<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] 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
--------------
(Registrant's telephone number, including area code)
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 _____
The number of shares outstanding of the registrant's common stock, as of
November 5, 1999 was 7,462,480.
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION Number
------
<S> <C>
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998 (Unaudited) 3
Condensed Consolidated Statements
of Operations for the three and nine months
ended September 30, 1999 and 1998 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1999 and
1998 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15
PART II. OTHER INFORMATION 16
</TABLE>
2
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Residential real estate held for sale, net:
Homes under construction $30,066,000 $17,632,000
Model homes and furnishings 4,227,000 4,190,000
Land and land development 12,054,000 15,216,000
Raw land 3,679,000 817,000
----------- -----------
Subtotal 50,026,000 37,855,000
Office property and equipment, less accumulated
depreciation of $773,000 and $586,000 484,000 597,000
Other assets:
Cash and cash equivalents 1,420,000 3,363,000
Restricted cash 2,296,000 541,000
Accounts receivable 379,000 374,000
Deferred tax asset 925,000 1,166,000
Investment in mortgage company 14,000 --
Other 1,558,000 582,000
----------- -----------
Total Assets $57,102,000 $44,478,000
=========== ===========
</TABLE>
(Continued)
See notes to consolidated financial statements
3
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------- -----------
<S> <C> <C>
LIABILITIES
Notes payable $27,937,000 $17,936,000
Accounts payable and accrued expenses 7,551,000 6,716,000
Accrued interest 217,000 177,000
----------- -----------
Subtotal 35,705,000 24,829,000
STOCKHOLDERS' EQUITY
Common stock, $.10 par value; authorized,
10,000,000 shares; 7,442,300 and 7,432,600
shares issued and outstanding 744,000 743,000
Additional paid-in capital 12,439,000 12,430,000
Retained earnings 8,214,000 6,476,000
----------- -----------
Total Stockholders' Equity, net 21,397,000 19,649,000
----------- -----------
$57,102,000 $44,478,000
=========== ===========
</TABLE>
(Concluded)
See notes to consolidated financial statements.
4
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------------------- ---------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Residential operations:
Revenue $ 20,094,000 $15,017,000 $ 52,006,000 $ 42,049,000
Cost of sales (16,120,000) (12,252,000) (42,002,000) (33,676,000)
Expenses (2,680,000) (2,152,000) (7,460,000) (6,997,000)
------------ ------------ ------------ ------------
Income from residential operations 1,294,000 613,000 2,544,000 1,376,000
Interest and other income, net 20,000 28,000 114,000 152,000
------------ ------------ ------------ ------------
Net income before income taxes 1,314,000 641,000 2,658,000 1,528,000
Income tax expense (373,000) (35,000) (920,000) (58,000)
------------ ------------ ------------ ------------
Net income $ 941,000 $ 606,000 $ 1,738,000 $ 1,470,000
============ ============ ============ ============
Earnings per share:
Basic $ 0.13 $ 0.08 $ 0.23 $ 0.20
============ ============ ============ ============
Diluted $ 0.12 $ 0.08 $ 0.23 $ 0.19
============ ============ ============ ============
Weighted average number of shares Outstanding:
Basic 7,436,000 7,430,000 7,434,000 7,405,000
============ ============ ============ ============
Diluted 7,533,000 7,568,000 7,530,000 7,569,000
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
---------------------------------
1999 1998
------------ ------------
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES: $(11,866,000) $ 1,065,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of office property and equipment (74,000) (333,000)
Investment in mortgage company (14,000)
------------ ------------
Net cash used in investing activity (88,000) (333,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 40,975,000 28,025,000
Principal payments on notes payable (30,974,000) (29,046,000)
Proceeds from the sale of common stock 10,000 85,000
------------ ------------
Net cash provided by (used in) financing activities 10,011,000 (936,000)
------------ ------------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (1,943,000) (204,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,363,000 1,015,000
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 1,420,000 $ 811,000
============ ============
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. ACCOUNTING POLICIES:
The consolidated balance sheet as of September 30, 1999 and the related
condensed consolidated statements of operations and cash flows for the three
and nine month period ended September 30, 1999 and 1998 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). Investment in
mortgage company is a 50% owned joint venture and is accounted for using the
equity method. 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, 1998. 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.
