UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
| ¨ | 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 20418
KENNEDY-WILSON, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 95-4364537 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| 9601 Wilshire Blvd., Suite 220 | ||
| Beverly Hills, CA | 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 by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
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; 7,190,787 shares outstanding at May 4, 2004.
KENNEDY-WILSON, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
MARCH 31, 2004
| Page | ||||
| PART I |
Financial Information |
|||
| Item 1. |
Financial Statements |
|||
| Consolidated Balance Sheets as of March 31, 2004 (Unaudited) and December 31, 2003 |
3 | |||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 | ||
| Item 3. |
16 | |||
| Item 4. |
16 | |||
| PART II |
Other Information |
|||
| Item 2. |
Changes in Securities, Use Of Proceeds and Issuer Purchases of Equity Securities |
17 | ||
| Item 6. |
17 | |||
2
Kennedy-Wilson, Inc. and Subsidiaries
| March 31, 2004 |
December 31, 2003 |
|||||||
| (Unaudited) |
||||||||
| Assets |
||||||||
| Cash and cash equivalents |
$ | 7,215,000 | $ | 6,293,000 | ||||
| Accounts receivable |
3,726,000 | 3,691,000 | ||||||
| Notes receivable |
33,436,000 | 27,213,000 | ||||||
| Real estate held for sale |
10,507,000 | 16,969,000 | ||||||
| Investments in joint ventures |
50,698,000 | 47,336,000 | ||||||
| Contracts and other assets, net |
7,024,000 | 7,796,000 | ||||||
| Goodwill, net |
23,965,000 | 23,965,000 | ||||||
| Total Assets |
$ | 136,571,000 | $ | 133,263,000 | ||||
| Liabilities and Stockholders’ Equity |
||||||||
| Liabilities |
||||||||
| Accounts payable |
$ | 345,000 | $ | 358,000 | ||||
| Accrued expenses and other liabilities |
2,737,000 | 2,634,000 | ||||||
| Accrued salaries and benefits |
3,737,000 | 3,643,000 | ||||||
| Deferred and accrued income taxes |
4,819,000 | 5,337,000 | ||||||
| Notes payable |
35,884,000 | 21,734,000 | ||||||
| Borrowings under lines of credit |
26,392,000 | 16,209,000 | ||||||
| Mortgage loans payable |
7,863,000 | 16,026,000 | ||||||
| Senior unsecured notes |
6,667,000 | 8,333,000 | ||||||
| Subordinated debt |
2,773,000 | 2,773,000 | ||||||
| Total liabilities |
91,217,000 | 77,047,000 | ||||||
| Commitments and Contingencies |
||||||||
| Stockholders’ Equity |
||||||||
| Preferred stock, $0.01 par value: 5,000,000 shares authorized; none issued as of March 31, 2004 and December 31, 2003 |
— | — | ||||||
| Common stock, $0.01 par value: 50,000,000 shares authorized; 7,206,527 and 8,840,484 shares issued and outstanding as of March 31, 2004 and December 31, 2003, respectively |
72,000 | 88,000 | ||||||
| Additional paid-in capital |
33,571,000 | 46,081,000 | ||||||
| Restricted stock – deferred compensation |
(6,365,000 | ) | (6,618,000 | ) | ||||
| Retained earnings |
18,076,000 | 16,665,000 | ||||||
| Total stockholders’ equity |
45,354,000 | 56,216,000 | ||||||
| Total Liabilities and Stockholders’ Equity |
$ | 136,571,000 | $ | 133,263,000 | ||||
See accompanying notes to consolidated financial statements.
3
Kennedy-Wilson, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
| Three months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Revenue |
||||||||
| Property management and leasing fees |
$ | 3,319,000 | $ | 3,696,000 | ||||
| Property management and leasing fees – affiliated joint ventures |
1,124,000 | 996,000 | ||||||
| Commissions |
1,468,000 | 644,000 | ||||||
| Commissions – affiliated joint ventures |
1,753,000 | 139,000 | ||||||
| Sales of residential real estate |
8,950,000 | — | ||||||
| Interest and other income |
836,000 | 684,000 | ||||||
| Total revenue |
17,450,000 | 6,159,000 | ||||||
| Operating Expenses |
||||||||
| Commissions and marketing expenses |
1,281,000 | 879,000 | ||||||
| Compensation and related expenses |
5,332,000 | 4,316,000 | ||||||
| General and administrative |
1,812,000 | 2,216,000 | ||||||
| Cost of residential real estate sold |
7,826,000 | — | ||||||
| Depreciation and amortization |
557,000 | 694,000 | ||||||
| Total operating expenses |
16,808,000 | 8,105,000 | ||||||
| Equity in joint venture income |
2,565,000 | 566,000 | ||||||
| Total operating income (loss) |
3,207,000 | (1,380,000 | ) | |||||
| Non-operating income (expense) |
||||||||
| Gain on sale of stock of subsidiary |
— | 3,514,000 | ||||||
| Interest expense |
(915,000 | ) | (506,000 | ) | ||||
| Valuation adjustment – warrants |
— | 35,000 | ||||||
| Loss on extinguishment of debt |
— | (454,000 | ) | |||||
| Income from continuing operations before provision for income taxes and discontinued operations |
2,292,000 | 1,209,000 | ||||||
| Provision for income taxes |
(917,000 | ) | (464,000 | ) | ||||
| Income from continuing operations |
1,375,000 | 745,000 | ||||||
| Income (loss) from discontinued operations, net of tax |
(60,000 | ) | 1,000 | |||||
| Gain on sale of real estate held for sale, net of tax |
96,000 | — | ||||||
| Net Income |
$ | 1,411,000 | $ | 746,000 | ||||
| Basic earnings per share |
||||||||
| Income from continuing operations |
$ | 0.20 | $ | 0.08 | ||||
| Income from discontinued operations |
0.01 | 0.00 | ||||||
| Net income |
$ | 0.21 | $ | 0.08 | ||||
| Basic weighted average shares |
6,676,483 | 9,513,581 | ||||||
| Diluted earnings per share |
||||||||
| Income from continuing operations |
$ | 0.19 | $ | 0.08 | ||||
| Income from discontinued operations |
0.01 | 0.00 | ||||||
| Net income |
$ | 0.20 | $ | 0.08 | ||||
| Diluted weighted average shares |
7,048,411 | 9,537,397 | ||||||
See accompanying notes to consolidated financial statements.
