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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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)
--------------------
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 SEPTEMBER 30, 1996.
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KENNEDY-WILSON, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
SEPTEMBER 30, 1996
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PAGE
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PART I. _ FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 1. FINANCIAL STATEMENTS:
CONSOLIDATED CONDENSED BALANCE SHEETS AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 . . . . 3
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 2. CHANGES IN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . 9
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
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PART 1 - FINANCIAL INFORMATION
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
UNAUDITED
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SEPTEMBER 30, 1996 DECEMBER 31, 1995
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<S> <C> <C>
ASSETS:
Current assets:
Cash $3,008,000 $ 2,192,000
Cash - restricted 513,000 179,000
Accounts and notes receivable 8,968,000 1,980,000
Real estate held for sale - current portion 3,555,000 12,558,000
------------ ------------
Total current assets 16,044,000 16,909,000
Real estate held for sale 22,691,000 19,361,000
Other assets 1,730,000 1,381,000
------------ ------------
Total assets:
$40,465,000 $37,651,000
============ ============
LIABILITIES:
Current Liabilities:
Accounts payable $ 684,000 $1,084,000
Accrued salaries and commissions 116,000 477,000
Accrued expenses and other liabilities 2,126,000 2,583,000
Accrued expenses--related parties -- 97,000
Borrowings under lines of credit - current portion 1,029,000 775,000
Note payable--related parties -- 250,000
Mortgage notes payable - current portion 1,733,000 21,648,000
------------ ------------
Total Current Liabilities 5,688,000 26,914,000
Borrowings under lines of credit 4,188,000 --
Note payable 3,691,000 --
Mortgage notes payable 16,409,000 2,801,000
------------ ------------
Total Liabilities 29,976,000 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 September 30, 1996 and December 31, 1995,
respectively 13,000 14,000
Additional paid-in capital 21,918,000 22,730,000
Accumulated deficit (11,433,000) (14,799,000)
Accumulated translation adjustments (9,000) (9,000)
------------ ------------
Total stockholders' equity 10,489,000 7,936,000
$40,465,000 $37,651,000
============ ============
</TABLE>
See notes to consolidated condensed financial statements.
3
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KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Unaudited
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
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1996 1995 1996 1995
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<S> <C> <C> <C> <C>
REVENUES:
Commissions $1,086,000 $1,289,000 $3,520,000 $5,072,000
Commissions--related parties -- -- -- 50,000
Sales of real estate 3,880,000 6,317,000 17,563,000 9,142,000
Sales of assets and subsidiary -- -- -- 1,926,000
Other 1,165,000 480,000 3,452,000 1,028,000
------------ ------------ ------------ ------------
6,131,000 8,086,000 24,535,000 17,218,000
OPERATING EXPENSES:
Commissions and marketing expenses 276,000 555,000 685,000 2,247,000
Cost of real estate sold 2,608,000 5,970,000 14,343,000 9,132,000
Cost of real estate sold--related parties -- 86,000 211,000 86,000
Compensation and related expenses 837,000 1,014,000 2,665,000 4,505,000
General and administrative 721,000 1,150,000 1,897,000 4,172,000
Depreciation and amortization 68,000 92,000 206,000 490,000
Interest expense 504,000 450,000 1,104,000 1,029,000
Cost of assets and subsidiary sold -- -- -- 683,000
Restructuring charge -- -- -- 6,000,000
------------ ------------ ------------ ------------
5,014,000 9,317,000 21,111,000 28,344,000
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES 1,117,000 (1,231,000) 3,424,000 (11,126,000)
Provision for income taxes -- 9,000 82,000 49,000
------------ ------------ ------------ ------------
INCOME (LOSS) $1,117,000 $(1,240,000) $3,342,000 $(11,175,000)
============ ============ ============ ============
Net income (loss) per share: $0.88 $(0.89) $2.50 $(7.96)
============ ============ ============ ============
Weighted average common shares outstanding 1,268,000 1,400,600 1,336,000 1,403,600
============ ============ ============ ============
</TABLE>
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KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Unaudited
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NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------------------
1996 1995
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: $ (8,494,000) (2,272,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture, fixtures and equipment (168,000) --
Proceeds from sales of assets and subsidiary -- 1,926,000
Purchase of real estate held for sale (8,868,000) (20,167,000)
Proceeds from sale of real estate held for sale 17,563,000 7,053,000
Investments in partnerships -- (139,000)
----------- -----------
Net cash provided by (used in) investing activities 8,527,000 (11,327,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations (4,000) (57,000)
Issuance of mortgage notes payable 16,768,000 20,728,000
Repayment of mortgage notes payable (23,075,000) (12,004,000)
Borrowings under lines of credit 6,419,000 694,000
Repayment of lines of credit (1,977,000) (1,638,000)
Borrowing under note payable 4,800,000 650,000
Repayment under notes payable (1,359,000) --
Re-purchase of common stock (813,000) (62,000)
----------- -----------
Net cash provided by (used in) financing activities 759,000 8,311,000
EFFECT OF EXCHANGE RATE CHANGES ON CASH 24,000 (69,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH 816,000 (5,357,000)
CASH, beginning of period 2,192,000 5,599,000
----------- -----------
CASH, end of period $3,008,000 $ 242,000
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
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KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 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. The current portion of real estate
held for sale consists primarily of residential condominium properties, whereas
the long term portion includes primarily commercial properties. Earnings per
share have been adjusted to give effect to the ten to one reverse stock split,
which occurred in November, 1995.
