestyle for their residents. From the date
of its inception through December 31, 1996, the Company has closed the sale of
9,241 homes in 28 communities.
RESIDENTIAL DEVELOPMENTS
The Company markets its planned residential communities to a broad spectrum of
middle and upper middle income buyers. Sales prices for the Company's homes
currently range from approximately $135,000 to $328,000.
The following table presents historical data relating to sales of the Company's
homes and homes under contract.
<TABLE>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total Revenues From
Closed Sales (in thousands) $ 13,505 $ 26,800 $ 36,126 $ 31,960 $ 46,284
Average Sales Price (per home) $166,728 $152,270 $174,522 $194,878 $215,274
Number of Homes Closed 81 176 207 164 215
Backlog as of December
31, (number of homes) 97 72 36 66 54
Backlog as of December
31, (in thousands) $ 12,306 $ 11,294 $ 6,365 $14,766 $ 11,885
</TABLE>
Backlog is defined as the number of homes completed or under construction or in
planning which are under contract but not closed. Backlog contracts are
cancelable upon forfeiture of $2,000 to $5,000 deposits or without forfeiture if
permanent financing cannot be obtained or other contingencies included in the
contract have not been resolved. The Company expects the majority of the
December 31, 1996 backlog to close within the first six months of 1996. The
backlog at March 11, 1997 was 60 homes.
PLANNED RESIDENTIAL COMMUNITIES - The Company designs its planned residential
communities to complement existing land characteristics, blending cul-de-sacs
with extensive greenbelt parks, natural open space and winding streets to create
a pleasant environment compatible with its surroundings. Typically the
Company's planned communities incorporate one or more recreation facilities such
as a clubhouse, swimming pool or tennis courts. The Company constructs model
homes to assist in marketing each community, striving for distinctive
architecture and interior design. The Company has built in 28 communities, 21
of which have been completed. The Company is active in seven
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communities; Castle Pines North, Writer Ridge II, SummerHill, NorthPark,
Peninsula, Settler's Village and Greenbrook, all located in metropolitan
Denver.
The following table summarizes information with respect to all of the Company's
current residential communities.
<TABLE>
Under Construction Current or
Date Units In ------------------ Projected
Opened Master Units Under Not Under Units Not Base Price
for Sale Plan Closed Contract Contract Started Models Range
-------- -------- ------ -------- --------- --------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROJECT
- -------
SOUTHPARK
Single Family 1982 269 269 0 0 0 0
Townhomes:
Colony 1982 411 411 0 0 0 0
Wildwood(1) 1982 273 273 0 0 0 0
Peninsula 1992 98 62 3 5 26 2 $285,250 -
$312,750
GREENBROOK
Townhomes(2) 1983 222 121 0 0 101 0
NORTHPARK
Single Family:
Executive 1983 258 258 0 0 0 0
Village 1986 163 163 0 0 0 0
New Single Family(1) 1992 55 55 0 0 0 0
Townhomes(4) 1984 457 297 11 15 133 3 $155,990 -
$164,990
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CASTLE PINES NORTH
Single Family:(3)
Royal Hill 1985 311 186 10 4 108 3 $239,550 -
$272,550
Kings Crossing(2) 1985 235 111 3 3 118 0 $279,750 -
$327,250
KnightsBridge(6) 1985 211 92 7 5 107 2 $196,550 -
$219,550
Townhomes to be 90 0 0 0 90 0 to be
determined determined
HIGHLANDS RANCH
Single Family:
Writer Ridge 1990 100 100 0 0 0 0
Writer Ridge II 1993 73 49 9 3 10 2 $199,590 -
$237,590
SummerHill(5) 1993 97 57 4 7 26 2 $174,990 -
$213,590
Townhomes
Settler's Village 1995 135 26 7 11 88 3 $144,990 -
$168,990
PIER POINT
Townhomes(1) 1993 46 46 0 0 0 0 $134,950 -
----- ----- -- -- --- -- $152,950
Total as of
December 31, 1996 3,504 2,576 54 53 807 17
----- ----- -- -- --- --
</TABLE>
_____________
(1) Completed in 1996.
(2) The balance of this project will be developed in 1997.
(3) There will be some mix of product line within certain development tracts.
(4) Two of the models at this project have been sold and leased back to the
Company.
(5) These new models were under construction at December 31, 1996; the existing
model was sold in March, 1997.
(6) These models have been sold and leased back to the Company.
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OPERATIONS - The Company utilizes its staff, outside consultants and
subcontractors as necessary to accomplish all stages of development and sale
including acquisition of land, land use planning and development, building
design, construction, marketing and sales.
LAND ACQUISITION AND DEVELOPMENT - The Company currently acquires options on
land which it intends to develop in order to further explore the suitability
of the property. The Company typically engages outside consultants to verify
market expectations. They provide marketing studies which address factors
such as product design and pricing, target market location, population growth
patterns, and zoning suitability. The Company's staff prepares preliminary
cost estimates, land and site layouts, and obtains environmental and
regulatory approvals. The staff also designs preliminary roads, sewers,
water, and drainage layouts and other community amenities, in concert with
independent engineers.
The Company currently has an inventory of unplatted land and land under
development sufficient for planned construction activities for the near
future. As an additional source of lots for construction, the Company enters
into purchase agreements for developed sites.
The Company designs its residential communities to complement the
characteristics of the land and the surrounding area to create an appealing
environment. Internal staff determines the type and mix of houses suitable
for the property, evaluates traffic patterns, designs roadways, recreational
areas and greenbelts. Physical development, including paving of streets,
grading of home sites and underground installation of utilities, is generally
performed by subcontractors under fixed price contracts, which are
competitively bid, and supervised by in-house staff.
The Company is subject to regulation by various state and local authorities,
including those administering zoning and land subdivision ordinances.
Certain matters require agency approval and the Company's homes are subject
to inspection by local building departments during construction. The Company
believes that its relationships with the municipalities and agencies having
jurisdiction over its properties are excellent. The Company historically has
experienced little difficulty in obtaining the necessary permits for
developing its properties. Some local municipalities have attempted to limit
growth through allocations of building permits or water and sewer taps. The
Company has not been directly impacted by these measures to date but may be
in the future.
LAND ACQUISITION AND DEVELOPMENT FINANCING - The Company currently acquires
development financing through lending relationships with financial
institutions or other institutional lenders. In 1996, the Company's
development activities at the Castle Pines North and Settler's Village
projects were financed through these traditional banking relationships, which
are now available to the Company based on the improvement in operating
results over the last few years.
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HOME CONSTRUCTION - The Company typically completes construction of its homes
in 80 to 120 working days, depending on the complexity of the model. On-site
construction is performed by subcontractors and overseen by the Company's
project supervisors. Most subcontract work is performed under fixed price
contracts, which usually cover both labor and materials. Cost savings are
sought through the use of quality standard materials and components, building
on contiguous sites, standardization of available options, limiting certain
types of options and efficient use of land. The Company has many long
standing relationships with- its subcontractors and believes that these
relationships contribute to cost and production efficiencies. The Company
continually considers design innovations in its house plans, most of which
were developed internally and refined over the years.
CONSTRUCTION FINANCING - The Company currently obtains the majority of- its
construction financing under revolving lines of credit with local and
national banks. These agreements provide for some lot purchases and
substantially all material and outside labor costs incurred in the
construction of residences. In addition, certain agreements provide model
home financing and allow a specific number of speculative homes to be built.
The balance of the Company's work in process is financed by a few smaller
local lenders each of which will allow a certain number of speculative and
presold homes. The term of the facilities require annual renewals,
commitment fees of 0.5% to 1.5%, and bear interest generally at prime plus 1%
to prime plus 1.5%.
The Company has approximately $29,400,000 available from institutional and
non-institutional financing sources for development and construction
financing as of December 31, 1996.
MARKETING AND SALES - The Company markets its planned residential
communities to middle and upper middle income purchasers through Company
employed, on-site, commissioned salespersons. Many of the Company's sales
involve co-operative commission arrangements with an independent real estate
broker. The Company encourages this cooperative activity through various
programs aimed at outside real estate professionals who many times have
significant influence over buyer decisions. The Company advertises in the
print media, uses various types of signage, and maintains model home
complexes at its communities to assist sales efforts. Prospective purchasers
execute contracts for the Company's homes, making a down payment of $2,000 to
$5,000 which is forfeited if the home is not purchased for any reasons other
than failure to obtain financing or resolution of other contingencies in the
contract.
