<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, 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;
1,106,272 SHARES OUTSTANDING AT JUNE 30, 1997.
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<PAGE> 2
KENNEDY-WILSON, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1997
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Part I. _ Financial Information ................................................................................ 3
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets as of June 30, 1997 and December 31, 1996 ................ 3
Consolidated Condensed Statements of Operations for the Three Months Ended
June 30, 1997 and 1996 ......................................................................... 4
Consolidated Condensed Statements of Cash Flows for the Three Months Ended
June 30, 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
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 2,749,000 $ 1,901,000
Cash - restricted 320,000 396,000
Accounts receivable and others 1,174,000 994,000
Notes Receivable 14,637,000 13,787,000
Real estate held for sale 21,459,000 28,800,000
Investments in affiliates and partnerships 5,427,000 3,803,000
Other assets 1,184,000 1,433,000
------------ ------------
TOTAL ASSETS $ 46,950,000 $ 51,114,000
============ ============
LIABILITIES:
Accounts payable $ 309,000 $ 893,000
Accrued expenses and other liabilities 1,768,000 2,211,000
Notes payable 9,622,000 8,195,000
Borrowing under lines of credit 7,369,000 8,917,000
Mortgage notes payable 17,793,000 20,516,000
------------ ------------
Total liabilities 36,861,000 40,732,000
------------ ------------
COMMITMENTS AND CONTIGENICES
STOCKHOLDERS'S EQUITY:
Preferred stock, $.01 par value; 500,000 shares authorized, none issued -- --
Common stock $.01 par value; 2,000,000 shares authorized: 11,000 12,000
issued and outstanding; 1,106,272 in 1997 and 1,235,599 in 1996
Additional paid-in capital 20,318,000 21,638,000
Equity (deficit) acquired in affiliates -- --
Accumulated deficit (10,240,000) (11,268,000)
------------ ------------
Total stockholders' equity 10,089,000 10,382,000
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 46,950,000 $ 51,114,000
============ ============
</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,
---------------------------- ----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Commissions $ 1,407,000 $ 1,014,000 $ 2,125,000 $ 2,434,000
Sales of residential real estate 545,000 7,706,000 2,480,000 13,683,000
Equity in income of partnerships 156,000 13,000 497,000 31,000
Gain on sale of commercial real estate -- -- 1,682,000 --
Gain on restructured notes receivable 1,151,000 562,000 1,619,000 1,069,000
Rental income, net 356,000 410,000 926,000 832,000
Interest income 139,000 12,000 243,000 29,000
Other income 212,000 235,000 264,000 326,000
----------- ----------- ----------- -----------
3,966,000 9,952,000 9,836,000 18,404,000
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Commissions and marketing expenses 141,000 188,000 289,000 409,000
Cost of residential real estate sold 485,000 6,976,000 2,297,000 11,946,000
Compensation and related expenses 1,195,000 912,000 2,216,000 1,828,000
General and administrative 1,018,000 682,000 2,038,000 1,176,000
Depreciation and amortization 188,000 67,000 445,000 138,000
Interest expense 740,000 294,000 1,716,000 600,000
----------- ----------- ----------- -----------
3,767,000 9,119,000 9,001,000 16,097,000
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES AND
EXTRAORDINARY ITEM 199,000 833,000 835,000 2,307,000
Provision for income taxes 50,000 32,000 100,000 82,000
----------- ----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 149,000 801,000 735,000 $ 2,225,000
Extraordinary item - Gain on debt extinguishment 288,000 -- 288,000 --
----------- ----------- ----------- -----------
NET INCOME $ 437,000 $ 801,000 $ 1,023,000 $ 2,225,000
=========== =========== =========== ===========
Net income per share before extraordinary item $0.13 $0.60 $0.63 $1.62
Net income per share after extraordinary item $0.39 $0.60 $0.88 $1.62
Weighted average common shares outstanding 1,125,050 1,339,088 1,160,970 1,369,844
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,023,000 $ 2,225,000
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 445,000 138,000
Equity in income in partnerships (497,000) (31,000)
Distribution from partnerships 130,000 20,000
Gains on sales of real estate (1,877,000) (1,744,000)
Change in assets and liabilities:
Cash - restricted 76,000 (191,000)
Accounts receivable - other (180,000) (774,000)
Other assets (99,000) 132,000
Accounts payable (613,000) (306,000)
Accrued expenses and other liabilities (410,000) (1,089,000)
------------ ------------
Total adjustments (3,025,000) (3,845,000)
------------ ------------
Net cash provided from operating activities (2,002,000) (1,620,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures and equipment (97,000) (135,000)
Purchase and additions to real estate held for sale (2,812,000) (5,212,000)
