<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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
<TABLE>
<S> <C> <C> <C>
Colorado 84-0510478
(State of incorporation) (IRS Employer Identification No.)
6061 S. Willow Drive #232, Englewood, Colorado 80111
(303) 779-4100
</TABLE>
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
$.10 PAR VALUE COMMON STOCK
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of The Writer Corporation common shares on March 10,
2000 (based upon the average between the reported bid and asked prices of these
shares traded over-the-counter) held by non-affiliates was approximately
$10,927,000.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. As of March 24, 2000, 7,462,480
shares of The Writer Corporation's $.10 par value common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(NONE)
<PAGE> 2
PART I
ITEM 1. BUSINESS.
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS (DENOTED
WITH AN ASTERISK (*) AT THE END OF SUCH STATEMENT) THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING
THOSE SET FORTH IN THIS BUSINESS SECTION AND UNDER "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" BELOW.
We are a developer and builder of planned residential communities primarily in
the Denver, Colorado area and we have recently expanded into the Northern
Colorado area with projects in Ft. Collins and Windsor, Colorado. Our expansion
into Northern Colorado provides an opportunity for us to identify more
affordable development opportunities in an expanding marketing area. Because of
these opportunities, we have assumed an aggressive position relative to our
overall land philosophy and current land position. We have purchased 106 acres
in Southeast Ft. Collins, the zoning regulations of which require the
development of no less than 470 lots. This parcel will allow us to plan and
develop a significant community consistent with our historical developments. We
are continuously investigating community development opportunities. To fund this
growth, we have re-employed our available cash flow and will continue to expand
our borrowing relationships.
We have received local and national recognition for the design of our planned
residential communities which integrate single family homes and townhomes with
extensive greenbelts, bicycle and walking paths, winding streets and family
recreation facilities to create a beneficial lifestyle for our residents. From
the date of our formation through December 31, 1999, we have closed the sale of
10,308 homes in 35 communities.
RESIDENTIAL DEVELOPMENTS
We market our planned residential communities to a broad spectrum of middle and
upper middle income buyers. Sales prices for our homes currently range from
approximately $159,000 to $398,000.
2
<PAGE> 3
The following table presents historical data relating to sales of our homes and
homes under contract.
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997 1996 1995
- ----------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Revenues From
Closed Sales (in thousands)(1) $ 82,061 $ 64,091 $ 44,098 $ 46,284 $ 31,960
Average Sale Price (per home) $208,158 $219,048 $220,913 $215,274 $194,878
Number of Homes Closed 383 286 196 215 164
Backlog as of December
31, (number of homes) 107 166 73 54 66
Backlog as of December
31, (in thousands) $ 24,326 $ 31,653 $ 16,183 $ 11,885 $14,766
</TABLE>
(1) 1999, 1998 and 1997 Revenue includes $2,337,000, $1,433,000 and $799,0000
from 33, 27 and 14 finished lot sales and the related water and sewer tap sales,
respectively.
Backlog is defined as the number of homes in planning or construction which are
under contract but not closed. Backlog contracts are cancelable upon forfeiture
of $2,000 to $5,000 deposits or without forfeiture if permanent financing cannot
be obtained or other contingencies included in the contract have not been
resolved. We expect the majority of the December 31, 1999 backlog to close
within 2000.* The backlog at March 23, 2000 was 123 homes, representing
$30,618,000 in potential revenue.
Planned Residential Communities
We design each of our planned residential communities to complement existing
land characteristics, blending cul-de-sacs with extensive green belts, parks,
natural open space and winding streets to create a pleasant environment
compatible with its surroundings. Typically our planned communities incorporate
one or more recreation facilities such as a clubhouse, swimming pool or tennis
courts. We construct model homes to assist in marketing each community, striving
for distinctive architecture and interior design. We have built in 35
communities, 26 of which have been completed. We had sales or closing in eleven
communities during 1999, some of which have more than one product line,
including Greenbrook, Northpark, Lowry, Castle Pines North, Highlands Ranch
SummerHill, and Settler's Village (all located in metropolitan Denver), and
Water Valley and River West in Windsor, Colorado, and Stetson Creek in Ft.
Collins, Colorado.
3
<PAGE> 4
The following table summarizes information with respect to all of our current
residential communities.
<TABLE>
<CAPTION>
Under Construction
------------------ Current or
Year Units In Projected
Opened Master Units Under Not Under Units Not Base Price
PROJECT for Sale Plan Closed Contract Contract Started Models Range
- ------- -------- -------- ------ -------- -------- --------- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GREENBROOK (1)
Townhomes 1983 212 211 1 0 0 0 $138,000 -
$141,000
NORTHPARK
Townhomes (2) 1984 453 445 8 0 0 0 $176,900 -
$192,900
LOWRY
Townhomes 1998 120 89 27 1 0 3 $200,900 -
$218,500
CASTLE PINES NORTH
Single Family
Royal Hill/Kings 1985 338 338 0 0 0 0
Crossing
Noble Ridge 1997 169 98 8 19 41 3 $288,600 -
$369,900
Knights Bridge 1985 238 179 12 5 40 2 $244,700 -
$263,600
Townhomes
Canterbury Park 1999 97 15 9 37 33 3 $190,500 -
$219,000
Clusters 2000 30 0 0 0 30 0 to be
determined
HIGHLANDS RANCH
Single Family
SummerHill 1993 139 139 0 0 0 0 $200,900 -
$234,050
Townhomes
Settler's Village (2) 1995 199 178 21 0 0 0 $163,500 -
$194,900
Birkdale 2000 81 0 0 0 81 0 to be
determined
Clusters
Turnbury 2000 66 0 0 0 66 0 to be
determined
</TABLE>
4
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<TABLE>
<CAPTION>
Under Construction
------------------ Current or
Year Units In Projected
Opened Master Units Under Not Under Units Not Base Price
PROJECT for Sale Plan Closed Contract Contract Started Models Range
- ------- -------- -------- ------ -------- -------- --------- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUNRISE RIDGE
Single Family
Talavera 2000 50 0 0 9 39 2 $338,900 -
$398,100
Townhomes
Townhomes at Talavera 2000 90 0 0 0 90 0 to be
determined
TALLYN'S REACH(3)
Single Family
Branches 2000 14 0 0 0 14 0 to be
determined
RIVER WEST
Single Family 1998 49 21 4 7 15 2 $241,000 -
$313,400
STETSON CREEK
Single Family (4) 1997 82 31 8 5 36 2 $216,500 -
$262,600
Townhomes
Saddlebrook 1999 102 0 3 18 78 3 $158,800 -
$177,000
WATER VALLEY
Single Family 1997 6 6 0 0 0 0 $230,000 -
$262,500
FOSSIL LAKE RANCH(5)
Single Family 2000 1 0 0 0 0 1 to be
determined
REUNION
Single Family 2000 317 0 0 0 317 0 to be
determined
Duplex 2000 74 0 0 0 74 0 to be
determined
Townhomes 2000 79 0 0 0 79 0 to be
-- - - - -- - determined
Total as of
December 31, 1999 3,006 1,750 101 101 1033 21
</TABLE>
- -------------------
See footnotes below.
(1) We re-opened this community in 1997, and it is now complete.
(2) In 1997 three of the models at each community were sold and leased back to
us; the leases expired in 2000 and were turned over to the owners.
(3) We hold an option agreement to acquire an additional 72 lots to be
purchased in 2000 and 2001.
(4) We acquired an additional 35 platted but undeveloped lots in 1999.
(5) We hold an option agreement to acquire an additional 21 lots to be
purchased in 2000.
5
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Operations
We use our staff, outside consultants and subcontractors as necessary to
accomplish all stages of development and sale including acquisition of land,
land use planning and development, building design, construction, marketing and
sales.
Land Acquisition and Development
We acquire options on land which we intend to develop in order to further
explore the suitability of the property. We typically engage outside consultants
to verify market expectations. They provide marketing studies which address
factors such as product design and pricing, target market location, population
growth patterns, and zoning suitability. Our staff prepares preliminary cost
estimates, land and site layouts, and obtains environmental and regulatory
approvals. The staff also designs preliminary roads, sewers, water, and drainage
layouts and other community amenities, in concert with independent engineers.
We currently have an inventory of unplatted land which will be platted into 470
single family sites. In addition, we have land under development sufficient for
planned construction activities for the near future. As an additional source of
lots for construction, we intend to enter into purchase agreements for developed
or partially developed sites.
We design our residential communities to complement the characteristics of the
land and the surrounding area to create an appealing environment. Internal staff
determines the type and mix of houses suitable for the property, evaluates
traffic patterns, designs roadways, recreational areas and greenbelts. Physical
development, including paving of streets, grading of home sites and underground
installation of utilities, is generally performed by subcontractors under fixed
price contracts, which are competitively bid, and supervised by in-house staff.
We are subject to regulation by various state and local authorities, including
those administering zoning and land subdivision ordinances. Certain matters
require agency approval and the homes we build are subject to inspection by
local building departments during construction. We believe that our
relationships with the municipalities and agencies having jurisdiction over our
properties are excellent. We historically have experienced little difficulty in
obtaining the necessary permits for developing our properties. Some local
municipalities have attempted to limit growth through allocations of building
permits or water and sewer taps. We have not been directly impacted by these
measures to date but may be in the future.
