<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 June 30, 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.
6061 S. Willow Dr., #232, Englewood, Colorado 80111
-----------------------------------------------------------------
(Address of principal executive offices) Zip Code
(303) 779-4100
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(Registrant's telephone number, including area code)
Not Applicable
---------------------------------------------------
(Former name, former address and former fiscal year,
if changed 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 August 8, 1997.
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION Number
------
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
June 30, 1997 (Unaudited) and
December 31, 1996 3
Condensed Consolidated Statements
of Operations for the three and six months
ended June 30, 1997 and 1996 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 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, LIQUIDITY AND
CAPITAL RESOURCES 8
PART II. OTHER INFORMATION 12
2
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1997 1996
---- ----
(Unaudited)
ASSETS
- ------
Residential real estate held for sale, net:
Homes under construction $16,263,000 $12,884,000
Model homes and furnishings 3,509,000 3,439,000
Land and land development 11,157,000 10,692,000
Unplatted land 2,828,000 6,403,000
----------- -----------
Subtotal 33,757,000 33,418,000
Office property and equipment, less accumulated
depreciation of $399,000 and $804,000 501,000 604,000
Other assets:
Cash and cash equivalents 381,000 995,000
Restricted cash 682,000 667,000
Accounts receivable 333,000 235,000
Deferred tax asset 350,000 350,000
Other 555,000 381,000
----------- -----------
Total Assets $36,559,000 $36,650,000
----------- -----------
----------- -----------
(Continued)
3
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1997 1996
---- ----
(Unaudited)
LIABILITIES
- -----------
Notes payable $15,689,000 $17,241,000
Accounts payable and accrued expenses 5,340,000 5,060,000
Accrued interest 195,000 428,000
----------- -----------
Subtotal 21,224,000 22,729,000
STOCKHOLDERS' EQUITY
- --------------------
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 2,248,000 834,000
----------- -----------
Total 15,335,000 13,921,000
----------- -----------
Total Liabilities and Stockholders' Equity $36,559,000 $36,650,000
----------- -----------
----------- -----------
(Concluded)
See notes to consolidated financial statements.
4
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Residential operations:
Revenue $ 8,264,000 $10,998,000 $ 18,906,000 $ 19,930,000
Cost of sales (6,546,000) (9,158,000) (15,158,000) (16,797,000)
Expenses (1,665,000) (1,591,000) (3,380,000) (3,055,000)
----------- ----------- ------------ ------------
Income from residential operations 53,000 249,000 368,000 78,000
Interest and other income, net 24,000 60,000 939,000 109,000
----------- ----------- ------------ ------------
Net income before extraordinary item 77,000 309,000 1,307,000 187,000
Extraordinary item-gain on extinguishment
of debt 106,000
----------- ----------- ------------ ------------
Net income $ 77,000 $ 309,000 $ 1,413,000 $ 187,000
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Earnings per share:
Continuing operations $ 0.01 $ 0.04 $ 0.18 $ 0.03
Extraordinary item - - $ 0.01 -
----------- ----------- ------------ ------------
Net income $ 0.01 $ 0.04 $ 0.19 $ 0.03
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Weighted average number of shares
Outstanding 7,354,590 7,359,949 7,354,590 7,386,397
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months
Ended June 30,
1997 1996
---- ----
NET CASH PROVIDED BY OPERATING ACTIVITIES: $ 315,000 $ 896,000
------------ ------------
CASH FLOWS PROVIDED BY (USED IN) INVESTING
ACTIVITIES
Purchases of office property and equipment (282,000) (95,000)
Proceeds from sale of office property 905,000
------------ ------------
Net cash provided by (used in)
investing activity 623,000 (95,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 12,229,000 11,251,000
Principal payments on notes payable (13,781,000) (12,591,000)
Proceeds from the sale of common stock 83,000
------------ ------------
Net cash used in financing activities (1,552,000) (1,257,000)
------------ ------------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (614,000) (456,000)
CASH AND CASH EQUIVALENTS, beginning of period 995,000 1,409,000
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 381,000 $ 953,000
------------ ------------
------------ ------------
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 June 30, 1997 and the related condensed
consolidated statements of operations and cash flows for the six month period
ended June 30, 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, LIQUIDITY AND CAPITAL RESOURCES.
FINANCIAL CONDITION
During the second quarter of 1997, the Company increased its backlog of sales
contracts by 52% over the previous quarter end, to 79 units from 52 units. A
similar increase is reflected from the backlog numbers at December 31, 1996 at
which time the backlog was 54 units. These increases reflect market conditions
which have been stable and the recent drop in long term mortgage rates, which
provides a wider spectrum of potential home buyers for the Company's product.
The Company's backlog at June 30, 1996 was 96 units which reflects stronger
sales in the last quarter of 1995 and the first quarter of 1996 than the Company
has experienced during this fiscal year. The Company's dollar backlog at June
30, 1997 was $17,521,000 compared to $11,885,000 at December 31, 1996 and
$20,773,00 at June 30, 1996.
The Company's work in process inventory of homes under construction increased by
approximately $3,379,000 or 26% since December 31, 1996. This increase is
primarily attributable to the increase in sales contract backlog previously
mentioned, and some increase in speculative inventory.