CUSTOMER FINANCING - The Company has identified mortgage lenders which are
available for buyers to use which it feels are capable of providing timely
and professional services at competitive rates. The Company does not require
any specific permanent financing relationship to be used by buyers. This
practice allows the Company to focus on its primary marketing objective of
home sales. Most buyers obtain long term loans with down payments ranging
from 5 to 30% of the purchase price. In order to facilitate certain
transactions, the Company provides credits against the purchase price of up
to 2% which can be used by purchasers to obtain financing for their homes,
and other incentives on a case by case basis.
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OTHER FACTORS - Interest rates are a significant factor that impact the real
estate development and home building industry. Interest rates affect
construction and financing costs and rates directly impact the number of
purchasers who are willing to buy houses and who qualify for mortgage
financing.
Most raw materials the Company uses are readily available and are carried by
major suppliers. During 1993 the Company was affected by unusual inflation
costs related to lumber purchases, but these markets have been relatively
stable since 1993.
WORKING CAPITAL FACILITY
On December 30, 1996 the Company consummated a loan agreement which provides
the Company with a $1,700,000 revolving line of credit. The working capital
facility is secured by the Company's Castle Pines North project. See
Discussion at Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
PRIVATE PLACEMENT OF COMMON STOCK
During the second quarter of 1995, the Company offered to private investors
2,000,000 shares of its common stock at $1.50 per share. In total 1,637,516
shares of stock were issued through this private placement with 1,530,003
shares subscribed as of December 31, 1995 and the balance subscribed in 1996.
Through this offering the Company raised $2,380,000 of new working capital.
An underwriting fee was paid in 1996 by issuing 51,180 shares of the
Company's common stock. See additional discussion at Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations.
EXTINGUISHMENT OF DEBT
On March 14, 1997, the Company's headquarter office was sold to an unrelated
party at a gain. The Company intends to lease office space at a cost which
is more advantageous than the current building ownership. In addition, the
Company received a discount of $106,000 on the early extinguishment of the
debt securing the office property. The gain on the sale of the building and
early extinguishment of debt was recorded in the first quarter of 1997. See
Item 2, Properties.
On June 22, 1995 the Company entered into an agreement with one of its
lenders by which approximately $2,756,000 in outstanding unsecured debt was
satisfied for a $750,000 cash payment which resulted in an extraordinary gain
before tax of approximately $2,000,000. The Company made the payment with
proceeds of the common stock offering discussed above. In addition, under
the terms of a previous restructuring agreement, the Company was obligated to
this lender for stock appreciation rights on 500,000 shares of the Company's
common stock which was also satisfied in full upon final payment to the
lender in August of 1995.
7
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TREASURY STOCK RETIREMENT
Pursuant to a recently promulgated statute, which requires Colorado
corporations to treat treasury stock as shares that have been returned to the
status of authorized but unissued, the Company eliminated the treasury stock
it previously carried as a reduction of equity. See Item 14; Exhibits,
Financial Statement Schedules, and Reports on Form 8-K.
EMPLOYEES
As of December 31, 1996 the Company had 78 full time employees, including 5
in executive positions, 20 in sales and marketing activities, 42 in planning,
construction or development activities, 11 in administrative activities, and
1 part-time employee. The Company considers its employee relations to be
good and none of the Company's employees are unionized.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company currently operates in one industry segment, the residential real
estate development and homebuilding industry.
ITEM 2. PROPERTIES.
The Company's principal offices are currently located at 27 Inverness Drive
East, Englewood, Colorado 80112, in an 11,800 square foot building owned by
the Company. On March 14, 1997, the Company sold the office building and
entered into a two month lease with the new ownership group. The Company
will relocate its offices on May 14, 1997 to the Atrium Building located at
6041 S. Willow St., in Englewood, Colorado. The Company has leased
approximately 9,200 square feet for a five year term with renewal options.
The Company owns various parcels of real estate in metropolitan Denver which
it holds for development as residential property. These residential
properties are addressed in further detail in Item 1 above. See Item 1,
Extinguishment of Debt.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various legal matters of a nature incidental to
its business which in the opinion of management should not have a material
adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded over-the-counter under the symbol WRTC.
The following table presents the "highest bid"and "lowest ask" quotations (as
supplied by the National Quotation Bureau, Inc.) and dividend information for
the Company. The approximate number of holders of record of the Company's
common stock as of March 15, 1996 was 400.
STOCK PRICE AND DIVIDENDS LOW HIGH
DIVIDENDS PAID
1996 "BID PRICE" "ASK PRICE" PER SHARE
---- ----------- ----------- --------------
First Quarter $1.00 $1.44 None
Second Quarter 1.00 1.50 None
Third Quarter .85 1.25 None
Fourth Quarter 1.01 1.31 None
1995
----
First Quarter $1.25 $1.88 None
Second Quarter 1.25 1.75 None
Third Quarter 1.50 2.13 None
Fourth Quarter .88 1.88 None
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial and other data of the Company set forth below should be
read in conjunction with the Company's Consolidated Financial Statements and the
notes thereto included elsewhere in this Form 10-K.
<TABLE>
Dollar amounts in thousands other 1996 1995 1994 1993 1992
than per share data ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $46,284 $31,960 $36,126 $26,800 $13,505
Net income (loss) from continuing $1,301,000 $(316,000) $1,233,000 $(664,000) $(925,000)
operations
Net income (loss) from continuing $.18 $.(05) $.21 $(.13) $(.19)
operations per share
Net income (loss) (1)(2) $1,301 $1,121 $1,233 $(388) $7,266
Net income (loss) per share (1)(2) $0.18 $0.18 $0.21 $(0.08) $1.50
Weighted average shares 7,402,800 6,322,800 5,974,300 5,258,900 4,837,900
outstanding (Primary)
Dividends paid per share -0- -0- -0- -0- -0-
Total assets $36,650 $41,070 $41,851 $36,637 $43,474
Notes payable $17,241 $22,419 $25,937 $21,713 $31,224
</TABLE>
- -------------------
(1) These amounts include operations of the Company's extraordinary gains
of $1,437,000, and $8,422,000, recorded during 1995, and 1992,
respectively.
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(2) These amounts include the gain on the disposal of net assets of
discontinued operations of $299,000, net of taxes of $89,000 during 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
During 1996 the Company recorded the highest levels of revenue, gross profit
and operating income which have been achieved by the Company during any of
the last nine years. These results were accomplished in spite of a $475,000
impairment loss recorded during the third quarter of 1996, discussed below.
The Company closed 215 homes, a 31% increase in units from the prior year
level of 164. In 1994, the Company closed 207 units. The impact of the
additional units closed in 1996 was enhanced by a 10% increase in the average
sales price from the prior year. These factors, coupled with the stability
of the market for new homes, produced revenue of $46,284,000, a $14,324,000
increase over 1995. Sales revenue for 1996 increased by 45% and 28%
respectively, over 1995 and 1994. The 12% decrease in revenue from 1994 to
1995 was reflective of the 22% decrease in sales in the overall Denver
metropolitan market during the first five months of 1995 versus 1994.
The average sales price per house was $215,275, $194,878, and $174,522 for
1996, 1995 and 1994, respectively. The change in average sales price
reflects the change in the mix of townhome, single family and cluster homes
sold during the periods coupled with some increase in selling prices
primarily driven by cost increases for some of the Company's product. The
Company continues its desire to move the mix of its closings to a heavier
weighting of single family detached homes. This was apparent in the 1996
closing mix which increased the average selling price. The table below
illustrates this mix.
Cluster
Closings Townhomes Single Family Homes Total
- -------- --------- ------------- -------- -----
Year ended December 31, 1996 83 116 16 215
Year ended December 31, 1995 97 51 16 164
Year ended December 31, 1994 123 70 14 207
In 1996, cost of sales was $12,248,000 higher than in 1995. This increase
reflects the higher closing levels during the year, and was more than offset
by the $14,324,000 revenue increase. In 1995, cost of sales decreased by
$2,450,000 compared to 1994, reflecting lower closing levels and tighter
profit margins.
The Company's 1996 gross profit was $7,721,000 compared with $5,645,000 and
$7,362,000 during 1995 and 1994 respectively. Gross profit was adversely
impacted by an impairment loss in 1996. During 1996 the Company decided to
sell a parcel of partially developed land which the Company had previously
intended to develop and build out. The Company received contingent offers
that were less than its carrying amount. Accordingly the Company recorded a
$475,000 impairment loss against this parcel. The parcel has not sold and
the Company is currently designing product which management believes can be
successfully marketed
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on this parcel. This impairment loss, along with certain non-recurring
credits arising from resolution of contingencies, are included in the cost of
sales for the year. Had these non-recurring noncash items not occurred, the
Company's gross profit on sales would have been 17.2% in 1996, compared to
17.7% and 20.4% in 1995 and 1994.
The decrease in gross profit percentage in 1996 was impacted by the
establishment of higher warranty reserves which are charged to cost of sales.
