<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
[ ] 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 DRIVE, #232, ENGLEWOOD, COLORADO 80111
------------------------------------------------------------
(Address of principal executive offices) Zip Code
(303) 779-4100
--------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
--------------
(Former name, former address and former fiscal year,
if change since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that the registrant is required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of Form 10-K or any
amendment to Form 10-K. X
---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 7,354,600 shares as of
March 31, 1998.
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
INDEX
<TABLE>
Page
PART I. FINANCIAL INFORMATION Number
------
<S> <C>
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
March 31, 1998 (Unaudited) and
December 31, 1997 3
Condensed Consolidated Statements
of Operations for the three months
ended March 31, 1998 and 1997 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1998 and
1997 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION 12
</TABLE>
2
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
March 31, December 31,
1998 1997
------ ------
<S> <C> <C>
ASSETS
Residential Real Estate Held for Sale and
Investment, net:
Homes under construction $17,690,000 $16,804,000
Model homes and furnishings 3,393,000 3,516,000
Land and land development 16,296,000 16,041,000
Raw land 910,000 739,000
----------- -----------
Total 38,289,000 37,100,000
Office Property and Equipment, less accumulated
depreciation of $403,000 and $401,000: 566,000 470,000
Other Assets:
Cash and cash equivalents 1,471,000 1,015,000
Restricted cash 857,000 722,000
Accounts receivable 350,000 315,000
Deferred tax asset 1,251,000 1,251,000
Other 606,000 707,000
----------- -----------
Total $43,390,000 $41,580,000
----------- -----------
----------- -----------
</TABLE>
(Continued)
3
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
March 31, December 31,
1998 1997
------ ------
<S> <C> <C>
LIABILITIES
Notes payable $19,395,000 $19,221,000
Accounts payable and accrued expenses 6,084,000 4,796,000
Accrued interest 413,000 182,000
Total 25,892,000 24,199,000
STOCKHOLDERS' EQUITY (Note B)
Common stock, $.10 par value;
authorized, 10,000,000 shares;
7,354,600 and 7,354,600 shares
issued and outstanding 735,000 735,000
Additional paid-in capital 12,352,000 12,352,000
Retained Earnings 4,411,000 4,294,000
----------- -----------
Total Stockholders' Equity, net 17,498,000 17,381,000
----------- -----------
$43,390,000 $41,580,000
----------- -----------
----------- -----------
</TABLE>
(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
Ended March 31,
1998 1997
---- ----
<S> <C> <C>
Residential operations:
Revenue $11,709,000 $10,642,000
Cost of sales (9,149,000) (8,612,000)
Expenses (2,416,000) (1,715,000)
----------- -----------
Income from residential operations 144,000 315,000
Interest and other income, net 45,000 915,000
----------- -----------
Net income before income taxes 189,000 1,230,000
Income taxes expense (72,000)
----------- -----------
Net Income before extraordinary item 117,000 1,230,000
Extraordinary item - gain on early
extinguishment of debt 106,000
-----------
Net income $ 117,000 $ 1,336,000
----------- -----------
----------- -----------
Earnings per basic and diluted share:
Continuing operations $0.02 $0.17
Extraordinary item 0.00 0.01
----------- -----------
Net earnings $0.02 $0.18
----------- -----------
----------- -----------
Weighted average number of shares
outstanding: 7,354,600 7,354,600
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
For the Three Months
Ended March 31,
1998 1997
---- ----
<S> <C> <C>
NET CASH PROVIDED BY OPERATING
ACTIVITIES: $ 380,000 $ 3,123,000
---------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES-
Purchases of office property and
equipment (98,000) (86,000)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 8,019,000 5,013,000
Principal payments on notes payable (7,845,000) (7,974,000)
Net cash provided (used) in
financing activities 174,000 (2,961,000)
---------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 456,000 76,000
CASH AND CASH EQUIVALENTS, beginning of
period 1,015,000 995,000
---------- -----------
CASH AND CASH EQUIVALENTS, end of period $1,471,000 $ 1,071,000
---------- -----------
---------- -----------
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. ACCOUNTING POLICIES:
The consolidated balance sheet as of March 31, 1998 and the related condensed
consolidated statements of operations and cash flows for the three month
period ended March 31, 1998 and 1997 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, 1997. 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 Earnings Per Share ("SFAS 128").
SFAS 128 establishes standards for computing and presenting earnings per
share (EPS), and supersedes APB Opinion No. 15 and its related
interpretations. It replaces the presentation of primary EPS with a
presentation of basic EPS, which excludes dilution, and requires dual
presentation of basic and diluted EPS for all entities with complex capital
structures. Diluted EPS is computed similarly to fully diluted EPS pursuant
to Opinion No. 15. The Company adopted SFAS 128 in December 1997 and has
restated EPS in the accompanying financial statements to give retroactive
effect to the adoption of the accounting standard. The adoption of SFAS 128
did not have a material effect on EPS.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which
establishes standards for reporting and display of comprehensive income and
its components. It requires that all changes in equity during a period,
except those resulting from investment by owners and distributions to owners,
be reported as a component of comprehensive income and that comprehensive
income be displayed in annual financial statements with the same prominence
as other financial statements that constitute a full set of financial
statements. The Company's comprehensive income for the three months ended
March 31, 1998 and 1997 is the same amount as the Company's net income for
these periods.
