Back to GetFilings.com
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[FEE REQUIRED]
For the fiscal year ended: December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the transition period from __________ to __________.
Commission file number: 0-20418
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 Number)
530 WILSHIRE BOULEVARD, SUITE 101,
SANTA MONICA, CALIFORNIA 90401-1422
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 314-8400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each class Name of each exchange on which registered
- ------------------- -----------------------------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
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 check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock of the registrant held
by non-affiliates of the registrant on March 28, 1997 based on the closing price
reported on The National Market of such stock on such date was approximately
$4,000,000.
Registrant's Common Stock outstanding at March 28, 1997 was
1,146,272 shares.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Company's proxy
statement for its 1997 Annual Meeting of Stockholders, to be held on April 28,
1997, are incorporated by reference into Part III as set forth herein.
2
KENNEDY-WILSON, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
_________
CAPTION PAGE
------- ----
Part I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . 6
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . 8
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . 31
Part III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . 31
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 32
2
3
ITEM 1. BUSINESS
GENERAL: Kennedy-Wilson, Inc. (the "Company") was founded in 1977 and
incorporated in Delaware in 1992. Operations are principally conducted through
its wholly owned operating subsidiaries, Kennedy-Wilson International, a
California corporation, and K-W Properties, a California corporation and its
wholly owned subsidiaries. The Company's principal executive offices are
located at 530 Wilshire Boulevard, Suite 101, Santa Monica, California 90401,
and its telephone number is (310) 314-8400.
The Company provides real estate marketing and brokerage services
through its centrally-controlled international marketing network, primarily for
financial institutions, developers and government agencies. The Company has
offices in the Santa Monica, San Francisco, New York, Tokyo, Hong Kong and
Jakarta. Since 1977 the Company has sold over $4 billion of residential,
commercial, hotel and resort properties.
COMMERCIAL BROKERAGE: The Company's commercial business concentrates
on single-seller sealed bid sales and private placement sales of commercial
properties. The division opened offices in New York and Jakarta in 1996, which
in addition to the Company's Tokyo and Hong Kong offices, will provide greater
access to the investment communities in Asia and the eastern U.S.
AUCTION-MARKETING: The auction-marketing method as employed by the
Company consists of a broad range of services necessary to complete the sale of
properties, including market research and analysis, design and implementation
of a specific marketing plan and, a professionally managed auction and closing
service. Auction-marketing provides real property owners with an opportunity to
sell their holdings on one established auction date, thereby increasing
liquidity and avoiding long-term carrying costs. In addition to real estate,
the Company has successfully used its auction-marketing methods for selling
broadband airwaves, personal property, industrial equipment and notes
collateralized by real estate.
REAL ESTATE ACQUISITIONS: K-W Properties, a wholly owned subsidiary,
acquires, renovates and disposes of residential and income producing real
estate. These transactions generally arise as an offshoot of the Company's
normal marketing business as clients frequently want to sell property quickly
and with certainty rather than to take the time for an auction or other
marketing program. The Company may, depending on the availability of its
capital and assessment of risk, form partnerships with third parties to acquire
the residential projects. The holding period for residential projects are
generally less than one year, while income properties are typically held over
one year.
NOTE ACQUISITIONS: The Company, through its subsidiary KWP Financial,
purchases discounted note receivable portfolios, typically from governmental
agencies. The Company then either settles the notes for cash, restructures
them to performing status, or initiates foreclosure proceedings on these assets
secured by real estate.
JOINT VENTURES: The Company has in the past entered into, and
anticipates that in the future it will continue to enter into, various joint
ventures with regard to its real estate marketing services and acquisition
activities. Historically in joint ventures, the Company has been responsible
for providing its standard real estate marketing services and the Company's
joint venture partner has been responsible for identifying properties to be
sold, preparing due diligence materials and providing certain sales personnel;
See Note 6.
LICENSING: The Company sold its Australian subsidiary in 1995 to a
related party and, as part of such sale, granted a license to the entity to use
the Kennedy-Wilson International name in Australia and New Zealand. The
Company terminated this agreement in 1996 due to lower than expected profits.
BACKLOG: At December 31, 1996, commissions subject to completion of
sales totaled approximately $459,000, compared to approximately $738,000 at
December 31, 1995. Additionally, as of December 31, 1996, the Company had
executed marketing agreements on properties having an estimated aggregate gross
value of real estate sales of approximately $143 million. This compares to
approximately $213 million as of December 31, 1995.
3
4
COMPETITION: The real estate brokerage and auction-marketing industry
within which the Company operates is both highly fragmented and highly
competitive. The Company faces significant competition and must compete with
other auction companies, and conventional residential and commercial real
estate brokers. Several of these real estate brokerage companies are
significantly larger than the Company, possess greater financial resources and
compete with the Company directly in the auction market.
REGULATION: The Company's real estate marketing operations are subject
to various regulations at the Federal, State and local levels as well as the
national level in various countries. The Company, through one of its officers,
must be licensed as a real estate broker in each state in which the Company
operates. State governmental bodies, such as the Department of Real Estate in
California, regulate the operations of the Company conducted under its various
real estate brokerage licenses. Company personnel performing certain
functions in the real estate marketing process must be licensed real estate
salespersons and must work under the supervision of the Company's officer/
broker of record. In certain jurisdictions in which the Company operates and
as allowed by applicable law, the Company associates with real estate brokers
licensed in such jurisdictions. The Company believes that it is in substantial
compliance with all material licensing requirements in all states and countries
in which licenses are required and in which the Company operates.
In various states including California, governmental entities license
individual auctioneers and administer various regulations governing the
activities of auctioneers. The Company believes that it is in substantial
compliance with all material licensing requirements in all states in which
licenses are required and in which the Company operates.
INSURANCE: The Company currently maintains errors and omissions,
directors' and officers' liability, property, casualty and workers'
compensation insurance, with policy limits which the Company believes are
adequate. The Company periodically reviews and revises such limits.
