<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
/ / 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 O-20418
KENNEDY-WILSON, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4364537
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
530 WILSHIRE BOULEVARD, # 101 90401
SANTA MONICA, CALIFORNIA (ZIP CODE)
(Address of Principal executive offices)
(310) 314-8400
(Registrant's telephone number, including area code)
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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 of the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: Common stock, $.01 par value;
1,268,099 shares outstanding at July 31, 1996.
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KENNEDY-WILSON, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1996
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. - Financial Information......................................................................... 3
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets as of June 30, 1996 and December 31, 1995......... 3
Consolidated Condensed Statements of Operations for the Three and Six Months Ended
June 30, 1996 and 1995.................................................................. 4
Consolidated Condensed Statements of Cash Flows for the Three and Six Months Ended
June 30, 1996 and 1995.................................................................. 5
Notes to Consolidated Condensed Financial Statements.................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 7
Part II. - Other Information............................................................................ 8
Item 1. Legal Proceedings........................................................................ 8
Item 2. Changes in Securities.................................................................... 8
Item 3. Defaults Upon Senior Securities.......................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders...................................... 8
Item 5. Other Information........................................................................ 8
Item 6. Exhibits and Reports on Form 8-K......................................................... 8
</TABLE>
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
ASSETS:
Cash $ 2,228,000 $ 2,192,000
Cash - restricted 370,000 179,000
Accounts and notes receivable 2,679,000 1,980,000
Real estate held for sale 25,191,000 31,919,000
Other assets 1,257,000 1,381,000
------------ ------------
$ 31,725,000 $ 37,651,000
============ ============
LIABILITIES:
Accounts payable $ 778,000 $ 1,084,000
Accrued salaries and commissions 87,000 477,000
Accrued expenses and other liabilities 1,959,000 2,583,000
Accrued expenses--related parties -- 97,000
Borrowings under lines of credit 2,037,000 775,000
Note payable--related parties -- 250,000
Mortgage notes payable 17,498,000 24,449,000
------------ ------------
Total Liabilities 22,359,000 29,715,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, 1996 and 1995: none issued -- --
Common stock, $.01 par value; 20,000,000 shares
authorized, 1,268,099 shares and 1,400,599 issued
and outstanding at June 30, 1996 and December 31, 1995,
respectively 13,000 14,000
Additional paid-in capital 21,918,000 22,730,000
Accumulated deficit (12,574,000) (14,799,000)
Accumulated translation adjustments 9,000 (9,000)
------------ ------------
Total stockholders' equity 9,366,000 7,936,000
$ 31,725,000 $ 37,651,000
============ ============
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE> 4
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------- -------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Commissions $ 1,014,000 $ 1,522,000 $ 2,434,000 $ 3,783,000
Commissions--related parties -- 49,000 -- 50,000
Sales of real estate 7,706,000 1,170,000 13,683,000 2,825,000
Sales of assets and subsidiary -- 1,926,000 -- 1,926,000
Other 1,232,000 440,000 2,287,000 548,000
------------ ------------ ------------ ------------
9,952,000 5,107,000 18,404,000 9,132,000
OPERATING EXPENSES:
Commissions and marketing expenses 188,000 728,000 409,000 1,692,000
Cost of real estate sold 6,932,000 1,507,000 11,735,000 3,162,000
Cost of real estate sold--related parties 44,000 -- 211,000 --
Compensation and related expenses 912,000 1,701,000 1,828,000 3,491,000
General and administrative 682,000 1,486,000 1,176,000 3,022,000
Depreciation and amortization 67,000 196,000 138,000 398,000
Interest expense 294,000 385,000 600,000 579,000
Cost of assets and subsidiary sold -- 683,000 -- 683,000
Restructuring charge -- 6,000,000 -- 6,000,000
------------ ------------ ------------ ------------
9,119,000 12,686,000 16,097,000 19,097,000
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES 833,000 (7,579,000) 2,307,000 (9,895,000)