NOTE 2 - ACCOUNTS AND NOTES RECEIVABLE
In August, 1996, the Company purchased a pool of non-performing notes
receivable from the FDIC for $6.3 million, financed by a note payable in the
amount of $4.8 million due March 1, 1998 with an initial interest rate of 10%.
NOTE 3 - BORROWING UNDER LINES OF CREDIT
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 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 September 1996, the acquisition facility was increased from $6.0
million to $8.5 million.
NOTE 4 - 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 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.
In August 1996, the Company purchased an office building in Santa
Monica, California for $2.8 million. The purchase was financed by two mortgage
notes totaling $2.3 million (Note A, in the amount of $2.0 million with a
variable interest rate of Libor plus 2% due August 1, 2003 and Note B, in the
amount of $0.3 million for capital improvements with a variable interest rate
of Libor plus 2% due August, 2001).
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In addition, during the nine months ended September 30, 1996,
approximately $6.3 million of mortgage notes were paid down with the proceeds
from sales of real estate held for sale.
NOTE 5 - STOCKHOLDERS' EQUITY
During the first six months of the year, the Company purchased 132,500
shares of its outstanding stock in four unsolicited transactions. One was for
$40,000 for 7,500 shares. The other three transactions totaled $773,000 for
125,000 shares purchased from two former officers of the Company. All
transactions were approved by the Board of Directors.
NOTE 6 - SUBSEQUENT EVENTS
Subsequent to September 30, 1996, the Company purchased two office
buildings. One building, located in Santa Monica, California was purchased for
$4.4 million, and was financed by two mortgage notes totaling $3.9 million, one
of which is for capital improvement. Both notes are at Libor plus 2%. The
second building located in Pasadena, California was purchased for $5.5 million,
and was financed by a mortgage note in the amount of $3.9 million at Libor plus
3.75%.
Subsequent to September 30, 1996, the Company entered into two joint
venture agreements. One is a 25% investment in two office buildings located in
downtown Los Angeles, California, with a total value of $28.5 million. The
second investment is a 25% interest in a ski resort located in Monarch,
Colorado with a total value of $7 million.
Also subsequent to September 30, 1996, the Company purchased 32,500
shares of its outstanding stock pursuant to unsolicited offers for a total
price of $280,324.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995.
Revenue for the three months ended September 30, 1996 decreased 24%
compared to the three months ended September 30, 1995 due primarily to
decreased sales of real estate held for sale for the current three month
period. Commission revenue declined 16% due to reduced auction activity.
Other income, which includes net rental income and proceeds from investments in
notes receivable increased by 143% due to the aggressive collections of the
outstanding notes.
Operating expenses decreased 46% for the quarter ended September 30,
1996. Cost of real estate sold decreased by 57%, compensation and related
expenses declined 17% and general and administrative expenses declined 37%.
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 OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1996.
Revenue for the nine months ended September 30, 1996 increased 42%
compared to the nine months ended September 30, 1995 due primarily to a 92%
increase in sales of real estate held for sale, consisting mostly of
condominium units and land in Hawaii, Los Angeles, and San Francisco.
Commission revenue declined 31% 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 26% overall for the nine months ended
September 30, 1996. Cost of real estate sold increased by 57%. Compensation
and related expenses declined by 41% and general and administrative expenses
declined 55%. Reduced expenses reflect the reduced cost structure of the
Company resulting from the
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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 $3.5
million at September 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 $8.5 million acquisition facility discussed in Note 3 has increased the
Company's ability to respond to strategic opportunities.
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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: November 13, 1996 KENNEDY-WILSON, INC.
__________________________________________________
Registrant
__________________________________________________
Freeman A. Lyle
Executive Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,521,000
<SECURITIES> 0
<RECEIVABLES> 8,968,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,044,000
<PP&E> 24,288,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 5,688,000
<BONDS> 24,288,000
0
0
<COMMON> 13,000
<OTHER-SE> 10,476,000
<TOTAL-LIABILITY-AND-EQUITY> 40,465,000
<SALES> 6,131,000
<TOTAL-REVENUES> 0
<CGS> 2,884,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,626,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 504,000
<INCOME-PRETAX> 1,117,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,117,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,117,000
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.88
</TABLE>