Land Acquisition and Development Financing
We acquire development financing through lending relationships with financial
institutions or other institutional lenders. Usually these loans require equity
contributions which we must provide through our working capital. The loans are
repaid by refinancing from related construction loan facilities and/or
ultimately by proceeds from sale.
6
<PAGE> 7
Home Construction
We typically complete construction of our homes in 120 to 150 working days,
depending on the complexity of the model. On-site construction is performed by
subcontractors and overseen by our project supervisors. Most subcontract work is
performed under fixed price contracts, which usually cover both labor and
materials. Cost savings are sought through the use of quality standard materials
and components, building on contiguous sites, standardization of available
options, limiting certain types of options and efficient use of land. We have
many long standing relationships with our subcontractors and we believe that
these relationships contribute to cost and production efficiencies. We
continually consider design innovations in our house plans, most of which were
developed internally and refined over the years.
Construction Financing
We obtain the majority of our construction financing under revolving lines of
credit with local and national banks. These agreements provide financing for a
portion of our lot purchases and substantially all material and outside labor
costs incurred in the construction of residences. In addition, loan agreements
provide model home financing and allow a specific number of speculative homes to
be built. These loans currently bear interest at rates ranging from the prime
rate of interest to prime plus 1.0% and are typically renewed annually, at which
time loan fees ranging from 0.5% to 1.0% are paid for the loans.
The Company has remaining approximately $57,793,000 available from financing
sources for construction financing as of December 31, 1999.
Marketing and Sales
We market our planned residential communities to middle and upper middle income
purchasers through internally-employed, on-site, commissioned salespersons.
Many of our sales involve co-operative commission arrangements with an
independent real estate broker. We encourage this cooperative activity through
various programs aimed at outside real estate professionals who many times have
significant influence over buyer decisions. We advertise in the print media, use
various types of signage, and maintain model home complexes at our communities
to assist sales efforts. Prospective purchasers execute contracts for our homes,
making a down payment of $2,000 to $5,000 which is forfeited if the home is not
purchased for any reasons other than failure to obtain financing or resolution
of other contingencies in the contract.
Customer Financing
We formed a mortgage subsidiary, WRT Financial, Limited Partnership ("WRT").
Buyers receive an incentive to finance their home purchases through WRT. See
ITEM 7, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. We do not require any specific permanent financing relationship
to be used by buyers. Most buyers obtain long term loans with down payments
ranging from 5 to 30% of the purchase price.
7
<PAGE> 8
Working Capital Facilities
We obtain a portion of our working capital through credit facilities from
institutional lenders. Currently we have three such facilities having the
following terms.
<TABLE>
<CAPTION>
Maximum Principal Amount Interest Rate Security
- ------------------------ ------------- --------
<S> <C> <C>
$1,424,000 (Revolving) Prime + 1% Portions of Castle Pines
North
$2,000,000 (Revolving) Prime Unsecured
$2,500,000 (Revolving) Prime + 1.0% Unsecured
</TABLE>
See ITEM 7, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Other Factors Influencing Our Business
Most raw materials and other construction materials or products that we use are
readily available and are carried by major suppliers. However, periods of high
inflation can have a negative impact on our operations. Land prices and housing
demand are affected by inflation, which also impacts interest rates. Interest
rates are a significant factor that impact the real estate development and home
building industry. Rate increases affect construction and financing costs
negatively and mortgage rates directly impact the number of purchasers who are
willing to buy houses and who qualify for mortgage financing. We compete with
other companies in the home building business which may have substantially
greater financial resources.
Metro-Denver, Colorado has pockets of soils which can cause damage to home
foundations resulting from expansion due to moisture in those soils. We hire
soils engineers who advise us with respect to foundation structures designed to
control expansion of soils which are discovered as a result of pre-construction
testing conducted by such engineers.
We (and other home builders in Colorado) have been the subjects of lawsuits
claiming, in addition to costs of repair, damages for mental distress, punitive
damages, and treble damages under the Colorado Consumer Protection Act arising
out of failure to properly design and construct foundations, to properly
disclose hazards due to the existence of expansive soils and to promptly repair
damages caused by expansive soils.
We maintain liability insurance which covers design and manufacturing defects in
our products. Our Management believes that such insurance is adequate to cover
our loss exposure for such defects.
Employees
As of December 31, 1999, we employed 125 full time employees, including 7 in
executive positions, 12 in sales and marketing activities, 87 in planning,
construction or development activities, 19 in administrative activities, and 5
part-time employees, primarily assisting in sales. We consider our employee
relations to be good and none of our employees are unionized.
8
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Merger Discussions
In January 2000, we signed a nonbinding letter of intent under which Writer may
merge into a newly created subsidiary of Standard Pacific Corp., a company
listed on the New York Stock Exchange under the symbol "SPF." The letter of
intent proposes that if we reach agreement with Standard Pacific Corp. and our
shareholders approve, shareholders of Writer would receive in either cash or
Standard Pacific Corp. common stock or a combination of both, having a value of
$3.42 in exchange for each share of Writer common stock. Following the merger we
expect that the new subsidiary would operate under the Writer name, but the
stock of Writer would not be publicly traded. Not more than sixty percent of the
aggregate exchange consideration is proposed to be paid in Standard Pacific
Corp.'s stock and not more than fifty percent is proposed to be paid in cash.
Consummation of the proposed merger transaction is subject to many conditions,
including negotiation of a definitive acquisition agreement in form satisfactory
to both Writer and Standard Pacific Corp., satisfactory completion of Standard
Pacific Corp.'s due diligence review of our business and operations, and the
approval of two thirds of our stockholders; failure of any one of which could
result in the merger not being consummated. Due diligence conducted by Standard
Pacific Corp. and further discussion between the parties could result in
modification of the proposed terms of the transaction, including, among other
things, increased portion of transaction costs and fees being born by Writer's
shareholders. Accordingly, there is no assurance that a definitive agreement
will be reached on the same or different terms than those contained in the
letter of intent or that the merger will take place. If a satisfactory agreement
is negotiated with Standard Pacific Corp., we will send proxy materials to our
shareholders describing in detail the terms of the proposed merger.
ITEM 2. PROPERTIES.
Our principal offices are in the Atrium Building located at 6061 S. Willow St.,
Englewood, Colorado. We have leased approximately 14,000 square feet for a five
year term ending June 2004 with renewal options. Our Northern Division has its
office at 5200 Hahns Peak Drive, Loveland, Colorado. We have leased
approximately 1200 square feet for a three year term ending May 2001.
We own various parcels of real estate in metropolitan Denver and Northern
Colorado which we hold for development as residential property.
ITEM 3. LEGAL PROCEEDINGS.
We have no material pending legal proceedings other than ordinary routine
litigation incidental to our business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
9
<PAGE> 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock is traded over-the-counter under the symbol WRTC. The following
table presents the "highest bid" and "lowest ask" quotations (as supplied by the
National Quotation Bureau, Inc.) and our dividend information. The approximate
number of holders of record of our common stock as of March 10, 2000 was 400.
Stock Price and Dividends Low High
--- ----
<TABLE>
<CAPTION>
"Bid Price" "Ask Price" Dividends Paid
1999 ----------- ----------- Per Share
---- ---------
<S> <C> <C> <C>
First Quarter $1.50 $2.03 None
Second Quarter 1.75 2.22 None
Third Quarter 1.88 2.35 None
Fourth Quarter 1.41 2.06 None
1998
First Quarter $1.31 $2.25 None
Second Quarter 1.88 2.63 None
Third Quarter 1.75 2.69 None
Fourth Quarter 1.63 2.38 None
</TABLE>
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ITEM 6. SELECTED FINANCIAL DATA.
The selected financial and other data relating to us set forth below should be
read in conjunction with our Consolidated Financial Statements and the notes
thereto included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Dollar amounts in thousands other than
per share data 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $82,061 $64,091 $44,098 $46,284 $31,960
Income (loss) from continuing
operations (1) $3,652 $2,182 $3,460 $1,301 $(316)
Income (loss) from continuing
operations per share
Basic $.49 $.29 $.47 $.18 $(.05)
Diluted $.47 $.29 $.46 $.18 $(.05)
Net income (1) $2,182 $3,460 $1,301 $1,121
$3,652
Net income per share (1)
Basic $.49 $.29 $.47 $.18 $.18
Diluted $.47 $.29 $.46 $.18 $.18
Weighted average shares
outstanding (Basic) 7,441,000 7,412,000 7,355,000 7,341,000 6,280,000
Dividends paid per share -0- -0- -0- -0- -0-
Total assets $44,478 $41,580 $36,650 $41,070
$59,210
Notes payable $27,495 $17,936 $19,221 $17,241 $22,419
</TABLE>
- ----------------
(1) Included in 1997 Income is $1,185,000 of non-recurring income.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Our Management's Discussion and Analysis of Financial Condition and Results of
Operations for the year ended December 31, 1999 follows.
11
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Forward Looking Statements
In connection with, and because we desire to take advantage of, the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, we
caution 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 our behalf 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 our beliefs
concerning future, or projected levels of sales of the our homes, investments in
land or other assets, projected absorption rates, or our ability to attract
needed financing, or the continued earnings or profitability of our 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 our 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 us. 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 us specifically, such as credit availability and the liquidity
necessary to provide equity into land acquisition and development transactions
and other factors.
