UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q/A
Amendment No. 2
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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, 1999
[_] 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 0-20418
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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.)
9601 Wilshire Blvd, # 220
Beverly Hills, California 90210
(Address of Principal executive offices) (Zip Code)
(310) 887-6400
(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 for 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;
9,079,277 shares outstanding at September 28, 1999.
<PAGE>
KENNEDY-WILSON, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q/A
March 31, 1999
Page
Part I. Financial Information................................................. 3
Item 1.Financial Statements:
Consolidated Balance Sheets as of March 31, 1999 (Unaudited)
and December 31, 1998...........................................3
Consolidated Statements of Income for the Three Month
Periods Ended March 31, 1999 and 1998 (Unaudited)...............4
Consolidated Statements of Cash Flows for the Three Month
Periods Ended March 31, 1999 and 1998 (Unaudited)...............5
Notes to Consolidated Financial Statements (Unaudited)........ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................10
Part II. Other Information....................................................14
Item 4. Submission of Matters to a Vote of Security Holders............. 14
Item 5. Other Information............................................... 14
Item 6. Exhibits and Reports on Form 8-K................................ 14
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<PAGE>
<TABLE>
<CAPTION>
PART 1
FINANCIAL INFORMATION
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1999 1998
(Unaudited)
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 7,699,000 $ 9,838,000
Cash - restricted 7,978,000 8,168,000
Accounts receivable 5,285,000 6,674,000
Notes receivable 28,565,000 23,115,000
Real estate held for sale 123,825,000 122,407,000
Investments with related parties and non-affiliates 11,589,000 9,209,000
Contracts, furniture, fixtures and
equipment and other assets 9,578,000 9,238,000
Goodwill, net 16,033,000 16,167,000
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TOTAL ASSETS $ 210,552,000 $ 204,816,000
============= =============
LIABILITIES
Accounts payable $ 2,981,000 $ 1,752,000
Accrued expenses and other liabilities 11,151,000 15,721,000
Deferred taxes 628,000 628,000
Notes payable 14,286,000 14,291,000
Borrowing under lines of credit 20,640,000 13,514,000
Mortgage loans payable 115,638,000 115,130,000
Subordinated debt 21,000,000 21,000,000
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Total liabilities 186,324,000 182,036,000
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STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; shares
authorized: 2,000,000 as of December 31,
1998, 5,000,000 as of March 31, 1999
none issued - -
Common stock $.01 par value; shares
authorized: 10,000,000 as of December 31,
1998, 50,000,000 as of March 31, 1999;
shares issued: 6,597,075 as of December
31, 1998, 6,757,662 as of March 31, 1999 68,000 66,000
Additional paid-in capital 29,159,000 28,888,000
Accumulated deficit (4,799,000) (5,970,000)
Notes receivable from stockholders (200,000) (204,000)
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Total stockholders' equity 24,228,000 22,780,000
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 210,552,000 $ 204,816,000
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</TABLE>
See notes to consolidated financial statements.
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<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
Three Month Periods
Ended March 31,
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1999 1998
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REVENUES:
Property management and leasing fees $ 6,528,000 $ 592,000
Commission income 1,841,000 1,140,000
Sales of residential real estate 4,964,000 183,000
Equity in income of investments with
related parties and non-affiliates 455,000 268,000
Income on restructured notes receivable 1,002,000 798,000
Rental income, net 1,686,000 679,000
Interest income and other 3481,000 296,000
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TOTAL REVENUE 16,857,000 3,956,000
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OPERATING EXPENSES:
Commissions and marketing expenses 52,000 105,000
Cost of residential real estate sold 4,801,000 131,000
Compensation and related expenses 3,352,000 779,000
General and administrative 3,036,000 992,000
Depreciation and amortization 611,000 164,000
Interest expense 3,232,000 1,013,000
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TOTAL OPERATING EXPENSES 15,084,000 3,184,000
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INCOME BEFORE PROVISION FOR INCOME TAXES 1,773,000 772,000
PROVISION FOR INCOME TAXES 603,000 98,000
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NET INCOME $ 1,170,000 $ 674,000
============= ==========
Basic net income per share $0.17 $0.11
Basic weighted average shares 6,707,284 5,924,800
Diluted net income per share $0.16 $0.11
Diluted weighted average shares 0 0
See notes to consolidated financial statements.
