<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
-------------
[ ] 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
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THE WRITER CORPORATION
----------------------
(Exact name of registrant as specified in its charter)
Colorado 84-0510478
------------------------------- ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.
6061 S. Willow Dr., #232, Englewood, Colorado 80111
--------------------------------------------- -------------------
(Address of principal executive offices) Zip Code
(303) 779-4100
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that the registrant is required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
The number of shares outstanding of the registrant's common stock, as of August
4, 2000 was 7,462,480.
<PAGE> 2
THE WRITER CORPORATION
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION Number
------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999 (Unaudited) 3
Condensed Consolidated Statements
of Operations for the three and six months
ended June 30, 2000 and 1999 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 2000 and
1999 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
PART II. OTHER INFORMATION 14
Exhibit Index 16
</TABLE>
2
<PAGE> 3
THE WRITER CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Residential real estate held for sale, net:
Homes under construction $ 29,799,000 $ 23,349,000
Model homes and furnishings 6,251,000 4,760,000
Land and land development 17,653,000 17,859,000
Raw land 4,112,000 3,897,000
--------------- ---------------
Subtotal 57,815,000 49,865,000
Office property and equipment, less accumulated
depreciation of $924,000 and $845,000 590,000 504,000
Other assets:
Cash and cash equivalents 1,364,000 4,996,000
Restricted cash 1,312,000 589,000
Accounts receivable 213,000 296,000
Deferred tax asset 1,233,000 1,410,000
Other 1,708,000 1,550,000
--------------- ---------------
Total Assets $ 64,235,000 $ 59,210,000
=============== ===============
</TABLE>
(Continued)
See notes to consolidated financial statements.
3
<PAGE> 4
THE WRITER CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------- ---------------
<S> <C> <C>
LIABILITIES
Notes payable $ 33,933,000 $ 27,495,000
Accounts payable and accrued expenses 5,419,000 8,179,000
Accrued interest 231,000 208,000
--------------- ---------------
Subtotal 39,583,000 35,882,000
STOCKHOLDERS' EQUITY
Common stock, $.10 par value; authorized,
10,000,000 shares; 7,462,500 and 7,462,500
shares issued and outstanding 746,000 746,000
Additional paid-in capital 12,454,000 12,454,000
Retained earnings 11,452,000 10,128,000
--------------- ---------------
Total Stockholders' Equity, net 24,652,000 23,328,000
--------------- ---------------
Total $ 64,235,000 $ 59,210,000
=============== ===============
</TABLE>
(Concluded)
See notes to consolidated financial statements.
4
<PAGE> 5
THE WRITER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Residential operations:
Revenue $ 17,415,000 $ 19,699,000 $ 37,306,000 $ 31,912,000
Cost of sales (13,539,000) (15,930,000) (29,339,000) (25,882,000)
Expenses (2,990,000) (2,504,000) (6,031,000) (4,780,000)
------------ ------------ ------------ ------------
Income from residential operations 886,000 1,265,000 1,936,000 1,250,000
Interest and other income, net 82,000 64,000 177,000 94,000
------------ ------------ ------------ ------------
Net income before income taxes 968,000 1,329,000 2,113,000 1,344,000
Income tax (expense) (354,000) (547,000) (789,000) (547,000)
------------ ------------ ------------ ------------
Net income $ 614,000 $ 782,000 $ 1,324,000 $ 797,000
============ ============ ============ ============
Earnings per share:
Basic $ 0.08 $ 0.11 $ 0.18 $ 0.11
============ ============ ============ ============
Diluted $ 0.08 $ 0.10 $ 0.17 $ 0.11
============ ============ ============ ============
Weighted average number of shares outstanding:
Basic 7,462,000 7,433,000 7,462,000 7,433,000
============ ============ ============ ============
Diluted 7,650,000 7,830,000 7,700,000 7,828,000
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
THE WRITER CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
2000 1999
------------ ------------
<S> <C> <C>
NET CASH USED IN OPERATING
ACTIVITIES: $ (9,905,000) $ (4,354,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of office property and equipment (165,000) (45,000)
------------ ------------
Net cash used in investing activity (165,000) (45,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 31,249,000 24,478,000
Principal payments on notes payable (24,811,000) (20,199,000)
------------ ------------
Net cash provided by financing activities 6,438,000 4,279,000
------------ ------------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (3,632,000) (120,000)
CASH AND CASH EQUIVALENTS, beginning of period 4,996,000 3,363,000
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 1,364,000 $ 3,243,000
============ ============
</TABLE>
See Notes to consolidated financial statements.