The increased warranty reserves were established by the Company because the
Company is now required to pay for any structural repairs discovered during
the first year after the sale of a house. The Company will continue to
monitor these estimated reserves in its attempt to provide coverage for
future anticipated expenses. In addition the drop in gross profit reflects
the Company's desire to provide a quicker turn on its inventory. Speculative
inventory levels were reduced during late 1995 and early 1996 by more
aggressive marketing practices that included some price discounting and other
incentive programs adversely which impacted profit margins. These practices
were directly responsible for the lower gross profits in 1995 compared to
1994.
Because the market has remained stable but also competitive, it is anticipated
that some discounting and buyer incentives will continue to be a part of the
Company's marketing process over the near term. All marketing incentive
programs will continue to receive careful scrutiny for their effectiveness by
management.
In 1996, sales and marketing expenses increased by $338,000 over 1995. However,
as a percentage of sales, these costs decreased by 24%. Sales and marketing
expenses, however, were 7.7% of sales versus 10.0% in 1995. The dollar increase
was attributable to costs that vary with sales volume, such as internal and
external sales commissions.
In 1995, the Company's sales and marketing expenses increased by $209,000. As a
percentage of revenue the expenses were 10%, an increase of 2% over 1994. The
completion of the Castle Pines North models and their associated costs for
interest, taxes, maintenance and depreciation of model furnishings was a
contributing factor to the increase. In addition, product advertising was more
cost intensive due to the inclusion of radio and television ads in the overall
marketing strategy during 1995. These mediums were not used in 1996.
During 1996, general and administrative expenses increased by $274,000.
However, as with sales and marketing costs, as a percentage of sales revenue,
these costs decreased by 19.1%, to 4% of sales.
In 1995, general and administrative expenses decreased by $128,000 or 7% over
the same costs in 1994. As a percentage of revenue they were similar to prior
years at approximately 5%. During 1995 the Company had a staff reduction aimed
at effectively matching expected costs with lower revenue expectations.
The Company's interest expense in 1996 decreased by $808,000 or 39.9% from 1995.
This savings reflects the benefit of restructuring or termination of the
Company's less favorable financing arrangements, and the expansion of those with
more attractive costs. In addition, principal repayments have been accelerated
as cash from operations has been available, and because certain development
loans require more aggressive repayments than those which were typical in prior
years.
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Overall interest incurred from debt was also reduced. During the years ended
December 31, 1996, 1995, and 1994 interest of $2,955,000, $3,693,000 and
$3,668,000, respectively, was incurred of which $1,738,000, $1,668,000 and
$1,815,000 respectively was capitalized. In 1995 the Company expensed
approximately $206,000 more interest than in 1994, due to a higher level of
non-qualifying assets in 1995.
Interest and other income increased by $35,000 during 1996 compared to 1995.
This increase is attributable to interest earned on higher cash balances
throughout the year. The decrease in 1995 compared to 1994 reflects the loss of
property management fees collected from a related party and a loss of rents from
inventory at Castle Pines North which was leased in 1994.
The Company recorded an adjustment to its deferred tax asset of $33,000 to
reflect the currently estimated realizable value of the asset less the amount of
current tax due of $9,000. The Company recorded a tax benefit in 1995 as a
result of utilization of net operation losses used to offset gains from early
extinguishment of debt.
All of these factors discussed above resulted in income before extraordinary
item of $1,301,000 compared to a loss of $316,000 in 1995 and income of
$1,233,000 in 1994.
FINANCIAL CONDITION
At December 31, 1996 the Company had 105 homes under production ranging from
foundation stage to final completion as compared to 142 at December 31, 1995.
The decrease in the total number of units reflects the decrease in the carrying
value of homes under construction of $2,395,000. This decrease also reflects
the Company's backlog which was 54 units at December 31, 1996 compared with 66
units at December 31, 1995. The Company's backlog at March 11, 1997 had
increased to 60 units.
During 1996 the Company recorded 203 new orders net of cancellations, a portion
of which will close in 1997, representing a 5% increase over the 1995 new orders
of 194. At December 31, 1996 and 1995, the Company's work in process included a
mix as follows.
WORK IN PROCESS INVENTORY
Year Ended Dec. 31 Presold Speculative Total
------------------ ------- ----------- -----
1996 54 51 105
1995 66 76 142
At December 31, 1996 the total dollar backlog represented by the 54 contracts
was $11,885,000 compared to a December 31, 1995 dollar backlog of $14,766,000.
This decrease in backlog will make it challenging for the Company to increase
revenue in 1997 compared to the increases and results posted in 1996.
Model homes and furnishings decreased by $1,426,000 during 1996 which reflects a
29% decrease in the carrying value of these assets. During the year seven
models at four projects were sold while two new
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models were opened at the Company's Castle Pines North project. 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 is intended to further
enhance this effort if transactions can be consummated.
The decrease in land development of $1,286,000 or 10.7% reflects the transfer
of completed lots from land development to homes under construction, net of
new development expenditures. Also included in this reduction is the
establishment of the $475,000 impairment loss.
The increase in the Company's unplatted land of $520,000 reflects the
acquisition of the phase two development parcel for the Company's Settler's
Village townhome project located in Highlands Ranch. It is anticipated that
development of this phase will begin during the summer of 1997.
The Company's office property and equipment depreciated by approximately
$245,000. However, overall the balance decreased by only $45,000 during 1996.
During the year the Company upgraded significantly its computer hardware and is
currently investigating potential software systems which may enhance operational
capabilities. Further on March 14, 1997, the Company's headquarter office was
sold to an unrelated party at a gain. The Company intends to lease office space
at a cost which is more advantageous than the current building ownership. In
addition, the Company received a discount of $106,000 on the early
extinguishment of the debt securing the office property. The gain on the sale
of the building and early extinguishment of debt was recorded in the first
quarter of 1997.
The Company's cash balances are consistent with prior years and reflect the
build up of funds relative to year end closings. The restricted cash balances
increased by approximately $312,000. These amounts primarily represent the
escrowing of closing proceeds for future tap purchases or to secure outstanding
development obligations at several of the Company's projects.
The decrease in notes payable related to construction activities of $1,099,000
reflects the reduced inventory levels previously mentioned. The decrease of
approximately $3,800,000 related to the Company's land debt reflects the
accelerated repayments related primarily to the Company's Castle Pines North
project, as well as the satisfaction of the development debt related to
completed projects.
The reduction in other non-construction debt of approximately $279,000
illustrates the Company's efforts to retire debt as cash from operations has
become available. This remaining balance will be significantly reduced during
the first quarter of 1997 as approximately $890,000 of this debt was satisfied
upon the sale of the office property.
The account payable and accrued expenses of the Company decreased by
approximately $527,000 due to enhanced cash from operations. In addition, the
lower inventory levels previously mentioned have positively impacted these
balances. The decrease in accrued interest of approximately $99,000 is also
reflective of the Company's efforts to continually improve its credit facilities
and their associated interest costs.
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The Company finalized the 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 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources showed significant improvement
during 1996, primarily enhanced by the profit from operations, and cash provided
from liquidation of inventories and models and most importantly from the
finalization of a $1,700,000 working capital facility discussed below.
During the twelve months ended December 31, 1996, the Company generated
$5,100,000 of cash in operating activities as compared to using $907,000 of cash
during 1995. This net cash was generated primarily from liquidation of
inventory and model homes and augmented by the $1,301,000 of net income. The
cash generated during the period was used primarily to repay outstanding debt
obligations and other accrued expenses.
On December 30, 1996, the Company consummated a new working capital facility
with one of its existing lenders. Under the terms of the facility the Company
has received a commitment under which it may advance on a revolving basis up to
$1,700,000 for working capital. The facility is secured by the collateral value
associated with the Company's Castle Pines North project. The Company has
identified future development lots which are being used to support this
facility. Under the terms of the loan agreements, until these lots are marketed
to a third party or developed by the Company, they will provide collateral for
the facility. Should the Company develop or market the specific lots, a
corresponding repayment of the facility or reduction in the available borrowings
under the facility is required. The facility carries interest at prime plus 1%
and matures in February of 1998.
In order to address the continuing growth of the Company's construction
activities, in October of 1996, the Company renewed a credit facility with one
of its primary lenders and increased the facility from the existing $12,000,000
to $15,000,000. This new facility, which carries a more attractive interest
rate and fee structure is being used to fund construction costs at three
townhome and two single family projects. Under the terms of the new facility,
the Company will pay a 0.5% commitment fee and will be charged at a rate of
prime plus 1% on outstanding amounts. Because no additional loan fees are
required, management believes this facility will continue to facilitate efforts
in reducing overall financing costs. In addition, the facility will provide
financing for a specific number of models and speculatory inventory units and
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 ongoing agreements to acquire finished sites for building homes
from other developers, usually on quarterly acquisition schedules. The Company
cannot always obtain 100% financing to fund these acquisitions and therefore
some equity is required to meet these ongoing obligations. Sustained profitable
operations are expected to provide some equity necessary for the current
commitments, however because
14
<PAGE>
of the cyclical nature of the homebuilding and development industry, no
assurance can be given that profitable operations will be sustained
indefinitely. In light of the Company's decreased backlog, it is anticipated
that the working capital facility will be used to supplement these equity
requirements.