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<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Month Periods Ended
March 31,
-----------------------------
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,170,000 $ 674,000
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 611,000 164,000
Equity in income of investments with related
parties and non-affiliates (455,000) (268,000)
Gains on sales of real estate - (52,000)
Gains on restructured notes receivable
- non-cash (684,000) (449,000)
Change in assets and liabilities:
Accounts receivable 1,389,000 (1,136,000)
Other assets (290,000) (186,000)
Accounts payable 1,229,000 335,000
Accrued expenses and other liabilities (4,570,000) (1,764,000)
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Net cash used in operating activities (1,600,000) (2,682,000)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of contract, furniture, fixtures and
equipment (441,000) -
Dispositions of contracts, furniture, fixtures
and equipment 2,000 -
Purchase and additions to real estate
held for sale (6,607,000) (50,578,000)
Proceeds from sales of real estate held
for sale 5,101,000 183,000
Additions to notes receivable (5,773,000) (2,731,000)
Principal repayment on from notes receivable 1,007,000 -
Notes receivable repayments from stockholders 4,000 -
Distributions from joint ventures 86,000 762,000
Contributions to joint ventures (2,011,000) (3,997,000)
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Net cash used in investing activities (8,632,000) (56,361,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of mortgage loans payable 1,836,000 46,141,000
Repayment of mortgage loans payable (1,328,000) (33,000)
Borrowings under lines of credit 7,476,000 3,057,000
Repayment of lines of credit (350,000) -
Borrowings under notes payable - 4,000,000
Repayment of notes payable (5,000) (932,000)
Cash - restricted decrease (increase) 190,000 (446,000)
Issuance of common stock 274,000 18,000
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Net cash provided by financing activities 8,093,000 51,805,000
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Net decrease in cash (2,139,000) (7,238,000)
Cash, beginning of year 9,838,000 10,448,000
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Cash, end of year $7,699,000 $ 3,210,000
============ =============
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<PAGE>
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
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
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934. 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, 1998. Certain reclassifications have been made to prior
period balances to conform to the current period presentation. In accordance
with SFAS No. 130, Reporting Comprehensive Income, the Company does not have
any material comprehensive income.
Note 2 - Notes Receivable
Notes receivable consists primarily of non-performing notes and related
assets acquired from financial institutions. A majority of these notes are
typically collateralized by real estate, personal property or guarantees.
Notes receivable also includes mezzanine loans to real estate developers for
new single-family residential developments.
In January 1999, the Company executed a mezzanine loan agreement for
$750,000 bearing an interest rate of 10% per annum secured by two third trust
deeds, a pledge of the borrower's cash distribution in a non related project
and a personal guarantee by the borrower. The Company is entitled to a
participation in any profits from the development.
In February 1999 the Company executed a mezzanine loan agreement for
$342,122 bearing an interest rate of 10% per annum with a maturity date no
later than July 31, 2000. The Loan is secured by a deed of trust, security
agreement and fixture filing encumbering the project and a repayment guarantee
by members of the borrower. Also in February 1999, the Company executed a
mezzanine loan agreement for $300,753 bearing an interest rate of 10% per
annum with a maturity date no later than July 31, 2000. The loan is secured by
a deed of trust, security agreement and fixture filing encumbering the project
and a repayment guarantee by members of the borrower. The Company is entitled
to a participation in any profits from both projects.
In March 1999 the Company executed a mezzanine loan agreement for a
maximum sum of $5,760,000, bearing an interest rate of 12% per annum. The
amount outstanding as of March 31, 1999 was $3,465,030. The Note is secured by
a construction deed of trust, assignment of leases, security agreement and
fixture filing encumbering the property.