Adoption of SFAS 130 and SFAS 131 had no effect on the Company's financial
statements. The Company has no derivative instruments and does not engage in
hedging activities, therefore, the adoption of SFAS 133 will not impact its
financial statements.
Certain items in 1998 have been reclassified to conform with the 1999
presentation.
7
<PAGE>
EARNINGS PER SHARE
The following table reconciles income and the number of shares outstanding used
in the calculation of basic and diluted earnings per share.
<TABLE>
<CAPTION>
Income Shares Per Share
---------- ---------- ---------
<S> <C> <C> <C>
For the Nine Months Ended September 30, 1999:
Net Income $1,738,000 7,434,000 $0.23
Effect of options 0 96,000
---------- ----------
Net income per share - assuming dilution $1,738,000 7,530,000 $0.23
========== ========== =====
For the Quarter Ended September 30, 1999:
Net Income $ 941,000 7,436,000 $0.13
Effect of options 0 97,000
---------- ----------
Net income per share - assuming dilution $ 941,000 7,533,000 $0.12
========== ========== =====
For the Nine Months Ended September 30, 1998:
Net Income $1,470,000 7,405,000 $0.20
Effect of options 0 164,000
---------- ----------
Net income per share - assuming dilution $1,470,000 7,569,000 $0.19
========== ========== =====
For the Quarter Ended September 30, 1998:
Net Income $ 606,000 7,430,000 $0.08
Effect of options 0 138,000
---------- ----------
Net income per share - assuming dilution $ 606,000 7,568,000 $0.08
========== ========== =====
</TABLE>
8
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD LOOKING STATEMENT
In connection with, and because it desires to take advantage of, the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995,
the Company cautions readers regarding certain forward looking statements
contained in the following discussion and elsewhere in this report and in any
other statements made by or on behalf of the Company whether or not in future
filings with the Securities and Exchange Commission. Forward looking
statements are statements not based on historical information and which
relate to the future operations, strategies, financial results, or other
developments. In particular, statements using verbs such as, "expected",
"anticipate", "believe", or words of similar import generally involve forward
looking statements. Without limiting the foregoing, forward looking
statements include statements which represent the Company's beliefs
concerning future, or projected levels of sales of the Company's homes,
investments in land or other assets, projected absorption rates, or the
company's ability to attract needed financing, or the continued earnings or
profitability of the Company's activities. Forward looking statements are
necessarily based upon estimates and assumptions that are inherently subject
to significant business, economic, and competitive uncertainties and
contingencies, many of which are beyond the Company's control and many of
which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could
cause actual results to differ materially from those expressed in any forward
looking statements made by or on behalf of the Company. Whether or not actual
results differ materially from forward looking statements may depend on
numerous foreseeable and unforeseeable events or developments, some of which
may be national in scope, such as general economic conditions and interest
rates; some of which may be related to the homebuilding industry generally,
such as price, competition, regulatory developments and industry
consolidation; and others of which may relate to the Company specifically,
such as credit availability and the liquidity necessary to provide equity
into land acquisition and development transactions and other factors.
FINANCIAL CONDITION
The following presents the Company's financial condition at September 30,
1999, except where stated otherwise, comparisons are to December 31, 1998.
During the first nine months of 1999 the Company increased its backlog of
homes under contract 25% to 208 units from 166 units at year-end. This
backlog represents potential revenue of $42,200,000 at September 30, 1999
versus $31,600,000 at December 31,1998, a 34% increase.
The Company's work in process inventory of homes under construction increased
by $12,434,000 or 71% from the year end balance. This increase is associated
with the previously mentioned increased backlog.
Land and land development decreased by $3,162,000 or 21%, which reflects the
ongoing construction of lots netted with the significant movement of finished
lots into home production.