In addition to the working capital facility and improved operating results, the
Company continues to address liquidity by scrutinizing all of the Company's
assets which may provide benefit if sold. Specifically, certain lots within the
Company's Castle Pines North project may be marketed if a complimentary
builder/buyer can be identified. Any lots sold under this program would require
a reduction in the availability of the working capital facility or a repayment
should the facility be fully drawn. At this stage, the Company has been
unsuccessful in its efforts to market these lots, but the Company remains
committed to reducing all levels of nonproductive assets over the near term.
The Company's lending relationships have been solidified during 1996 with the
operating results posted. The current construction and development commitments,
which are unfunded as of December 31, 1996, equal $29,441,000, which the Company
has available to satisfy funding requirements for construction and land
development.
Based on the improved operating results and the new working capital facility,
the Company is confident in its ability to meet its obligations over the near
term, while continuing to emphasize managed growth of operations in the future.
15
<PAGE>
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS
NAME, AGE, AND OTHER PERIOD SERVED AS DIRECTOR AND BUSINESS
POSITIONS, IF ANY, WITH REGISTRANT EXPERIENCE DURING PAST 5 YEARS
George S. Writer, Jr., 61 Chief Executive Officer, Chairman of the
Chief Executive Officer, Board since 1964. Elected a director in
Chairman of the Board of Directors 1961.
Roland Seidler, Jr., 68 Elected a director in 1971. Mr. Seidler
is the Chairman and Chief Executive
Officer of The Seidler Companies
Incorporated, a Los Angeles based
investment banking firm. Mr. Seidler also
is a member of the Board of Directors for
First Business Bank and First Business
Corporation.
Ronald S. Loser, 63 Elected a director in 1973. Secretary of
Secretary The Writer Corporation since its
inception. Mr. Loser is a Principal of
Brega & Winters, P.C., a Denver law firm.
Deane J. Writer, Jr., 63 Elected a director in 1975. Since January
1992 Mr. Writer has been an account
executive with HRH Insurance, a national
insurance agency. Prior to that he was the
owner of The Writer Agency, since 1956.
Louis P. Bansbach, III, 56 Elected a director in 1989. Mr. Bansbach
is President of Columbine Realty, Inc.,
and a Director of United Bancorp of
Wyoming.
16
<PAGE>
Robert G. Tointon, 63 Elected a director in 1992. President and
Chief Executive Officer of Phelps-Tointon,
Inc. a manufacturer of structural and
architectural pre-stress components,
detention equipment, safes, and
architectural woodwork. Mr. Tointon is
also a director of Public Service Company
of Colorado.
John Crosland Jr., 68 Appointed director in November, 1995.
Chairman of the Crosland Group, a real
estate development company headquartered
in Charlotte, NC, since 1986. Mr. Crosland
was appointed a Life Director of the
National Association of Home Builders
(NAHB) in 1968, and serves as a Trustee to
the NAHB Mortgage Finance Committee. Mr.
Crosland also serves as a director for
First Union National Bank of North
Carolina and Summit Properties of
Charlotte, North Carolina.
DIRECTORS FEES AND TRANSACTIONS - In 1996 the Company adopted a plan by which
the outside directors receive an annual retainer fee of $5,000 and a per meeting
fee of $750, for either full Board or Executive Committee meetings. The
Executive Committee includes Directors George S. Writer, Jr., who receives no
fees for service, Louis Bansbach, III, and Robert G. Tointon. This committee
meets with the Company's President Ronald J. Benkert, during months when a full
Board meeting is not convened.
In 1996, 1995 and 1994, Brega and Winters, the law firm in which Ronald S. Loser
is a principal, was paid attorneys' fees. Additionally, insurance is placed
with a company with which Mr. Deane J. Writer, Jr. is employed and receives a
commission. The Company places substantially all of its insurance coverage
through this agency. In the opinion of management, the amounts charged in these
transactions are less than or comparable to charges which would have been made
by unaffiliated parties. Deane J. Writer, Jr. is a first cousin of George S.
Writer, Jr.
EXECUTIVE OFFICERS - Set forth below are the names, ages and offices held by
each of the executive officers of the Company.
Positions Held and Business
Name and Age Experience During Past 5 Years
- ------------ ------------------------------
George S. Writer, Jr., 61 Chief Executive Officer, Chairman of the Board of
Directors of The Writer Corporation since 1964.
17
<PAGE>
Ronald J. Benkert, 43 President and Chief Operating Officer since
February 1996. From January 1995 to January
1996, Mr. Benkert served as President of
Williamsburg Properties, Inc., a residential
homebuilder based in Cincinnati, Ohio. From
November, 1979 to October 1994, Mr. Benkert
worked for Zaring Homes Inc., a publicly traded
regional developer and homebuilder based in
Cincinnati, Ohio. Mr. Benkert served as President
of Zaring from December 1989 to October 1994.
Robert R. Reid, 48 Senior Vice President Operations since August
1992. Mr. Reid has been employed by the Company
since 1977 and served as Vice President-
Construction, Vice President-Southwest Region,
Construction Manager and Project Manager prior
to his present position.
Daniel J. Nickless, 41 Senior Vice President, Chief Financial Officer and
Treasurer since June 1994. Mr. Nickless served as
Vice President of Finance and Treasurer from July
1993 to June 1994, and Vice President Controller
since November 1989. Mr. Nickless joined the
Company as Controller in February 1989.
Derrell Schreiner, 43 Vice President of Construction since July 1993 and
also serves as the Company's Safety Officer. Mr.
Schreiner has been employed by the Company since
1985 and served as Construction Manager and as a
project superintendent prior to his present
position.
The Company is not aware of any officer, director or holder of 10% or more of
its securities which has failed to comply with the reporting requirements under
Section 16, of the Securities Exchange Act of 1934.
ITEM 11. EXECUTIVE COMPENSATION.
The information in the following table is given for the Company's Chief
Executive Officer and President. No other executive officer of the Corporation
received total remuneration from the corporation and its subsidiaries of more
than $100,000 during the three years ended December 31, 1996.
18
<PAGE>
SUMMARY COMPENSATION TABLE
Annual Compensation
- -------------------------------------------------------------------------------
Name and Principal Other Annual
Position Year Salary Bonus Compensation(1)
George S. Writer, Jr. 1996 $100,800 $-0- $ 62,472
Chief Executive Officer 1995 100,800 -0- 257,661
1994 100,800 -0- (69,561)
Ronald J. Benkert 1996(2) $165,113(3) -0- -0-
President and Chief Operating
Officer
- ----------------------
(1) Amounts disclosed represent earnings or losses on the individual vested
portion of the Company qualified profit sharing retirement plan account
balances during the years presented.
(2) First year of employment.
(3) Includes $13,431 of relocation costs reimbursed to Mr. Benkert.
19
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of March 1, 1996, to the knowledge of the Company, the following persons
owned beneficially and of record more than 5 percent of the Company's common
stock:
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
- -------------- ---------------- -------------------- --------
Common Stock George S. Writer, Jr.(1) 1,398,847 19.02%
Littleton, Colorado
Common Stock Phelps-Tointon, Inc.(2) 1,260,666 17.14%
Greeley, Colorado
Common Stock Polaris Capital Corporation 549,384 7.5%
Denver, Colorado
- -------------------------
(1) Control person of the Company.
(2) Phelps-Tointon, Inc. is a company which is partly owned by Robert G.
Tointon, one of the Company's directors. The shares listed include
shares owned directly by Mr. Tointon.
Security Ownership of Management - The following information indicates the
common stock of the Company beneficially owned, directly or indirectly, by
all directors and executive officers of the Company as of March 1, 1996.