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<PAGE>
Note 3 - Investments with Related Parties and Non-Affiliates
In January 1999, the Company acquired a 2.5% interest in a joint venture
("First Colony KW") with Colony Capital Inc., an affiliate of Thomas Barrack,
Jr., a current director, which purchased a commercial property with
approximately 244,000 square feet of net rental space, located in Kawasaki,
Japan. The Company's investment at March 31, 1999 was approximately $756,000.
In March 1999, the Company acquired a 5% interest in a joint venture ("KA
Capital") with Cargill Japan, to purchase distressed loans and properties from
Japanese financial institutions. The Company's investment at March 31, 1999
was approximately $742,000.
Note 4 - Earnings per Share
The following table reconciles the denominator used in calculating the
earnings per share for the periods ending March 31, 1999 and 1998.
Three Month Periods
Ended March 31,
BASIC EARNINGS PER SHARE 1999 1998
------------------------ ----------- -----------
Net Income Available to Common Stockholders $1,170,000 $ 674,000
=========== ===========
Weighted Average Shares 6,707,284 5,924,800
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Basic per Share Amount $ 0.17 $ 0.11
=========== ===========
DILUTED EARNINGS PER SHARE
Net Income Available to Common Stockholders $ 1,170,000 $ 876,000
=========== ===========
Weighted Average Shares 6,707,284 5,924,800
Common Stock Equivalents 622,525 441,489
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Total Diluted Shares 7,329,809 6,366,289
=========== ==========
Diluted per Share Amount $ 0.16 $ 0.11
=========== ===========
Note 5 - Segment Information
The Company's business activities currently consist of property management,
commercial and residential brokerage, and various type of real estate
investments. The Company's segment disclosure with respect to the
determination of segment profit or loss and segment assets is based on these
services and its various investments:
Property Management - As a result of recent acquisitions, the Company has
become a nationwide commercial and residential property management and leasing
company, providing a full range of services relating to property management.
The Company also provides asset management services for some of our joint
ventures.
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<PAGE>
Brokerage - Through it's various offices, the Company provides specialized
brokerage services for both commercial and residential real estate and
provides other real estate services such as property valuations, development
and implementation of marketing plans, arranging financing, sealed bid
auctions and open bid auctions.
Investments - With joint venture partners and on its own, the Company invests
in commercial and residential real estate and purchases and manages pools of
distressed notes. The Company's current real estate portfolio focuses on
commercial buildings and multiple and single family residences. The Company
has entered into joint ventures with large international investors, to invest
in Japanese real estate and note pools. The Company also makes mezzanine loans
to real estate developers for new single-family, residential developments.
The following tables reconcile the Company's income and expense activity for
the three months March 31, 1999 and balance sheet data as of March 31, 1999.
The Company did not generate material intersegment revenues for the three
month period ended March 31, 1999 and 1998. The Company does not disclose
based on geographic segments due to immateriality.
<TABLE>
<CAPTION>
1999 Reconciliation of Reportable Segment Information
Property
Management Brokerage Investments Corporate Consolidated
<S> <C> <C> <C> <C> <C>
Equity in income of
investments with
related parties and
non-affiliates $455,000 $455,000
Interest income 202,000 $99,000 301,000
Other revenues $6,528,000 $1,841,000 7,732,000 16,101,000
------------- ----------- ------------ ----------- ----------
TOTAL REVENUES: 6,528,000 1,841,000 8,389,000 99,000 16,857,000
Depreciation and amortization 507,000 4,000 88,000 12,000 611,000
Interest expense 741,000 3,000 2,112,000 376,000 3,232,000
Other expenses 2,644,000 1,223,000 5,990,000 1,384,000 11,241,000
------------- ----------- ------------ ----------- ----------
TOTAL OPERATING EXPENSES: 3,892,000 1,230,000 8,190,000 1,772,000 15,084,000
------------- ----------- ------------ ----------- ----------
Income before provision
for income taxes 2,636,000 611,000 199,000 (1,673,000) 1,773,000
Provision for income taxes - - - 603,000 603,000
------------- ----------- ------------ ----------- ----------
NET INCOME $2,636,000 $611,000 $199,000 $(2,276,000) $1,170,000
============= =========== ============ =========== ==========
Total assets $32,276,000 $2,273,000 $159,233,000 $16,770,000 $210,552,000
============= =========== ============ =========== ============
Total liabilities $5,054,000 $253,000 $126,531,000 $54,486,000 $186,324,000
Stockholders' equity 27,222,000 2,020,000 32,702,000 (37,716,000) 24,228,000
------------- ----------- ------------ ----------- ------------
Total liabilities and
stockholders' equity $32,276,000 $2,273,000 $159,233,000 $16,770,000 $210,552,000
============= =========== ============ =========== ============
</TABLE>
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<PAGE>
The following tables reconcile the Company's income and expense activity for
the months ended March 31, 1998 and the balance sheet data as of December 31,
1998.