Provision for income taxes 32,000 20,000 82,000 40,000
------------ ------------ ------------ ------------
INCOME (LOSS) $ 801,000 $ (7,599,000) $ 2,225,000 $ (9,935,000)
============ ============ ============ ============
Net income (loss) per share: $ 0.60 $ (5.41) $ 1.62 $ (7.07)
============ ============ ============ ============
Weighted average common shares outstanding 1,339,088 1,404,720 1,369,844 1,404,720
============ ============ ============ ============
</TABLE>
4
<PAGE> 5
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Unaudited
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
NET CASH PROVIDED BY (USED) IN OPERATING ACTIVITIES: $ 6,908,000 $(15,918,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture, fixtures and equipment (135,000) --
Proceeds from sales of assets and subsidiary -- 1,926,000
Investments in partnerships -- (167,000)
------------ ------------
Net cash used in investing activities (135,000) 1,759,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations (4,000) (48,000)
Issuance of mortgage notes payable 14,770,000 16,763,000
Repayment of mortgage notes payable (21,720,000) (6,836,000)
Borrowings under Lines of Credit 1,837,000 900,000
Repayment of notes payable (825,000) (1,238,000)
Re-purchase of Common Stock (813,000) (62,000)
------------ ------------
Net cash used in financing activities (6,755,000) 9,479,000
EFFECT OF EXCHANGE RATE CHANGES ON CASH 18,000 (35,000)
------------ ------------
NET DECREASE IN CASH 36,000 (4,715,000)
CASH, beginning of period 2,192,000 5,599,000
------------ ------------
CASH, end of period $ 2,228,000 $ 884,000
============ ============
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE> 6
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENT PRESENTATION
The above condensed financial statements have been prepared by
Kennedy-Wilson, Inc. a Delaware corporation, and subsidiaries (the Company)
without audit by independent public accountants, pursuant to the Rules and
Regulations of the Securities and Exchange Commission. The statements, in the
opinion of the Company, present fairly the financial position and results of
operations for the dates and periods indicated. The results of operations for
interim periods are not necessarily indicative of results to be expected for
full fiscal years. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the Rules and
Regulations of the Securities and Exchange Commission. The Company believes that
the disclosures contained in the condensed financial statements are adequate to
make the information presented not misleading. These condensed financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
Certain reclassifications have been made to prior year balances to
conform to the current year presentation. In addition, earnings per share have
been adjusted to give effect to the ten to one reverse stock split, which
occurred in November, 1995.
NOTE 2 - MORTGAGE NOTES PAYABLE
In February, 1996, two mortgage notes in the amounts of $600,000 and
$5,436,000 were repaid with the proceeds from a new loan in the amount of $6
million, which matures in 2003 and bears interest at a fixed rate of 7.9%. In
addition, during the three months ended March 31, 1996, approximately $4.4
million of mortgage notes were paid down with the proceeds from sales of real
estate held for sale. In addition, mortgage notes were increased by
approximately $2 million to fund construction improvements to real estate held
for sale.
In March 1996, the Company entered into a new loan agreement which will
provide the Company with a $6.0 million credit facility (the "facility") which
includes up to $5.0 million in an acquisition facility and up to $1.0 million in
a working capital facility. The facility is to be secured by existing real
estate owned by the Company and the actual availability under the facility is to
be limited based on the equity in such real estate. The Company believes that
the availability will be the maximum of $6.0 million. The facility will bear
interest at the prime rate plus 1%. The working capital facility will be due in
full June 1997 and the acquisition facility will be due 18 months from the date
of each advance.
In April, 1996, the Company refinanced a mortgage note payable in the
amount of $5,100,000 with a new mortgage note in the amount of $5,880,000, with
a fixed interest rate of 8.875%, due in April 2001.
NOTE 3 - STOCKHOLDERS' EQUITY
During the first six months of the year, the Company purchased 132,500
shares of its outstanding stock in four private transactions. One was for
$40,000 for 7,500 shares. The other three transactions totalled $813,000 for
125,000 shares repurchased from two former officers of the Company. All
transactions were approved by the Board of Directors.