6
<PAGE> 7
THE WRITER CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. Accounting Policies:
The consolidated balance sheet as of June 30, 2000 and the related condensed
consolidated statements of operations and cash flows for the three and six month
period ended June 30, 2000 and 1999 are unaudited, but in management's opinion,
include all adjustments necessary for a fair presentation of such financial
statements. Such adjustments consisted only of normal recurring items. Interim
results are not necessarily indicative of results for a full year.
The consolidated financial statements include the accounts of The Writer
Corporation and its wholly owned subsidiaries (the "Company"). All significant
intercompany transactions and balances have been eliminated in consolidation.
The financial statements should be read in conjunction with the audited
Consolidated Financial Statements included in the annual report on Form 10-K for
the year ended December 31, 1999. Except as described herein, the accounting
policies utilized in the preparation of these financial statements are the same
as those set forth in the Company's annual financial statements except as
modified for interim accounting treatment.
Adoption of SFAS 130 and SFAS 131 had no effect on the Company's financial
statements. The Company has no derivative instruments and does not engage in
hedging activities, therefore, the adoption of SFAS 133 will not impact its
financial statements.
Certain items in 1999 have been reclassified to conform with the 2000
presentation.
7
<PAGE> 8
Earnings per share
The following table reconciles income and the number of shares outstanding used
in the calculation of basic and diluted earnings per share.
<TABLE>
<CAPTION>
Income Shares Per Share
---------- ---------- -----------
<S> <C> <C> <C>
For the Six Months Ended June 30, 2000:
Net Income $1,324,000 7,462,000 $ 0.18
Effect of options 170,000
Effect of convertible debt 8,000 68,000
---------- ----------
Net income per share - assuming dilution $1,332,000 7,700,000 $ 0.17
========== ========== ==========
For the Three Months Ended June 30, 2000:
Net Income $ 614,000 7,462,000 $ 0.08
Effect of options 0 188,000
Effect of convertible debt 0 0
---------- ----------
Net income per share - assuming dilution $ 614,000 7,650,000 $ 0.08
========== ========== ==========
For the Six Months Ended June 30, 1999:
Net Income $ 797,000 7,433,000 $ 0.11
Effect of options 0 95,000
Effect of convertible debt 30,000 300,000
---------- ----------
Net income per share - assuming dilution $ 827,000 7,828,000 $ 0.11
========== ========== ==========
For the Three Months Ended June 30, 1999:
Net Income $ 782,000 7,433,000 $ 0.11
Effect of options 0 97,000
Effect of convertible debt 15,000 300,000
---------- ----------
Net income per share - assuming dilution $ 797,000 7,830,000 $ 0.10
========== ========== ==========
</TABLE>
8
<PAGE> 9
THE WRITER CORPORATION
AND SUBSIDIARIES
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS (DENOTED
WITH AN ASTERISK (*) AT THE END OF SUCH STATEMENT) THAT INVOLVES 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 "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" BELOW.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Forward Looking Statement
In connection with, and because it desires to take advantage of, the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Company cautions readers regarding certain forward looking statements contained
in the following discussion and elsewhere in this report and in any other
statements made by or on 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 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.
Financial Condition
At June 30, 2000 we had a backlog of 119 homes under contract. This backlog
represents $32,453,000 of potential revenue. At December 31, 1999 we had a
backlog of 107 homes representing $24,326,000 in potential revenue. This
increase in potential revenue of 33% or $8,127,000 above the December 1999
level, reflects sales of a new product line that has an average sales price of
approximately $375,000.
Our inventory of homes under construction increased $6,450,000 or 28% during the
six months ending June 2000. This increase is due to the above mentioned start
up of our new product line and the increase in backlog levels.