<TABLE>
<CAPTION>
1998 Reconciliation of Reportable Segment Information
Brokerage Investments Corporate Consolidated
<S> <C> <C> <C> <C>
Equity in income of
investments with related
parties and non-affiliates $268,000 $268,000
Interest income 225,000 $26,000 251,000
Other revenues $2,142,000 851,000 444,000 3,437,000
----------- ------------ ----------- ----------
TOTAL REVENUES: 2,142,000 1,344,000 470,000 3,956,000
Depreciation and amortization 8,000 148,000 8,000 164,000
Interest expense 883,000 130,000 1,013,000
Other expenses 1,158,000 375,000 474,000 2,007,000
----------- ------------ ----------- ----------
TOTAL OPERATING EXPENSES: 1,166,000 1,406,000 612,000 3,184,000
----------- ------------ ----------- ----------
Income before provision
for income taxes 976,000 (62,000) (142,000) 772,000
Provision for income taxes - - 98,000 98,000
----------- ------------ ----------- ----------
NET INCOME $976,000 $(62,000) $(240,000) $674,000
=========== ============ =========== ==========
Property
Management Brokerage Investments Corporate Consolidated
<S> <C> <C> <C> <C> <C>
Total assets $33,774,000 $4,374,000 $155,955,000 $16,042,000 $210,145,000
============= =========== ============ =========== ============
Total liabilities $4,400,000 $1,484,000 $123,027,000 $38,058,000 $166,969,000
Stockholders' equity 29,374,000 2,890,000 32,928,000 (22,016,000) 43,176,000
------------- ---------- ------------ ----------- -----------
Total liabilities
and stockholders'
equity $33,774,000 $4,374,000 $155,955,000 $16,042,000 $210,145,000
=========== ========== ============ =========== ============
</TABLE>
Note 6 - Subsequent Events
In April 1999, the Company acquired all of the assets of Coastal
Commercial Real Estate Services Inc., which does business as R&B Commercial
Real Estate Services, a Los Angeles based company that manages and leases a
portfolio of approximately 6 million square feet of real estate primarily
located in Arizona, Texas and throughout California for approximately $1
million, plus up to an additional $1.2 million to be paid in three yearly
installments provided that a specified pretax net operating income is
achieved in each of the three years. This transaction was accounted for using
the purchase method of accounting. The purchase price was allocated to the
fair values of contracts and furniture and fixtures, any residual amounts
were allocated to goodwill.
In April 1999, the Company's line of credit with East West Bank was
increased from $21 million to approximately $22.5 million with a maturity date
of June 6, 2000, and interest due monthly at a rate of three month LIBOR plus
2%.
In April 1999, the Company issued and sold convertible subordinated
debentures in the aggregate principal amount of $7.5 million. The debentures
have a term of seven years and an interest rate of 6%, payable monthly. The
debentures are presently convertible into 750,000 shares of the Company's
common stock at any time by the holders at a conversion price of $10 per share
(subject to adjustment). The proceeds were used to pay down a portion of the
Company's subordinated debt with Colony K-W, LLC, an affiliate of Colony
Capital, Inc.