EMPLOYEES: At March 21, 1997, the Company employed approximately 54
full-time and 2 part-time persons compared with 52 full-time and 31 part-time
persons at March 21, 1996. None of the Company's employees are represented by
a collective bargaining agent.
ITEM 2. PROPERTIES
The executive and administrative offices of the Company are located at
530 Wilshire Boulevard, Suite 101, Santa Monica, California, and consist of
approximately 9,000 square feet in a four story office building which the
Company purchased for investment purposes in April 1995.
The Company also leases space for its regional and branch offices.
These facilities aggregate approximately 6,000 square feet, with an annual
aggregate base rental of approximately $227,000. The leases expire within the
next five years. The Company believes that it will be able to renew any
expiring leases or obtain suitable office space to replace such leased
facilities, as necessary, without any material increase in the Company's rental
costs. As described in Item 1 hereof, the Company acquires and disposes of
income producing property in the ordinary course of its business.
4
5
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings generally
incidental to its business and routine. While the ultimate disposition of
these ordinary proceedings is not presently determinable, the Company's
management believes that the outcome of these proceedings will not have a
material adverse effect on the Company and such proceedings, individually or
collectively, are not material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Certificate of Incorporation was amended to effect a
reduction in the number of authorized shares of common stock. This amendment
was approved at a Special Meeting of Stockholders held on November 19, 1996.
5
6
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on The Nasdaq Stock Market under the
symbol: KWIC. The following table sets forth the high and low closing sale
prices of the Company's Common Stock as reported in the Nasdaq National Market,
adjusted for a one-for-ten reverse stock split effective November 21, 1995:
High Low
---- ---
1995-
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . 17-1/2 8-3/4
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . 12-1/2 7-1/2
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . 11-7/8 5
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . 8-1/8 5
1996-
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . 6 5
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . 10 5-1/8
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . 9-3/4 8-1/4
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . 10-3/4 8-1/4
1997-
First Quarter (through March 28, 1997) . . . . . . . . . . . 12 9-3/4
As of March 28, 1997, there were 89 holders of record and
approximately 1200 beneficial holders of the Company's Common Stock. Since
the completion of the Company's initial public offering in August 1992, no
dividends have been declared by the Company.
6
7
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company
as of and for each of the five fiscal years ended December 31, 1996. The data
set forth below should be read in conjunction with the Consolidated Financial
Statements and related Notes to Consolidated Financial Statements appearing
elsewhere herein and Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . $31,967 $ 20,610 $38,647 $25,910 $22,740
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . $28,376 $ 33,752 $37,589 $26,722 $22,320
Income (loss) from operations . . . . . . . . . . . . . . . . . . $ 3,591 $(13,142) $ 1,058 $ (812) $ 420
Net income (loss) (pro forma in 1992 )(1) . . . . . . . . . . . . $ 3,531 $(13,186) $ 1,010 $ (813) $ 201
Net income (loss) per common share (pro forma in 1992(1)(2)) . . $ 2.69 $ (9.40) $ 0.70 $ (0.60) $ 0.20
Weighted average common shares outstanding (pro forma in 1992
(2)(3)) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,312 1,403 1,406 1,415 1,208
AS OF DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS)
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $51,114 $37,651 $37,014 $32,231 $26,870
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . $40,732 $29,706 $15,995 $11,924 $ 5,607
Total stockholders' equity . . . . . . . . . . . . . . . . . . . $10,382 $ 7,945 $21,019 $20,307 $21,263
___________
(1) Statement of Operations data has been adjusted for 1992 to provide for
income taxes (assuming a 40% effective combined federal and state tax
rate) as if K-W International had not been an S Corporation during a
portion of such year.
(2) Adjusted assuming the issuance of the Company's Common Stock in
exchange for 100% of K-W International had occurred on January 1, 1992.
(3) Adjusted for the 10 for 1 reverse stock split.
7
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations for the Years ended December 31, 1996, 1995 and 1994
Commissions decreased 10% to $5.9 million in 1996 from $6.5 million in
1995 as a result of a decrease in residential auction-marketing, both in number
of auctions and value of properties sold and a decline in commission rates due
to competitive pressures. In addition, commissions decreased in 1995 compared
to 1994 due to the 1995 disposition of a portion of the Company's Commercial
Brokerage Division, including European operations, and the separate sale of the
Company's Australian subsidiary. These dispositions are reflective of the
Company's decision to narrow its focus and concentrate on its already
successful operations in California and Asia. In connection with this
determination, during 1996, the Company opened an office in New York to expand
its commercial brokerage business and further emphasize single seller sealed
bid sales and private placement sales.
Sales of residential real estate increased 86% in 1996 compared with
1995 as a result of the sale of three condominium projects in 1996 totaling
approximately $19.7 million. This compares to sales of residential real estate
of $10.6 million in 1995 from the sale of four condominium projects, which
represented a decline from the 1994 sale of five projects. Cost of residential
real estate sold related to these sales increased 58% to $16.5 million in 1996
compared to $10.5 million in 1995 and $15.1 million in 1994. In addition,
cost of sales as a percentage of revenue decreased to 84% in 1996 from 99% in
1995 and 92% from 1994.
Gain on sale of commercial real estate in the amount of $1.5 million
for 1996 consists of the sale of one commercial property. In 1994 the Company
also sold a commercial property, for a net gain of $3 million. There were no
commercial property sales in 1995, See Note 5.
Gain on restructured notes receivable in the amount of $3.1 million in
1996 reflects the Company's increased expansion in the acquisition and
disposition of non-performing and under-performing real estate collateralized
note receivable portfolios. The notes are typically purchased at a substantial
discount from government agencies. See Item 1 and Note 4 for further
discussion.
Commission and marketing expenses decreased 40% in 1996 to $1.6
million from $2.6 million in 1995, which in turn decreased from $6.1 million in
1994. In addition, commission and marketing expenses decreased as a
percentage of commissions revenue due to the lower costs associated with
commercial brokerage compared with auctions.