Results of Operations
In 1999 we recorded the highest levels of revenue, gross profit, and income from
residential operations in the last decade of our history. Total 1999 revenue of
$82,061,000 represents a 28% increase over the previous year total. This
$17,970,000 increase in revenue was accompanied by a $14,771,000 or 29% increase
in cost of sales but resulted in a $15,739,000 total gross profit. Our backlog
of homes sold but not yet completed at December 31, 1999 decreased from 166 to
107, a decrease of 36% from December 31, 1998.
This improved performance reflects our continued efforts to maximize the
efficiencies in purchasing, construction and development processes. In addition,
we have focused on increasing sales prices as high as product acceptance and
resulting market demand will prudently support. Our marketing area continues to
provide strong demand.
During 1999, we closed 383 units, including 43 from our Northern Colorado
Division. The 1999 closings represent a 33.9% increase in unit closings over the
prior year, a percent change consistent with revenue growth. However, there was
a slight drop in the price from $219,000 in 1998 to $208,000 in 1999. In 1997
the average sales price was $220,900.
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<PAGE> 13
We continued our trend of product mix weighting toward attached single family,
as illustrated in the table below.
<TABLE>
<CAPTION>
Closings Townhomes Single Family Cluster Homes Total
- -------- --------- ------------- ------------- -----
<S> <C> <C> <C> <C
Year ended December 31, 1999 264 119 -- 383
Year ended December 31, 1998 149 115 22 286
Year ended December 31, 1997 84 98 14 196
</TABLE>
Our only cluster home project, the Peninsula, was completed in 1998.
Our gross profit of $15,739,000 is a $3,199,000 or 25.5% increase over 1998
results, and a 47.0% increase over 1997. As a percentage of sales, our gross
profit was 19.2% in 1999, 19.6% in 1998, and 18.9% in 1997.
As a percentage of revenues, all of our expenses improved over the previous
year. We have focused on maximizing our economies of scale and controlling
expenses as revenue increased. This successful effort reflects the stability of
our fixed costs, notwithstanding our revenue growth which increased variable
costs, particularly those associated with sales and marketing.
Sales and marketing costs increased in 1999 by $622,000 or 12.2%; however, as a
percentage of revenue, the costs decreased to 7.0% versus 8.0% in 1998. These
costs for the current year are also less than levels in 1997 when 8.4% of
revenue was expended on these activities. Sales commissions are a significant
portion of these costs.
General and administrative costs increased by $1,016,000 in 1999 and were 5.8%
of revenue versus 5.8% in 1998 and 6.1% in 1997. The dollar increase in 1999
reflects more aggressive compensation programs necessitated by market pressure
on salaries and incentive programs for qualified industry personnel. In
addition, we increased expenditures on architectural and engineering consultants
commensurate with new product development. We also incurred rental charges for
office space in 1999, 1998 and the last half of 1997. Previously, occupancy cost
was recorded as interest on debt service and minor depreciation expense included
in general and administrative costs, as we owned our own building until May
1997.
Interest expense as a percentage of revenue improved in 1999 to 0.4% versus 1.4%
in 1998 and 1.5% in 1997. This reflects more competitive interest rates which we
have obtained from our lenders. Almost all interest is capitalized as a cost of
homes under construction and is included in cost of sales when homes are sold.
In 1998, we completed our last significant lender related profit sharing
interest arrangement which will lower our effective borrowing rate in the
future.* We incurred $2,756,000 of interest in 1999 compared to $3,050,000 in
1998 and $2,303,000 1997. Our improved performance has enabled us to repay
higher coupon debt, structure more favorable credit facilities and borrow less
over the last three years.
As a result of these items and the increased revenues discussed above, our
income from residential operations grew to $4,913,000, a 75.4% increase from
1998 income from residential operations of $2,801,000. This follows a 112.4%
increase in 1998 from 1997. Interest and other income of $198,000 in 1999 is
consistent with $211,000 in 1998.
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<PAGE> 14
In 1997, we reported $1,240,000 of interest and other income which included
three non-recurring transactions. A sale of our office property and retirement
of related debt resulted in a gain of $648,000 and two refunds from protests and
litigation of impact fees and property taxes resulted in income of $537,000.
Due to the improved results discussed above, we recorded an increase in income
before tax of $5,111,000 versus $3,012,000 in 1998 and $2,559,000 in 1997.
In previous years, we recorded expenses via valuation reserves to properly
reflect the fair market value of our holdings. During 1999, a portion of these
previously recorded deductions was used to offset taxable income because some of
the underlying property was sold to third parties through normal operations.
This reduced our recorded tax liability in 1999 and increased the deferred tax
asset to $1,410,000 at December 31, 1999. The income tax expense was calculated
at statutory rates, reflecting the impact of the deferred asset.
All of the factors discussed above resulted in net income of $3,652,000, net of
$1,459,000 of tax expense for 1999 versus net income of $2,182,000 net of a tax
expense of $830,000 in 1998. Net income in 1997 was $3,460,000, net of a tax
benefit of $901,000.
Financial Condition
At December 31, 1999, we had 202 homes under construction ranging from
foundation stage to final completion as compared to 188 at December 31, 1998.
The higher inventory levels are predicated on market conditions, low mortgage
rates, and our sales growth. We received 324 new orders in 1999, which was a 55
unit decrease from 1998's total of 379, but a 50.7% increase over 1997 results
of 215. The decrease in 1999 is partly attributable to a winddown and/or
completion of several projects, including Greenbrook, Lowry, Settler's Village,
Northpark and Water Valley. We have several new projects in various stages of
entitlement or development scheduled to open in 2000. See discussion below.
Since year end the backlog has grown an additional 16 units to 123 units at
March 23, 2000.. Our backlog expressed in projected sales revenue at March 23,
2000 grew by $6,292,000 to over $30,618,000 from $24,326,000 at December 31,
1999. This backlog provides a foundation for strong results in 2000, but is
tempered by extended construction time caused by the tight labor market in our
marketing areas.* This lack of available labor continues to pressure
construction schedules and increase construction costs. Because of market
demand, our management currently believes that more in process inventory could
translate to greater market share by providing more available and more timely
deliveries to home buyers who desire shorter closing dates from initial contract
execution and continues to press this growth.* Because of this, we continue to
quickly re-employ our resources back into production.
14
<PAGE> 15
Work In Process Inventory
At December 31, 1999 and 1998, our work in process included a mix as follows.
<TABLE>
<CAPTION>
Year Ended Dec. 31 Presold Speculative Total
- ------------------ ------- ----------- -----
<S> <C> <C> <C>
1999 107 101 208
1998 166 53 219
</TABLE>
Our inventory of homes under construction increased by $5,717,000 or 32.4%. In
1999 and 1998, 6 and 31 inventory presold units respectively, were in the
permitting or engineering process at year end and, therefore, carried small
balances. The average inventory amount per unit (net of units in the permitting
or engineering process) is $115,589 and $93,787 at December 31, 1999 and
December 31, 1998. This average increase of $21,802 per inventory unit is
primarily responsible for the inventory increase. In addition, we are
consciously increasing inventory at our existing projects in an attempt to
mitigate the impact of the timing of new project starts versus the
aforementioned project winddowns (net of units in the permitting or engineering
process).
Model homes and furnishings increased by $570,000 during 1999, which reflects a
13.6% increase in the carrying value of these assets. During the year we opened
three model homes at Canterbury Park in Castle Pines North. This marketing
investment will grow in 2000. * In the Northern division three new models opened
in February 2000 at Saddlebrook in Stetson Creek and one detached single family
model in Fossil Lake Ranch is under construction, which is expected to open in
May 2000. * In the Denver division two detached single family models opened in
February 2000 at Talavera in Sunrise Ridge, a new project in Arvada, Colorado
(north metro-Denver). At Tallyn's Reach in Aurora, Colorado three detached
single family models are under construction as of January 2000. We are
processing plans for models in the following communities, all of which are
expected to open in 2000: *
<TABLE>
<CAPTION>
Division Community Type Number
- -------- --------- ---- ------
<S> <C> <C> <C>
Denver Castle Pines North Cluster One
Denver Highlands Ranch Golf Course Cluster Two
Denver Highlands Ranch Golf Course Townhouse Three
Denver Talavera at Sunrise Ridge Townhouse Three
Denver Legacy Ridge Detached Two
Northern Reunion Clusters Two
Northern Reunion Detached Seven
</TABLE>
During 1999 14 models were shut down and moved into "for sale" status. Of those
14 models six were in an active sale and lease back transactions as of December
31, 1999. During January and February 2000 the leases were concluded and the
units were turned over to the owners.
15
<PAGE> 16
Our investment in land and land development increased by $2,643,000, or 17.4%
over the prior year end balance. During the year we continued development at
Settler's Village, Greenbrook, Northpark, Lowry and Canterbury Part at Castle
Pines North. In addition, we began development at Sunrise Ridge for both single
family detached homes and townhomes. Also, 20 lots in Noble Ridge and 52 lots in
Knights Bridge both at Castle Pines North were developed this year. We purchased
and began development of 102 townhouse lots for Saddlebrook and 35 single family
detached lots both in the Stetson Creek project. We have purchased 14 finished
lots at Tallyn's Reach as part of an 86 lot option contract and two platted
parcels at The Highlands Ranch Golf Course that will be developed into 81
townhouse and 66 cluster lots during 2000.* These expenditures less the cost of
lots transferred to production account for the net increase.