4
Kennedy-Wilson, Inc. and Subsidiaries
Consolidated Statements of Cash Flow
(Unaudited)
| Three months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Income from continuing operations |
$ | 1,375,000 | $ | 745,000 | ||||
| Income (loss) from discontinued operations |
(60,000 | ) | 1,000 | |||||
| Gain on disposition of real estate held for sale, net of tax |
96,000 | — | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
557,000 | 694,000 | ||||||
| Gain on sale of real estate held for sale |
(1,284,000 | ) | — | |||||
| Equity in joint venture income |
(2,565,000 | ) | (566,000 | ) | ||||
| Gain on sale of stock of subsidiary |
— | (3,514,000 | ) | |||||
| Valuation adjustment – warrants |
— | (35,000 | ) | |||||
| Loss on extinguishment of debt – non-cash |
— | 199,000 | ||||||
| Amortization of deferred compensation |
253,000 | 253,000 | ||||||
| Change in assets and liabilities: |
||||||||
| Accounts receivable |
(35,000 | ) | 516,000 | |||||
| Contracts and other assets |
215,000 | (215,000 | ) | |||||
| Accounts payable |
(13,000 | ) | (339,000 | ) | ||||
| Accrued expenses and other liabilities |
(321,000 | ) | (380,000 | ) | ||||
| Net cash used in operating activities |
(1,782,000 | ) | (2,641,000 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Purchases of notes receivable and redemption of joint venture partner in note receivable venture |
(8,200,000 | ) | (11,093,000 | ) | ||||
| Collections of notes receivable |
1,977,000 | 1,990,000 | ||||||
| Additions to real estate held for sale |
(1,864,000 | ) | (7,520,000 | ) | ||||
| Proceeds from the sale of real estate held for sale |
9,610,000 | — | ||||||
| Contributions to joint ventures |
(5,511,000 | ) | (874,000 | ) | ||||
| Distributions from joint ventures |
4,714,000 | 1,500,000 | ||||||
| Proceeds from sale of investment in Kennedy-Wilson Japan |
— | 6,249,000 | ||||||
| Cash from consolidation of subsidiary |
— | 1,483,000 | ||||||
| Cash – restricted increase |
— | (917,000 | ) | |||||
| Net cash provided by (used in) investing activities |
726,000 | (9,182,000 | ) | |||||
| Cash flow from financing activities: |
||||||||
| Borrowings under notes payable |
6,272,000 | 8,974,000 | ||||||
| Repayment of notes payable |
(2,615,000 | ) | (5,168,000 | ) | ||||
| Joint venture financing |
— | 5,580,000 | ||||||
| Net borrowings (repayments) under lines of credit |
10,183,000 | (1,781,000 | ) | |||||
| Borrowings under mortgage loans payable |
80,000 | 1,900,000 | ||||||
| Repayment of mortgage loans payable |
(8,243,000 | ) | — | |||||
| Borrowings under senior unsecured notes |
— | 5,000,000 | ||||||
| Repayment of senior unsecured notes |
(1,666,000 | ) | (5,000,000 | ) | ||||
| Repurchase of common stock |
(2,033,000 | ) | (1,642,000 | ) | ||||
| Net cash provided by financing activities |
1,978,000 | 7,863,000 | ||||||
| Accumulated other comprehensive loss—foreign currency translation |
— | (35,000 | ) | |||||
| Net increase (decrease) in cash and cash equivalents |
922,000 | (3,995,000 | ) | |||||
| Cash and cash equivalents, beginning of year |
6,293,000 | 11,852,000 | ||||||
| Cash and cash equivalents, end of year |
$ | 7,215,000 | $ | 7,857,000 | ||||