<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 MARCH 31, 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)
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;
1,136,272 SHARES OUTSTANDING AT APRIL 30, 1997.
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KENNEDY-WILSON, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
MARCH 31, 1997
<TABLE>
<CAPTION>
PAGE
<S> <C>
Part I. Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets as of March 31, 1997 and December 31, 1996 . . . . . . . . 3
Consolidated Condensed Statements of Operations for the Three Months Ended
March 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Condensed Statements of Cash Flows for the Three Months Ended
March 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Condensed Financial Statements . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . 8
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>
2
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PART 1 - FINANCIAL INFORMATION
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
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<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 2,457,000 $ 1,901,000
Cash - restricted 452,000 396,000
Accounts receivable and others 684,000 994,000
Notes Receivable 12,604,000 13,787,000
Real estate held for sale 21,250,000 28,800,000
Investments in affiliates and partnerships 4,434,000 3,803,000
Other assets 1,295,000 1,433,000
------------ ------------
TOTAL ASSETS $ 43,176,000 $ 51,114,000
============ ============
LIABILITIES:
Accounts payable $623,000 $893,000
Accrued expenses and other liabilities 2,535,000 2,211,000
Notes payable 7,419,000 8,195,000
Borrowing under lines of credit 7,032,000 8,917,000
Mortgage notes payable 15,531,000 20,516,000
------------ ------------
Total liabilities 33,140,000 40,732,000
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COMMITMENTS AND CONTIGENICES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 500,000 shares authorized,
none issued - -
Common stock $.01 par value; 2,000,000 shares authorized;
issued and outstanding; 1,146,272 in 1997 and 1,235,599
in 1996 11,000 12,000
Additional paid-in capital 20,701,000 21,638,000
Accumulated deficit (10,676,000) (11,268,000)
------------ ------------
Total stockholders' equity 10,036,000 10,382,000
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY: $ 43,176,000 $ 51,114,000
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</TABLE>
See notes to consolidated condensed financial statements.
3
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KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1996
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<S> <C> <C>
REVENUES:
Commissions $ 718,000 $1,420,000
Sales of residential real estate 1,935,000 5,977,000
Equity in income of partnerships 341,000 18,000
Gain on sale of commercial real estate 1,682,000 --
Gain on restructured notes receivable 468,000 584,000
Rental income, net 570,000 543,000
Other income 156,000 32,000
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5,870,000 8,574,000
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OPERATING EXPENSES:
Commissions and marketing expenses 148,000 221,000
Cost of residential real estate sold 1,812,000 4,803,000
Cost of residential real estate sold - related parties -- 167,000
Compensation and related expenses 1,021,000 916,000
General and administrative 1,020,000 494,000
Depreciation and amortization 257,000 193,000
Interest expense 976,000 306,000
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5,234,000 7,100,000
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INCOME BEFORE PROVISION FOR INCOME TAXES 636,000 1,474,000
Provision for income taxes 50,000 50,000
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NET INCOME $ 586,000 $1,424,000
========== ==========
Net income per common share $0.49 $1.02
========== ==========
Weighted average common shares outstanding $1,196,891 $1,400,599
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</TABLE>
See notes to consolidated financial statements.
