<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 MARCH 31, 1998
[ ] 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;
3,960,767 SHARES OUTSTANDING AT MARCH 31, 1998.
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<PAGE> 2
KENNEDY-WILSON, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
MARCH 31, 1998
<TABLE>
<CAPTION>
PAGE
<S> <C>
Part I. - Financial Information................................................................ 3
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997............ 3
Consolidated Statements of Operations for the Three Months Ended
March 31, 1998 and 1997........................................................... 4
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1998 and 1997........................................................... 5
Notes to Consolidated Financial Statements........................................ 6-8
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 BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
ASSETS
MARCH 31, DECEMBER 31,
------------ ------------
1998 1997
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 3,210,000 $ 10,448,000
Cash - restricted 620,000 174,000
Accounts receivable 2,154,000 1,018,000
Notes Receivable 12,934,000 9,546,000
Real estate held for sale 68,928,000 18,628,000
Investments with related parties and non-affiliates 8,400,000 4,899,000
Other assets 1,174,000 1,005,000
------------ ------------
TOTAL ASSETS $ 97,420,000 $ 45,718,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 1,001,000 $ 666,000
Accrued expenses and other liabilities 2,788,000 4,553,000
Notes payable 7,832,000 4,764,000
Borrowing under lines of credit 12,096,000 9,039,000
Mortgage notes payable 61,210,000 15,102,000
------------ ------------
Total liabilities 84,927,000 34,124,000
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 1,000,000 shares authorized
none issued -- --
Common stock $.01 par value; shares authorized; 5,000,000 40,000 39,000
shares issued: 3,960,797 in 1998 and 4,126,579 in 1997
Additional paid-in capital 23,804,000 23,788,000
Accumulated deficit (10,239,000) (10,913,000)
Notes receivable from stockholders (1,112,000) (1,320,000)
------------ ------------
Total stockholders' equity 12,493,000 11,594,000
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 97,420,000 $ 45,718,000
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1997
---------- ----------
<S> <C> <C>
REVENUES:
Commissions $2,142,000 $ 718,000
Sales of residential real estate 183,000 1,935,000
Equity in income of investments with
related parties and non-affiliates 268,000 341,000
Gain on sale of commercial real estate -- 1,682,000
Gain on restructured notes receivable 655,000 468,000
Rental income, net 679,000 570,000
Interest income 251,000 78,000
Other income 219,000 78,000
---------- ----------
TOTAL REVENUE 4,397,000 5,870,000
---------- ----------
OPERATING EXPENSES:
Commissions and marketing expenses 105,000 148,000
Cost of residential real estate sold 131,000 1,812,000
Compensation and related expenses 1,220,000 1,021,000
General and administrative 992,000 1,020,000
Depreciation and amortization 164,000 257,000
Interest expense 1,013,000 976,000
---------- ----------
TOTAL OPERATING EXPENSES 3,625,000 5,234,000
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 772,000 636,000
PROVISION FOR INCOME TAXES 98,000 50,000
---------- ----------
NET INCOME $ 674,000 $ 586,000
========== ==========
Basic net income per share $ 0.17 $ 0.14
Basic weighted average shares 3,949,866 4,308,807
Diluted net income per share $ 0.16 $ 0.13
Diluted weighted average share 4,125,688 4,352,322
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 674,000 $ 586,000
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 164,000 257,000
Equity in income of investments with
related parties and non-affiliates (268,000) (341,000)
Gains on sales of real estate (52,000) (1,811,000)
Gains on restructured notes receivable - non-cash (449,000) (207,000)
Change in assets and liabilities:
Accounts receivable - other (1,136,000) 310,000
Other assets (186,000) (82,000)
Accounts payable 335,000 (299,000)
Accrued expenses and other liabilities (1,764,000) 359,000
------------ ------------
Total adjustments (3,356,000) (1,814,000)
------------ ------------
Net cash used in operating activities (2,682,000) (1,228,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures and equipment -- (37,000)
Purchase and additions to real estate held for sale (50,578,000) (2,124,000)
Proceeds from sales of real estate held for sale 183,000 11,485,000
Notes receivable (2,731,000) 1,390,000
Distribution from partnerships 762,000 10,000
Investment in partnerships (3,997,000) (300,000)
------------ ------------
Net cash (used in) provided by investing activities (56,361,000) 10,424,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of mortgage notes payable 46,141,000 1,284,000
Repayment of mortgage notes payable (33,000) (6,269,000)
Borrowings under lines of credit 3,057,000 3,336,000
Repayment of lines of credit -- (5,221,000)
Borrowings under notes payable 4,000,000 62,000
Repayment of notes payable (932,000) (838,000)
Cash - restricted (446,000) (56,000)
Repurchase of common stock 18,000 (938,000)
------------ ------------
Net cash provided by (used in) financing activities 51,805,000 (8,640,000)
------------ ------------
Net (decrease) increase in cash (7,238,000) 556,000
CASH, BEGINNING OF PERIOD 10,448,000 1,901,000
------------ ------------
CASH, END OF PERIOD $ 3,210,000 $ 2,457,000
============ ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998, 1997
(UNAUDITED)
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, 1997.
