<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, 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 Drive, #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 May 7,
1999 was 7,432,590.
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1999 and
December 31, 1998 (Unaudited) 3
Condensed Consolidated Statements
of Operations for the three months
ended March 31, 1999 and 1998 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 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. 8
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 12
PART II. OTHER INFORMATION 13
</TABLE>
2
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Residential real estate held for sale, net:
Homes under construction $22,598,000 $17,632,000
Model homes and furnishings 4,381,000 4,190,000
Land and land development 12,004,000 15,216,000
Raw land 1,837,000 817,000
----------- -----------
Subtotal 40,820,000 37,855,000
Office property and equipment, less accumulated
depreciation of $653,000 and $586,000: 584,000 597,000
Other assets:
Cash and cash equivalents 2,987,000 3,363,000
Restricted cash 580,000 541,000
Accounts receivable 372,000 374,000
Deferred tax asset 1,100,000 1,166,000
Other 1,826,000 582,000
----------- -----------
Total $48,269,000 $44,478,000
----------- -----------
----------- -----------
</TABLE>
(Continued)
See notes to consolidated financial statements.
3
<PAGE>
THE WRITER CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
LIABILITIES
Notes payable $20,738,000 $17,936,000
Accounts payable and accrued expenses 7,702,000 6,716,000
Accrued interest 165,000 177,000
----------- -----------
Total 28,605,000 24,829,000
STOCKHOLDERS' EQUITY
Common stock, $.10 par value; authorized,
10,000,000 shares; 7,432,600 and 7,432,600
shares issued and outstanding 743,000 743,000
Additional paid-in capital 12,430,000 12,430,000
Retained earnings 6,491,000 6,476,000
----------- -----------
Total Stockholders' Equity, net 19,664,000 19,649,000
----------- -----------
Total $48,269,000 $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
Ended March 31,
1999 1998
---- ----
<S> <C> <C>
Residential operations:
Revenue $ 12,213,000 $ 11,709,000
Cost of sales (9,952,000) (9,161,000)
Expenses (2,276,000) (2,404,000)
----------- -----------
Income from residential operations (15,000) 144,000
Interest and other income, net 30,000 45,000
----------- -----------
Net income before income taxes 15,000 189,000
Income tax expense - (72,000)
----------- -----------
Net income $ 15,000 $ 117,000
----------- -----------
----------- -----------
Earnings per share:
Basic $ 0.00 $ 0.02
----------- -----------
----------- -----------
Diluted $ 0.00 $ 0.02
----------- -----------
----------- -----------
Weighted average number of shares outstanding:
Basic 7,433,000 7,355,000
----------- -----------
----------- -----------
Diluted 7,525,000 7,468,000
----------- -----------
----------- -----------
</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 Three Months
Ended March 31,
1999 1998
---- ----
<S> <C> <C>
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES: $(3,124,000) $ 380,000
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES-
Purchases of office property and equipment (54,000) (98,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 9,655,000 8,019,000
Principal payments on notes payable (6,853,000) (7,845,000)
----------- -----------
Net cash provided in financing activities 2,802,000 174,000
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (376,000) 456,000
CASH AND CASH EQUIVALENTS, beginning of period 3,363,000 1,015,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 2,987,000 $ 1,471,000
----------- -----------
----------- -----------
</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, 1999 and the related condensed
consolidated statements of operations and cash flows for the three month period
ended March 31, 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). All significant
inter-company 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 this pronouncement will not
impact its financial statements.
Certain items in 1998 have been reclassified to conform with the 1999
presentation.
7
<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 March 31, 1999,
except where stated otherwise, comparisons are to December 31, 1998.
During the first three months of 1999 the Company increased its backlog of homes
under contract 29% to 214 units from 166 units at year-end. This backlog
represents potential revenue of $41,966,000 at March 31, 1999 versus $31,653,000
at December 31, 1998, a 33% increase.
The Company's work in process inventory of homes under construction increased by
$4,966,000 or 28% from the year end balance. This increase is primarily
attributable to the previously mentioned increased backlog.