Compensation and related expenses decreased by 20% in 1996 from 1995
and 23% in 1995 from 1994 due to the reduced number of employees resulting
from the 1995 sale of a portion of the Company's Commercial Brokerage Division
and Australian subsidiary.
General and administrative expense decreased 46% in 1996 compared to
1995 and also decreased 23% in 1995 as compared with 1994 primarily due to the
1995 sale of the Company's Commercial Brokerage Division and Australian
subsidiary. Also, in 1995 the Company moved from approximately 25,000 square
feet of leased space into approximately 7,000 square feet in a building it
owns.
In 1995, the Company sold a portion of its Commercial Brokerage
Division, including European operations, and its Australian subsidiary. As a
result, the Company took a non-cash charge of $6,000,000 to reflect costs
associated with these actions. See Note 11 for further discussion of the
restructuring.
8
9
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that cash and cash equivalents at December 31,
1996 of $1.9 million, plus expected cash generated from ongoing real estate
marketing operations, continued sales of real estate owned, collections from
notes receivable, as well as the working capital line of credit, will provide
the Company with sufficient resources to fund its present and reasonably
foreseeable operations. The Company has not historically required major capital
expenditures to support its marketing operations. However, the Company
believes that its ability to make advances to its clients' marketing budgets
provides a competitive advantage. The Company's liquidity may in the future be
adversely affected by lower commission rates, or increased contributions to
marketing budgets, caused by competition from other marketing companies.
Liquidity could also be adversely affected by the Company's ability to sell
real estate it has acquired.
As discussed in Note 9 and 10, the Company is obligated under various
notes payable and mortgages payable, which are secured by notes receivable and
real estate held for sale. Approximately $1.9 million of notes payable and
$2.1 million of mortgages are due in 1997. The Company anticipates that these
amounts will be repaid from proceeds from the sale of the related collateral.
As discussed in Note 18, in February 1997, the Company acquired
approximately 89,000 shares of its common stock from a former officer and
director. The terms required an initial payment of $200,000 (which has been
paid), plus two additional payments of approximately $370,000 each on April 30,
1997 and September 30, 1997. The Company expects to be able to meet these
future obligations from cash generated from operations.
To the extent the Company engages in additional strategic investments,
including real estate and note portfolio acquisitions, the Company may need to
obtain third party financing which could include bank financing or the public
sale or private placement of debt or equity securities. The Company has
historically been successful in arranging the required financing for its
investment activities. The increase in 1996 in its acquisition line of credit
to $8 million, and the bank financing obtained for 1996 acquisitions, supports
the Company's belief that it should be able to continue to secure the capital
resources necessary to fund its investments. (See Notes 8,9 and 10 of Notes to
Consolidated Financial Statements).
9
10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
KENNEDY-WILSON, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Consolidated Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 12
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994 . . . . . . . . . 13
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1995 and 1994 . . . . 14
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 . . . . . . . . . 15
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
10
11
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Kennedy-Wilson, Inc. and Subsidiaries
Santa Monica, California
We have audited the accompanying consolidated balance sheets of
Kennedy-Wilson, Inc. and subsidiaries (the "Company"), as of December 31, 1996
and 1995, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1996. Our audits also included the financial statement schedule listed in
the Index at Item 14. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Kennedy-Wilson, Inc. and
subsidiaries at December 31, 1996 and 1995, and the results of its operations
and cash flows for each of the three years in the period ended December 31, 1996
in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 14, 1997
11
12
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995
----------- -----------
ASSETS:
Cash and cash equivalents $ 1,901,000 $ 2,192,000
Cash - restricted 396,000 179,000
Accounts receivable 994,000 1,745,000
Notes receivable 13,787,000 235,000
Real estate held for sale 28,800,000 31,919,000
Investments in affiliates and partnerships 3,803,000 38,000
Other assets 1,433,000 1,343,000
----------- -----------
TOTAL ASSETS $51,114,000 $37,651,000
=========== ===========
LIABILITIES:
Accounts payable $ 893,000 $ 1,084,000
Accrued expenses and other liabilities 2,211,000 3,051,000
Accrued expense - related parties - 97,000
Notes payable 8,195,000 -
Notes payable - related parties - 250,000
Borrowing under lines of credit 8,917,000 775,000
Mortgage notes payable 20,516,000 24,449,000
----------- -----------
Total liabilities 40,732,000 29,706,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 500,000 shares authorized, none issued - -
Common stock $.01 par value; shares authorized; 2,000,000 in 1996
and 20,000,000 in 1995, issued and outstanding; 1,235,599
in 1996 and 1,400,599 in 1995 12,000 14,000
Additional paid-in capital 21,638,000 22,730,000
Accumulated deficit (11,268,000) (14,799,000)
----------- -----------
Total stockholders' equity 10,382,000 7,945,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $51,114,000 $37,651,000
=========== ===========
See notes to consolidated financial statements.
12
13
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1996 1995 1994
---------- ------------ ----------
REVENUES:
Commissions $5,873,000 $6,468,000 $15,832,000
Commissions - related parties - 89,000 158,000
Mortgage brokerage fees - 64,000 564,000
Sales of residential real estate 19,743,000 10,631,000 16,495,000
Equity in income of partnerships 178,000 138,000 1,393,000
Gain on sale of commercial real estate 1,454,000 - 2,965,000
Gain on restructured notes receivable 3,057,000 160,000 25,000
Rental income, net 1,467,000 642,000 -
Sales of assets and subsidiary - 1,926,000 -
Other income 195,000 492,000 1,215,000
---------- ------------ ----------
31,967,000 20,610,000 38,647,000
---------- ------------ ----------
OPERATING EXPENSES:
Commissions and marketing expenses 1,560,000 2,617,000 6,073,000
Auction-marketing expenses, net - related parties - 12,000 53,000
Cost of residential real estate sold 16,523,000 10,488,000 15,147,000
Cost of residential real estate sold - related parties 209,000 122,000 -
Compensation and related expenses 4,726,000 5,883,000 7,648,000
General and administrative 3,126,000 5,800,000 7,138,000
Depreciation and amortization 268,000 623,000 895,000
Interest expense 1,964,000 1,472,000 635,000
Cost of assets and subsidiary sold - 735,000 -
Restructuring charge - 6,000,000 -
---------- ------------ ----------
28,376,000 33,752,000 37,589,000
---------- ------------ ----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME 3,591,000 (13,142,000) 1,058,000
PROVISION FOR INCOME TAXES 60,000 44,000 48,000
---------- ------------ ----------
NET INCOME (LOSS) $3,531,000 ($13,186,000) $1,010,000
========== ============ ==========
Net income (loss) per common share $2.69 ($9.40) $0.70
========== ============ ==========
Weighted average common shares outstanding 1,312,379 1,402,858 1,406,279
========== ============ ==========
See notes to consolidated financial statements.