The Company's model homes and furnishings account has increased by approximately
$70,000 since year end due to the completion of new models for the Company's
Summerhill project, net of the previously used models which were sold during the
first two quarters. Also the Company has begun construction of new models for
its Castle Pines North project and therefore anticipates further increases in
these expenditures throughout 1997.
The Company's land development net of finished lots being transferred to work
in process inventory increased by approximately $465,000 or 4.3% from the
December 31, 1996 balance. The Company is actively developing two new
filings at its Castle Pines North project and has recently begun development
for the lots remaining at the Company's Greenbrook project. In addition, the
Company continues to develop ground for its townhomes at both the Settler's
Village project in Highlands Ranch and at its Northpark project.
The Company's unplatted land decreased by $3,575,000 during the first two
quarters of 1997 from approximately $6,403,000 to $2,828,000. This 56% decrease
reflects the platting of the aforementioned filings at Castle Pines North as
well as the transfer of the raw ground at the Company's Settler's Village
project into development. With the transfers of these areas into development,
the Company has two unplatted filings remaining at its Castle Pines North
project. Both are currently in the platting process.
In April, 1997, the Company entered into a contract to purchase 11.8 acres of
ground for 120 townhome units. Pursuant to the agreement, the Company has
placed $141,000 of earnest money with the Seller which represents the majority
of the increase in other assets. The ground is included in a redevelopment
master plan of the former Lowry Airforce Base. If all contract contingencies are
satisfied, the Company expects to begin initial development and construction
activity in 1997.
The Company's office property and equipment decreased by approximately $103,000
or 17% during the first two quarters of 1997 which is primarily the net effect
of two transactions. The first dealt with the finalization of the sale of the
Company's office property on March 15, 1997. A gain on sale of
8
<PAGE>
approximately $552,000 was recorded during the first quarter on this
transaction. Additionally during the second quarter, the Company spent
approximately $282,000 on new office furnishings, computer software, and
computer equipment for the management information system to which the Company
expects to convert during 1997. Some of these expenditures may be refinanced
through a lease transaction. In addition, the Company incurred additional
expenditures in order to provide new equipment and furnishings at each of its
sales centers. Ultimately, the Company intends to integrate its management
information software with the Company's sales centers in order to enhance
sales and marketing efforts and administrative capabilities.
The Company's notes payable have decreased from the year end balance by
approximately $1,552,000 or 9%. The majority of this activity reflects the net
change from construction loan advances and scheduled debt repayments tied to
individual house closings with third party buyers, however, approximately
$891,000 of secured debt was retired with the sale of the Company's office
building during the first quarter. During the second quarter of 1997, the
Company's overall debt increased by approximately $1,400,000 from the first
quarter of 1997 related to additional borrowings for the work in process
inventory. Virtually all of the Company's work in process inventory is financed
through construction loans. The Company's accounts payable and accrued expense
balance increased by $280,000 which is the net change of several individual
accounts. The primary increase relates to trade payables and the timing of the
Company's construction draw process with its lenders, driven by the overall
increase of inventory levels discussed above.
The increase in stockholder's equity from January 1, 1997 to June 30, 1997
reflects the increase in retained earnings resulting from the Company's
operating income for such period.
RESULTS OF OPERATIONS
The Company closed 38 and 82 units for the three and six month periods ending
June 30, 1997 as compared to 52 and 93 for the same periods in the prior year.
The Company's average sales price during the second quarter of 1997 was $217,500
as compared to $226,000 during the first quarter of 1997. The average price
during the first quarter is adjusted to exclude the $695,000 of revenue
generated from certain lot sales closed in that period. The Company's average
sales price during the full year 1996 was $215,300. The combination of the
change in sales prices and unit closing levels resulted in a decrease in revenue
from home sales in the second quarter of approximately $1,683,000 or 20% from
the first quarter of 1997. For the six month period ended June 30, 1997, the
Company's revenue from home sales decreased by approximately $1,720,000 or 9%
from the previous year comparable period. Although revenue decreased from the
prior year, the Company improved its gross profits as further discussed below.
The Company's average sales price is directly impacted by its mix of townhomes,
single family, and cluster homes sold during the periods, this mix is
illustrated in the table below.
CLOSINGS TOWNHOMES CLUSTER HOMES SINGLE FAMILY TOTAL
- -------- --------- ------------- ------------- -----
3 month period ended June 30, 1997 19 3 16 38
3 month period ended June 30, 1996 17 3 32 52
6 month period ended June 30, 1997 34 5 43 82
6 month period ended June 30, 1996 32 7 54 93
During the second quarter of 1997, the Company incurred $6,546,000 in cost of
sales resulting in a gross profit of 20.8% versus $9,158,000 in cost of sales
which resulted in a gross profit of 16.7% during the
9
<PAGE>
comparable three month period ending June 30, 1996. This 4% improvement in
gross profit percentage excludes the aforementioned lot sales and is
indicative of the Company's ongoing efforts to maximize profit margins
through direct cost savings and increase sales prices as market conditions
will allow. For the six month period ending June 30, 1997, the Company's
cost of sales was $15,158,000 which represented a 19.8% gross profit margin.