Model homes and furnishings increased by $191,000 or 5% reflecting the
furnishing of one previously unfurnished model at the Company's Greenbrook
Townhome Community and the start of construction on three models at the
Company's new Canterbury Townhome Community at Castle Pines North.
8
<PAGE>
Land and development decreased by $3,212,000 or 21%, which reflects the ongoing
construction of lots netted with the movement of finished lots into home
production.
Raw Land increased by $1,020,000, or 125% reflecting the January 1999 purchase
of a 102 unit townhome parcel in Ft. Collins, Colorado known as Stetson Creek
Townhomes. This parcel is expected to be platted in May 1999 and development
will immediately follow. The remainder of the increase represents costs incurred
to plat and subdivide the 90 unit townhome parcel at the Company's Sunrise Ridge
Community in Arvada, Colorado, as well as planning and engineering costs on the
107 acre Ft. Collins parcel discussed below.
Cash balances have decreased by $376,000 or 11%, reflecting the Company's effort
to accelerate payments to subcontractors and vendors and the need to provide
equity contributions in recent acquisition of land.
Other assets have increased by $1,244,000 or 214%, which primarily represents
the cost to purchase a contract that entitles the Company to purchase
approximately 107 acres in southeast Ft. Collins, Colorado and an associated
earnest deposit that was required by the contract. The Company is currently
planning and platting the site which is zoned for no less than 481 units. The
Company is also in the planning and engineering process for the product lines to
be marketed at this traditional neighborhood development.
Notes payable has increased $2,802,000 or 16%, which is consistent with the
increase in the inventory mentioned above, and also reflects the use of working
capital lines employed for equity in recent land deals.
Accounts payable and accrued expenses increased $986,000 or 15%, reflecting the
increased activity levels of the company.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 1999, the Company used $3,124,000 of cash in
operating activities, reflecting the increase in inventory, deposits on land and
the cost of purchasing the contract to purchase land. The Company provided cash
by increasing its debt $2,802,000. The balance was paid from cash reserves.
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.
The Company has also attracted lenders who will provide working capital
facilities to supplement the Company's capital resources.
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 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
requirement for a minimum 30 days each year.
9
<PAGE>
The Company intends to use these working capital facilities for project
acquisition and development. The facilities have available commitments of
$1,924,000, with $600,000 outstanding at March 31, 1999. The Company has
invested $376,000 of its own cash reserves into certain projects during the
first three months of 1999 (see "Recent Acquisitions" below).
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 recently completed three land 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 the $1,500,000 unsecured line
matured and the same lender provided an unsecured revolving line of credit for
$1,000,000 and the Company provided the remaining equity. The Company is
currently structuring financing for this parcel's development and construction.
This facility is planned to close in May 1999.
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 $10,000,000 acquisition,
development and construction facility.
In January 1999, the Company purchased for $750,000, a contract which allows the
Company to purchase approximately 107 acres in Ft. Collins, Colorado. The parcel
is entitled under the Ft. Collins "City Plan" which requires not less than 481
units to be platted. The Company is platting and engineering the site and
expects to begin development in 1999. Three or four product lines will be
marketed at this master planned, traditional neighborhood development.
The Company has executed contracts for all of its homes in its Summerhill
community. Further, the Company expects to execute contracts in 1999 for all of
its remaining homes in the Park Square, Greenbrook, NorthPark and Settlers
Village communities. Some of the contracts will close in 1999, however, the
balance are expected to close and, therefore, be reflected as revenue in fiscal
year 2000.
The Company is actively seeking replacement opportunities for the
aforementioned projects. To this end, the Company has executed purchase
agreements for two luxury attached lifestyle communities in Highlands Ranch,
Colorado planned for 81 and 66 sites, respectively. In addition, the Company
is currently finalizing contracts for three parcels of ground in Westminster,
Colorado, and for a parcel in southeast Denver. In addition, the Company has
a letter of intent executed for a 39 acre parcel in Castle Rock, Colorado.
These 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.