Our unplatted land account holds one parcel of approximately 106 acres of ground
in Ft. Collins, Colorado. We have platted the site into 470 single family lots
and are finalizing development agreements. We are also finalizing the planning
and engineering process for the product lines to be marketed at this traditional
neighborhood development.
Our office property and equipment decreased by $93,000, or approximately 15.6%
from the previous year. Purchases of $181,000 reflect the set up of the new
sales office at Canterbury Park at Castle Pines North and the ongoing need to
upgrade computer equipment.
Our cash, cash equivalents, and restricted cash increased $1,663,000 during the
year from the December 31, 1998 balance. The increases related primarily to the
relatively high level of closings which we had in December 1999. The increase in
accounts payable and accrued expenses was caused primarily by the estimated
accrual of expenses related to the completion of inventory closed in December,
for which bills had not been received at year end, and to overall increased
activity.
The carrying value of our deferred tax asset was adjusted to $1,410,000 during
1999. A significant portion of our deferred tax asset represents temporary
differences between deductions for financial reporting and tax reporting,
primarily from land basis differences. As of December 31, 1999 our valuation
allowance was eliminated because we believe it is more likely than not to be
realized.*
Our notes payable related to construction activities increased $3,099,000, or
21.8% and such increase is consistent with the increased homes under
construction inventory levels. Overall committed construction loan amounts are
higher than last year and will generate larger balances as many of the
commitments are for inventory which had not been started at year end.* We
finance virtually all of our construction activities through our loan
facilities. Our loan facilities generally require annual commitment fees of up
to 1.0% and accrue interest at prime to prime plus 1.0%. Certain facilities also
allow us to select a rate indexed on the LIBOR rate.
Our notes payable related to land debt increased by $4,540,000, or approximately
162.5% during 1999. This increase is reflective of our efforts to secure land
for future building. (See discussion at Recent Acquisitions below).
Our other notes payable account increased $1,920,000 during the year as
revolving lines of credit were used to finance the purchase of unplatted land.
Once the underlying parcel is platted, the existing debt will be replaced with a
traditional acquisition and development loan.* At December 31, 1999, we had
remaining $900,000 from our unsecured convertible debt offering which was
entered into in 1993; this debt was paid off in February 2000. See ITEM 13,
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
16
<PAGE> 17
We issued 29,900 shares of stock during the year pursuant to exercises of stock
option grants previously made to employees.
Liquidity and Capital Resources
During 1999, we used $7,787,000 of cash in operating activities, primarily to
increase inventory. Cash provided by operating activities includes $1,494,000
related to increases in trade payables. In addition, $9,559,000 of debt was
added in 1999. We also upgraded computer facilities and other office equipment
with $181,000 of expenditures during the year. These results are consistent with
management's objective of re-employing all available working capital into
operations.
With the sustained, improved operating performance that we have shown, our
relationships with our lenders have continued to solidify. This has provided us
with more financing opportunities to leverage our cash and has provided greater
opportunities to negotiate more favorable rates and terms. We have also
attracted lenders who will provide working capital facilities to supplement our
liquidity and capital resources generated by operations.
We intend to use these working capital facilities for some or all of our equity
investment in new project acquisition and development.* The facilities have
available commitments of $4,424,000 at December 31, 1998, with $1,948,000
outstanding at year end. The available commitment has been raised to $5,924,000
as of March 2000. These funds may not provide all of the necessary equity which
traditional lending relationships will require for leveraged financing of
acquisition and development costs of projects. Therefore, we expect to continue
to re-employ our working capital generated from operations to support growth and
or debt retirement.*
We have offered profit or revenue participation to land sellers as part of the
acquisition price negotiation. Because of strong buyer demand for improved and
undeveloped land, many sellers in our market area are demanding profit
participation and requesting more stringent purchase terms; which include cash
at closing, closings prior to full entitlement, specific performance contracts,
and shorter due diligence periods. We weigh all of these risk factors against
perceived opportunity as new projects are analyzed. Notwithstanding these
factors, land acquisition costs and risk continue to increase because of demand
generated by competing builders.
Recent Acquisitions
We have executed sales contracts for all of our homes in our Northpark,
Settler's Village, Summerhill, Greenbrook and Park Square communities. All of
the contracts will close in the first two quarters of 2000. We have been
actively seeking replacement opportunities and to that end have recently
completed ten land acquisitions.
In December 1998, we purchased a 140 unit single family parcel in Arvada,
Colorado. The sites were zoned and platted. We recently completed a re-platting
of a portion for our 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 single family detached models and the first phase of construction has been
provided by the same lender and construction has commenced. Construction
financing for the townhouse models and the first phase of construction was
provided by the same lender in February 2000.
17
<PAGE> 18
In January 1999, we purchased a 102 unit single family attached parcel in Ft.
Collins, Colorado. This is a continuation of our 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,
sales and construction are in progress.
In July 1999, we closed on our purchase of 106 acres in Ft. Collins, which is in
the final stage of being entitled under the Ft. Collins City Plan. The site is
planned for approximately 470 single family units with three single family
detached products and two attached products. Financing was provided from working
capital and the use of an unsecured working capital line. We are in the process
of finalizing the acquisition, development and construction financing to repay
the working capital line.
In December 1999, we closed on our purchase of two luxury attached lifestyle
communities in Highlands Ranch, Colorado planned for 81 and 66 units. We have
secured acquisition, development and construction financing through one of our
existing lending relationships.
We have executed a contract for a 39 acre parcel in Castle Rock, Colorado. The
parcel is zoned for approximately 180 units, but must be platted through the
city of Castle Rock. We are planning the area for both single family attached
and detached. The contract calls for a three phase take down beginning at final
plat, and annually thereafter.
In July 1999, we 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, we contracted to purchase approximately 63 acres in three parcels
of partially developed land located in the City of Westminster, Colorado. We are
currently platting phase one of the site and anticipate 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 May
1, 2000. We are analyzing the second, third, and fourth parcels to determine the
final product mix for those areas.
In August 1999, we acquired 35 platted single family lots in Ft. Collins,
Colorado. This is a continuation of our Stetson Creek project. Acquisition
financing was provided by the seller. Development and construction financing
will be through an existing $25,000,000 loan facility.
In August 1999, we 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, we executed an agreement which secures the right to acquire 14
acres in Loveland, Colorado. Under the agreement, we 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. We are currently in a due
diligence period, and have begun the entitlement process, but no assurance can
be provided that this transaction will close.
Both executed and potential acquisitions will require equity investments, which
our management expects to obtain from working capital generation and through
additional borrowing from our working capital facilities. The balance will be
financed through traditional lending relationships.*
18
<PAGE> 19
New Joint Venture
In June 1999, we 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. We
provided $40,000 for estimated start up costs.
We are a limited partner, and own 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 us adjacent to our 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 our home buyers. Our 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, in addition to profit generation.*
Merger Discussions
We are discussing a potential merger of Writer into a newly created subsidiary
of Standard Pacific Corporation, a company listed on the New York Stock
Exchange. See ITEM 1. BUSINESS, Merger Discussions.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary risk facing us is interest rate risk on debt obligations.* We enter
into debt obligations primarily to finance the development and acquisition of
land, and to support our homebuilding and general corporate operations. All of
our debt has variable interest rates, which exposes us to interest rate risk.
Our business strategy has been to accept the interest rate risk associated with
variable rate debt which allows us to participate in the increased earnings and
cash flows associated with decreases in interest rates.
Under our current policies, we do not use interest rate derivative instruments
to manage our exposure to interest rate changes.
At December 31, 1999 and 1998, we had variable rate debt outstanding of
approximately $27,000,000 and $17,000,000 respectively. The annual increase
(decrease) in cash requirements for interest at this level of borrowing should
the market rates increase (decrease) by 10% compared to the interest rates in
effect at December 31, 1999 and 1998 would be approximately $270,000 ($270,000)
and $132,000 ($132,000) respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements are included on pages F-1 through F-14
19
<PAGE> 20
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors
<TABLE>
<CAPTION>
Name, Age, and Other Period Served as Director and Business
Positions, if any, with Registrant Experience During Past 5 Years
- ---------------------------------- ------------------------------
<S> <C>
George S. Writer, Jr., 64 Chief Executive Officer, Chairman of the
Chief Executive Officer, Board.
Chairman of the Board of Directors
Roland Seidler, Jr.(1), 71 Elected a director in 1971. Mr. Seidler is
the Chairman and Chief Executive Officer of
The Seidler Companies Incorporated, a Los
Angeles based investment banking firm. Mr.
Seidler also is a member of the Board of
Directors for Mellon Financial Group West.
Ronald S. Loser(2), 66 Elected a director in 1973. Our Secretary
since our inception. Mr. Loser is a
Principal of Brega & Winters, P.C., a Denver
law firm.
Deane J. Writer, Jr., 66 Elected a director in 1975. Since January
1992, Mr. Writer has been an account
executive with HRH Insurance, a national
insurance agency. Prior to that he was the
owner of The Writer Agency, since 1956.
