<PAGE> 1
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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, 1997
[ ] 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)
<TABLE>
<S> <C>
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)
</TABLE>
(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; 1,101,954 SHARES OUTSTANDING AT SEPTEMBER 30, 1997.
================================================================================
<PAGE> 2
KENNEDY-WILSON, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I. Financial Information........................................................ 1
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1997 and December 31,
1996.................................................................... 1
Consolidated Statements of Operations for the Three Months Period Ended
and the Nine Months Period Ended September 30, 1997 and 1996............ 2
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996............................................. 3
Notes to Consolidated Financial Statements................................ 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 7
Part II. Other Information........................................................... 7
Item 1. Legal Proceedings........................................................... 7
Item 2. Changes in Securities....................................................... 7
Item 3. Defaults Upon Senior Securities............................................. 7
Item 4. Submission of Matters to a Vote of Security Holders......................... 7
Item 5. Other Information........................................................... 7
Item 6. Exhibits and Reports on Form 8-K............................................ 7
</TABLE>
i
<PAGE> 3
PART I -- FINANCIAL INFORMATION
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------- ------------------
UNAUDITED
<S> <C> <C>
Cash and cash equivalents................................. $ 3,804,000 $ 1,901,000
Cash -- restricted........................................ 410,000 396,000
Accounts receivable and others............................ 1,434,000 994,000
Notes Receivable.......................................... 9,509,000 13,787,000
Real estate held for sale................................. 17,861,000 28,800,000
Investments in affiliates and partnerships................ 6,577,000 3,803,000
Other assets.............................................. 1,398,000 1,433,000
----------- -----------
TOTAL ASSETS.................................... $40,993,000 $ 51,114,000
=========== ===========
LIABILITIES:
Accounts payable.......................................... $ 612,000 $ 893,000
Accrued expenses and other liabilities.................... 1,879,000 2,211,000
Notes payable............................................. 3,112,000 8,195,000
Borrowing under lines of credit........................... 12,065,000 8,917,000
Mortgage notes payable.................................... 12,836,000 20,516,000
----------- -----------
Total liabilities............................... 30,504,000 40,732,000
=========== ===========
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 500,000 shares
authorized, none issued
Common stock $.01 par value; 2,000,000 shares authorized;
1,101,954 and 1,235,599 issued at September 30, 1997 and
December 31, 1996, respectively......................... 11,000 12,000
Additional paid-in capital................................ 20,251,000 21,638,000
Accumulated deficit....................................... (9,773,000) (11,268,000)
----------- -----------
Total stockholders' equity...................... 10,489,000 10,382,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...... $40,993,000 $ 51,114,000
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
1
<PAGE> 4
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- ---------------------------
1997 1996 1997 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE
Commissions.............................. $ 963,000 $1,086,000 $ 3,088,000 $ 3,520,000
Sales of residential real estate......... 1,870,000 3,880,000 4,351,000 17,563,000
Equity in income of partnerships......... 59,000 (17,000) 556,000 12,000
Gain on sale of commercial real estate... 755,000 -- 2,437,000 --
Gain on restructured notes receivable.... 1,620,000 768,000 3,239,000 2,060,000
Rental income, net....................... 274,000 374,000 1,200,000 1,205,000
Interest income.......................... 160,000 10,000 403,000 40,000
Other income............................. 113,000 30,000 376,000 135,000
---------- ---------- ----------- -----------
TOTAL REVENUE.................. 5,814,000 6,131,000 15,650,000 24,535,000
---------- ---------- ----------- -----------
OPERATING EXPENSES:
Commissions and marketing expenses....... 316,000 276,000 605,000 685,000
Cost of residential real estate sold..... 1,247,000 2,608,000 3,580,000 14,554,000
Compensation and related expenses........ 1,237,000 837,000 3,376,000 2,665,000
General and administrative............... 1,387,000 721,000 3,467,000 1,897,000
Depreciation and amortization............ 224,000 68,000 668,000 206,000
Interest expense......................... 871,000 504,000 2,587,000 1,104,000
---------- ---------- ----------- -----------
TOTAL OPERATING EXPENSES....... 5,282,000 5,014,000 14,283,000 21,111,000
---------- ---------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND EXTRAORDINARY ITEM................. 532,000 1,117,000 1,367,000 3,424,000
Provision for income taxes............... 65,000 -- 165,000 82,000
---------- ---------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM......... 467,000 1,117,000 1,202,000 3,342,000
Extraordinary Gain............. -- -- 288,000 0
---------- ---------- ----------- -----------
NET INCOME............................... $ 467,000 $1,117,000 $ 1,490,000 $ 3,342,000
========== ========== =========== ===========
Net income per common share before
extraordinary item..................... 0.42 0.88 $ 1.05 $ 2.50
========== ========== =========== ===========
Extraordinary gain per common share...... -- -- $ 0.25 --
Net income per common share.............. 0.42 0.88 $ 1.30 $ 2.50
========== ========== =========== ===========
Weighted average common share
outstanding............................ 1,103,000 1,268,000 1,142,000 1,336,000
</TABLE>
See notes to consolidated condensed financial statements.