9
<PAGE>
Raw land increased by $2,862,000 or 350% reflecting the net movement of costs
incurred on the Company's Sunrise Ridge community in Arvada, Colorado to land
and land development and the costs incurred to purchase and plat the
Company's new Harvest Park Community in Ft. Collins, Colorado (see further
discussion below).
The Company's office property and equipment, less accumulated depreciation
accounts have decreased by $113,000 or 19%, which reflects increases in
accumulated depreciation of $187,000 and asset additions, primarily office
furniture, in the amount of $74,000.
Cash balances have decreased by $1,943,000 or 58% reflecting the Company's
effort to accelerate payments to subcontractors and vendors, pay-down lines
of credit and the need to provide equity contributions in recent acquisitions
of land. Restricted cash has increased by $1,755,000 or 324%. The majority of
this increase is attributable to the timing of release payments associated
with higher levels of closings versus advances on these same acquisition and
development loans. The balance of the restricted cash represents cash
balances supporting letters of credit that secure the Company's development
obligations with municipalities.
The Company capitalized its new mortgage banking subsidiary with $40,000 in
June 1999. The Company is a 50% limited partner in WRT Financial, Limited
Partnership (WRT). WRT began operations in July 1999 in office space adjacent
to the Company's headquarters. The current balance reflects the initial
investment net of the Company's share of losses through September 1999,
primarily start up expenses.
Other assets have increased by $976,000 or 168%, which represents several
earnest money deposits for land purchases. The first is for a 63 acre golf
course parcel in Westminster, Colorado that is being currently planned for
175 detached single family lots. The second is for a 19 acre parcel
containing two luxury attached lifestyle golf course communities in Highlands
Ranch, Colorado that will be developed as 147 attached single family lots.
The third is for 86 developed lots in the southeast metro area. The fourth is
for a 180 unit townhome parcel in Castle Rock, Colorado. The fifth is for 22
developed lots in Ft. Collins, Colorado and the sixth is for a 100 unit
townhome parcel in Loveland, Colorado. See additional discussion below under
the heading "Recent Land Acquisitions". The remainder reflects the costs
expended to date to plan and entitle the above mentioned projects.
Notes payable have increased $10,001,000 or 56%, which corresponds to the
increase in homes under construction and other inventory.
Accounts payable and accrued expense increased $835,000 or 12%, which
reflects the increased activity levels of the Company, including income taxes
payable.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1999 the Company used $11,866,000 of cash in
operating activities, reflecting the increase in inventory, deposits on land
and the cost of purchasing land. The Company provided cash by increasing its
debt $10,001,000.
10
<PAGE>
With the improved operating performance that the Company has shown over the
last several quarters, its relationships with its lenders continues to remain
strong. This has provided the Company with more financing opportunities to
leverage its cash and has provided opportunities to negotiate more favorable
rates and terms. As of September 30, 1999 interest rates on debt with the
Company's primary lenders for acquisition, development and construction
ranged from one month LIBOR plus 225 basis points (7.6%) to prime plus 1%.
The Company has also established relationships with lenders who will provide
working capital facilities to supplement the Company's capital resources.
The Company intends to use these working capital facilities for project
acquisition and development. The facilities have available commitments of
$2,924,250, with $750,000 outstanding at September 30, 1999. During October
1999 the combined outstanding balances were fully repaid and remain available.
The Company finalized, in April 1999, the renewal and modification of a loan
facility with one of its primary lenders. The acquisition, development and
construction facility was increased to $15,000,000. The maturity was extended
to April 1, 2000 and a LIBOR interest rate option was added. The Company
began using the LIBOR interest rate option May 1, 1999 and has saved more
than half a percent by using this option. The facility also provides a
$1,000,000 revolving working capital loan, which is subject to certain
conditions as defined in the loan agreement, including a full repayment for a
minimum 30 days each year.
Because of strong buyer demand for both improved and undeveloped land,
sellers in the Company's market area are requesting more stringent purchase
terms which include; cash at closing, closings prior to final plat, specific
performance contracts and shorter due diligence periods. The Company weighs
all of these associated risks against perceived opportunity as new projects
are analyzed. Land acquisition costs and risk continue to increase because of
demand generated by competing builders.