13
14
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Accumulated
------------------- Additional Accumulated Translation
Shares Amount Paid in Capital Deficit Accumulated Total
------------------- --------------- ------------- ----------- -------------
BALANCE, JANUARY 1, 1994 1,412,972 $14,000 $23,143,000 $ (2,623,000) $(227,000) $ 20,307,000
Foreign currency translation adjustment - - - 59,000 59,000
Issuance of common stock 6,233 - 119,000 - - 119,000
Repurchase of common stock (14,106) - (476,000) - - (476,000)
Net income - - - 1,010,000 - 1,010,000
---------- ------- --------------- ------------- ----------- ------------
BALANCE, DECEMBER 31, 1994 1,405,099 14,000 22,786,000 (1,613,000) (168,000) 21,019,000
Foreign currency translation adjustment - - - - 168,000 168,000
Issuance of common stock 500 - 6,000 - - 6,000
Repurchase of common stock (5,000) - (62,000) - - (62,000)
Net loss - - - (13,186,000) - (13,186,000)
---------- ------- --------------- ------------- ----------- ------------
BALANCE, DECEMBER 31, 1995 1,400,599 14,000 22,730,000 (14,799,000) - 7,945,000
Repurchase of common stock (165,000) (2,000) (1,092,000) - - (1,094,000)
Net income - - 3,531,000 - 3,531,000
---------- ------- --------------- ------------- ----------- ------------
BALANCE, DECEMBER 31, 1996 1,235,599 $12,000 $21,638,000 $(11,268,000) $ 0 $ 10,382,000
========== ======= =============== ============= =========== ============
See notes to consolidated financial statements.
14
15
KENNEDY-WILSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994
------------ ------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,531,000 $ (13,186,000) $ 1,010,000
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 268,000 623,000 895,000
Equity in income in partnerships (178,000) (139,000) (1,393,000)
Distribution from partnerships 20,000 1,293,000 1,441,000
Gains on sales of real estate (1,454,000) (20,000) (2,965,000)
Gains on sales of assets, subsidiary and partnership - (1,543,000) -
Restructuring charge - 6,000,000 -
Change in assets and liabilities:
Cash - restricted (217,000) 718,000 1,834,000
Accounts receivable - other 751,000 3,706,000 (2,099,000)
Other assets (720,000) (560,000) (1,639,000)
Accounts payable (191,000) (335,000) (993,000)
Accrued expenses and other liabilities (937,000) 222,000 (381,000)
------------ ------------- -----------
Total adjustments (2,658,000) 9,965,000 (5,300,000)
------------ ------------- -----------
Net cash used in operating activities 873,000 (3,221,000) (4,290,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures and equipment (197,000) (160,000) (184,000)
Dispositions furniture, fixtures and equipment 559,000 24,000 148,000
Purchases and additions to Real Estate Held for Sale (21,341,000) (31,150,000) (11,506,000)
Proceeds from Sales of Real Estate Held for Sale 25,914,000 10,631,000 11,317,000
Purchases of notes receivable (13,552,000) 235,000 -
Sales of assets, subsidiary and partnership - 6,437,000 -
Investment in partnerships (3,607,000) (139,000) (4,779,000)
------------ ------------- -----------
Net cash used in investing activities (12,224,000) (14,122,000) (5,004,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock - 6,000 119,000
Repayment of capital lease obligations - (61,000) (126,000)
Issuance of Mortgage Notes Payable 26,577,000 28,879,000 10,013,000
Repayment of Mortgage Notes Payable (30,510,000) (12,040,000) (8,403,000)
Borrowings under Lines of Credit 15,345,000 - -
Repayment of Lines of Credit (7,453,000) - -
Borrowings under Notes Payable 10,128,000 1,925,000 4,961,000
Repayment of Notes Payable (1,933,000) (4,861,000) (1,000,000)
Repurchase of Common Stock (1,094,000) (62,000) (476,000)
------------ ------------- -----------
Net cash provided by (used in) financing activities 11,060,000 13,786,000 5,088,000
------------ ------------- -----------
Effect of Exchange Rate Changes on Cash - 150,000 59,000
------------ ------------- -----------
Net increase (decrease) in cash (291,000) (3,407,000) (4,147,000)
Cash, beginning of period 2,192,000 5,599,000 9,746,000
------------ ------------- -----------
Cash, end of period $ 1,901,000 $ 2,192,000 $ 5,599,000
============ ============= ===========
See notes to consolidated financial statements.
15
16
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Year Ending December 31,
-------------------------------------------
1996 1995 1994
---------- ---------- --------
CASH PAID DURING THE YEAR FOR:
Interest, net of capitalized interest of $57,000 in 1996,
$606,000 in 1995 and $549,000 in 1994,
respectively.............................................. $2,113,000 $1,373,000 $626,000
Income taxes................................................... $ 34,000 $ 33,000 $ 43,000
See notes to consolidated financial statements.