2
<PAGE> 5
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................... $ 1,490,000 $ 3,342,000
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization................................ 668,000 206,000
Equity in income in partnerships............................. (841,000) (12,000)
Gains on sales of real estate................................ (3,270,000) (3,022,000)
Change in assets and liabilities:
Cash -- restricted........................................... (14,000) (334,000)
Accounts receivable -- other................................. (779,000) (6,989,000)
Other assets................................................. (475,000) (395,000)
Accounts payable............................................. (281,000) (400,000)
Accrued expenses and other liabilities....................... 11,000 (886,000)
------------ ------------
Total adjustments....................................... (4,981,000) (11,832,000)
------------ ------------
Net cash used in operating activities................... (3,491,000) (8,490,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures and equipment................... (158,000) (168,000)
Purchase and additions to real estate held for sale............. (6,691,000) (8,868,000)
Proceeds from sales of real estate held for sale................ 20,900,000 17,563,000
Notes receivable................................................ 4,278,000 --
Distribution from partnerships.................................. 190,000 20,000
Investment in partnerships...................................... (2,123,000) --
------------ ------------
Net cash provided by investing activities............... 16,396,000 8,547,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations.......................... -- (4,000)
Issuance of mortgage notes payable.............................. 4,257,000 16,768,000
Repayment of mortgage notes payable............................. (11,937,000) (23,075,000)
Borrowings under lines of credit................................ 10,934,000 6,419,000
Repayment of lines of credit.................................... (7,786,000) (1,977,000)
Borrowings under notes payable.................................. 1,627,000 4,800,000
Repayment of notes payable...................................... (6,710,000) (1,359,000)
Repurchase of common stock...................................... (1,387,000) (813,000)
------------ ------------
Net cash (used in) provided by financing activities..... (11,002,000) 759,000
------------ ------------
Net increase in cash.............................................. 1,903,000 816,000
Cash, beginning of period......................................... 1,901,000 2,192,000
------------ ------------
Cash, end of period............................................... $ 3,804,000 $ 3,008,000
============ ============
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE> 6
KENNEDY -- WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
NOTE 1 -- FINANCIAL STATEMENT PRESENTATION
The above 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 financial statements are adequate to make the information
presented not misleading. These 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, 1996.
Certain reclassifications have been made to prior year balances to conform
to the current year presentation.
NOTE 2 -- EXTRAORDINARY ITEM
In June 1997, the Company recognized an extraordinary gain from the
extinguishment of debt from its investment in Ski Monarch, LLC. The Company has
a 25% interest in this investment and $288,000 represents its 25% of the total
gain on extinguishment of debt.
NOTE 3 -- NOTES RECEIVABLE
In February 1997, the Company initiated foreclosure proceedings against the
borrower of one of the Company's notes receivable which is secured by a first
trust deed with a face value of $5 million, on a commercial property in Orange
County. In September 1997, this note receivable was sold, resulting in a gain of
approximately $1.5 million.
In May 1997, the Company purchased a portfolio of non-performing loans for
approximately $1.2 million.
NOTE 4 -- REAL ESTATE HELD FOR SALE
In January 1997, the Company purchased a 30,000 square foot office building
in Santa Ana, California for $1.3 million.
In March 1997, the Company sold the 530 Wilshire Blvd. property in which it
currently resides, for approximately $9.5 million. The Company has executed a
lease agreement to remain in its current location. The Company recognized a gain
of approximately $1.7 million on the transaction.