9
<PAGE> 10
Model homes and furnishings increased by $1,491,000 or 31% during the six months
ending June 2000. During the half we opened three new townhome models at
Saddlebrook in Stetson Creek and one detached single family model in Fossil Lake
Ranch. In our Denver Division, two detached single family models have opened and
three attached single family models opened in August 2000 at Talavera in Sunrise
Ridge, a project in Arvada, Colorado. At Tallyn's Reach in Aurora, Colorado,
three detached single family models opened in July 2000.
Our raw 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
development agreements were executed in July. 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 account increased $86,000 or 17% during the
six months ending June 2000. The increase is primarily due to the set up of new
sales offices in Talavera, Tallyn's Reach, Saddlebrook and Fossil Lake Ranch.
Cash balances have decreased by $3,632,000 or 73% during the six months ending
June 2000. The decrease reflects our efforts to accelerate payments to
subcontractors and vendors and the investment in model homes and furnishings.
Our restricted cash account has increased $723,000 or 123% during the six months
ending June 2000. The increase is attributable to the timing of release payments
associated with higher levels of closings versus advances on these same
acquisition and development loans.
Accounts receivable balances have decreased by $83,000 or 28% during the six
months ending June 2000. The decrease is due to a reduction in deposits that
secure the performance of development work.
Our deferred tax asset account has decreased by $177,000 or 13%, reflecting the
sale of lots that have a different basis for tax reporting versus financial
reporting.
Our other asset account has increased $158,000 or 10% reflecting primarily
additional land deposits.
Our notes payable balance increased by $6,438,000 or 23% during the six months
ending June 2000, which reflects the similar increase in homes under
construction.
Accounts payable, accrued expenses and accrued interest have decreased by
$2,760,000 or 34% during the six months ending June 2000, again reflecting the
wind down of older projects and our efforts to accelerate payments to
subcontractors and vendors.
Liquidity and Capital Resources
During the first six months of 2000 we used $9,905,000 of cash in operating
activities. Debt provided $6,438,000 and the majority of the difference came
from cash reserves.
With the sustained and 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.
10
<PAGE> 11
The credit facilities have available commitment of $4,424,000 at June 2000, with
$3,447,000 outstanding at that time. 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.*
Because of strong buyer demand for improved and undeveloped land, some sellers
in our market area are demanding lot premium and or revenue 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.
Results of Operations
During the three and six month periods ending June 2000, we closed 70 and 153
units versus 91 and 150 during the same periods in 1999.
The average sales price was $242,588 for the first six months of 2000 compared
to $202,367 for the same period in 1999. The mix of products sold during the
four time periods is illustrated below.
<TABLE>
<CAPTION>
Closings Townhomes Single Family Total
-------- --------- ------------- -----
<S> <C> <C> <C>
3 month period ended June 30, 2000 36 34 70
3 month period ended June 30, 1999 56 35 91
6 month period ended June 30, 2000 95 58 153
6 month period ended June 30, 1999 97 53 150
</TABLE>
Revenues for the three and six month periods ending June 30, 2000 were
$17,415,000 and $37,306,000 respectively, as compared to $19,699,000 and
$31,912,000 for the same periods in 1999. The decrease in the three month period
of $2,284,000 or 12% is the result of a lower unit closing volume, 70 closings
as compared to 91 for the three month period ended June 30, 1999. The increase
in the six month period of $5,394,000 or 17% reflects the increase in average
home prices for the period of $40,221 with similar unit closing volume.
Gross profit related to home sales increased by $170,000 or 5% and $2,101,000 or
36% for the three and six month periods ended June 30, 2000 as compared to the
same periods in 1999. Gross profit for the three month period ended June 30,
2000 increased, even though revenues for the period decreased when compared to
the same period in 1999. This inverse relationship is explained by our improving
gross profit margin of 22% for the three month period ended June 30, 2000 as
compared to 19% for the same period in 1999. During the three and six month
periods ended June 30, 2000 and 1999 revenue from lot and tap sales was $94,000,
$190,000, $668,000 and $1,557,000 contributing $9,000, $18,000, $72,000 and
$182,000 respectively. As a percentage of sales, our gross profit was 21% in the
first six months of 2000 as compared to 19% for the same period in 1999.