Louis P. Bansbach, III(3), 59 Elected a director in 1989. Mr. Bansbach is
President of Columbine Realty, Inc., and a
Director of United Bancorp of Wyoming.
Robert G. Tointon(4), 66 Elected a director in 1992. Mr. Tointon is
the President and Chief Executive Officer of
Phelps-Tointon, Inc. a manufacturer of
structural and architectural pre-stress
components, detention equipment, safes, and
architectural woodwork. Mr. Tointon is also
a director of New Century Energies.
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C>
William J Gillilan III, 53 Appointed a director in 1999. Mr. Gillilan
is the former President of Centex
Corporation. During his 24 years with
Centex he also served as Chairman of Centex
Corporation's real estate and mortgage
banking operations. Currently he has been
involved in real estate opportunities both
as an investor and as an advisor.
</TABLE>
Directors Fees and Transactions - In 1996, we adopted a plan by which the
outside directors receive an annual retainer fee of $5,000 and a per meeting fee
of $750, for either full Board or Executive Committee meetings. These fees were
paid in 1999. The Executive Committee includes Directors George S. Writer, Jr.,
who receives no fees for service, Louis Bansbach, III, Ronald S. Loser, and
Robert G. Tointon. This committee meets with our Senior Management during months
when a full Board meeting is not convened.
In 1999, 1998 and 1997, Brega and Winters, the law firm in which Ronald S. Loser
is a principal, was paid attorney fees. Additionally, insurance is placed with a
company with which Mr. Deane J. Writer, Jr. is employed and receives a
commission. We place substantially all of our insurance coverage through this
agency. In the opinion of management, the amounts charged in these transactions
are less than or comparable to charges which would have been made by
unaffiliated parties. Deane J. Writer, Jr. is a first cousin of George S.
Writer, Jr.
Executive Officers - Set forth below are the names, ages and offices held by
each of the our executive officers.
<TABLE>
<CAPTION>
Name and Age Positions Held and Business Experience
- ------------ During Past 5 Years
-------------------
<S> <C>
George S. Writer, Jr., 64 Chief Executive Officer, Chairman of our
Board of Directors since 1964.
Daniel J. Nickless, 44 President since April 1999. Executive Vice
President, Chief Operating Officer, Chief
Financial Officer and Treasurer since April
1998. Senior Vice President, Chief
Financial Officer and Treasurer since June
1994. Mr. Nickless served as Vice President
of Finance and Treasurer from July 1993 to
June 1994, and Vice President Controller
since November 1989. Mr. Nickless joined us
as Controller in February 1989.
Robert R. Reid, 51 Senior Vice President Operations since
August 1992. Mr. Reid has been employed by
us since 1977 and served as Vice
President-Construction, Vice
President-Southwest Region, Construction
Manager and Project Manager prior to his
present position.
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C>
Dave Steinke, 44 Senior Vice President since October 1998.
From October 1996 to October 1998 he served
as Executive Vice President for Miles
Advertising. From November 1989 to June
1996 he was Vice President of Sales and
Marketing for Falcon Homes.
Richard M. Wells, 42 Vice President and Controller since June
1998. From April 1996 to May 1998 he served
as Assistant Controller - Finance for Natkin
Contracting, a national mechanical
contractor. From July 1995 to March 1996 he
served, in a temporary capacity, as
Controller for Encore Media International, a
division of TCI providing cable television
programming internationally. From December
1993 to June 1995 he served as Controller
for Fiber Optic Technologies, a division of
ICG Communications providing design and
installation of communication networks.
Darwin Horan(5), 35 Vice President; Northern Division Manager
since January, 1998. Mr. Horan also serves
as Vice President of Land Acquisition and
Development and has been employed by us
since 1986 in several capacities in our
construction, warranty and service, and
development departments. Mr. Horan served
as our Development Manager, since 1994,
prior to his present position.
Nancy Ashley, 56 Vice President of Sales since January,
1998. Ms. Ashley joined us in June, 1997 as
Sales Manager. From November 1994 to April,
1997 she served as Director of Sales and
Marketing for Carmel Homes, a local Denver
builder. From 1992 to 1994, Ms. Ashley was
employed by Centex Homes as a community
sales manager.
</TABLE>
Other than as disclosed below, we are not aware of any officer, director or
holder of 10% or more of our securities who has failed to comply with the
reporting requirements under Section 16, of the Securities Exchange Act of 1934.
Section 16(a) Beneficial Ownership Reporting Compliance
(1) Mr. Seidler filed one late Form 4 report representing one transaction.
(2) Mr. Loser filed one late Form 4 report representing one transaction.
(3) Mr. Bansbach filed one late Form 4 report representing one transaction.
(4) Mr. Tointon filed four late Form 4 reports representing six transactions.
(5) Mr. Horan filed one late Form 4 report representing one transaction.
22
<PAGE> 23
ITEM 11. EXECUTIVE COMPENSATION.
The information in the following table is given for our Chief Executive Officer
and the four other Executive Officers whose total compensation and remuneration
from the corporation was more than $100,000 during each of the three years ended
December 31, 1999.
SUMMARY COMPENSATION TABLE
Annual Compensation
<TABLE>
<CAPTION>
Name and Principal Other Annual
Position Year Salary Bonus Compensation(1)
- ------------------ ---- ------ ----- ---------------
<S> <C> <C> <C> <C>
George S. Writer, Jr. 1999 $169,208 $22,628 $ 38,485
Chief Executive Officer 1998 $ 159,412 $60,000 $ 141,297
1997 $ 139,800 -0- $ 223,465
Daniel J. Nickless 1999 $138,551 $34,312 $ 6,102
President, Chief 1998 $118,583 $18,556 $ 4,881
Operating Officer, 1997 $ 89,800 $15,113 $ 3,792
Chief Financial Officer
and Treasurer
Robert R. Reid 1999 $128,100 $29,784 $ 10,518
Sr. Vice President of 1998 $107,718 $18,758 $ 22,574
Operations 1997 $ 94,800 $15,125 $ 28,702
Nancy Ashley 1999 $ 74,800 $59,382 $ 2,781
Vice President of Sales 1998 $ 74,800 $91,696 $ 960
David Steinke 1999 $128,100 $ 6,788 $ 0
Sr. Vice President
</TABLE>
- -------------------------
(1) Amounts disclosed represent earnings and contributions on the individual
vested portion of our qualified profit sharing retirement plan account
balances during the years presented.
23
<PAGE> 24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of March 10, 2000, to our knowledge, the following persons owned beneficially
and of record more than 5 percent of the Company's common stock:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
- -------------- ---------------- -------------------- --------
<S> <C> <C> <C>
Common Stock George S. Writer, Jr.(1) 1,490,306 19.97%
Littleton, Colorado
Common Stock Phelps-Tointon, Inc.(2) 1,399,166 18.75%
Greeley, Colorado
Common Stock Polaris Capital Corporation 389,500 5.22%
Denver, Colorado
</TABLE>
- -------------------------
(1) A control person.
(2) Phelps-Tointon, Inc. is a company which is partly owned by Robert G.
Tointon, one of our directors. The shares listed include shares owned
directly by Mr. Tointon.
Security Ownership of Management - The following information indicates our
common stock beneficially owned, directly or indirectly, by our directors and
executive officers as of March 10, 2000.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Title of Class Beneficiary Ownership of Class
-------------- --------------------- --------
<S> <C> <C> <C>
George S. Writer, Jr. Common Stock 1,490,306 19.97%
Robert G. Tointon Common Stock 1,399,166(1) 18.75%
Roland Seidler, Jr. Common Stock 300,474(2) 4.03%
Deane J. Writer, Jr. Common Stock 209,000 2.80%
William J Gillilan, III Common Stock 170,000 2.28%
Louis P. Bansbach, III Common Stock 129,524 1.74%
Daniel J. Nickless Common Stock 28,280 (3)
Robert R. Reid Common Stock 25,500 (3)
Ronald S. Loser Common Stock 39,900 (3)
Darwin Horan Common Stock 7,500 (3)
Richard M. Wells Common Stock 1,000 (3)
Dave Steinke Common Stock 500 (3)
All Directors &
Officers as a group (12) Common Stock 3,801,150 50.94%
</TABLE>
- -------------------------
(1) Reflects shares held by Phelps-Tointon, Inc., of which Mr. Tointon is the
President and part owner.
(2) Does not include shares in varying amounts owned as a market maker by a
broker-dealer with which Mr. Seidler is affiliated.
(3) Less than 1% of shares outstanding.
24
<PAGE> 25
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The following information is furnished with respect to certain transactions in
which the amount involved exceeded $60,000 and which involved an officer,
director, beneficial holder of more than five percent of our voting stock or a
person or entity affiliated with such persons.
Transactions With Affiliates of Directors
Brega and Winters, the law firm in which Ronald S. Loser (a director) is a
principal, was paid attorney's fees that do not exceed five percent of Brega and
Winters gross revenue for their last fiscal year.
H.R.H. Insurance Company, the insurance agency that employs Deane J. Writer,
Jr., (a director) was paid insurance premiums of $257,329 during 1999.
Certain officers and directors, directly and indirectly, provided financial
assistance to us in several transactions through December 31, 1999 as set forth
below.