In June 1997, the Company acquired lots in Granada Hills, California for $1
million. The lots are zoned to build 10 residential units, which are currently
being constructed.
In July 1997, the Company sold the 150 Colorado Blvd. Pasadena, California
property for $7 million. The Company recognized a gain of approximately $700,000
on the transaction.
NOTE 5 -- MORTGAGE NOTES PAYABLE
The January 1997 purchase of a 30,000 square foot office building referred
to above was financed by two mortgage notes totaling $1.1 million. Note A, in
the amount of $1.05 million has a variable interest rate of Libor plus 3.75% and
is due January 1999. Note B, in the amount of $.05 million is for capital
improvements with a fixed rate of 12.49% and is due January 1999.
4
<PAGE> 7
KENNEDY -- WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The March 1997 sale of the 530 Wilshire property referred to above included
the repayment of a mortgage note in the amount of $5.9 million with proceeds
from the sale of the property.
The June 1997 purchase of lots referred to above was financed by a mortgage
note of approximately $3.7 million which includes $2.7 million for construction
funds. The note has an interest rate of prime plus 1.25% and a maturity date of
June 15, 1998. The loan balance at September 30, 1997 was $1.2 million.
The July 1997 sale of the 150 Colorado Blvd., property referred to above
included the repayment of mortgage notes in the amount of $5.2 million with the
proceeds from the sale of the property.
NOTE 6 -- BORROWING UNDER LINES OF CREDIT
In May 1997, the Company entered into a loan agreement that provides the
Company with a $6 million credit facility to acquire additional loan portfolios.
The outstanding balance as of June 30, 1997 was approximately $4.3 million,
which includes repayment of approximately $3.1 million of notes payable with the
same lender. The facility bears interest at Prime plus 1.5% and matures in May
1998.
In July 1997, one of the Company's lines of credit was increased from $10
million to $12 million. $2 million of the facility is unsecured, and the
remaining $10 million of the facility is secured by real estate owned by the
Company. The actual availability under the secured facility is limited based on
the equity in such real estate. This facility has a rate of Prime plus 3/4
percent.
In July 1997, the Company executed a letter of intent for a commercial
property acquisition facility in the amount of $100 million. The facility will
fund 85% of the cost of acquisitions and improvements with an initial rate of
LIBOR plus 350 basis points.
In July 1997, the Company entered into an agreement for an acquisition
facility of $24 million to be used to purchase loans. $6 million of the facility
will provide 75% to 90% of the total acquisition equity for related investments,
with a rate of LIBOR plus 425 basis points and a 30 to 45% profit participation.
The remaining $18 million will be for debt financing of up to 80% of acquisition
cost with a rate of LIBOR plus 375 basis points.
In August 1997, the Company entered into an agreement for a real estate
acquisition facility in the amount of $60 million. $20 million of the facility
will provide 75% to 90% of the equity required for related investments, at a
rate of LIBOR plus 3.25% and a profit participation of 30% to 50%. The remaining
$40 million will be for debt financing of up to 80% of the cost at a rate of
LIBOR plus 3.25%.
NOTE 7 -- INVESTMENTS IN AFFILIATES AND PARTNERSHIPS
In August 1997, the Company acquired a 20% interest in a joint venture know
as Kennedy-Goldman Holdings Limited, a Hong Kong based real estate marketing and
investments company.
In September 1997, the Company acquired a 50% interest in a joint venture
("Downtown Properties II LLC") with a related party, that owns a commercial
property with approximately 460,000 square feet in rental space and an adjacent
parking structure, located in downtown Los Angeles for $1.7 million.
NOTE 8 -- STOCKHOLDERS' EQUITY
In February 1997, the Company purchased 89,370 shares of its common stock
from a former officer and director in a private transaction for approximately
$938,000. Per the terms of the agreement, an initial payment of $200,000 was
made on February 28, 1997, (the "Closing Date"), a second payment of $369,000
was made on April 30, 1997 and a final payment was paid on September 30, 1997.
The terms of the agreement also include a termination of employment and mutual
release provision.