RECENT LAND ACQUISITIONS
The Company has executed sales contracts for all of its homes in its North
Park and Settler's Village communities. Further, the Company expects to
execute contracts in 1999 for all of its remaining homes in Summerhill,
Greenbrook and Park Square communities. Some of the contracts will close in
1999 and the balance will close in the first quarter of 2000. The Company has
been actively seeking replacement opportunities and to that end has recently
completed ten acquisitions.
In December 1998, the Company purchased a 140 unit single family parcel in
Arvada, Colorado. The sites were zoned and platted. The Company is currently
re-platting a portion for its townhome product. Financing was provided by a
$1,500,000 unsecured line of credit. In April 1999, $500,000 of the line was
repaid and the same lender provided a $3,650,000 development facility. In
October 1999, the balance of the unsecured line of credit was repaid.
Construction financing for the models and the first phase of construction has
been provided by the same lender and construction has commenced.
In January 1999, the Company purchased a 102 unit single family attached
parcel in Ft. Collins, Colorado. This is a continuation of the Company's
Stetson Creek project. Financing was provided through an existing $15,000,000
acquisition, development and construction facility. Platting was completed in
May 1999 and development and construction are in progress.
11
<PAGE>
In July 1999, the Company closed on its purchase of 106 acres in Ft. Collins,
which is currently being entitled under the Ft. Collins City Plan. The site
is planned for approximately 480 single family units with three single family
detached products and two attached products. Financing was provided from
working capital and seller has carried a note for $1,840,000 which is due in
December 1999. The Company is in the process of finalizing the acquisition,
development and construction financing.
The Company executed a purchase agreement for two luxury attached lifestyle
communities in Highlands Ranch, Colorado planned for 81 and 66 units. The
Company is in the process of finalizing the acquisition, development and
construction financing through one of its existing lending relationships.
The Company has executed a contract for a 39 acre parcel in Castle Rock,
Colorado. The parcel is zoned and planned for approximately 180 townhomes,
but must be platted through the city of Castle Rock. The contract calls for a
three phase take down beginning at final plat, and annually thereafter.
In July 1999 the Company executed a purchase agreement to acquire 86 finished
single family sites in south Aurora, Colorado. The sites are part of a 2,400
lot master planned community currently under development. The lots will be
acquired over a two year period, on a quarterly basis, beginning in December
1999.
In June 1999 the Company consummated its purchase of approximately 63 acres
in three parcels of partially developed land located in the City of
Westminster, Colorado. The Company is currently platting phase one of the
site and anticipates development of 45 lots for a newly designed single
family product. The agreement provides for a three phase take down beginning
at final plat approval, but in no event later than March 1, 2000. The Company
is analyzing the second and third parcels to determine the final product mix
for those areas.
In August 1999 the Company acquired 35 platted single family lots in Ft.
Collins, Colorado. This is a continuation of the Company's Stetson Creek
project. Acquisition financing was provided by the seller. Development and
construction financing will be through an existing $15,000,000 loan facility.
In August 1999 the Company executed a purchase agreement to acquire 22
developed single family lots in Ft. Collins, Colorado. The lots will be
acquired over the next year, and are currently being developed by the seller.
In October 1999 the Company executed an agreement which secures the right to
acquire 14 acres in Loveland, Colorado. Under the agreement the Company will
be responsible to plat the site so that no less than 126 townhomes can be
built. No closing is anticipated until the final plat is approved. The
Company is currently in a due diligence period, and has begun the entitlement
process.
Both executed and potential acquisitions will require equity investment from
the Company, which management expects to obtain from working capital
generation and through additional borrowing from the Company's working
capital facilities. The balance will be financed through traditional lending
relationships.
12
<PAGE>
NEW JOINT VENTURE
In June 1999 the Company entered into a joint venture agreement to form a
mortgage subsidiary, WRT Financial, Limited Partnership (WRT) with an
affiliate of a Houston, Texas based bank holding company with assets of over
$1,000,000,000. The Company provided $40,000 for estimated start up costs.