Amount and Nature of Percent
Title of Class Beneficiary Ownership of Class
-------------- --------------------- --------
George S. Writer, Jr. Common Stock 1,398,847 19.02%
Robert G. Tointon (1) Common Stock 1,260,666 17.14%
Deane J. Writer, Jr. Common Stock 209,000 2.84%
Roland Seidler, Jr. Common Stock 186,474(2) 2.54%
John Crosland, Jr. Common Stock 160,000 2.18%
Louis P. Bansbach, III Common Stock 140,238 1.91%
Daniel J. Nickless Common Stock 25,710 (3)
Robert R. Reid Common Stock 25,430 (3)
Ronald S. Loser Common Stock 11,900 (3)
Ronald J. Benkert Common Stock 5,000 (3)
Derrell Schreiner Common Stock 5,000 (3)
All Directors &
Officers as a group (11) Common Stock 3,428,265 46.61%
20
<PAGE>
(1) Reflects shares held by Phelps-Tointon, Inc., of which Mr. Tointon is
the President and part owner.
(2) Does not include shares in varying amounts owned as a market maker by
a broker-dealer with which Mr. Seidler is affiliated.
(3) Less than 1% of shares outstanding.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The following information is furnished with respect to certain transactions
in which the amount involved exceeded $60,000 and which involved an officer,
director, beneficial holder of more than five percent of the voting stock of
the Company or a person or entity affiliated with such persons.
Certain of the Company's officers and directors, directly and indirectly,
provided financial assistance to the Company in several transactions through
December 31, 1996.
SUBDIVISION LOAN PARTICIPATIONS - On January 14, 1992 the Company executed a
loan agreement with a real estate investment trust under which $1,500,000 was
committed to the Company. George S. Writer, Jr. and Roland Seidler, Jr.
participated in this transaction by advancing 20% of the committed funds and
will receive 20% of the loan payments, including 20% of a $1,600 per lot
additional interest payment. This loan bears interest at 14% and was
restructured to include an additional funding commitment which will allow the
Company to finish planned development at the Company's project, and matures
on January 1, 1998. Principal is due as homes are closed and interest is
payable monthly.
PENINSULA ACQUISITION AND DEVELOPMENT FINANCING - On August 12, 1992 the
Company acquired 22 acres of vacant ground from its Chairman and Chief
Executive Officer George S. Writer, Jr. The land was transferred at Mr.
Writer's out-of-pocket cost which included amounts for interest, taxes, land
planning and engineering, plus an amount equal to the remaining debt owed by
Mr. Writer on the property. The purchase price was $1,500,000. The
acquisition was financed by several affiliates of the Company including
George S. Writer, Jr. ($300,000), Roland Seidler, Jr. ($150,000),
Phelps-Tointon, Inc. ($525,000), Louis P. Bansbach III ($225,000) and two
non-affiliates who contributed $300,000. The same affiliates have funded an
additional $2,000,000 for development financing under the same percentages as
the acquisition funds. Both the acquisition and development funds bear
interest at 10% and have a maturity date of July 31, 1998.
During 1994 the Company modified this agreement. The modification includes a
provision by which the lender has deferred its profit participation while
$800,000 of cash was accumulated to use in development activities on this
project. These funds have been employed. The original agreement required an
accelerated distribution of cash flow in that the lender would receive 75% of
the cash flow and the Company would receive 25% until the lenders' initial
advance of $3,500,000 million had been repaid. Under the modification,
profits and losses are split equally. The deferred profit participation has
been repaid to the lender.
FOUNDATION LOANS - On March 19, 1993 the Company entered into a loan
agreement with four affiliates of the Company under which it borrowed
$300,000 which is being used to construct foundations for the Company's
inventory of homes. The loans bear interest at 12% and mature on April 1,
1997. The affiliates
21
<PAGE>
included George S. Writer, Jr. ($100,000), Roland Seidler, Jr. ($50,000) and
Phelps-Tointon, Inc. ($50,000). In January, 1994, the Company entered into a
modification agreement by which the foundation loan fund was increased to
$600,000. The increase was provided by George S. Writer, Jr. ($100,000) and
Phelps-Tointon, Inc. ($200,000) and all other terms and conditions of the
note remained the same. The Company has renewed this facility and in March
1995, Mr. Writer ($50,000) and Mr. Tointon ($50,000) purchased a non-
affiliated ($100,000) interest. During 1995, the Company repaid $300,000 of
these borrowings in equal proportions to each lender. During 1996 an
additional $250,000 of the fund was repaid and the balance will be repaid
during 1997.
UNSECURED ADVANCES - During 1989 and 1990 George S. Writer, Jr. advanced an
additional $155,500 for working capital purposes to the Company either
personally or through a corporation which he owns. These advances are
unsecured, non-interest bearing and are due on demand. At December 31, 1996,
approximately $126,800 was owed to Mr. Writer as a result of these advances.
WORKING CAPITAL LOAN AND STOCK SUBSCRIPTION AGREEMENT - On February 14, 1992
the Company entered into a loan with a corporation affiliated with Mr. Robert
Tointon, who became one of the Company's directors on March 12, 1992. Under
the terms of the loan agreement $175,000 of working capital was advanced to
the Company. The advance bears interest at 10% per annum payable monthly.
The loan has been renewed and matures on February 14, 1998. The Company has
repaid $25,000 of this loan and plans to retire the debt over its extended
term.
SERIES 1993 A CONVERTIBLE UNSECURED PROMISSORY NOTES - The Company currently
has outstanding unsecured convertible debt of $1,025,000 held by
Phelps-Tointon, Inc. in the amount of $500,000; George S. Writer, Jr. in the
amount of $312,500; Roland Seidler, Jr., in the amount of $87,500, and the
balance held by non-affiliates. The convertible debt can be converted into
stock at $3.00 of unpaid principal at any time prior to the maturity date of
the note which is September 30, 1997. Interest on the debt accrues at prime
plus 1-1/2% and is paid monthly.
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
a) 1. Financial Statements:
The following consolidated financial statements of The
Writer Corporation and its subsidiaries are included in
Part II, Item 8:
The Writer Corporation and subsidiaries Consolidated Financial Statements:
Page
----
Independent Auditors' Report................................ F-1
Consolidated Balance Sheets as of December 31, 1996
and 1995................................................... F-2
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994........................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1995 and 1994............... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994........................... F-7
Notes to Consolidated Financial Statements.................. F-8
All schedules and separate financial statements of the registrant are omitted
because they are not applicable, or not required, or because the required
information is included in the consolidated financial statements or notes
thereto.
a) 3. Exhibits: None
b) Reports on Form 8-K: None
c) Exhibits Required by Item 601 of Regulation S-K:
(3) Articles of Incorporation and Bylaws - Exhibits 4(a) and
4(b) to the Company's Registration Statement on Form S-2,
Commission File No. 2-81816 are incorporated by reference.