16
17
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Kennedy-Wilson, Inc. is a Delaware corporation which was incorporated
in 1992. Kennedy-Wilson, Inc. and its wholly owned subsidiaries (the "Company")
provide real estate marketing services throughout the United States, and Asia,
primarily to financial institutions, developers and government agencies. The
Company also acquires, renovates and resells residential and commercial real
estate; invests in non-performing note receivable portfolios; and invests in
various real estate partnerships.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries and partnerships in which the Company
has a controlling interest. For foreign operations, assets and liabilities
are translated at year-end exchange rates, and income statement items are
translated at average exchange rates prevailing during the year. All
significant intercompany transactions have been eliminated.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Investment in Partnerships
The Company accounts for investments in partnerships with a
non-controlling interest of 50% or less under the equity method.
Revenue Recognition
Commissions are generally recognized when all services to be provided
by the Company have been performed and title to real property has passed from
the seller to the buyer. Residential real estate sales revenue and gains on
sale of commercial property are recognized at the close of escrow. Gains on
notes receivable are recognized ratably upon receipt of cash or a restructured
note including a significant cash component.
Net Income (Loss) Per Common Share
Net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of shares of common stock and common
stock equivalents outstanding during the periods.
The weighted average number of common shares used to compute net income
(loss) per share (restated for the 10 for 1 reverse stock split) was 1,312,379,
1,402,858, and 1,406,279 for the years ended December 31, 1996, 1995 and 1994,
respectively.
17
18
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Cash and Cash Equivalents
Cash consists of cash and all highly liquid investments purchased with
maturities of three months or less.
Long Lived Assets
During 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of. Among other provisions, the
statement changed current accounting practices for the evaluation of impairment
of long-lived assets. The adoption did not have a material effect on the
Company's financial statements.
Fair Value of Financial Instruments:
Cash, Accounts Receivable and Accounts Payable - The carrying amounts
approximate fair value because of the short maturities of these instruments.
Bank Line of Credit - The carrying amounts approximate fair value
because of the short maturity and because the interest varies with the prime
rate. See Note 8.
Notes Receivable and Notes Payable - The carrying amounts approximate
fair value because of the short term nature of these instruments. See Notes 4
and 9.
Concentration of Credit Risk
Financial instruments that subject the Company to credit risk consist
primarily of accounts and notes receivable, and cash and cash equivalents.
Credit risk is generally diversified due to the large number of entities
composing the Company's customer base and their geographic dispersion. The
Company performs ongoing credit evaluations of its customers. Cash and cash
equivalents are invested in insured financial institutions. However, certain
accounts contain balances in excess of the insured limits.
Reclassifications
Certain reclassifications have been made to the 1995 and 1994 balances
to conform with the 1996 presentation.
NOTE 2 - CASH - RESTRICTED
Restricted cash as of December 31, 1996 and 1995 of $396,000 and
$179,000, respectively, consists of funds received from clients in connection
with marketing contracts. Such funds are held in separate trust accounts at
financial institutions, and are restricted for the purposes of satisfying
expenses incurred in connection with each marketing contract.
NOTE 3 - ACCOUNTS RECEIVABLE
Included in accounts receivable are marketing advances. Certain
marketing advances are collateralized by security interests in the real estate
marketed by the Company.
18
19
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 4 - NOTES RECEIVABLE
The notes receivable balance was $13.8 million at December 31, 1996
and $235,000 at December 31, 1995. Notes receivable consists primarily of
non-performing loan portfolios acquired from government agencies. The notes
are typically secured by real estate, UCC-1 filings, or are guaranteed by the
borrowers.
During 1996, the Company purchased four portfolios of non-performing
loans for approximately $13.5 million. The Company secured cash settlements in
the amount of approximately $3.7 million, and restructured notes receivable in
the amount of $1.9 million.
Gains are recognized when notes receivable are settled for cash, or
are restructured to performing status along with a substantial cash payment by
the borrowers. In 1996, the Company recognized a gain on notes receivable
transactions of approximately $3.1 million, compared to $160,000 in 1995.
NOTE 5 - REAL ESTATE HELD FOR SALE
Real estate held for sale is comprised of commercial and residential
properties stated at cost plus additional capital improvements less accumulated
depreciation and amortization of $588,000 and $412,000 at December 31, 1996 and
1995 respectively.
Real estate held for sale includes the following:
DECEMBER 31,
----------------------------
1996 1995
----------- -----------
Commercial properties:
- ----------------------
530 Wilshire Blvd., Santa Monica, California - 47,000 square foot office
building................................................................... $7,853,000 $7,902,000
10301 Pico, Los Angeles, California - 50,000 square foot office
building................................................................... 4,112,000 4,208,000
2730 Wilshire Blvd., Santa Monica, California - 56,000 square foot office
building and 16 apartment units............................................ - 7,251,000
1131 Wilshire Blvd., Santa Monica, California - 20,000 square foot office
building................................................................... 2,873,000 -
1304 15th St. Santa Monica, California - 37,000 square foot office building.... 4,437,000 -
150 E. Colorado, Pasadena, California - 61,000 square foot office building..... 5,808,000 -
----------- -----------
25,083,000 19,361,000
Residential properties:
- -----------------------
Vista Waikoloa, Waikoloa, HI - 7 and 40 condominium remaining at December 31,
1996 and 1995, respectively................................................ 1,494,000 7,328,000
Villa Del Este, Corona Del Mar, California - 14 condominium units.............. 2,223,000 -
Westborough Court, San Francisco, California - 42 condominium units
and 95 lots................................................................ - 3,291,000
Kiowa Gardens, Brentwood, California - 9 condominium units..................... - 1,773,000
Cathedral Hill Vistas, San Francisco, California - 1 condominium unit.......... - 166,000
----------- -----------
3,717,000 12,558,000
----------- -----------
$28,800,000 $31,919,000
=========== ===========
19
20
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
All real estate held for sale at December 31, 1996, except for Vista
Waikoloa, are collaterized by certain mortgage loans (See Note 10 - Mortgage
notes payable). Commercial buildings and improvements are depreciated on the
straight line method over the estimated useful lives as follows:
Building - 39 years
Tenant Improvement - shorter of lease term or useful life
ranging from 2 to 5 years
Depreciation expense was $535,000, $412,000 and $433,000, for 1996, 1995 and
1994, respectively. These amounts are included in the Statement of Operations
in Rental Income, Net.