For the six months ended June 30, 1996, the Company's cost of sales was
$16,797,000 which resulted in a 15.7% gross profit. Expressed in dollars, the
Company's gross profit improved by 20% as $3,748,000 of gross profit was
generated through June 30, 1997 compared to $3,133,000 during the first six
months of 1996.
The Company's operating expenses for the three months ended June 30, 1997
increased by approximately $74,000, or 5% when compared to the prior year second
quarter. For the six month period ended June 30, 1997, the operating expenses
increased by approximately $325,000 or 11% as compared to the six months ended
June 30, 1996. At the beginning of 1997, the Company redefined some job
descriptions and began treating salaries of certain construction management as
general and administrative costs which in prior periods were included as
construction costs. Although these costs are not significant to the Company's
overall statements, they have impacted the comparisons related to the gross
profit calculations and the operating expenses.
On March 15, 1997, the Company finalized a transaction to sell its office
building. A gain on the sale of approximately $552,000 was recorded as other
income in the six month 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 for the six months ended June 30, 1997, 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
six month 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 the items discussed above, the Company recorded income from
residential operations of $53,000 and $368,000 for the three and six month
periods ended June 30, 1997 compared to income of $249,000 and $78,000 for the
three and six month periods ended June 30, 1996. The results for the six month
periods reflect the overall improvement in gross profits and expense containment
during 1997.
LIQUIDITY AND CAPITAL RESOURCES
During the last two years the Company's liquidity has improved as the Company
has returned to profitable operations. During the first six months of 1997, the
Company generated approximately $315,000 of cash from its operating activities
while using these funds and other cash reserves to purchase new office equipment
as well as continue with our goal to reduce debt as quickly as possible.
In addition to the positive operating results, the Company's borrowing
capabilities have been expanded based on positive operating results and the
strength of the Company's balance sheet with particular emphasis on debt to
equity ratio.
During the fourth quarter of 1996, the Company finalized a working capital line
of credit for up to $1,700,000. The line is secured by the collateral value of
the Company's Castle Pines North project, primarily lots which are proposed for
development or for which development has recently begun. This facility matures
on December 30, 1998. Management believes that this facility provides adequate
liquidity to support the managed growth which the Company intends to achieve in
the near future. The line of credit
10
<PAGE>
which has not been drawn on at this time reduces if any of the collateral is
sold or transferred to homes under construction.
Based on the Company's current liquidity, Management has continued to focus on
lending relationships which will reduce the Company's overall borrowing costs
and streamline its administrative efforts associated therewith. The Company
recently renewed its $15,000,000 revolving construction facility for a two year
period with a new maturity date of June 1, 1999. The facility agreement was
amended to provide more flexibility for the Company to start speculative
inventory units and to reduce the cost of this facility.
The Company is in the process of negotiating a new loan facility which will
provide funds to refinance the existing debt on the Company's Greenbrook
project, as well as providing construction and development funds necessary to
complete this project. The Company has also received a commitment from the same
lender to provide financing for the proposed acquisition of lots, limited land
development, and construction of townhome units at the Lowry Redevelopment
Project. Although the loan agreements for both of the aforementioned
transactions have not been executed, the Company anticipates finalization of
these agreements during the third quarter of 1997.
The Company anticipates opening new model complexes for its Castle Pines North
project as well as the models currently under construction at its Greenbrook
project. Typically 100% of these costs can not be financed. The non-borrowed
funds necessary to furnish the models and construct the sales offices will be
provided from the Company's working capital line or from operations.
11
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) There were no reports on Form 8-K filed for the six months ended
June 30, 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: August 8, 1997 /s/ Daniel J. Nickless
-----------------------------------
By: Daniel J. Nickless
Sr. Vice President and
Chief Financial Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,063,000<F1>
<SECURITIES> 0
<RECEIVABLES> 333,000
<ALLOWANCES> 0
<INVENTORY> 33,757,000<F2>
<CURRENT-ASSETS> 0
<PP&E> 900,000
<DEPRECIATION> 399,000
<TOTAL-ASSETS> 36,559,000<F3>
<CURRENT-LIABILITIES> 5,535,000
<BONDS> 15,689,000
0
0
<COMMON> 735,000
<OTHER-SE> 14,600,000
<TOTAL-LIABILITY-AND-EQUITY> 36,559,000
<SALES> 18,906,000
<TOTAL-REVENUES> 18,906,000
<CGS> (15,158,000)
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (2,441,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,307,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,307,000
<DISCONTINUED> 0
<EXTRAORDINARY> 106,000
<CHANGES> 0
<NET-INCOME> 1,413,000
<EPS-PRIMARY> .19
<EPS-DILUTED> 0
<FN>
<F1>Cash includes $682,000 of restricted cash.
<F2>Inventory includes homes under construction $16,263,000, model home and
furnishings $3,509,000, land and land development $11,157,000 unplatted
land $2,828,000.
<F3>Total assets include other assets of $905,000.
</FN>
</TABLE>