11
<PAGE> 12
Operating expenses increased $486,000 or 19% and $1,251,000 or 26% for the three
and six month period ended June 30, 2000 as compared to the same periods a year
ago. The three month period increase is primarily due to an increase in general
and administrative costs of $481,000. The six month period increase is due to an
increase in sales and marketing costs of $237,000, an increase in general and
administrative costs of $869,000 and an increase in interest expense, net of
capitalization, of $145,000. For the six month period ended June 30, 2000 as a
percentage of sales, interest expense net of capitalization remains at less than
1%, sales and marketing has decreased from 8.8% to 8.1% and general and
administrative expense has increased from 6.1% to 7.6%. This increase in general
and administrative expenses reflects the increased costs associated with our
contemplated merger.
Interest and other income, net increased $18,000 or 28% and $83,000 or 88% for
the three and six month periods ended June 30, 2000. The increases are
attributable to our mortgage subsidiary WRT Financial, Limited partnership,
which provided $18,000 and $60,000 of income for the three and six month periods
ended June 30, 2000. The mortgage subsidiary began operation in July of 1999.
We have recorded net income of $614,000 and $1,324,000 for the three and six
month periods ended June 30, 2000, a decrease of $168,000 or 21% and an increase
of $527,000 or 66%, as compared to the same periods in 1999.
Plan of Merger with Standard Pacific Corp.
We have been working over the last several months to finalize our merger with
TWC Corp., a wholly owned subsidiary of Standard Pacific Corp. We executed a
definitive merger agreement on April 14, 2000. A proxy statement was sent out on
July 28, 2000 and a special shareholders meeting is scheduled for August 25,
2000 at the Writer Corporation's office. Assuming that our shareholders approve
the merger, we expect the merger to be completed promptly thereafter.*
Under the terms of the proposed acquisition, our stockholders will receive, at
their election, cash or Standard Pacific common stock valued at $3.35 per share
of our common stock, or a combination thereof, for each share of Writer common
stock. Not more than 60% and not less that 50% of the aggregate consideration
will be paid in shares of Standard Pacific common stock. Standard Pacific's
shares will be valued based on their average trading price for a 20 trading day
period ending three days prior to consummation of the merger; provided that, in
no event, the shares of Standard Pacific will not be valued at less than $11.00
per share or more than $13.50 per share in determining the exchange ratio. In
the event the option to elect cash is oversubscribed, our directors, officers
and 15% shareholders have agreed to accept shares of Standard Pacific common
stock. For more information regarding the terms and conditions of the merger,
see the Agreement and Plan of Merger in our Form 8-K dated April 14, 2000 and
our Schedule 14A dated July 28, 2000, both of which are incorporated herein by
reference.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The primary market risk facing the Company is interest rate risk on debt
obligations.* We enter into debt obligations 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.
12
<PAGE> 13
At June 30, 2000, we had variable rate debt outstanding of approximately
$34,000,000. The annual increase (decrease) in cash requirements for interest at
this level of borrowing, should the market rates increase or (decrease) by 10%
compared to the interest rates in effect at June 30, 2000, would be
approximately $340,000 or ($340,000), respectively.
13
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THE WRITER CORPORATION
AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) Exhibit Description
<S> <C>
2.1 Agreement and Plan of Merger between The Writer Corporation, Standard
Pacific Corp., and TWC Acquisition Corp., incorporated herein by reference
to our Form 8-K dated April 14, 2000, Exhibit 2.1.
3.1 The Writer Corporation Articles of Incorporation and By-laws incorporated
herein by reference.
(b) Form 8-K dated April 14, 2000; Items 1 and 7.
</TABLE>
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WRITER CORPORATION
(Registrant)
Date: August 10, 2000 /s/ Daniel J. Nickless
-------------------------------
By: Daniel J. Nickless
President, Chief Operating and
Chief Financial Officer
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 Agreement and Plan of Merger between The Writer Corporation and
Standard Pacific Corp., and TWC Acquisition Corp., incorporated herein
by reference to our Form 8-K dated April 14, 2000, Exhibit 2.1.
3.1 The Writer Corporation Articles of Incorporation and By-laws
incorporated herein by reference.
27 Financial Data Schedule
</TABLE>
16