In May 1999, the Company completed a public offering of 2,300,000 shares of
its common stock in an underwriters public offering. The new shares were
priced at $9.00 per share, resulting in aggregate net proceeds of
approximately $18 million. The shares were registered with the SEC by a
Registration Statement on Form S-1 (Registration No. 333-74391). The proceeds
of the offering were used to pay down existing debt.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
We are an international real estate services and investment company. We
provide property management and leasing services, asset management, commercial
and residential brokerage, and auction services to clients primarily in the
U.S. and Japan. Our clients include financial institutions, major
corporations, real estate developers, insurance companies and governmental
agencies. We also invest in commercial and residential real estate, as well as
individual and pools of distressed notes both in the U.S. and Japan.
Comparison of the Three Months Ended March 31, 1999 and 1998
Total revenues.
Total revenue for the three months ended March 31, 1999 was approximately
$16.9 million representing a 283% increase over total revenue for the same
period in 1998 of approximately $4.4 million. Revenues increased in every
category with the largest increase occurring in property management and
leasing fees. We acquired our property management and leasing subsidiary
Kennedy-Wilson Properties Ltd., in July 1998.
Property management and leasing fees. The acquisition of KW Properties Ltd.
increased property management and related fees by approximately $5.8 million
and additional fees of $709,000 were earned by our commercial brokerage group
relating to the leasing and asset management of commercial buildings in Japan
and New York in which we hold an equity interest of 2% and 15%, respectively.
Brokerage. Commission income during the first quarter of 1999 decreased 14%
from the first quarter of 1998 due to an additional $592,000 of leasing fees
earned in the first quarter of 1998 which is offset by an increase number of
brokerage closings in 1999 including two hotels located in Washington, D.C.
and San Francisco, California and a commercial office building in Santa
Monica, California.
Investments. For the three months ended March 31, 1999, revenue from the
sales of residential real estate of approximately $5.0 million reflects the
sales of 15 homes, which are part of a project located in Palm Desert,
California. Sales revenue of $183,000 in the same period in 1998 represents
the sale of one condominium unit in a project in Corona Del Mar, California.
Equity in income of investments with related parties and non-affiliates
increased 70% in the first quarter of 1999 over the same period in 1998
primarily due to our investment in a ski resort.
Rental income, net for the three months ended March 31, 1999 was $1.69
million equating to a 148.3% increase compared to $679,000 during the first
quarter in 1998. This was due to the addition of two large commercial office
buildings purchased in the second half of 1998, as well as, the effects of an
intensified leasing program.
Gain on restructured notes receivable for the first quarter of 1999 was
$844,000 compared to $655,000 during the same period in 1998 resulting in a
29% increase. This was due to the settlement of several large non-performing
notes.
Other income increased 15% due to increased asset management and consulting
fees earned in Japan.
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<PAGE>
Total Operating Expenses.
Operating expenses increased to approximately $15 million for the quarter
ending March 31, 1999 from approximately $3.6 million for the three months
ended March 31, 1998 due primarily to the acquisition of Kennedy-Wilson
Properties Ltd. and a larger commercial properties portfolio.
Brokerage commissions and marketing expenses during the period decreased
50.4% from the same period in 1998 due to a decrease in residential auctions
which typically results in higher brokerage commission and marketing expense.
Cost of residential real estate sold increased to approximately $4.8
million from $131,000 for the same period in 1998 resulting from the sales of
the 15 homes discussed above.
Compensation and general and administrative expense increased 174.8% due
primarily to the acquisition of Kennedy-Wilson Properties Ltd.
Depreciation and amortization expense increased 273% due to the
amortization of goodwill and other assets relating to the purchase of
Kennedy-Wilson Properties Ltd.
Interest expense on the debt we incurred to finance the acquisition of
Kennedy-Wilson Properties Ltd., and our commercial property portfolio resulted
in a 219% increase in interest expense over the same period in 1998.
Provision for taxes for the three months ending March 31 increased to
$603,000 in 1999 from $98,000 in 1998. The tax expense during past years has
been significantly less than the statutory rate due to substantial net
operating losses carried forward which have been utilized in reducing our
federal tax liabilities.