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of The Writer Corporation:
We have audited the accompanying consolidated balance sheets of The Writer
Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The Writer Corporation and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
March 7, 1997
F-1
<PAGE>
THE WRITER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
- ------------------------------------------------------------------------------
ASSETS 1996 1995
RESIDENTIAL REAL ESTATE HELD FOR SALE, NET
(Notes 2 and 6):
Homes under construction $12,884,000 $15,279,000
Model homes and furnishings, less
accumulated depreciation of $660,000 and
$621,000 3,439,000 4,865,000
Land and land development 10,692,000 11,978,000
Unplatted land 6,403,000 5,883,000
----------- -----------
Total 33,418,000 38,005,000
----------- -----------
OFFICE PROPERTY AND EQUIPMENT, less
accumulated depreciation of $804,000 and
$1,049,000 (Notes 2 and 7) 604,000 649,000
----------- -----------
OTHER ASSETS:
Cash and cash equivalents 995,000 1,094,000
Restricted cash 667,000 355,000
Accounts receivable 235,000 251,000
Other 381,000 399,000
Deferred tax asset (Note 3) 350,000 317,000
----------- -----------
Total 2,628,000 2,416,000
----------- -----------
TOTAL $36,650,000 $41,070,000
----------- -----------
----------- -----------
See notes to consolidated financial statements. (Continued)
F-2
<PAGE>
THE WRITER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
- ------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
LIABILITIES:
Notes payable (Note 2):
Construction, including $520,000 and
$1,644,000 to related parties $10,932,000 $12,031,000
Land, including $1,608,000 and $2,722,000
to related parties 4,211,000 8,011,000
Other, including $1,175,000 and $1,175,000
to related parties 2,098,000 2,377,000
----------- -----------
Total 17,241,000 22,419,000
----------- -----------
OTHER LIABILITIES:
Accounts payable and accrued expenses 5,060,000 5,587,000
Accrued interest 428,000 527,000
----------- -----------
Total 5,488,000 6,114,000
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 2, 6 and 7)
STOCKHOLDERS' EQUITY (Notes 2 and 4):
Common stock, $.10 par value; 10,000,000
shares authorized;
7,354,600 and 7,247,100 shares issued and
outstanding 735,000 725,000
Additional paid-in capital 12,352,000 12,279,000
Retained earnings (deficit) 834,000 (467,000)
----------- -----------
Stockholders' equity, net 13,921,000 12,537,000
----------- -----------
TOTAL $36,650,000 $41,070,000
----------- -----------
----------- -----------
(Concluded)
F-3
<PAGE>
THE WRITER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ------------------------------------------------------------------------------
1996 1995 1994
RESIDENTIAL OPERATIONS:
Revenues $46,284,000 $31,960,000 $36,126,000
Costs and expenses:
Cost of sales 38,563,000 26,315,000 28,764,000
Sales and marketing 3,548,000 3,210,000 3,001,000
General and administrative 1,883,000 1,609,000 1,737,000
Interest (Note 2) 1,217,000 2,025,000 1,819,000
----------- ----------- -----------
Total 45,211,000 33,159,000 35,321,000
----------- ----------- -----------
Income (loss) from
residential operations 1,073,000 (1,199,000) 805,000
INTEREST AND OTHER INCOME, NET 204,000 169,000 363,000
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 1,277,000 (1,030,000) 1,168,000
INCOME TAX BENEFIT (Note 3) 24,000 714,000 65,000
----------- ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM 1,301,000 (316,000) 1,233,000
EXTRAORDINARY ITEM - Gain on
extinguishment of debt, net of
income taxes of $722,000 (Note 2) - 1,437,000 -
----------- ----------- -----------
NET INCOME $ 1,301,000 $ 1,121,000 $ 1,233,000
----------- ----------- -----------
----------- ----------- -----------
See notes to consolidated financial statements. (Continued)
F-4
<PAGE>
THE WRITER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ------------------------------------------------------------------------------
1996 1995 1994
EARNINGS (LOSS) PER SHARE (Note 5):
Primary:
Continuing operations $ 0.18 $ (0.05) $ 0.21
Extraordinary item 0.23
---------- ---------- ----------
NET INCOME $ 0.18 $ 0.18 $ 0.21
---------- ---------- ----------
---------- ---------- ----------
FULLY DILUTED:
Continuing operations $ 0.18 $ (0.05) $ 0.20
Extraordinary item 0.22
---------- ---------- ----------
NET INCOME $ 0.18 $ 0.17 $ 0.20
---------- ---------- ----------
---------- ---------- ----------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
Primary 7,402,800 6,322,800 5,794,300
---------- ---------- ----------
---------- ---------- ----------
Fully diluted 7,744,500 6,664,500 6,136,000
---------- ---------- ----------
---------- ---------- ----------
(Concluded)
F-5
<PAGE>
THE WRITER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ------------------------------------------------------------------------------
<TABLE>
ADDITIONAL RETAINED
COMMON STOCK PAID-IN EARNINGS TREASURY STOCK
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 5,941,300 $594,000 $12,138,000 $(2,821,000) 245,000 $ 2,043,000
Issuance of common stock 17,500 2,000 13,000 - - -
Retirement of treasury stock
(Note 1) (245,000) (25,000) (2,018,000) - (245,000) (2,043,000)
Net income - - - 1,233,000 - -
--------- -------- ----------- ----------- ------- -----------
BALANCE, DECEMBER 31, 1994 5,713,800 571,000 10,133,000 (1,588,000) - -
Private placement of common
stock (Note 4) 1,530,000 153,000 2,142,000 - - -
Issuance of common stock 3,300 1,000 4,000 - - -
Net income - - - 1,121,000 - -
--------- -------- ----------- ----------- ------- -----------
BALANCE, DECEMBER 31, 1995 7,247,100 725,000 12,279,000 (467,000) - -
Issuance of common stock 107,500 10,000 73,000 - - -
Net income - - - 1,301,000 - -
--------- -------- ----------- ----------- ------- -----------
BALANCE, DECEMBER 31, 1996 7,354,600 $735,000 $12,352,000 $ 834,000 - $ -
--------- -------- ----------- ----------- ------- -----------
--------- -------- ----------- ----------- ------- -----------
See notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
THE WRITER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ------------------------------------------------------------------------------
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,301,000 $ 1,121,000 $ 1,233,000
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Gain on debt extinguishment - (1,437,000) -
Depreciation and amortization 513,000 516,000 356,000
Deferred income tax benefit (33,000) (754,000) (65,000)
Provision for impairment 475,000 - -
Loss on disposal of property and model home
furnishings 59,000 - -
Changes in operating assets and liabilities:
Homes under construction 2,395,000 2,286,000 (6,471,000)
Model homes and furnishings 1,003,000 (208,000) (1,714,000)
Land and land development 811,000 (3,512,000) 1,781,000
Unplatted land (520,000) 1,497,000 (42,000)
Restricted cash (312,000) (69,000) (277,000)
Other assets 34,000 337,000 (157,000)
Accounts payable and accrued expenses (626,000) (684,000) (258,000)
------------ ------------ ------------
Net cash provided by (used in) operating
activities 5,100,000 (907,000) (5,614,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of office property and equipment (104,000) (245,000) (56,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 24,237,000 21,745,000 20,604,000
Proceeds from notes payable from related
parties 1,619,000 1,203,000 5,096,000
Principal payments and other reductions on
notes payable (27,177,000) (21,727,000) (17,529,000)
Principal payments and other reductions on
notes payable to related parties (3,857,000) (2,580,000) (3,947,000)
Proceeds from sale of common stock 83,000 2,300,000 15,000
------------ ------------ ------------
Net cash provided by (used in)
financing activities (5,095,000) 941,000 4,239,000
------------ ------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (99,000) (211,000) (1,431,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,094,000 1,305,000 2,736,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 995,000 $ 1,094,000 $ 1,305,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
THE WRITER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- -------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Writer Corporation (the Company) is a developer and builder of planned
residential communities in the Denver, Colorado metropolitan area. The
accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amount of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Residential real estate sales and costs of sales are recorded at the time
of closing. Cost of sales includes land and land development costs, direct
and indirect construction costs, capitalized interest and taxes and
estimated warranty costs. As of January 1, 1996 the Company provides a two
year structural warranty to home buyers. Previously all structural
warranties were covered by a third party insurer.
Costs of unplatted land are transferred to land and land development as
each development plat is filed, according to the estimated value of the
acreage in that filing in relation to the estimated value of the total
project. Land and land development costs are prorated to homes under
construction based on total estimated costs to complete each filing and the
number of home sites in the filing.
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED
ASSETS TO BE DISPOSED OF (SFAS No. 121) effective January 1, 1996, which
requires inventory that is substantially complete and ready for its
intended use to be stated at the lower of carrying value or fair value less
costs to sell. Land under development and land held for future development
and sale is evaluated for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. If a long-lived asset is identified as impaired, the value of
the asset is reduced to its fair value. In 1996 the Company recorded an
impairment loss of $475,000, which is included in cost of sales, to reduce
a parcel of land to its fair value as a result of the Company's decision to
sell the land instead of continuing with previous plans to develop and
build out the project.
Prior to January 1, 1996 the Company recorded its real estate held for sale
at the lower of cost or net realizable value. Net realizable value was
determined based on the Company's plans for development and build out of
each project, and was computed using estimated sales prices less estimated
costs to complete and costs to sell the project. Net realizable value
would not necessarily represent the current sales prices that the Company
could obtain from third parties for such properties and projects at their
current stage of development.
F-8
<PAGE>
Office property and equipment and model home furnishings are recorded at
cost. Depreciation is provided by the straight-line method over estimated
useful lives ranging from three to thirty years. The Company does not
depreciate model homes because estimated future sales prices are expected
to exceed cost.
The Company's cash and cash equivalents consist of demand deposits and
money market funds.
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the presentation used in 1996.
Changes to the Colorado Business Corporation Law in 1994 required that all
shares of a company's capital stock that have been reacquired be considered
authorized but unissued shares. As a result, $2,043,000, which represents
the cost of 245,000 reacquired shares, has been reclassified as a reduction
of common stock and additional paid-in capital as of December 31, 1994. No
shares of the Company's common stock were reacquired in 1995 or 1996.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, (SFAS No. 123) which was
effective for the Company beginning January 1, 1996. SFAS No. 123 requires
expanded disclosures of stock-based compensation arrangements with
employees and encourages (but does not require) compensation cost to be
measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply APB Opinion No. 25,
which recognizes compensation cost based on the intrinsic value of the
equity instrument awarded. The Company has continued to apply APB Opinion
No. 25 to its stock based compensation awards to employees and has
disclosed the required pro forma effect on net income and earnings per
share at Note 5.
2. NOTES PAYABLE
CONSTRUCTION - The Company has construction financing arrangements with
various banks and related parties. The borrowings generally bear interest
at rates ranging from prime (8.25% at December 31, 1996) plus 1% to prime
plus 1.75% and are collateralized by residential real estate. Principal
and interest are generally due upon sale of the respective collateral and
the financing arrangements are generally renewed in the ordinary course of
business.