Certain reclassifications have been made to prior year balances to
conform to the current year presentation.
NOTE 2 - NOTE RECEIVABLE
In March 1998, the Company acquired a note receivable secured by a
3,000-acre parcel of land on Hawaii's Kohala Coast for approximately $4.2
million.
NOTE 3 - REAL ESTATE HELD FOR SALE
In January 1998, the Company purchased the vacant lot adjacent to the
1304 15th Street building in Santa Monica, CA for $600,000.
In January 1998, the Company purchased a 75,000 square foot office
building in Van Nuys, CA for approximately $6.6 million.
In January and February 1998, the Company purchased two residential
homes in Pacific Palisades, CA for $527,000 and $612,000 respectively.
In February 1998, the Company purchased a 278,000 square foot office
building in downtown Los Angeles, CA for approximately $24.5 million.
In March 1998, the Company purchased 23 lots zoned for residential units
in Palm Desert, CA for $1.5 million.
In March 1998, the Company acquired a 131,750 square foot office
building located in Los Angeles, CA for approximately $13 million.
NOTE 4 - MORTGAGE NOTES PAYABLE
The January 1998 purchase of the lot adjacent to the 1304 15th Street
building referred to above was financed by a mortgage note totaling $450,000.
The note has an interest rate of Prime plus 1% and a maturity date of January 1,
6
<PAGE> 7
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998, 1997
(UNAUDITED)
2000 and is secured by the aforementioned property.
The January 1998 purchase of the 75,000 square foot office building in
Van Nuys, CA was financed by a mortgage note of approximately $5.5 million and a
third party equity investment of approximately $1.5 million. The mortgage note
has an interest rate of Prime and a maturity date of January 31, 2001. The
equity investment has an interest rate of Prime plus 4% and a maturity date of
January 23, 2001 and is secured by the aforementioned property.
The January and February 1998 purchases of two residential homes
referred to above were financed by a mortgage note totaling approximately $1.1
million with an interest rate of Prime plus 1.5% and a maturity date of March
19, 1999 and is secured by the aforementioned property.
The February 1998 purchase of a 278,000 square foot office building in
downtown Los Angeles was financed with a mortgage note in the amount of $19
million and a third party equity investment of approximately $4.6 million. The
mortgage note is setup as a senior note of $11 million with an interest rate of
LIBOR plus 2.5% and a junior note of $8 million with an interest rate of LIBOR
plus 4.875%. Both notes have a maturity date of February 28, 2003. The equity
investment has an interest of LIBOR plus 4% and maturity date of February 25,
2001 and is secured by the aforementioned property.
The February 1998 purchase of 23 lots referred to above was financed by
a mortgage note of approximately $1.1 million. The note has an interest rate of
Prime plus 1.25% and a maturity date of March 1, 1999 and is secured by the
aforementioned property.
The March 1998 purchase of the 131,750 square foot office building in
Los Angeles was financed with a mortgage note in the amount of $10 million and a
third party equity investment of approximately $2.4 million and is secured by
the aforementioned property.