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<PAGE>
Liquidity and Capital Resources
Our liquidity and capital resources requirements include expenditures for
real estate held for sale, distressed notes pools, the acquisition of property
management portfolios, and working capital needs. Historically, we have not
required significant capital resources to support our brokerage operations. We
finance our operations with internally generated funds and borrowings under
our revolving lines of credit as described below. Our investments in real
estate are typically financed by mortgage loans secured primarily by that real
estate. These mortgage loans are generally nonrecourse in that, in the event
of a default, recourse will be limited to the mortgaged property serving as
collateral, subject to certain exceptions that are standard in the real estate
industry. Exceptions where the lender may proceed against the borrower or
guarantor, if any, generally include the voluntary transfer of the mortgaged
property by the borrower, the voluntary initiation of bankruptcy proceedings
by the borrower, fraud or misrepresentation in obtaining the loan, and other
similar acts. Cash used in operating activities during the three months ended
March 31 was about $1.6 million in 1999, compared to $2.7 million in cash used
in operating activities in 1998. The change included an increase in accounts
receivable attributable primarily to property management fees which are
received one month in arrears, as well as leasing commissions earned but not
received until the related tenant moves in, offset by the decrease in accrued
expenses as payments were made for 1998 bonuses and deferred compensation.
Cash used in investing activities during the three months ended March 31
was about $8.6 million in 1999, compared to $56.4 million in cash used by
investing activities during the same period in 1998. The change resulted
primarily from no acquisition of commercial properties in 1999 compared with
three in the first quarter of 1998.
Cash provided by financing activities was about $8.1 million in 1999,
compared to cash used in financing activities in 1998 of about $51.8 million.
The change resulted from issuance of about $46 million of mortgage loans
payable in 1998 and $1.8 million in 1999.
To the extent that we engage in additional strategic investments, including
real estate, note portfolio, or acquisitions of other property management
companies, we may need to obtain third party financing which could include
bank financing or the public sale or private placement of debt or equity
securities. We believe that existing cash, plus capital generated from
property management and leasing, brokerage, sales of real estate owned,
collections from notes receivable, as well as our current unsecured $22.5
million line of credit with East-West Bank, which had an outstanding balance
as of May 11, 1999 of $12.7 million, will provide us with sufficient capital
requirements for the foreseeable future.
We intend to retain earnings to finance our growth and, therefore, do not
anticipate paying any dividends. We believe that funds generated from
operations together with existing cash and available credit under our credit
facilities will be sufficient to finance our current operations, planned
investments, acquisitions of the property management companies, and internal
growth. Our need, if any, to raise additional funds to meet our working
capital and capital requirements will depend on numerous factors, including
the success and pace of the implementation of our strategy for growth. We
regularly monitor capital raising alternatives to be able to take advantage of
other available avenues to support our working capital and investment needs,
including strategic partnerships and other alliances, bank borrowings, and the
sale of equity or debt securities.
-12-
<PAGE>
Year 2000 Issue
How Does The Year 2000 Issue Impact Us?
We are not currently aware of any internal Year 2000 problems that could be
reasonably expected to have a material adverse impact on our business, results
of operations and financial condition. The vendors from which we will acquire
hardware and software for our new information technology system have indicated
the products we plan to use are currently Year 2000 compliant. The majority of
the mechanical systems at the properties we own and manage have manual
overrides. We plan to have a management team at each building immediately
prior to January 1, 2000 who will be able to respond to any contingencies. In
addition, our team at Kennedy-Wilson, Tech. will be assembled in their office
ready to respond to any inquiries from the management teams. However, there
can be no assurance that we will not discover Year 2000 problems in
information technology systems or mechanical systems that will require
substantial revisions or replacement. We cannot give assurances that
third-party software, hardware or services incorporated into our material
systems or systems upon which we are reliant will not need to be revised or
replaced, which could be time consuming and expensive.
In addition, we cannot give assurances that governmental agencies,
utilities third-party service providers and others outside of our control will
be Year 2000 compliant. The failure of such entities to become compliant could
result in a systemic failure beyond our control, such as loss of
telecommunications or electrical failure, which could adversely impact our
information technology systems or would allow tenants at the buildings we own
or manage to terminate leases if such failures persist.