5
<PAGE> 8
KENNEDY -- WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
In April 1997, the Company purchased 10,000 shares of its common stock in
two private transactions for approximately $119,000. In May 1997, the Company
exercised its option to purchase 25,000 shares of its common stock from a former
officer and director in a private transaction for approximately $162,500. In
June 1997, the Company purchased an additional 5,000 shares of its common stock
in a private transaction for $76,250.
In July 1997, the Company purchased 4319 shares of its common stock from a
former officer in a private transaction for approximately $67,000. All
transactions were approved by the Board of Directors.
NOTE 8 -- SUBSEQUENT EVENTS
In October 1997, the Company purchased an additional non-performing loan
for approximately $1.1 million.
In October 1997, the Company purchased 5,000 shares of its common stock for
$106,000.
In October 1997, the Company declared a twenty percent stock dividend to
holders of record on October 27, 1997.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996.
Revenue for the three months ended September 30, 1997 decreased 5% compared
to the three months ended September 30, 1996 due primarily to decreased sales of
residential real estate held for sale. Sales of residential real estate for the
quarter ended September 30, 1996, included significant sales from three
condominium projects located in Hawaii, San Francisco and Los Angeles.
Commission revenue decreased 11% due to reduced auctions and brokerage closings.
Operating expenses increased 5% for the quarter ended September 30, 1997.
The increase was mainly due to increased legal expenses related to note
receivable collections, and to rent expense on the Company's headquarters that
was owned (not leased) in the same period in 1996. Interest expense increased
due to increased borrowing under the lines of credit and notes payable.
Depreciation and amortization expense increased due to the net addition of two
commercial properties and accelerated depreciation of tenant improvements.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996.
Revenue for the nine months ended September 30, 1997 decreased 36% compared
to the nine months ended September 30, 1996 due primarily to decreased sales of
residential real estate held for sale, offset by a $1.7 million gain on sale of
commercial real estate, which is shown net. Commission revenue decreased 12% due
to reduced auction and brokerage closings compared to the same period last year,
which included a significant commission from the sale of a large commercial
property in Los Angeles.
Operating expenses decreased 32% for the nine months ended September 30,
1997. The decrease was mainly due to a 75% decline in cost of real estate sold
due to the reduced sales discussed above. The decrease is offset by increased
general and administrative expenses which includes increased legal fees related
to the collection of notes receivable, and increased occupancy expense due to
rent on corporate space not incurred in 1996. Interest expense increased due to
increased borrowing under the lines of credit and notes payable. Depreciation
and amortization expense increased due to the net addition of two commercial
properties.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that its cash balance of approximately $3.8 million at
September 30, 1997, combined with cash generated from operations and the $2
million working capital portion of one of its lines of credit, will provide
funds sufficient to meet its present and reasonably foreseeable obligations.
The Company's activities as a principal in real estate and notes receivable
acquisitions requires larger capital resources than is required by its marketing
and brokerage operations. As a result, the Company may periodically need to
obtain third party financing for such transactions. As evidenced by the
acquisition facilities described in Note 6, the Company has been successful in
obtaining such financing as needed and at competitive terms.
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 is being filed herewith.
(b) REPORTS ON FORM 8-K
The registrant did not file any Reports on Form 8-K during the quarter
ended September 30, 1997.
7
<PAGE> 10
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 10, 1997 KENNEDY-WILSON, INC.
--------------------------------------
Registrant
--------------------------------------
Freeman A. Lyle
Executive Vice President & Chief
Financial Officer
(Principal Financial and Accounting
Officer)
8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,214,000
<SECURITIES> 0
<RECEIVABLES> 10,943,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,157,000
<PP&E> 25,836,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 40,993,000
<CURRENT-LIABILITIES> 2,491,000
<BONDS> 28,013,000
0
0
<COMMON> 11,000
<OTHER-SE> 10,478,000
<TOTAL-LIABILITY-AND-EQUITY> 40,993,000
<SALES> 5,814,000
<TOTAL-REVENUES> 5,814,000
<CGS> 1,563,000
<TOTAL-COSTS> 1,563,000
<OTHER-EXPENSES> 2,848,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 871,000
<INCOME-PRETAX> 532,000
<INCOME-TAX> 65,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 467,000
<EPS-PRIMARY> .42
<EPS-DILUTED> 0
</TABLE>