6
<PAGE> 7
NOTE 4 - SUBSEQUENT EVENTS
Subsequent to June 30, 1996, the Company purchased an office building
in Santa Monica, California for $2.8 million. The purchase was financed by two
mortgage notes totalling $2.3 million (Note A, in the amount of $2.0 million
with a variable interest rate of Prime plus 1% due August 1, 2003 and Note B, in
the amount of $0.3 million with a variable interest rate of Prime plus 1% due
August, 2001).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995.
Revenue for the three months ended June 30, 1996 increased 95% compared
to the three months ended June 30, 1995 due primarily to increased sales of real
estate held for sale consisting mostly of condominium units in Hawaii and San
Francisco. Commission revenue declined 34% due to reduced auction activity.
Other income includes net rental income and proceeds from investments in notes
receivable.
Operating expenses decreased 28% for the quarter ended June 30, 1996
due, in part, to the restructuring charge and the loss on the sale of the
Commercial Brokerage Division totalling $6.6 million taken during the same
quarter in 1995. Cost of real estate sold increased by 363%, partially offset by
a 46% decline in compensation and related expenses, and a 54% decline in general
and administrative expenses. Reduced operating expenses reflect the reduced cost
structure of the Company resulting from the restructuring of operating
activities and the sale of subsidiaries that occurred in 1995.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995.
Revenue for the six months ended June 30, 1996 increased 102% compared
to the six months ended June 30, 1995 due primarily to increased sales of real
estate held for sale, consisting mostly of condominium units in Hawaii, Los
Angeles and San Francisco. Commission revenue declined 36% due to reduced
auction activity, offset by increased single asset brokerage commissions. Other
income includes net rental income and proceeds from investments in notes
receivable.
Operating expenses decreased 16% overall for the six months ended June
30, 1996. The restructuring charge and the loss on the Commercial Brokerage
Division in 1995 was partially offset, during the same period in 1996, by a 278%
increase in the cost of real estate sold. Compensation and related expenses
declined 48% and general and administrative expenses declined 61%. Reduced
expenses reflect the reduced cost structure of the Company resulting from the
restructuring of operating activities and the sale of subsidiaries that occurred
in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that its cash balance of approximately $2.6
million at June 30, 1996, combined with cash generated from operations, will
provide funds sufficient to meet its present and reasonably foreseeable
obligations. The Company's liquidity has been significantly enhanced by the
reduced cost structure resulting from the restructuring of the Company that was
implemented in 1995.
The Company's activities as a principal in real estate transactions
requires larger capital resources than has been required by its marketing and
brokerage operations. As a result, the Company may periodically need to obtain
third party financing for such transactions. The Company has been successful in
obtaining such financing as needed and at competitive terms. In addition, the
new $5 million acquisition facility discussed in Note 2 has increased the
Company's ability to respond to strategic opportunities.
7
<PAGE> 8
PART II - OTHER INFORMATION
Items 1, 2, 3, 4 and 5 are omitted as not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None being filed herewith.
(b) Reports on Form 8-K
The registrant did not file any Reports on Form 8-K during the
quarter ended June 30, 1996.
SIGNATURE
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.
Date: August 13,1996 KENNEDY-WILSON, INC.
--------------------------------------------------
Registrant
FREEMAN A. LYLE
--------------------------------------------------
Freeman A. Lyle
Executive Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS
AND NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,598,000
<SECURITIES> 0
<RECEIVABLES> 2,679,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 26,448,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,725,000
<CURRENT-LIABILITIES> 2,824,000
<BONDS> 19,535,000
0
0
<COMMON> 13,000
<OTHER-SE> 9,353,000
<TOTAL-LIABILITY-AND-EQUITY> 31,725,000
<SALES> 9,952,000
<TOTAL-REVENUES> 0
<CGS> 7,164,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,661,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 294,000
<INCOME-PRETAX> 833,000
<INCOME-TAX> 32,000
<INCOME-CONTINUING> 801,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 801,000
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
</TABLE>