Subdivision Loan Participations
On January 14, 1992 we executed a loan agreement with a real estate
investment trust under which $1,500,000 was committed to us for
development of our Northpark project. George S. Writer, Jr. and Roland
Seidler, Jr. participated in this transaction by advancing 20% of the
committed funds and have received 20% of the loan payments, including
20% of a $1,600 per Northpark lot additional interest payment.
Principal and interest on principal of this loan was repaid as of
December 31, 1997. The $1,600 per lot additional interest payment
continues through the balance of the project. During 1999 we paid
$12,800 under this agreement to the directors.
Peninsula Acquisition and Development Financing
On August 12, 1992, we acquired 22 acres of vacant ground from our
Chairman and Chief Executive Officer George S. Writer, Jr. The land
was transferred at Mr. Writer's out-of-pocket cost. The acquisition
was financed by a loan from several of our affiliates. Principal and
interest on principal related to this facility was fully repaid at
December 31, 1997. The loan agreement entitles the lenders to an
additional interest payment equal to 50% of the net profit from the
project, which we continued to pay throughout 1998. The project was
completed in 1998 and $28,000 remains owed to the lending group.
Certain wind down expenses have been incurred in 1999 and will
continue in 2000, which will offset most if not all of the remaining
profit sharing accrued at year end. During 1999 we paid nothing under
this agreement to the directors.
Series 1993 A Convertible Unsecured Promissory Notes
As of December 31, 1999, we had outstanding unsecured convertible debt
of $900,000. The total debt is held by Phelps-Tointon, Inc. in the
amount of $500,000; George S. Writer, Jr. in the amount of $312,500;
Roland Seidler, Jr., in the amount of $87,500. We paid off this debt
in February 2000 in full.
25
<PAGE> 26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
Financial Statements.
Our consolidated financial statements are included in Part II, Item 8.
The Writer Corporation and Subsidiaries Consolidated Financial Statements:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report ..........................................................................F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998...........................................F-2
Consolidated Statements of Operations for the years ended December 31, 1999, 1998
and 1997...........................................................................................F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1999, 1998 and 1997................................................................................F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998
and 1997...........................................................................................F-6
Notes to Consolidated Financial Statements.............................................................F-7
</TABLE>
Reports on Form 8-K. None
Exhibits Required by Item 601 of Regulation S-K.
EXHIBIT TABLE
(27) Financial Data Schedule. See below.
26
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of The Writer Corporation:
We have audited the accompanying consolidated balance sheets of The Writer
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The Writer Corporation and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE LLP
Denver, Colorado
February 25, 2000
F-1
<PAGE> 28
THE WRITER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
RESIDENTIAL REAL ESTATE HELD FOR SALE, NET
(Note 1):
Homes under construction $23,349,000 $17,632,000
Model homes and furnishings, less accumulated depreciation
of $791,000 and $511,000 4,760,000 4,190,000
Land and land development 17,859,000 15,216,000
Unplatted land 3,897,000 817,000
----------- -----------
Total 49,865,000 37,855,000
----------- ----------
OFFICE PROPERTY AND EQUIPMENT, less accumulated
depreciation of $845,000 and $586,000 504,000 597,000
----------- -----------
OTHER ASSETS:
Cash and cash equivalents 4,996,000 3,363,000
Restricted cash 589,000 541,000
Accounts receivable 296,000 374,000
Other 1,550,000 582,000
Deferred tax asset (Note 3) 1,410,000 1,166,000
----------- -----------
Total 8,841,000 6,026,000
============ ===========
TOTAL $59,210,000 $44,478,000
============ ===========
</TABLE>
See notes to consolidated financial statements. (Continued)
F-2
<PAGE> 29
THE WRITER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
<S> <C> <C>
LIABILITIES:
Notes payable (Note 2):
Construction, including $0 and $128,000 to related parties $17,314,000 $14,215,000
Land 7,333,000 2,793,000
Other, including $900,000 and $900,000 to related parties 2,848,000 928,000
----------- -----------
Total 27,495,000 17,936,000
----------- -----------
OTHER LIABILITIES:
Accounts payable and accrued expenses 8,179,000 6,716,000
Accrued interest 208,000 177,000
----------- -----------
Total 8,387,000 6,893,000
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 6)
STOCKHOLDERS' EQUITY (Notes 2 and 4):
Common stock, $.10 par value; 10,000,000 shares authorized;
7,462,500 and 7,432,600 shares issued and outstanding 746,000 743,000
Additional paid-in capital 12,454,000 12,430,000
Retained earnings 10,128,000 6,476,000
----------- -----------
Stockholders' equity 23,328,000 19,649,000
----------- -----------
TOTAL $59,210,000 $44,478,000
============ ===========
</TABLE>
See notes to consolidated financial statements. (Concluded)
F-3
<PAGE> 30
THE WRITER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
RESIDENTIAL OPERATIONS:
Revenues $82,061,000 $64,091,000 $44,098,000
------------ ----------- -----------
Costs and expenses:
Cost of sales 66,322,000 51,551,000 35,761,000
Sales and marketing 5,743,000 5,121,000 3,703,000
General and administrative 4,735,000 3,719,000 2,675,000
Interest (Note 2) 348,000 899,000 640,000
----------- ----------- -----------
Total 77,148,000 61,290,000 42,779,000
----------- ----------- -----------
Income from residential operations 4,913,000 2,801,000 1,319,000
INTEREST AND OTHER INCOME, NET
(Note 6) 198,000 211,000 1,240,000
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 5,111,000 3,012,000 2,559,000
----------- ----------- -----------
INCOME TAX (EXPENSE) BENEFIT (Note 3) (1,459,000) (830,000) 901,000
------------ ----------- -----------
NET INCOME $ 3,652,000 $ 2,182,000 $ 3,460,000
=========== =========== ===========
EARNINGS PER SHARE (Notes 1 and 5):
Basic $ 0.49 $ 0.29 $ 0.47
====== ======= ======
Diluted $ 0.47 $ 0.29 $ 0.46
====== ======= ======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
Basic 7,441,000 7,412,000 7,355,000
=========== =========== ===========
Diluted 7,829,000 7,836,000 7,723,000
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 31
THE WRITER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON STOCK PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT)
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 7,354,600 $735,000 $12,352,000 $ 834,000
Net income - - - 3,460,000
--------- -------- ----------- -----------
BALANCE, DECEMBER 31, 1997 7,354,600 735,000 12,352,000 4,294,000
Issuance of common stock 78,000 8,000 78,000 -
Net income - - - 2,182,000
--------- -------- ----------- -----------
BALANCE, DECEMBER 31, 1998 7,432,600 743,000 12,430,000 6,476,000
Issuance of common stock 29,900 3,000 24,000 -
Net income - - - 3,652,000
--------- -------- ----------- -----------
BALANCE, DECEMBER 31, 1999 7,462,500 $746,000 $12,454,000 $10,128,000
========== ========= ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 32
THE WRITER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,652,000 $ 2,182,000 $ 3,460,000
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 657,000 546,000 387,000
Deferred income taxes (244,000) 85,000 (901,000)
Gain on disposal of property and model home furnishings ( 15,000) (25,000) (546,000)
Changes in operating assets and liabilities:
Homes under construction (5,717,000) (828,000) (3,920,000)
Model homes and furnishings (952,000) (990,000) (284,000)
Land and land development (2,643,000) 825,000 (5,349,000)
Unplatted land (3,080,000) (78,000) 5,664,000
Restricted cash (48,000) 181,000 (55,000)
Other assets (891,000) 66,000 (406,000)
Accounts payable and accrued expenses 1,494,000 1,915,000 (510,000)
---------- ---------- ---------
Net cash provided by (used in) operating activities (7,787,000) 3,879,000 (2,460,000)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of office property and equipment (181,000) (372,000) (347,000)
Proceeds from sales of property and equipment 15,000 40,000 847,000
---------- ---------- --------
Net cash provided by (used in) investing activities (166,000) (332,000) 500,000
---------- ---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 59,539,000 41,520,000 32,964,000
Proceeds from notes payable from related parties 236,000 1,135,000
Principal payments and other reductions on notes payable (49,852,000) (42,569,000) (28,857,000)
Principal payments and other reductions on notes payable to related parties (128,000) (472,000) (3,262,000)
Proceeds from sale of common stock 27,000 86,000 -
---------- ---------- --------
Net cash provided by (used in) financing activities 9,586,000 (1,199,000) 1,980,000
---------- ---------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,633,000 2,348,000 20,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,363,000 1,015,000 995,000
---------- ---------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,996,000 $ 3,363,000 $ 1,015,000
=========== =========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
The Company paid $317,000, $905,000 and $897,000 in interest
(net of amounts capitalized) and $191,000, $365,000 and $61,000 in income
taxes during the years ended December 31, 1999, 1998 and 1997, respectively.
See notes to consolidated financial statements.
F-6
<PAGE> 33
THE WRITER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- -------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Writer Corporation (the Company) is a developer and builder of planned
residential communities primarily in the Denver, Colorado metropolitan
area. The Company's operations constitute a single business segment. The
accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amount of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Residential real estate sales and costs of sales are recorded at the time
of closing. Cost of sales includes land and land development costs, direct
and indirect construction costs, capitalized interest and taxes and
estimated warranty costs. The Company provides a two year structural
warranty to home buyers.