During 1996 and 1995, the Company obtained several new revolving lines of
credit and increased the borrowing availability on existing lines of credit
to be used for construction purposes. These lines allow the Company to
finance a defined number of speculative homes and an unlimited number of
presold homes as long as the total amount of the commitment is not
exceeded. Certain of the Company's construction facilities are commitments
on individual houses. At December 31, 1996, the Company has total
construction commitments available of $18,824,000.
F-9
<PAGE>
LAND - Notes payable related to unplatted land and land development at
December 31 consist of the following:
DESCRIPTION 1996 1995
Interest at prime + 1.5% payable monthly $1,694,000 $3,545,000
Payable to related parties and other,
interest at 10% 981,000 2,219,000
Payable to related parties, interest at 12% 725,000 725,000
Interest at prime + 1.5% payable monthly 625,000 361,000
Interest at 14% 186,000 898,000
Interest at 12% payable monthly - 263,000
---------- ----------
Total $4,211,000 $8,011,000
---------- ----------
---------- ----------
In February 1995, the Company consummated a $4,100,000 loan with a
financial institution. The loan bears interest at prime plus 1.5%, matures
February 20, 1999 and is secured by residential real estate. A portion of
the proceeds from this new facility were used to pay off a $2,447,000 debt
obligation at December 31, 1994, which was due in 1995, and resulted in an
extraordinary gain of $153,000. In December 1996 borrowings available
under the loan were increased by $2,000,000. The balance of the commitment
has been used to fund lot development, model home furnishings, water tap
purchases and interest payments. At December 31, 1996, the Company had
$1,694,000 outstanding under this loan.
The notes payable of $981,000 and $2,219,000 at December 31, 1996 and 1995
represent borrowings from members of the board of directors or companies
controlled by members of the board and two unrelated entities. The loans
bear interest at 10%, mature July 31, 1998 and are collateralized by
residential real estate. The agreement provides the lenders with
additional interest in the form of a participation payment of 50% of the
adjusted profit of the project, as defined. Principal and interest
payments are due as the underlying collateral is sold.
As a part of the bond restructuring for a special district which provides
services to one of the Company's projects, the Company was required to pay
past due property taxes in the amount of $725,000. Financing for the
payment of these taxes was provided by certain members of the board of
directors or companies controlled by members of the board of directors.
This obligation bears interest at 12%, is due April 1997 and is
collateralized by residential real estate.
In December 1995, the Company consummated a $1,169,000 loan to develop a
residential townhouse project. The loan, which matures December 13, 1998,
bears interest at prime plus 1.5% and is collateralized by the land. In
December 1996, the Company modified this loan by $338,000 to acquire
additional townhome lots. At December 31, 1996 and 1995, the Company had
$625,000 and $361,000 of principal remaining on the loan.
At December 31, 1996 and 1995, the Company had $186,000 and $898,000,
respectively, outstanding related to a loan agreement with a real estate
investment trust. The loan bears interest at 14%, and is secured by
residential real estate. The original agreement provided the lender with
additional interest in the form of a participation payment of $1,600 per
lot as homes were closed and $175,000 when the
F-10
<PAGE>
multifamily ground at this project was sold. During 1994, the Company
renegotiated this agreement to extend the maturity date to January 1,
1998 and increase the commitment to finance a replat and develop the
multifamily ground for townhouse use. The $175,000 participation
payment was replaced with a $1,600 per lot participation payment which
is payable as the underlying collateral is sold. Interest is payable
monthly. Two of the Company's directors are participating lenders
with a 20% subordinate interest in the loan.
At December 31, 1996, the Company had additional borrowings available under
existing lender arrangements totaling $8,918,000; all amounts available are
to be used for land development.
OTHER - Other notes payable consist of the following at December 31:
DESCRIPTION 1996 1995
Payable to related parties and others, interest
at prime plus 1.5%, convertible into common
stock $1,025,000 $1,025,000
Interest at prime plus 1%, payable monthly,
collateralized by the Company's office
building (Note 7) 891,000 1,062,000
Payable to related parties, interest at 10%,
due February 1998 175,000 175,000
Interest at prime +1%, unsecured, due
March 1997 7,000 115,000
---------- ----------
Total $2,098,000 $2,377,000
---------- ----------
---------- ----------
On July 22, 1993, the Company issued $1,025,000 in unsecured convertible
debt to certain members of the board of directors, a company controlled by
a director, and an unrelated entity. The debt is convertible into common
stock at the option of the holders at the rate of $3 of unpaid principal
for each share of common stock. The obligation matures on September 30,
1997. Interest accrues at prime plus 1.5%, payable monthly.
The Company's note payable, collateralized by the Company's office
building, was repaid from the sales proceeds of the Company's office
property in March 1997. The note required annual principal payments of
$125,000 and was due December 31, 2002. The outstanding balance was
$891,000 and $1,062,000 at December 31, 1996 and 1995, respectively. (See
Note 7).
On June 22, 1995, the Company entered into an agreement to satisfy a
$2,756,000 obligation for a $750,000 cash payment, which resulted in an
extraordinary gain of $2,006,000. The cash payment was primarily made from
the proceeds of the common stock offering discussed in Note 4. In
addition, the Company was obligated to this lender for stock appreciation
rights on 500,000 shares of the Company's common stock, which was also
satisfied in full with the cash payment to the lender.
In December 1996, the Company obtained a commitment for a revolving line of
credit for working capital in the amount of $1,700,000. No advances had
been made as of December 31, 1996.
The debt obligations of the Company, excluding construction financing and
assuming principal is paid at loan maturity, are scheduled below. In
addition, the proforma presentation schedules these debt
F-11
<PAGE>
obligations excluding the note collateralized by the office building,
which was paid off in March 1997 (See Note 7):
PROFORMA
DECEMBER 31, 1996 DECEMBER 31, 1996
1997 $2,057,000 $1,932,000
1998 3,611,000 3,486,000
1999 125,000 -
2000 125,000 -
2001 125,000 -
Thereafter 266,000 -
---------- ----------
Total $6,309,000 $5,418,000
---------- ----------
---------- ----------
During the years ended December 31, 1996, 1995 and 1994, interest of
$2,955,000, $3,693,000 and $3,668,000 was incurred, of which $753,000,
$901,000 and $683,000 was from related parties. Interest totaling
$1,738,000, $1,668,000 and $1,815,000 was capitalized in each of the
respective years. Interest paid, net of amounts capitalized , totaled
$1,320,000, $1,941,000 and $1,853,000 in 1996, 1995 and 1994, respectively.
The weighted average interest rate for the years ended December 31, 1996,
1995 and 1994 was 13.6%, 14.59% and 15.35%, respectively.
FAIR VALUE - The Company used the following methods and assumptions to
estimate its fair value disclosures for notes payable:
CONSTRUCTION - Due to the short term nature and characteristics of
the Company's construction borrowings, the carrying
amounts reported in the balance sheet as of
December 31, 1996 approximate the fair value of the
liabilities.
LAND AND OTHER - Management has evaluated the Company's land and other
obligations based on rates currently available to the
Company for debt with similar collateral, terms and
maturities. Management has concluded that the
carrying amounts reported in the balance sheet as of
December 31, 1996, approximate the fair value of the
obligations.
3. INCOME TAXES
The Company computes deferred income taxes based on the difference between
the financial statement and income tax bases of assets and liabilities and
operating loss and tax credit carryforwards, using enacted tax rates.
The components of income taxes are as follows:
1996 1995 1994
Current $ 9,000 $ 40,000 $ -
Deferred (33,000) (754,000) (65,000)
-------- --------- --------
Tax benefit from continuing
operations $(24,000) $(714,000) $(65,000)
-------- --------- --------
-------- --------- --------
F-12
<PAGE>
The deferred income tax benefit for 1995 of $754,000 results from the
change in the valuation allowance established for net deferred tax assets
upon adoption of SFAS No. 109, resulting primarily from the utilization of
net operating loss carryforwards to offset the gain on debt
extinguishments.