NOTE 5 - INVESTMENTS IN AFFILIATES AND PARTNERSHIPS
In January 1998, the Company acquired a 15% interest in a joint venture
("60 Broad Street"), with a related party, which owns a commercial property with
approximately 977,000 square foot of rental space, located in Manhattan, New
York. The Company's investment at March 31, 1998 was approximately $3.7 million.
In March 1998, the Company acquired 40% interest in a joint venture
("Beverly Crescent, LLC"), with a related party, which owns a note
collateralized by a hotel in Beverly Hills, CA. The Company's investments at
March 31, 1998 was approximately $300,000.
NOTE 6 - STOCKHOLDERS' EQUITY
In March 1998, the Company declared a 3 for 1 stock split in the form of
a 200% stock dividend. The stock dividend was payable to holders of record as of
March 30, 1998, and was paid in April, 1998. All historical share and per share
amounts have been retroactively restated to reflect the dividend.
7
<PAGE> 8
NOTE 7 - RELATED PARTY TRANSACTIONS
Commission revenue has been reduced by $150,000 for consulting fees
paid to a director of the Company in connection with a lease transaction.
NOTE 8 - SUBSEQUENT EVENTS
In April 1998, the stockholders of the Company approved an increase in
its authorized shares from 6,000,000 to 12,000,000, consisting of 10,000,000
shares of common stock and 2,000,000 shares of preferred stock.
In April 1998, the Company purchased a 24 unit residential building
in West Los Angeles for approximately $4.3 million. The purchase was financed
with a mortgage note for approximately $3.7 million.
In April 1998, the Company acquired a note receivable in the amount
of $700,000, which is secured by 15 residential development lots located in
Westlake, CA. The purchase was financed with a note payable of approximately
$540,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997.
Revenue for the three months ended March 31, 1998 decreased 25%
compared to the three months ended March 31, 1997 due primarily to decreased
sales of commercial and residential real estate held for sale. Gain on sale
of commercial real estate during the first quarter of 1997 included the sale of
530 Wilshire property in Santa Monica, CA. There were no such sales in the
first quarter of 1998. Sales of residential real estate during the first
quarter of 1997 included sales of one unit at Villa del Este property in
Corona, CA and sales of six units at the Vista Waikoloa property in Kona, HI,
compared to sales of one unit at the Villa del Este property and none at the
Vista Waikoloa property sold during the first quarter of 1998. Commission
revenue increased 198% due to increased brokerage closings, including the
sale of two large office buildings in Oakland, CA.
Operating expenses decrease 31% for the quarter ended March 31, 1998.
The decrease was mainly due to a 93% decrease in cost of residential real estate
sold due to the reduced sales discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that its cash balance of approximately $3.2 million
at March 31, 1998, combined with cash generated from operations and the $6
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.
The Company has been successful in obtaining such financing as needed and at
competitive terms, and expects to be able to continue to do so in the future.
FORWARD LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Conditions and
Results of Operations contains certain forward-looking statements that are
subject to risk and uncertainty. Investors and potential investors in the
Company's securities are cautioned that a number of factors could adversely
affect the Company's ability to obtain these results, including (a) the
inability to lease currently vacant space in the Company's properties;
(b) the inability of tenants to pay contractual rent and other expenses;
(c) bankruptcies of tenants; (d) increases in certain operating costs at the
Company's properties; (e) decreases in rental rate available from tenants
leasing space in the Company's properties; (f) unavailability of financing
for acquisitions, development and redevelopment of properties by the Company;
(g) increases in interest rates; and (h) a general economic downturn resulting
in lower rents, rent delinquencies, and other downward pressure on commissions,
occupancies and rents at properties.
8
<PAGE> 9
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 March 31, 1998.
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: May 14, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,830,000
<SECURITIES> 0
<RECEIVABLES> 15,088,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,918,000
<PP&E> 78,502,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 97,420,000
<CURRENT-LIABILITIES> 3,789,000
<BONDS> 81,138,000
0
0
<COMMON> 40,000
<OTHER-SE> 12,453,000
<TOTAL-LIABILITY-AND-EQUITY> 97,420,000
<SALES> 0
<TOTAL-REVENUES> 4,397,000
<CGS> 0
<TOTAL-COSTS> 3,625,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 772,000
<INCOME-TAX> 98,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 674,000
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.16
</TABLE>