Land costs are allocated to filings based on the relative pre-construction
market value of each filing to the total pre-construction market value of
an entire parcel. Individual home sites within each filing are generally
homogeneous and are considered to be similar in value. Land development
costs that are specific to individual home sites are allocated to those
home sites. Land development costs that cannot be specifically identified
to individual home sites are allocated to home sites (including estimates
to complete, if applicable) based on the identified costs of each home
site.
Inventory that is substantially complete and ready for its intended use is
carried at the lower of cost or fair value less costs to sell. Land under
development and land held for future development and sale are evaluated for
impairment whenever events or changes in circumstances indicate that the
carrying value of the asset may not be recoverable. An asset will be
identified as impaired if the undiscounted estimated cash flows from
development and ultimate sale of such asset is less than its carrying
value. If a long-lived asset is identified as impaired, the carrying amount
of the asset is reduced to its fair value.
Office property and equipment and model home furnishings are recorded at
cost. Depreciation is provided by the straight-line method over estimated
useful lives ranging from two to thirty years. The Company does not
depreciate model homes because estimated future sales prices are expected
to exceed cost.
A current or deferred income tax liability or asset is recognized for
temporary differences which exist due to the recognition of certain income
and expense items for financial reporting purposes in periods different
than for tax reporting purposes. The provision for income taxes is based on
the amount of current and deferred income taxes payable or refundable at
the date of the financial statement as measured by the provisions of
current tax laws.
The Company's cash and cash equivalents consist of demand deposits and
money market funds.
F-7
<PAGE> 34
The Company uses the intrinsic value method to account for stock options
granted to employees.
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative (gains and losses) depends on the
intended use of the derivative and the resulting designation. The Company
is required to adopt SFAS 133 on January 1, 2001. The Company has not
completed the process of evaluating the impact that will result from
adopting SFAS 133.
For the periods presented, the Company's comprehensive income, as defined
by Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, is equal to its net income.
Certain items in 1998 and 1997 have been reclassified to conform with the
1999 presentation.
2. NOTES PAYABLE
Notes payable for construction related debt obligations at December 31
consist of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
$16,000,000 loan facility with a financial institution, interest at prime rate,
interest payable monthly, collateralized by a first deed of trust, due June 1,
2001.
The loan facility has $14,772,000 unused and available at December 31, 1999. $ 1,228,000 $ 4,904,000
$2,967,000 loan commitment with a financial institution, interest at prime rate plus 0.5%,
interest payable monthly, collateralized by a first deed of trust, due June 1, 2000.
The loan facility has $465,000 unused and available at December 31, 1999. 2,502,000 3,944,000
$37,000,000 loan facility with a financial institution, interest at prime rate plus 1%,
interest payable monthly, collateralized by a deed of trust, due at various
dates as follows: March 1, 2000, February 28, 2001, and December 20, 2002.
The loan facility has $30,683,000 unused and available December 31, 1999. 6,317,000 2,681,000
$14,250,000 loan facility with a financial institution, interest at the lessor of LIBOR
plus 225 basis points or prime, interest payable monthly, collateralized by residential
real estate, due April 1, 2001. The loan facility has $8,494,000 unused and available at
December 31, 1999. 5,756,000 2,558,000
Note payable to a related party for the construction of a home, paid during 1999. - 128,000
$680,000 loan facility with a financial institution, interest at prime rate plus .75%,
interest payable monthly, collateralized by deed of trust, due September 22, 2000.
The loan facility has $284,000 unused and available at December 31, 1999. 396,000 -
$4,210,000 loan facility with a financial institution, interest at prime rate plus .75%,
interest payable monthly, collateralized by deed of trust, due October 19, 2000.
The loan facility has $3,095,000 unused and available at December 31, 1999. 1,115,000 -
---------- -----------
Total $17,314,000 $14,215,000
============ ===========
</TABLE>
F-8
<PAGE> 35
Notes payable for land and land development related debt obligations at
December 31 consist of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
$8,750,000 loan facility with a financial institution, interest at the lower of
LIBOR plus 225 basis points or prime, interest payable monthly, collateralized
by residential real estate, due April 1, 2001. The loan facility has
$8,061,000 unused and available at December 31, 1999. $ 689,000 $ 1,179,000
$3,650,000 loan facility with a financial institution, interest at prime rate
plus 1% interest payable monthly, collateralized by deed of trust, due June 1,
2000. The loan facility has $2,411,000 unused and available at December 31, 1999. 1,239,000 1,356,000
Loan with a financial institution, reserved for lot takedowns, paid during 1999. - 155,000
Loan with a financial institution reserved for lot takedowns, paid during 1999. - 86,000
Loan with a financial institution to refinance an encumbrance, paid during 1999. - 17,000
$6,300,000 loan facility with a financial institution, interest at prime rate plus 1%,
interest payable monthly, collateralized by deed of trust, due June 9, 2002. The loan -
facility has $3,250,000 unused and available at December 31, 1999. 3,050,000 -
$1,020,000 loan facility with a lot developer, interest at 4%, interest payable annually,
collateralized by deed of trust, due January 10, 2000. The loan facility has $0 unused
and available at December 31, 1999. 1,020,000 -
$4,000,000 loan facility with a financial institution, interest at prime rate, interest payable
monthly, collateralized by a deed of trust on the finished lots, due June 1, 2001.
The loan facility has $2,996,000 unused and available at December 31, 1999. 1,004,000 -
$331,000 loan facility with a lot developer to finance lot premiums, principal
due upon the closing of the sale of the lot or December 27, 2004. The loan facility has
$0 unused and available at December 31, 1999. 331,000 -
----------- -----------
Total $ 7,333,000 $ 2,793,000
=========== ===========
</TABLE>
Notes payable for other debt obligations at December 31 consist of the
following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
$900,000 unsecured convertible debt to certain members of the board of directors. Interest
at prime rate plus 3%, payable monthly, convertible into common stock at a rate
of $3 per share, due October 1, 2000, paid in February 2000. $ 900,000 $ 900,000
Loan with a financial institution, paid during 1999. - 28,000
$1,424,000 revolving line of credit for working capital, interest at prime plus 1%, interest
payable monthly, collateralized by residential real estate, due December 30, 2000. The
revolving line of credit has $1,326,000 unused and available at December 31, 1999. 98,000 -
$1,850,000 unsecured revolving line of credit, interest at rate of the lesser of LIBOR plus
225 basis points or prime, interest payable monthly, interest due April 1,
2001.
The revolving line of credit has $0 unused and available at December 31, 1999. 1,850,000 -
----------- --------
Total $ 2,848,000 $928,000
=========== ========
</TABLE>
The Company has an unsecured working capital line of credit in the amount of
$1,000,000. The line of credit bears interest at prime plus 1% and matures April
1, 2000. No amounts were outstanding under this line of credit at December 31,
1999. 37
F-9
<PAGE> 36
At December 31, 1999, the Company's debt maturity schedule, excluding
construction related debt is as follows:
<TABLE>
<S> <C>
2000 $ 3,257,000
2001 3,874,000
2002 3,050,000
-----------
Total $10,181,000
===========
</TABLE>
The Company's construction related debt has due dates in 2000; however,
principal and interest are generally due upon sale of the respective
collateral, which is expected to occur in 2000. Construction related
financing arrangements are generally renewed in the ordinary course of
business.
During the years ended December 31, 1999, 1998 and 1997, interest of
$2,756,000, $3,050,000, and $2,303,000 was incurred, of which $101,000,
$648,000 and $578,000 was to related parties. Interest totaling $2,408,000,
$2,152,000 and $1,663,000 was capitalized in each of the respective years.
Interest paid, net of amounts capitalized, totaled $317,000, $905,000 and
$897,000 in 1999, 1998 and 1997, respectively. The weighted average
interest rate for the years ended December 31, 1999, 1998 and 1997 was
9.75%, 12.06% and 12.25%, respectively.
The Company's notes payable and revolving credit facilities bear interest
at variable rates based on prime. As a result, the carrying amount of these
instruments approximates their fair value.
3. INCOME TAXES
The Company computes deferred income taxes based on the difference between
the financial statement and income tax bases of assets and liabilities and
operating loss and tax credit carryforwards, using enacted tax rates.
The components of income tax (expense) benefit are as follows for the year
ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Current $(1,928,000) $(745,000) $ -
Deferred 469,000 (85,000) 901,000
----------- --------- ---------
Tax (expense) benefit $(1,459,000) $(830,000) $ 901,000
=========== ========= ========
</TABLE>
F-10
<PAGE> 37
Reconciliations of the expected tax at the statutory tax rate to the actual
tax (expense) benefit are as follows for the year ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Expected tax (expense) benefit at the
statutory rate $(1,738,000) $(1,024,000) (870,000)
State taxes, net of federal benefit (179,000) (105,000) (90,000)
Change in the valuation allowance 464,000 276,000 1,330,000
Utilization of NOL carryforwards
and tax credits - 45,000 467,000
Other (6,000) (22,000) 64,000
----------- ---------- ---------
Actual tax (expense) benefit $(1,459,000) $ (830,000) $ 901,000
=========== ============ =========
</TABLE>
The tax effects of significant items comprising the Company's net deferred
tax asset as of December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred tax assets:
Residential real estate $1,191,000 $1,710,000
Warranty reserve 196,000 233,000
Other 227,000 106,000
---------- ----------
1,614,000 2,049,000
---------- ----------
Deferred tax liabilities:
Capitalized interest (161,000) (286,000)
Depreciation (43,000) (133,000)
(204,000) (419,000)
Total 1,410,000 1,630,000
Less valuation allowance - (464,000)
---------- ----------
Net deferred tax asset $1,410,000 $1,166,000
========== ==========
</TABLE>
The net change in the total valuation allowance during the years ended
December 31, 1999, 1998 and 1997 was a reduction of $464,000, $276,000 and
$1,330,000, respectively, as a result of the utilization of tax credits and
net operating loss carryforwards and the reevaluation of the expected
results of future operations. The amount of the deferred tax assets
considered realizable, however, could be decreased in the near term if
estimates of future taxable income are changed.