4
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KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 586,000 $ 1,424,000
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 257,000 193,000
Equity in income in partnerships (341,000) (13,000)
Distribution from partnerships 10,000 18,000
Gains on sales of commercial and residential real estate (1,811,000) (1,000,000)
Change in assets and liabilities:
Cash - restricted (56,000) (355,000)
Accounts receivable - other 310,000 80,000
Other assets (82,000) (43,000)
Accounts payable (299,000) 302,000
Accrued expenses and other liabilities 359,000 (988,000)
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Net cash used in operating activities (1,067,000) (382,000)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures and equipment (37,000) (9,000)
Purchase and additions to real estate held for sale (2,124,000) (2,972,000)
Proceeds from sales of real estate held for sale 11,485,000 5,977,000
Notes receivable 1,183,000 -
Investment in partnerships (300,000) -
Repurchase of common stock (938,000) -
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Net cash provided by investing activities 9,269,000 2,996,000
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations - (4,000)
Issuance of mortgage notes payable 1,284,000 7,978,000
Repayment of mortgage notes payable (6,269,000) (10,441,000)
Borrowings under lines of credit 3,336,000 29,000
Repayment of lines of credit (5,221,000) (500,000)
Borrowings under notes payable 62,000 -
Repayment of notes payable (838,000) -
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Net cash used in financing activities (7,646,000) (2,938,000)
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Net increase (decrease) in cash 556,000 (324,000)
CASH, BEGINNING OF PERIOD 1,901,000 2,192,000
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CASH, END OF PERIOD $ 2,457,000 $ 1,868,000
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</TABLE>
See notes to consolidated financial statements.
5
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KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997, AND 1996
(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, 1996.
Certain reclassifications have been made to prior year balances to
conform to the current year presentation.
NOTE 2 - 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 $6 million, on a commercial property
in Orange County. No loss is expected to be incurred on this transaction.
NOTE 3 - REAL ESTATE HELD FOR SALE
In January 1997, the Company purchased a 30,000 square feet 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.
NOTE 4 - MORTGAGE NOTES PAYABLE
The January 1997 purchase of a 30,000 square feet 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.
The March 1997 sale of the 530 Wilshire property referred to above
included the repayment of a mortgage note in the amount $5.9 million with
proceeds from the sale of the property.
6
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NOTE 5 - STOCKHOLDERS' EQUITY
During the first three months of the year, 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") with additional payments of approximately $369,000 due on April
30, 1997 and September 30, 1997. If payments are not made on the designated
dates, interest accrues from the Closing Date, at a rate of 10% per annum.
The terms of the agreement also include a termination of employment and mutual
release provision.
NOTE 6 - SUBSEQUENT EVENTS
Subsequent to March 31, 1997, the Company purchased 10,000 shares of
its outstanding stock pursuant to two unsolicited offers of sale for a total of
$119,538.95. The transactions were approved by the Board of Directors.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996.
Revenue for the three months ended March 31, 1997 decreased 31%
compared to the three months ended March 31, 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. Sales of residential
real estate for the quarter ended March 31, 1996, included significant sales
from a Hawaii condominium project. Commission revenue declined 49% due to
reduced auction and brokerage closings compared to the same quarter last year,
which included a significant commission from the sale of a large commercial
property in Los Angeles.
Operating expenses decreased 25% for the quarter ended March 31, 1997.
The decrease was mainly due to a 64% 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, increased occupancy expense due to rent
on corporate space not incurred in 1996, and costs associated with opening the
New York office. 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 $2.5
million at March 31, 1997, combined with cash generated from operations and the
$2 million working capital line 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 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.
8
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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 March 31, 1997.
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: April 30, 1997 KENNEDY-WILSON, INC.
---------------------------------------
Registrant
---------------------------------------
Freeman A. Lyle
Executive Vice President & Chief
Financial officer (Principal Financial
and Accounting Officer)
9
<TABLE> <S> <C>
<ARTICLE> 5
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,909,000
<SECURITIES> 0
<RECEIVABLES> 13,288,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,197,000
<PP&E> 26,979,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 43,176,000
<CURRENT-LIABILITIES> 3,158,000
<BONDS> 29,982,000
0
0
<COMMON> 11,000
<OTHER-SE> 10,025,000
<TOTAL-LIABILITY-AND-EQUITY> 43,176,000
<SALES> 5,870,000
<TOTAL-REVENUES> 0
<CGS> 1,960,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,298,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 976,000
<INCOME-PRETAX> 636,000
<INCOME-TAX> 50,000
<INCOME-CONTINUING> 586,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 586,000
<EPS-PRIMARY> .49
<EPS-DILUTED> 0
</TABLE>