7
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FINANCIAL CONDITION
During the first quarter of 1998 the Company increased its equity through
earnings of $117,000.
At March 31, 1998 the Company's backlog was 144 units which if closed
represents a total of approximately $30,000,000 in potential revenue. This
backlog represents a 97% increase in units under contract since year end and
a 176% increase from the prior year quarter end. At December 31, 1997 the
Company had a backlog of 73 units with potential revenue of $16,200,000. At
March 31, 1997 the Company had a backlog of 52 units. The gains in new
orders during the first quarter of 1998 over previous periods, reflect the
stability of the Company's marketing area coupled with the contribution which
the Company's expansion efforts has made.
The Company has initiated construction at four new sites, including a
townhome project, Park Square; a project within the overall redevelopment of
the former Lowry Air Force Base in Denver, Colorado. The Company consummated
its first sales in several years at its Greenbrook townhome project in
Aurora, Colorado, and the Company recorded sales from two projects initiated
through the expansion efforts of its Northern Colorado Division.
During the first quarter of 1998 the Company's costs of homes under
construction increased by $886,000, or 5.3% of the prior year end balance.
The Company's land and land development as well as raw land categories
increased slightly during the period as lots were readied for construction.
The Company's overall inventory increase relates specifically to the
increased level of backlog from the sales activity during the first quarter,
as speculative inventories during the periods remain consistent.
The Company's model homes and furnishings decreased by $123,000, or 3.5% of
the prior year end balance, due primarily to the sale of two models netted
with new construction activity on five planned models and the opening of new
models at the Greenbrook project.
The Company's office property and equipment increased by approximately
$96,000 from the previous year end balance. This increase reflects the
additional capital expenditures made for computer and other office equipment,
at the Company's on site sales offices, which will be utilized in conjunction
with the Company's recently converted management information system.
The Company increased its cash position by approximately $456,000 during the
first quarter of 1998, and restricted cash balances have remained relatively
high and have increased slightly. The increase in restricted cash is
pursuant to compensating balance agreements with various lenders which
require deposits to support outstanding development letters of credit and
other development obligations, including tap purchases. The Company is
obligated to a Metro District to purchase taps on a semi-annual basis in May
and November, and therefore certain cash deposits are increased during the
quarter in anticipation of these obligations. The Company has made the
$200,000 payment for taps due for May, 1998 from these funds.
8
<PAGE>
Although the Company's inventory during the first quarter of 1998 increased
by approximately $1,189,000, the Company's corresponding notes payable
accounts, which represent inventory financing primarily, increased by less
than 1%, or approximately $174,000. The balance of the inventory increase is
reflected in accounts payable and other accrued liabilities which also
increased. The Company's construction financing remains available and the
trade account payable increase reflects a timing difference between the start
of units and the receipt of the construction loan proceeds.
The Company's accrued interest increased by $231,000 from the year end
December 31, 1997 balance which reflects additional profit sharing interest
due to development lenders, as well as the timing of payments on construction
and other development loans, which are typically paid from sales proceeds.
RESULTS OF OPERATIONS
The Company closed 50 units in the three month period ended March 31, 1998, a
13.6% increase over the 44 units closed during the previous year first
quarter. In addition, the average sales price of homes sold increased 3.5% to
$234,000 from $226,000 during the previous calendar year period. The
combination of these factors produced revenue of $11,700,000 which represents
an 18% increase over the previous years first quarter revenue net of revenue
from certain lot sales in 1997. The lot sales generated $695,000 of revenue
in 1997. The table below illustrates the Company's sales mix for the periods
presented. The increases in average sales price reflects an increase in
closings related to the Company's cluster homes which are a higher priced
product.
<TABLE>
Closings Townhomes Cluster Homes Single Family Total
-------- --------- ------------- ------------- -----
<S> <C> <C> <C> <C>
3 month period ended Mar. 31, 1998 20 9 21 50
3 month period ended Mar. 31, 1997 15 2 27 44
</TABLE>
Although the Company's overall revenue increased by approximately 10% or
$1,067,000, the Company's cost of sales to generate this revenue increased by
$537,000, or 6.2% of the prior year. The net increase provided an additional
$530,000 of gross profit from sales which represents a 26.1% increase in
gross profit from the previous year. Overall gross profit represents 21.9%
of revenue which is a 3.6% of revenue increase over the prior year three
month period. This overall improvement reflects higher sales levels, but also
is attributable to a 1% improvement in direct construction costs. The
Company's construction costs were approximately 70.8% of revenue during the
first quarter of 1998 versus 71.8% of revenue during 1997. The improvement in
the direct construction costs reflects the Company's ongoing efforts to
maximize its efficiencies within the design, purchasing, scheduling, and
construction process. In addition the Company's indirect costs which are
capitalized to inventory and subsequently expensed were also reduced during
1998 as a percentage of revenue. The Company also spent approximately 50%
less in its customer financing activities during the first quarter of 1998
compared with the prior year comparable period.