Gain on the sale of commercial property is recognized upon the
transfer of title and is included in the Company's revenues, net of the related
cost basis.
Sales of residential properties are also recognized upon the transfer
of title. The net sales price of residential properties is included in
revenue, and the related cost is included in cost of residential real estate
sold.
NOTE 6 - INVESTMENTS IN AFFILIATES AND PARTNERSHIPS
Investments in affiliates and partnerships consists primarily of the following:
In December 1996 the Company acquired a 50% interest in a joint venture
("Hilltop Colony, LLC") that owns a 114 unit condominium project in Los Angeles
for $600,000. The total investment at December 31, 1996 was $667,000, and is
accounted for under the equity method.
In November 1996 the Company acquired a 25% interest in a joint venture
("Downtown Properties, LLC") with a related party, that owns two commercial
properties with approximately 515,000 square feet of rental space, located in
downtown Los Angeles for $2,570,000. The total investment at December 31, 1996
was $2,679,000, and is accounted for under the equity method.
Summarized financial data of the joint venture is as follows:
DECEMBER 31,
1996
------------
BALANCE SHEET
Assets:
Cash and cash equivalents $ 463,000
Receivable 32,000
Real Estate 28,748,000
------------
Total assets $ 29,243,000
============
Liabilities and Partner's Capital
Accounts payable and accrued liabilities 173,000
Mortgage payable 18,354,000
------------
Total liabilities 18,527,000
Partners' capital
Kennedy Wilson 2,679,000
Other partners 8,037,000
Total partners' capital 10,716,000
------------
Total liabilities and capital $ 29,243,000
============
20
21
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Year Ended
STATEMENT OF OPERATIONS December 31, 1996
-----------------
Revenues $ 1,013,000
Expenses 564,000
-----------------
Net Income $ 449,000
=================
Net Income Allocation:
Kennedy Wilson 112,000
Other partners 337,000
-----------------
$ 449,000
=================
In November 1996 the Company also acquired a 25% interest in a joint
venture ("Ski Monarch, LLC") with a related party, that owns a ski resort and
hotel located near Crested Butte, Colorado for $440,000. The total investment
at December 31, 1996 was $454,000, and is accounted for under the equity
method.
In addition, the Company had various interests in other joint ventures
of approximately $3,000 and $38,000 at December 31,1996 and 1995, respectively,
which are accounted for under the equity method.
In 1995, the Company sold its 50% general partnership interest in Realty
Holdings of America for an aggregate sales price of $4,575,000. The Company's
basis in the partnership was approximately $4,200,000 and after costs
associated with the sale the Company recognized a gain of approximately
$350,000.
NOTE 7 - OTHER ASSETS
Other assets consist of the following:
DECEMBER 31
-----------
1996 1995
---------- -----------
Office furniture and equipment........................... $ 917,000 $1,096,000
Leasehold improvements................................... 176,000 262,000
Equipment under capital leases........................... - 98,000
---------- -----------
1,093,000 1,456,000
Less accumulated depreciation and amortization,
(including $94,000 of accumulated depreciation
on equipment under capitalized leases at
December 31, 1995)..................................... (735,000) (928,000)
Prepaid Insurance, Taxes & Commissions................... 353,000 242,000
Loan Fees................................................ 226,000 -
Deposits................................................. 179,000 201,000
Acquisition & Organization Costs........................ 117,000 81,000
Other.................................................... 200,000 291,000
---------- -----------
$1,433,000 $ 1,343,000
========== ===========
Furniture, fixtures and equipment are depreciated over a 5 year useful life, on
the straight line method.
Capitalized costs, which include acquisition and organization cost, loan fees
and deferred expenses are being amortized over a period of between 12 and 18
months.
21
22
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 8 - BORROWINGS UNDER LINES OF CREDIT
In 1996, the Company entered into a loan agreement that provides the
Company with a $10.0 million credit facility (the "facility") which includes up
to $8.0 million in an acquisition facility and $2.0 million in an unsecured
working capital facility. The acquisition facility is secured by existing real
estate owned by the Company and the actual availability under the facility is
limited based on the equity in such real estate. Proceeds from the sale of
such secured real estate are used to pay down the acquisition facility. The
outstanding balance at December 31, 1996 was approximately $8.5 million, of
which $7.5 million was for the acquisition facility and $1 million was for the
working capital facility. The facilities bear interest at the prime rate plus
1%, which was 9.25% at December 31, 1996. The working capital facility will
be due in full in June 1997 and the acquisition facility will be due in full in
18 months from the date of each advance. Approximately, 2.7 million will be
paid in 1997 and 5.8 million in 1998.
The Company had a revolving line of credit of $4 million with a bank
which had a balance of $3,961,00 at December 31, 1994 and which expired and was
paid in full in 1995.
The Company's Japanese subsidiary has unsecured lines of credit
aggregating approximately $500,000 under which $419,000 in borrowings were
outstanding at December 31, 1996. These borrowings bear interest at rates from
1.9% to 2.6% per annum.
NOTE 9 - NOTES PAYABLE
Notes payable were incurred primarily in connection with the acquisition
of notes receivable, (see Note 4), and included the following:
DECEMBER 31,
-------------------------
1996 1995
------------- ----------
Note payable, 10% fixed interest payable monthly, due in full March 1,
1998, secured by notes receivable of $3,857,000.......................... $ 2,867,000 -
Note payable, variable interest based on the Prime Rate plus 2%, payable
monthly, 10.25% at December 31, 1996, due in full December 31, 1997,
secured by notes receivable of $1,917,000................................ 1,330,000
Note payable, variable interest based on LIBOR plus 4.25%, payable
monthly, 9.78% at December 31, 1996, due in full May 25, 1998,
secured by notes receivable of $5,016,000................................ 3,998,000 -
------------- ----------
$ 8,195,000 $ 0
============= ==========
Principal is paid down monthly based on a percentage of cash
collections on the note receivable. The percentage of cash flow paid out
ranges from 88% to 90%. Principal balances are estimated to be paid in full
during 1997.