The Company is a limited partner, and owns fifty percent of the limited
partnership. The holding company affiliate is the general partner and manages
the day to day operations through a locally staffed office. WRT sub-leases
approximately 2,200 square feet from the Company adjacent to the Company's
primary office.
WRT is a full service mortgage brokerage operation and will fund loans with a
warehouse financing facility provided by the holding company affiliate. All
loans closed will simultaneously be sold into the secondary markets,
primarily through the holding company affiliate's mortgage banking operation.
Under this process, WRT will not be exposed to interest rate risks.
WRT will provide a variety of mortgage products to Writer's buyers. The
Company's buyers will receive an incentive to finance their home purchase
with WRT. WRT's primary marketing goal is to enhance customer satisfaction by
facilitating the mortgage process.
RESULTS OF OPERATIONS
The Company closed 90 and 240 units for the three and nine month periods
ending September 30, 1999 compared to 60 and 182 units for the same periods
in the prior year. Both periods reflect increases of 50% and 32%,
respectively. The average sales price was $207,829 for the first nine months
of 1999 compared to $219,048 for the full year of 1998. This decrease of
$11,219 reflects the close out of the Company's Peninsula (Cluster Homes)
Community in December 1998. The average sales price for Peninsula was
$385,000. The mix of products sold during the four time periods is
illustrated below.
<TABLE>
<CAPTION>
Closings Townhomes Cluster Homes Single Family Total
- -------- --------- ------------- ------------- -----
<S> <C> <C> <C> <C>
3 month period ended 09/30/99 57 N/A 33 90
3 month period ended 09/30/98 31 4 25 60
9 month period ended 09/30/99 154 N/A 86 240
9 month period ended 09/30/98 85 17 80 182
</TABLE>
Revenue for the three and nine month periods ending September 30, 1999 was
$20,094,000 and $52,006,000 respectively, as compared to $15,017,000 and
$42,049,000 for the same periods in 1998. This reflects increases of
$5,077,000 or 34% and $9,957,000 or 24%, which is the result of additional
unit closings and lot and tap sales for the three and nine month periods
ending September 30,1999.
13
<PAGE>
Gross profit related to home sales increased $1,204,000 or 44% and $1,444,000
or 17% for the three and nine month periods ending September 30, 1999. As a
percentage of revenue gross profit from home sales was 20% for both the three
and nine month periods ending September 30, 1999 which equals the percentage
for the same periods in 1998. During the three and nine month periods ending
September 30, 1999 revenue from lot and tap sales was $570,000 and $2,127,000
contributing $57,000 and $239,000 to gross profit respectively. For the three
and nine month periods ending September 30, 1998 revenue from lot and tap
sales was $1,219,000 contributing $52,000 to gross profit. These sales were
pursuant to a purchase agreement negotiated in 1997 and are now complete.
Operating expenses have increased by $528,000 or 25% and $463,000 or 7% for
the three and nine month periods ending September 30, 1999 when compared with
prior year periods. For the three month period ending September 30, 1999 the
increase is due to an increase in sales and marketing expense of $206,000 or
17% from $1,242,000 to $1,448,000, an increase in general and administrative
expense of $385,000 or 46% from $840,000 to $1,225,000 and a decrease in
interest expense, net of capitalization, of $63,000 or 90% from $70,000 to
$7,000. For the nine month period ending September 30, 1999 the increase in
operating expenses is due to an increase in sales and marketing expense of
$529,000 or 14% from $3,711,000 to $4,240,000, an increase in general and
administrative expense of $555,000 or 21% from $2,617,000 to $3,172,000 and a
decrease in interest expense, net of capitalization, of $621,000 or 93% from
$669,000 to $48,000. The decrease in interest expense is due to the close out
of the Peninsula Community where a profit sharing arrangement provided for
development interest to be paid to the lenders on the project. More favorable
interest rates on the Company's loan facilities also impacted these costs.
Sales and marketing expenses have increased reflecting the Company's
advertising campaign and commissions associated with increased sales and
closing volume. General and administrative expense has increased primarily
due to higher compensation levels reflecting the addition of staff to support
greater volume and by additional costs related to new product development.