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 but not limited to, (a)
the inability to lease currently vacant space in properties; (b) the inability
of tenants to pay contractual rent and other expenses; (c) bankruptcies of
tenants; (d) increases in certain operating costs at properties; (e) decreases
in rental rate available from tenants leasing space in properties; (f)
unavailability of financing for acquisitions, development and redevelopment of
properties; (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.
-13-
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On March 25, 1999, a special meeting of stockholders was held to consider
and act upon proposed amendments to: (i) our 1992 Incentive and Nonstatutory
Stock Option Plan to increase the number of shares available for issuance under
the plan from 1,080,000 to 1,700,000 and (ii) our Certificate of Incorporation
to effect an increase in the number of authorized shares of common stock and
preferred stock from 10,000,000 and 2,000,000 to 50,000,000 and 5,000,000,
respectively. Both amendments were approved. In voting for the amendment to our
stock option plan, 4,975,383 votes were cast for, 403,657 votes were cast
against and 2,061 abstained. The amendment to our Certificate of Incorporation
was approved with 4,993,631 votes for 385,293 votes against and 2,177
abstaining. No broker non-votes were recorded for either proposal.
Item 5. Other Information
The Annual Meeting of Stockholders is tentatively scheduled for June 23,
1999. Shareholders proposals for inclusion in this year's Annual Meeting of
Stockholders are being accepted until June 1, 1999, one day before we expect to
mail proxy statements to our stockholders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following Exhibits are included herein:
EXHIBIT INDEX
ITEM DESCRIPTION
3 1999 Amendment to Certificate of Incorporation (Filed as Exhibit
3.1.2 to the Registrant's Registration Statement on Form S-1
(Registration No. 333-74391) and incorporated herein by this
reference).
10.1 1999 Amendment to 1992 Incentive and Nonstatutory Stock Option Plan
(Filed as Exhibit 10.4.4 to the Registrant's Registration Statement
on Form S-1 (Registration No. 333-74391) and incorporated herein by
this reference).
10.2 Convertible Debenture Purchase Agreement dated as of April 15, 1999
among the Registrant, William McMorrow, Lewis Halpert, Cahill,
Warnock Strategic Partners Fund, L.P. and Strategic Associates, L.P.
(Filed as Exhibit 10.31.1 to the Registrant's Registration Statement
on Form S-1 (Registration No. 333-74391)
and incorporated herein by this reference).
10.3 Registration Rights Agreement dated as of April 15, 1999 among the
Registrant, Cahill, Warnock Strategic Partners Fund, L.P. and
Strategic Associates, L.P. (Filed as Exhibit 10.31.2 to the
Registrant's Registration Statement on Form S-1 (Registration No.
333-74391) and incorporated herein by this reference).
10.4 Form of Convertible Subordinated Note issued by the Registrant on
April 26, 1999 to Cahill, Warnock Strategic Partners Fund, L.P. and
Strategic Associates, L.P. (Filed as Exhibit 10.31.3 to the
Registrant's Registration Statement on Form S-1 (Registration No.
333-74391) and incorporated herein by this reference).
10.5 First Amendment to Credit Agreement and Note dated as of April 1,
1999 between the Registrant and East West Bank (Filed as Exhibit
10.5 to the Registrant's Form 10-Q/A filed on May 18, 1999 and
incorporated herein by this reference).
11 Earnings per Share Calculation (Filed as Exhibit 11 to the
Registrant's Form 10-Q/A filed on May 18, 1999 and incorporated
herein by this reference).
27* Financial Data Schedule.
-----------------
* Filed herewith.
(b) Reports on Form 8-K
On March 11, 1999, we filed a report on Form 8-K disclosing the
contents of a press release announcing our proposed secondary
offering of our Common Stock, which was subsequently consummated on
May 17, 1999.
-14-
<PAGE>
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: October 18, 1999 KENNEDY-WILSON, INC.
Registrant
/s/ Freeman A. Lyle
---------------------------------
Freeman A. Lyle
Executive Vice President &
Chief Financial Officer
(Principal Financial and Accounting Officer)
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