22
23
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 10 - MORTGAGE NOTES PAYABLE
Mortgage notes payable include the following
DECEMBER 31,
-------------------------
1996 1995
----------- -----------
Commercial properties:
Mortgage note payable, 7.9% fixed interest,
principal and interest payable monthly due
February 1, 2003, collateralized by
530 Wilshire Blvd................................ $ 5,924,000 $ --
Mortgage note payable, variable interest based
on the Prime Rate plus 2%, 10.5% at December 31,
1995, principal and interest payable monthly,
due February 5, 1996, collateralized by
530 Wilshire Blvd ............................... -- 5,387,000
Mortgage note payable, variable interest based
on the weekly average of secondary market
interest rate on 6-month CD rounded upwards
to the nearest one-eighth of one percentage
point (0.125%), 8.1% at December 31, 1996
and 8.375% at December 31, 1995, due April 1,
2003, collateralized by 10301 Pico Blvd........... 2,798,000 2,863,000
Mortgage note payable, variable interest based on
Prime Rate plus 1.5%, 10% at December 31, 1995
December 31, 1995, paid January 22, 1996,
collateralized by 10301 Pico Blvd................. -- 600,000
Mortgage note payable, 10.25% fixed rate, interest
payable monthly, due April 30, 1996,
collateralized by 2730 Wilshire Blvd.............. -- 5,100,000
Mortgage note payable, variable interest based on
LIBOR, 7.7% at December 31, 1996, principal and
interest payable monthly, due August 1, 2001,
collateralized by 1131 Wilshire Blvd.............. 2,009,000 --
Mortgage note payable, variable interest based
on LIBOR, 7.7% at December 31, 1996, principal
and interest payable monthly, due September 1,
2003, collateralized by 1304 15th Street.......... 3,133,000 --
Mortgage note payable, variable interest based on
LIBOR plus 4%, 9.5% at December 31, 1996 principal
and interest payable monthly, due October 31,
1999, collateralized by equity in Plaza Centre
Group Inc........................................ 1,125,000 --
Mortgage note payable, variable interest based on
LIBOR plus 3.75%, 9.4% at December 31, 1996,
principal and interest payable monthly, due
December 1, 2001, collateralized by
150 E. Colorado ................................. 3,850,000 --
----------- -----------
18,839,000 13,950,000
Residential properties:
Mortgage note payable, variable interest based on
Prime Rate plus 1.5%, 10% at December 31, 1995
interest added to balance monthly, principal
payments of $116 to $154 per square foot as real
estate collateral (condominium units) are sold,
due December 22, 1996, collateralized by
Vista Waikoloa................................... -- 6,222,000
Mortgage note payable, variable interest based on
Prime Rate plus 1.5%, interest payable monthly,
10% at December 31, 1996, due September 15, 1997,
collateralized by Villa Del Este.................. 1,677,000 --
Mortgage note payable, variable interest based on
Prime Rate plus 1.55%, 10% at December 31, 1995
interest added to balance monthly, principal
payments equal to 95% of the net proceeds as
real estate collateral (condominium units) are
sold, due September 21, 1996, collateralized
by Westborough Court............................. -- 2,253,000
Mortgage note payable, variable interest based on
LIBOR plus 4%, 9.66% at December 31, 1995
interest added to balance monthly, principal
payments equal to the net proceeds as real estate
collateral (condominium units and lots) are sold,
due September 21, 1996, with a 50% profit
participation from sales of condominium units,
collateralized by Westborough Court............... -- 770,000
Mortgage note payable, variable interest based on
Prime Rate plus 2%, 10.5% at December 31 1995
interest added to balance monthly, principal
payments equal to 85% of the gross sale price as
real estate collateral (condominium units) are
sold, due May 1, 1996, collateralized
by Kiowa Gardens.................................. -- 1,254,000
----------- -----------
1,677,000 10,499,000
$20,516,000 $24,449,000
=========== ===========
All of the mortgage notes payable are secured by deeds of trust on the
respective real estate properties (See Note 5 - Real Estate Held for Sale).
Aggregate maturities of mortgage notes payable through 2001 are:
1997-$2,137,000, 1998-$587,000, 1999-$922,000, 2000-$321,000, 2001-$5,836,000
and $10,714,000 thereafter.
23
24
Note 11 - Restructuring Program and Sale of Assets
Net loss for the year ended December 31, 1995 includes charges
relating to a restructuring program designed to redirect the Company's
resources and improve operating profitability. Included in the Consolidated
Statements of Operations for the year ended December 31, 1995 are restructuring
charges of $6.0 million, primarily related to the write off of goodwill and
certain assets, as well as the accrual of certain lease termination costs.
In 1995, the Company sold the operations and certain assets of its
Commercial Brokerage Division to The Greenwich Group, L.L.C. ("TGG"), a
Company formed by the senior managers of such Division, in exchange for
approximately $1.9 million and $100,000 option which the Company exercised
during 1996. TGG, and its subsidiaries, acquired the Division's fixed assets
in the Company's New York, Chicago, Washington, European and Santa Monica
offices. In addition, TGG acquired existing marketing agreements for certain
commercial and hotel property sales which the Company was marketing. The
Company's lease obligations for the New York, Chicago, Washington, London and
other European offices as well as for certain equipment were assigned to TGG in
connection with this transaction. The sale proceeds have been included as "Sale
of assets and subsidiary" and the net book value of the assets sold of
$753,000 included as "Cost of assets and subsidiary sold" in the Consolidated
Statement of Operations.