As a result of the aforementioned factors, the Company posted net income of
$941,000 and $1,738,000 for the three and nine month periods ending September
30, 1999 as compared to $606,000 and $1,470,000 for the same periods in 1998,
a 55% and 18% increase respectively.
INFORMATION SYSTEMS AND YEAR 2000 ISSUES
The inability of computer software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two digit year is commonly referred to as the Year 2000 compliance issue.
Once the year 2000 is here such systems may be unable to accurately process
certain date-based information.
The Company has identified all significant applications in its software and
equipment that require modification to ensure year 2000 compliance. The
Company has completed testing of its internal hardware and has determined
that it is compliant with regard to the year 2000 issue. None of the
Company's equipment that may contain embedded computer chips is critical to
the Company's operations. The Company has contacted all significant vendors
and others upon whom it relies to assure that their systems will be converted
in a timely fashion. A majority have responded affirming year 2000
compliance. The Company utilizes software to process its management
information, which has been developed by an outside vendor. The Company has
recently installed the year 2000 compliant upgrade. The Company believes it
is year 2000 compliant as of September 30, 1999.
14
<PAGE>
The total costs to the Company of these year 2000 compliance issues is not
anticipated to be material, and has not been material to date. All costs to
date have been expensed.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The primary market risk facing the Company is interest rate risk on debt
obligations. The Company primarily enters into debt obligations to finance
the development and acquisition of land, and to support its homebuilding and
general corporate operations. The majority of the Company's debt has variable
interest rates, which exposes the Company to interest rate risk. The
Company's business strategy has been to accept the interest rate risk
associated with variable rate debt. The Company does not have fixed rate
alternatives at this time for acquisition, development and construction
lending. The Company attempts to pass interest rate increases on to its
customers when it can, however, there is no assurance that the Company will
be able to do so.
Under its current policies, the Company does not use interest rate derivative
instruments to manage its exposure to interest rate changes. At September 30,
1999, the Company had variable rate debt outstanding of approximately
$26,000,000. The annual projected change in cash requirements for interest at
this level of borrowing should the market rates increase or (decrease) by 10%
compared to the interest rates in effect at September 30, 1999 would be an
increase or (decrease) of approximately $240,000 or ($240,000), respectively.
15
<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 nine months ended
September 30, 1999.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WRITER CORPORATION
(Registrant)
Date: November 11, 1999 /s/ Daniel J. Nickless
-------------------------------
By: Daniel J. Nickless
President, Chief Operating and
Chief Financial Officer
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,716,000<F1>
<SECURITIES> 0
<RECEIVABLES> 379,000
<ALLOWANCES> 0
<INVENTORY> 50,026,000<F2>
<CURRENT-ASSETS> 0
<PP&E> 1,257,000
<DEPRECIATION> 773,000
<TOTAL-ASSETS> 57,102,000<F3>
<CURRENT-LIABILITIES> 7,768,000
<BONDS> 27,937,000
0
0
<COMMON> 744,000
<OTHER-SE> 20,653,000
<TOTAL-LIABILITY-AND-EQUITY> 57,102,000
<SALES> 52,006,000
<TOTAL-REVENUES> 52,006,000
<CGS> 42,002,000
<TOTAL-COSTS> 42,002,000
<OTHER-EXPENSES> 7,346,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,658,000
<INCOME-TAX> 920,000
<INCOME-CONTINUING> 1,738,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,738,000
<EPS-BASIC> .23
<EPS-DILUTED> .23
<FN>
<F1>CASH INCLUDES $2,296,000 RESTRICTED CASH.
<F2>INVENTORY INCLUDES HOMES UNDER CONSTRUCTION $30,066,000, MODEL HOMES &
FURNISHINGS $4,227,000, LAND & LAND DEVELOPMENT $12,054,000, UNPLATTED LAND
$3,679,000.
<F3>TOTAL ASSETS INCLUDES OTHER ASSETS OF $2,497,000.
</FN>
</TABLE>