Proceeds from sales of real estate held for sale 12,030,000 13,683,000
Notes receivable (850,000) 75,000
Investment in partnerships (969,000) --
Extraordinary item (288,000) --
------------ ------------
Net cash used in investing activities 7,014,000 8,411,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations -- (4,000)
Issuance of mortgage notes payable 3,308,000 14,770,000
Repayment of mortgage notes payable (6,031,000) (21,720,000)
Borrowings under lines of credit 7,051,000 1,837,000
Repayment of lines of credit (6,346,000) (575,000)
Borrowings under notes payable 1,617,000 --
Repayment of notes payable (2,443,000) (250,000)
Repurchase of common stock (1,320,000) (813,000)
------------ ------------
Net cash used in financing activities (4,164,000) (6,755,000)
------------ ------------
Net increase (decrease) in cash 848,000 36,000
CASH, BEGINNING OF PERIOD 1,901,000 2,192,000
------------ ------------
CASH, END OF PERIOD $ 2,749,000 $ 2,228,000
============ ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 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 - EXTRAORDINARY ITEM
In the quarter ended June 30, 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. No loss is expected to be incurred on this transaction.
During the second quarter of the year, 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.
6
<PAGE> 7
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.
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.
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.
NOTE 7 - 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 is due on 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.
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 $212,000. In
June 1997, the Company purchased an additional 5,000 shares of its common stock
in a private transaction for $76,250. All transactions were approved by the
Board of Directors.
NOTE 8 - SUBSEQUENT EVENTS
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 $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 entered into an agreement 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. The $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.
7
<PAGE> 8
In July 1997, the Company purchased 4319 shares of its common stock from
a former officer in a private transaction for approximately $67,000.
In July 1997, the Company sold the 150 Colorado Blvd. Pasadena,
California property for $7 million. The Company will be recognizing a gain of
approximately $700,000 on the transaction.
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%.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996.
Revenue for the three months ended June 30, 1997 decreased 60% compared
to the three months ended June 30, 1996 due primarily to decreased sales of
residential real estate held for sale. Sales of residential real estate for the
quarter ended June 30, 1996, included significant sales from three condominium
projects located in Hawaii, San Francisco and Los Angeles. Commission revenue
increased 39% due to two large commercial brokerage transactions.
Operating expenses decreased 59% for the quarter ended June 30, 1997.
The decrease was mainly due to a 93% decline in cost of real estate sold due to
the reduced sales discussed above. The decrease is offset by increased general
and administrative expenses 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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996.
Revenue for the six months ended June 30, 1997 decreased 46% compared to
the six months ended June 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 44% for the six months ended June 30, 1997.
The decrease was mainly due to a 81% 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 $2.7 million
at June 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, the Company has been
successful in obtaining such financing as needed and at competitive terms.
9
<PAGE> 10
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, 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: August 7, 1997 KENNEDY-WILSON, INC.
-----------------------------------
Registrant
Freeman A. Lyle
-----------------------------------
Executive Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE 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-31-1997
<PERIOD-START> APR-1-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,069,000
<SECURITIES> 0
<RECEIVABLES> 15,811,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,880,000
<PP&E> 28,070,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 46,950,000
<CURRENT-LIABILITIES> 2,077,000
<BONDS> 34,784,000
0
0
<COMMON> 11,000
<OTHER-SE> 10,078,000
<TOTAL-LIABILITY-AND-EQUITY> 46,950,000
<SALES> 3,966,000
<TOTAL-REVENUES> 3,966,000
<CGS> 626,000
<TOTAL-COSTS> 626,000
<OTHER-EXPENSES> 2,401,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 740,000
<INCOME-PRETAX> 199,000
<INCOME-TAX> 50,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 288,000
<CHANGES> 0
<NET-INCOME> 437,000
<EPS-PRIMARY> .39
<EPS-DILUTED> 0
</TABLE>