F-11
<PAGE> 38
4. COMMON STOCK
The Company has stock option plans giving certain officers and employees
the right to purchase shares of its common stock at quoted market value at
date of grant. At December 31, 1999, 760,000 shares have been reserved
under the plans. The plans allow the options to be exercised in four equal
annual installments, beginning one year after the date of grant, and have a
maximum term of ten years. Changes in options outstanding under the plans
for the three years ended December 31, 1999, are as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE NUMBER OF
EXERCISE PRICE SHARES
<S> <C> <C>
Options outstanding, December 31, 1996 $ 1.31 604,140
Forfeited 2.50 (500)
--------
Options outstanding, December 31, 1997 1.30 603,640
Granted 2.22 228,250
Forfeited 1.18 (215,750)
Exercised 1.10 (78,000)
--------
Options outstanding, December 31, 1998 1.77 538,140
Forfeited 1.26 (12,990)
Exercised 0.90 (29,900)
--------
Options outstanding, December 31, 1999 1.84 495,250
========
Total exercisable at December 31, 1999 1.75 296,563
========
</TABLE>
As of December 31, 1999, the 495,250 options outstanding under the plans
have exercise prices which range from $.65 to $2.50 and a weighted-average
remaining contractual life of 6.12 years.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). Accordingly, no compensation cost has been
recognized for options granted by the Company. Had compensation expense for
the options granted been determined based on the fair value at the grant
dates, consistent with the provisions of SFAS 123, the Company's net income
and net income per share would have been changed to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net income:
As reported $3,652,000 $2,182,000 $3,460,000
Pro forma 3,652,000 1,985,000 3,460,000
Net income per share - basic:
As reported $ 0.49 $ 0.29 $ 0.47
Pro forma 0.49 0.27 0.47
Net income per share - diluted:
As reported $ 0.47 $ 0.29 $ 0.46
Pro forma 0.47 0.26 0.46
</TABLE>
F-12
<PAGE> 39
The fair value of the options for disclosure purposes was estimated on the
dates of grant in 1998 using the Black-Scholes Model with the following
assumptions:
<TABLE>
1998
<S> <C>
Expected dividend yield 0 %
Expected price volatility 42 %
Risk-free interest rate 4.5 %
Expected life of options 4 years
</TABLE>
5. EARNINGS PER SHARE
Basic net income per share is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted income per
share includes the effects of convertible debt described in Note 2 and
includes the potential dilution that could occur upon the exercise of the
stock options described in Note 4, computed using the treasury stock
method, which assumes that the increase in the number of shares is reduced
by the number of shares which could have been repurchased by the Company
with the proceeds from the exercise of the options (which were assumed to
have been made at the average market price of the common shares during the
reporting period).
The following table reconciles the income and share amount used in the
calculation of net income per share.
<TABLE>
<CAPTION>
NET
NET INCOME
INCOME SHARES PER SHARE
<S> <C> <C> <C>
For the year ended December 31, 1999:
Basic $3,652,000 7,441,000 $ 0.49
Effect of options 88,000
Effect of convertible debt 62,000 300,000
---------- ---------
Diluted $3,714,000 7,829,000 $ 0.47
========== ==========
For the year ended December 31, 1998:
Basic $2,182,000 7,412,000 $ 0.29
Effect of options 124,000
Effect of convertible debt 75,000 300,000
---------- ----------
Diluted $2,257,000 7,836,000 $ 0.29
========== ==========
For the year ended December 31, 1997:
Basic $3,460,000 7,355,000 $ 0.47
Effect of options 68,000
Effect of convertible debt 94,000 300,000
------- ----------
Diluted $3,554,000 7,723,000 $ 0.46
========== ==========
</TABLE>
F-13
<PAGE> 40
6. COMMITMENTS AND CONTINGENCIES AND OTHER MATTERS
The Company leases property, equipment and model homes under operating
leases. Total rental expense under all operating leases was approximately
$434,000, $359,000 and $250,000 for 1999, 1998 and 1997, respectively.
As of December 31, 1999, the Company's future minimum payments under
operating leases are as follows:
<TABLE>
<S> <C>
2000 $ 368,000
2001 313,000
2002 262,000
2003 247,000
2004 125,000
---------
Total minimum lease payments $1,315,000
==========
</TABLE>
In March 1997, the Company sold its office building to an unrelated party
and recognized a gain on the sale (included in other income) of $542,000.
The Company has a profit sharing retirement plan (the Plan) which includes
a 401(k) feature under which eligible employees may contribute up to 12% of
their salaries. Company contributions are at the discretion of the
Company's board of directors unless required by ERISA regulations. Total
Company contributions to the Plan for the years ended December 31, 1999,
1998 and 1997 were $100,000, $57,000 and $64,000, respectively.
The Company has a profit sharing plan whereby pretax profit is shared with
key employees based on formulas as defined in the agreement. Approximately
$578,000, $289,000 and $90,000 has been incurred as of December 31, 1999,
1998 and 1997 with respect to this plan.
The Company has arranged letters of credit of $617,000 at December 31, 1999
related to its obligations to local governments to warrant roads and other
improvements in various developments. The Company does not believe that any
letters of credit are likely to be drawn upon.
The Company incurred $68,000, $115,000 and $61,000 in the years ended
December 31, 1999, 1998 and 1997 respectively, for legal fees with a firm
having a principal who is also a director of the Company.
7. LEGAL PROCEEDINGS
The Company is involved in various legal matters of a nature incidental to
its business which, in the opinion of management, should not have a
material adverse effect on the Company.
8. SUBSEQUENT EVENT
In January 2000, Standard Pacific Corporation offered to purchase all of
The Writer Corporation's outstanding stock for $3.42 per share. As of
February 25, 2000, the sale had not yet occurred.
* * * * *
F-14
<PAGE> 41
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE WRITER CORPORATION
(Registrant)
<TABLE>
<CAPTION>
<S> <C>
/s/ George S. Writer, Jr. /s/ Daniel J. Nickless
- ----------------------------- ----------------------------
By: George S. Writer, Jr. By: Daniel J. Nickless
(Chairman of the Board of Directors, (President, Chief Operating Officer,
Principal Executive Officer) Chief Financial Officer and Treasurer)
</TABLE>
Date: March 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S> <C>
/s/ George S. Writer, Jr. /s/ Ronald S. Loser
- ------------------------------------- -----------------------------------------
George S. Writer, Jr., March 27, 2000 Ronald S. Loser, March 27, 2000
(Chairman of the Board of Directors and (Secretary and Director)
Principal Executive Officer)
/s/ Deane J. Writer, Jr. /s/ Roland Seidler,Jr.
- ------------------------------------- ----------------------------------------
Deane J. Writer, Jr., March 27, 2000 Roland Seidler, Jr., March 27, 2000
(Director) (Director)
/s/ Louis P. Bansbach, III /s/ Robert G. Tointon
- ------------------------------------- ------------------------------
Louis P. Bansbach, III, March 27, 2000 Robert G. Tointon, March 27, 2000
(Director) (Director)
/s/ William J Gillilan, III
- -------------------------------------
William J Gillilan, III, March 27, 2000
(Director)
</TABLE>
<PAGE> 42
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,585,000<F1>
<SECURITIES> 0
<RECEIVABLES> 296,000
<ALLOWANCES> 0
<INVENTORY> 49,865,000<F2>
<CURRENT-ASSETS> 0
<PP&E> 1,349,000
<DEPRECIATION> 845,000
<TOTAL-ASSETS> 59,210,000<F3>
<CURRENT-LIABILITIES> 8,387,000
<BONDS> 27,495,000
0
0
<COMMON> 746,000
<OTHER-SE> 22,582,000
<TOTAL-LIABILITY-AND-EQUITY> 59,210,000
<SALES> 82,061,000
<TOTAL-REVENUES> 82,061,000
<CGS> 66,322,000
<TOTAL-COSTS> 66,322,000
<OTHER-EXPENSES> 10,628,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,111,000
<INCOME-TAX> 1,459,000
<INCOME-CONTINUING> 3,652,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,652,000
<EPS-BASIC> .49
<EPS-DILUTED> .47
<FN>
<F1>CASH INCLUDES $589,000 RESTRICTED CASH
<F2>INVENTORY INCLUDES HOMES UNDER CONSTRUCTION $23,349,000 MODEL HOMES AND
FURNISHINGS $4,760,000 LAND DEVELOPMENT $17,859,000 AND UNPLATTED LAND
$3,897,000
<F3>TOTAL ASSETS INCLUDES OTHER ASSETS OF $2,960,000
</FN>
</TABLE>