The tax effects of significant items comprising the Company's net deferred
tax asset as of December 31 are as follows:
1996 1995
DEFERRED TAX ASSETS:
Residential real estate $ 2,422,000 $ 2,623,000
Tax credits and net operating loss
carryforwards 491,000 764,000
Accruals 92,000 177,000
Warranty reserve 181,000 118,000
Depreciation 105,000 42,000
Other 17,000 8,000
----------- -----------
Total 3,308,000 3,732,000
----------- -----------
DEFERRED TAX LIABILITIES:
Capitalized interest 324,000 355,000
Loss on sales of assets 53,000 32,000
----------- -----------
2,931,000 3,345,000
Valuation allowance (2,581,000) (3,028,000)
----------- -----------
Net deferred tax asset $ 350,000 $ 317,000
----------- -----------
----------- -----------
A significant portion of the Company's deferred tax asset represents
temporary differences between deductions for financial reporting and tax
reporting, primarily land basis differences. As of December 31, 1996, the
Company remains uncertain as to the realization of the total net deferred
tax asset due to the cyclical nature of the real estate industry, factors
that are outside the control of the Company, such as interest rates, as
well as the Company's recent history of operating losses. The net change
in the total valuation allowance during the years ended December 31, 1996
and 1995 was a reduction of $447,000 and $416,000, respectively, in
response to revaluation of the results of future operations. At
December 31, 1996, the Company had estimated net operating loss
carryforwards of $495,000 which expire at various dates through 2007. At
December 31, 1996, the Company had estimated alternative minimum tax credit
carryforwards of $322,000, which may be carried forward indefinitely.
The Company's effective tax rate does not bear a normal relationship to the
expected United States statutory rate for any year presented due to the
change in the previously provided valuation allowance.
F-13
<PAGE>
4. COMMON STOCK
The Company has stock option plans giving certain officers and employees
the right to purchase shares of its common stock at quoted market value at
date of grant. At December 31, 1996, 760,000 shares have been reserved
under the plans. The plans allow the options to be exercised in four equal
annual installments, beginning one year after the date of grant, and have a
maximum term of ten years.
WEIGHTED-AVERAGE NUMBER OF
EXERCISE PRICE SHARES
Options outstanding, January 1, 1995: $1.66 319,400
Granted 2.00 50,000
Forfeited 2.23 (80,500)
----- -------
Options outstanding, December 31, 1995: $1.56 288,900
Granted 1.06 325,000
Forfeited 1.25 (9,760)
----- -------
Options outstanding, December 31, 1996 $1.31 604,140
----- -------
----- -------
Total exercisable at December 31, 1996 $1.35 207,600
----- -------
----- -------
As of December 31, 1996, the 604,140 options outstanding under the plan
have exercise prices which range from $.65 to $2.50 and a weighted-average
remaining contractual life of 8.06 years.
The Company applies APB Opinion 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized in the accompanying consolidated financial statements. The
Company estimated the fair value of the employees' stock options using the
Black-Scholes model with the following assumptions for 1995 and 1996: no
dividend yield for both years; an expected life of 4 years for both years;
expected volatility of 37 percent for both years; and risk-free interest
rates of 5.9 percent for both years. The estimated fair value of the
options granted in 1996 and 1995 was $131,000 and $38,000, respectively.
Had compensation cost for the Company's plans been determined based on the
fair value at the grant dates for awards under those plans in accordance
with SFAS No. 123, the proforma effect on earnings in 1996 and 1995 would
not have been material.
During 1995, the Company completed a private placement of its common stock.
The "best efforts" offering resulted in the sale of 1,530,000 shares at
$1.50 per share. Two of the Company's directors converted short term loans
to the Company, totaling $276,000, to common stock in lieu of repayment.
Including this conversion, four of the Company's directors invested
$750,000 in this private placement. The balance was purchased by
"accredited investors" which were unaffiliated with the Company.
5. EARNINGS (LOSS) PER SHARE
Primary earnings per share was computed by dividing net income by the
weighted average number of shares outstanding and, if dilutive, the effect
of convertible debt and stock options. Fully diluted earnings per share
was computed assuming conversion of convertible debt as of the beginning of
the period. Net income used in calculating fully diluted earnings per
share was decreased by tax effected interest incurred of $100,000,
$103,000, and $90,000, for the years ended December 31, 1996, 1995 and
1994, respectively.
F-14
<PAGE>
The following table reflects the Company's calculation of the weighted
average number of shares outstanding at December 31:
<TABLE>
1996 1995 1994
------------------- ------------------- -------------------
FULLY FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED
<S> <C> <C> <C> <C> <C> <C>
Weighted average number
of common shares outstanding 7,340,800 7,340,800 6,279,500 6,279,500 5,698,500 5,698,500
Incremental shares due
to options 62,000 62,000 43,300 43,300 95,800 95,800
Incremental shares due to
convertible debt 341,700 341,700 341,700
--------- --------- --------- --------- --------- ---------
Total 7,402,800 7,744,500 6,322,800 6,664,500 5,794,300 6,136,000
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES AND OTHER MATTERS
On June 16, 1994, a court-approved reorganization plan for a special
district which provides water and sewer services to one of the Company's
projects became effective. Under the terms of the reorganization plan,
the Company entered into a tap purchase agreement which will require the
Company to purchase 330 taps at a minimum rate of 40 taps per calendar
year beginning in 1994. The price of the taps ranges from $13,000 to
$17,500 depending on when they are purchased. The Company completed the
required purchases of minimum taps in 1996 and 1995.
The Company has a profit sharing retirement plan (the Plan). During
1996 the Plan was modified to include a 401(k) feature under which
eligible employees may contribute up to 12% of their salaries. Company
contributions are at the discretion of the Company's board of directors
unless required by ERISA regulations, as was the case in 1996. Total
Company contributions to the Plan for the year ended December 31, 1996
were $58,000.
In December 1996 the Company's Board of Directors approved a profit
sharing plan whereby pretax profit is shared with key employees based on
formulas as defined in the agreement. Approximately $65,000 has been
accrued as of December 31, 1996 with respect to this plan.
The Company is involved in various legal matters of a nature incidental
to its business which, in the opinion of management, should not have a
material adverse effect on the Company.
7. SUBSEQUENT EVENTS
In March 1997, the Company sold their corporate headquarters at a gain.
Proceeds from the sale were used to satisfy the $891,000 of outstanding
debt which was secured by the property. The Company received a discount
of approximately $106,000 in exchange for the early payoff. The gain on
the sale of the property as well as the extinguishment of debt will be
recorded in the first quarter of 1997. The Company has entered into a
five year operating lease for new space which expires on June 30, 2002.
Future minimum annual rental commitments under this lease are as follows:
1997 $ 91,000
1998 144,000
1999 151,000
2000 160,000
2001 169,000
Thereafter 87,000
--------
$802,000
--------
--------
* * * * *
F-15
<PAGE>
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.
THE WRITER CORPORATION
(Registrant)
/s/ George S. Writer, Jr. /s/ Daniel J. Nickless
- -------------------------------------- -----------------------------------
By: George S. Writer, Jr. By: Daniel J. Nickless
(Chairman of the Board of Directors, (Sr. Vice President, Chief Financial
Principal Executive Officer) Officer and Treasurer)
Date: March 21, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ George S. Writer, Jr. /s/ Ronald S. Loser
- -------------------------------------- -----------------------------------
George S. Writer, Jr., March 21, 1997 Ronald S. Loser, March 21, 1997
(Chairman of the Board of Directors and (Secretary and Director)
Principal Executive Officer)
/s/ Deane J. Writer, Jr. /s/ Roland Seidler, Jr.
- -------------------------------------- -----------------------------------
Deane J. Writer, Jr., March 21, 1997 Roland Seidler, Jr., March 21, 1997
(Director) (Director)
/s/ Louis P. Bansbach, III /s/ Robert G. Tointon
- -------------------------------------- -----------------------------------
Louis P. Bansbach, III, March 21, 1997 Robert G. Tointon, March 21, 1997
(Director) (Director)
/s/ John Crosland, Jr.,
- --------------------------------------
John Crosland, Jr., March 21, 1997
(Director)
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,662,000<F1>
<SECURITIES> 0
<RECEIVABLES> 235,000
<ALLOWANCES> 0
<INVENTORY> 33,418,000<F2>
<CURRENT-ASSETS> 0
<PP&E> 1,408,000
<DEPRECIATION> 804,000
<TOTAL-ASSETS> 36,650,000<F3>
<CURRENT-LIABILITIES> 5,488,000
<BONDS> 17,241,000
0
0
<COMMON> 735,000
<OTHER-SE> 13,186,000
<TOTAL-LIABILITY-AND-EQUITY> 36,650,000
<SALES> 46,284,000
<TOTAL-REVENUES> 46,284,000
<CGS> (38,563,000)
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,444,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,277,000
<INCOME-TAX> 24,000<F4>
<INCOME-CONTINUING> 1,301,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,301,000
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
<FN>
<F1>Cash includes $667,000 of restricted cash
<F2>Inventory includes homes under construction $12,884,000, model homes &
furnishing of $3,439,000, Land & Land Development 10,692,000, Unplatted
land 6,403,000
<F3>Total Assets includes $381,000 other assets, & $350,000 Deferred tax
<F4>Tax Benefit
</FN>
</TABLE>