10
<PAGE>
RESULTS OF OPERATIONS
The Company closed 59 homes in the three months ending March 31, 1999 compared
to 50 homes during the same period in 1998. The average sales price was $191,934
for the first three months of 1999 compared to $234,173 for the same period in
1998. The mix of products sold during the two time periods is illustrated below.
<TABLE>
<CAPTION>
Closings Townhomes Cluster Homes Single Family Total
- -------- --------- ------------- ------------- -----
<S> <C> <C> <C> <C>
3 month period ended Mar. 31, 1999 41 18 59
3 month period ended Mar. 31, 1998 20 9 21 50
</TABLE>
The Company's Peninsula (Cluster Homes) Community closed out in December
1998. The average sales price for Peninsula was $385,000 and it also carried
higher than average gross margins. These factors contributed to a decrease in
home sales revenue of $385,000 or 3%, from $11,709,000 to $11,324,000 for the
first three months of 1998 and 1999 respectively, despite 9 additional
closings in the comparison period. Gross margin related to home sales
decreased by $397,000 or 16%, from $2,548,000 to $2,151,000 for the three
month periods ending March 31, 1998 and 1999. During the three months ended
March 31, 1999 revenue from lot and tap sales was $889,000 contributing
$110,000 to gross margin. There were no lot or tap sales for the same period
in 1998.
Operating expenses decreased by $128,000 or 5% for the three month period
ending March 31, 1999 as compared to the same period a year ago. The decrease
is due to a drop in interest expense, net of capitalization, of $400,000 from
$406,000 to $6,000, an increase in sales and marketing expense of $176,000
from $1,137,000 to $1,313,000 and an increase in general and administrative
expense of $96,000 from $861,000 to $957,000. 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 and more favorable interest rate on loan facilities.
Sales and marketing expenses have increased reflecting the start of the
Company's brand advertising campaign. General and administrative expense has
increased primarily due to higher compensation levels reflecting the addition
of staff to support greater volume and by additional consulting fees related
to new product development.
As a result of the aforementioned factors, the Company posted net income of
$15,000 in the first quarter of 1999 versus $117,000 in 1998.
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
11
<PAGE>
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 at this
time. Any vendors that remain non-compliant will be reviewed during the third
quarter of 1999 and appropriate action will be taken after the review. 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. Other application software (such as
spreadsheets, word processing and other personal and work group
applications), will be upgraded when the year 2000 compliant software is
available. The Company plans to be 100% year 2000 compliant by June 30, 1999.
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. All 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 can do that.
Under its current policies, the Company does not use interest rate derivative
instruments to manage its exposure to interest rate changes. At March 31,
1999, the Company had variable rate debt outstanding of approximately
$21,000,000. 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 March 31, 1999 would be an
increase or (decrease) of approximately $168,000 or ($168,000) respectively.
12
<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, 1999.
13
<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 12, 1999 /s/ Daniel J. Nickless
--------------------------------
By: Daniel J. Nickless
Executive Vice President,
Chief Operating and Chief
Financial Officer
14
<PAGE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,567,000<F1>
<SECURITIES> 0
<RECEIVABLES> 372,000
<ALLOWANCES> 0
<INVENTORY> 40,820,000<F2>
<CURRENT-ASSETS> 0
<PP&E> 1,237,000
<DEPRECIATION> 653,000
<TOTAL-ASSETS> 48,269,000<F3>
<CURRENT-LIABILITIES> 7,867,000
<BONDS> 20,738,000
0
0
<COMMON> 743,000
<OTHER-SE> 18,921,000
<TOTAL-LIABILITY-AND-EQUITY> 48,269,000
<SALES> 12,213,000
<TOTAL-REVENUES> 12,213,000
<CGS> 9,952,000
<TOTAL-COSTS> 9,952,000
<OTHER-EXPENSES> 2,246,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 15,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,000
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
<FN>
<F1>CASH INCLUDES $580,000 OF RESTRICTED CASH
<F2>INVENTORY INCLUDES HOMES UNDER CONSTRUCTION $22,598,000, MODEL HOMES &
FURNISHINGS $4,381,000, LAND & LAND DEVELOPMENT $12,004,000, UNPLATTED LAND
$1,837,000
<F3>TOTAL ASSETS INCLUDES OTHER ASSETS OF $2,926,000
</FN>
</TABLE>