The Company's operating expenses increased by $701,000 to $2,416,000 which
represents 20.6% of revenue versus 16.1% for the prior year period. Of this
increase, $322,000 or 2.8% of revenue relates to the increase in profit
sharing interest paid or payable to development lenders pursuant to loan
agreements. Sales and marketing expenses increased by $229,000 because of
increased
9
<PAGE>
promotional efforts. General and Administrative costs increased by $200,000
attributable primarily to higher occupancy cost, consulting costs and
compensation costs.
The factors above resulted in income from residential operations of $144,000
during the quarter compared to income of $315,000 in the prior year
comparable period.
During the first quarter of 1997, the Company sold its office building at a
gain of approximately $542,000 recorded as other income in the quarterly
results presented herewith. In addition to this gain, the Company retired
the debt which was collateralized by the office building at a discount which
resulted in $106,000 of income. Also included in the other income category
is $342,000, which represents a one time refund of impact fees previously
paid as the Company obtained building permits.
As a result of these aforementioned factors, the Company posted net income of
$117,000 in the first quarter of 1998 versus $1,336,000 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity remained stable during the first quarter relative to
levels during the previous full year period. The Company generated $380,000
of cash from operations during the first quarter.
The Company recently obtained a $10,000,000 acquisition, development and
construction facility for use in the expansion into Northern Colorado. Part
of this facility agreement provides $500,000 of unsecured working capital to
the Company. This supplements the Company's $1,400,000 secured working
capital facility, which matures in December, 1998. Management believes that
these facilities provide adequate liquidity to support the managed growth
which the Company intends to pursue. Because of the liquidity provided by the
lines, the Company has continued to use operating funds to repay loans in
order to reduce financing costs.
Because the Company's earnings and cash flows have been positive over the
last fiscal year and during the first quarter of 1998, the Company now enjoys
a favorable debt to equity ratio. Management believes that this demonstrates
significant strength within the Company's balance sheet which management
believes will assist in obtaining more financing for both construction and
development expansion. The Company expects to pursue expansion through its
Northern Colorado Division and in the greater metropolitan Denver area. This
expansion, notwithstanding the Company's borrowing capacity, will require
financial resources by the Company. Management believes cash from operations
supplemented by its working capital facilities will provide this growth
equity although no assurances can be provided as to its adequacy indefinitely.
On March 31, 1998, the Company entered into a purchase contract for 49
developed lots in the River West P.U.D. in Larimer County, Colorado. The
Company has also negotiated a term sheet for the purchase of 50 single family
and 90 townhome sites in Arvada, Colorado, and expects to commit to a
contract during the next 60 days subject to final entitlement of the property
by the City of Arvada. Both of these transactions will require equity
contributions to supplement financing which the Company is currently
exploring.
Management believes it will be able to expand its current acquisition,
development, and construction facilities during the second quarter to include
the funds necessary for current planned development.
10
<PAGE>
The Company's liquidity picture has improved greatly during the last two
years. However, the Company will continue to utilize most of the cash it
generates in its operations and growth.
Throughout 1998 the Company anticipates new model complexes opening at
several of its projects. The Company will be required to provide financial
resources for the model furnishings and the sales office for use at these
sites, the level of which can not be determined at this time. It is
anticipated that this financial resource will be provided through operations
and or in combination with advances from the Company's working capital lines.
11
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) There were no reports on Form 8-K filed for the three months ended
March 31, 1998.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WRITER CORPORATION
(Registrant)
Date: May 5, 1998 /s/ Daniel J. Nickless
-----------------------------
By: Daniel J. Nickless
Executive Vice President,
Chief Operating and Chief
Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,328,000<F1>
<SECURITIES> 0
<RECEIVABLES> 350,000
<ALLOWANCES> 0
<INVENTORY> 38,289,000<F2>
<CURRENT-ASSETS> 0
<PP&E> 969,000
<DEPRECIATION> 403,000
<TOTAL-ASSETS> 43,390,000<F3>
<CURRENT-LIABILITIES> 6,497,000
<BONDS> 19,395,000
0
0
<COMMON> 735,000
<OTHER-SE> 16,763,000
<TOTAL-LIABILITY-AND-EQUITY> 43,390,000
<SALES> 11,709,000
<TOTAL-REVENUES> 11,709,000
<CGS> 9,149,000
<TOTAL-COSTS> 9,149,000
<OTHER-EXPENSES> 2,371,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 189,000
<INCOME-TAX> 72,000
<INCOME-CONTINUING> 117,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 117,000
<EPS-PRIMARY> .02
<EPS-DILUTED> 0
<FN>
<F1>Cash includes $857,000 of restricted cash
<F2>Inventory includes homes under construction $17,690,000, model homes and
furnishings $3,393,000, land and land development $16,296,000, unplatted
land $910,000
<F3>Total assets includes other assets of $1,857,000
</FN>
</TABLE>