Also in 1995, the Company sold the stock of its Australian
subsidiary to the senior managers of that entity in exchange for $31,000,
forgiveness by the Australian subsidiary of all intercompany receivable from
the Company (approximately $20,000) and the assurance that all liabilities of
the subsidiary would be paid by the subsidiary. The sale proceeds of
approximately $51,000 have been included as "Sales of Assets and Subsidiary"
and the net book value of the assets sold of $(18,000) as "Costs of Assets and
Subsidiary Sold" in the Consolidated Statement of Operations.
Note 12 - Related Party Transactions
During 1996, 1995 and 1994, the Company's auction-marketing division
conducted marketing programs for certain non-consolidated partnerships managed
by K-W Properties, a wholly owned subsidiary of the Company.
The Company paid the spouse of one of its officers/major stockholders
fees of $16,000, $52,000, and $64,000 for 1996, 1995, and 1994, respectively,
for performing certain graphic design services in connection with the printing
of sales catalogues and brochures by the Company.
In 1996, the Company entered into two joint ventures with related
parties, who are affiliated with Goodwin Gaw, one of the Company's Managing
Directors, a member of the Board of Directors, and a significant stockholder,
See Note 6.
In 1996, the firm of Kulik, Gottesman & Mouton was paid a total of
$277,000 in attorney fees. In addition, Kent Mouton, a partner in the firm and
a member of the Company's Board of Directors, was paid a total of $25,000 in
director's fees for 1996.
24
25
In 1995, the Company borrowed $250,000 from William J. McMorrow and
Lewis A. Halpert, current officers and directors and Kenneth V. Stevens a
former officer and director. Proceeds from such loan were used to purchase
Kiowa Gardens, a 9 unit condominium project in Brentwood, California for $2
million. The Company also invested $250,000 in equity. The note payable
required the Company to pay a participation of up to 50% of the project's
profits and the related third party loan fees and costs. This note payable was
repaid in 1996 from excess proceeds from sales of condominium units after the
required payments on the construction loan. The Company believes that the
terms of this loan were equal to or better than terms that would have been
available to the Company through an independent third party. This borrowing
was reviewed and approved by disinterested members of the Company's Board of
Directors. During 1996, the Company accrued a profit participation of $209,000
which was paid.
In 1995, the Company borrowed $400,000 from William J. McMorrow, Lewis
A. Halpert, Richard Mandel, current officers and directors, William R.
Stevenson and Kenneth V. Stevens, former officers and directors (the
"Principals"). Proceeds from such loan were used to purchase Cathedral Hill
Vistas, a 20 unit condominium project in San Francisco, California for $2.6
million. The note payable required the Company to pay a participation of up to
25% of the project's profits and the interest at the Principals' cost of funds
plus 2%, as well as the related third party loan fees and costs. A profit
participation of $122,000 was recorded as cost of real estate sold-related
parties during 1995.
The principal amount of this note payable was repaid in 1995, from
proceeds from sales of condominium units after the construction loan was paid
in full. The Company believes that the terms of this loan were equal to or
better than terms that would have been available to the Company through an
independent third party. This borrowing was reviewed and approved by
disinterested members of the Company's Board of Directors. During 1995, the
Company paid and capitalized loan fees and interest totaling $69,000 and
accrued a profit participation of $122,000, of which $25,000 was paid in 1995
and the remaining balance in 1996.
During 1995, a director received a $12,500 consulting fee from the
Company for services performed in connection with evaluating various entity
structures suitable for the Company's income property investments.
During 1994, one of the Company's directors received a $10,000
consulting fee from the Company for services performed in connection with the
Company's acquisition of a 10% interest in a mortgage company.
25
26
NOTE 13 - INCOME TAXES
The following summarizes the effect of deferred income tax items and the
impact of "temporary differences" between amounts of assets and liabilities
for financial reporting purposes and such amounts as measured by tax laws.
Temporary differences and carry-forwards which give rise to deferred tax assets
and liabilities are as follows:
DECEMBER 31, 1996 DECEMBER 31, 1995
DEFERRED INCOME TAX DEFERRED INCOME TAX
----------- ----------- ----------- -----------
Assets Liabilities Assets Liabilities
Prepaid expenses $ -- $ (100,000) $ -- $ (266,000)
Accrued reserves 490,000 -- 592,000 --
State taxes 20,000 -- -- --
Deferred auction marketing expenses 42,000 -- 51,000 --
Deferred Gain on Sale of Asset -- (691,000) -- (1,200,000)
Depreciation 612,000 -- -- --
Charitable contribution carryover 31,000 -- -- --
Federal net operating loss carryover 3,035,000 -- 2,206,000 --
State net operating loss carryover 480,000 -- -- --
Overseas operating loss carryover -- -- 442,000 --
----------- ----------- ----------- -----------
Sub-total 4,710,000 (791,000) 3,291,000 (1,466,000)
----------- ----------- ----------- -----------
Valuation allowance (3,919,000) -- (1,825,000) --
Total $ 791,000 $ (791,000) $ 1,466,000 $(1,466,000)
=========== =========== =========== ===========
The provisions for income taxes consists of the following:
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
------- ------- -------
Current:
Federal -- --
State $60,000 $44,000 $48,000
------- ------- -------
60,000 44,000 48,000
Deferred -- -- --
------- ------- -------
Total provision $60,000 $44,000 $48,000
======= ======= =======
26
27
A reconciliation of the statutory federal income tax rate with the Company's
effective income tax rate is as follows:
Year Ended December 31,
----------- ----------- -----------
1996 1995 1994
----------- ----------- -----------
Tax computed at statutory rate $ 1,200,000 $ -- $ 340,000
State income tax, net of federal income tax benefit 40,000 44,000 48,000
Loss on disposition of foreign subsidiary (1,189,000) -- --
Utilization of net operating loss carry forward -- -- (340,000)
Permanent adjustments 47,000 -- --
Valuation allowance (38,000) -- --
----------- ----------- -----------
Provision for income taxes $ 60,000 $ 44,000 $ 48,000
=========== =========== ===========
As of December 31, 1996, the Company had federal net operating loss
carryover of approximately $8,924,000 and state net operating loss carryover of
approximately $4,746,000. The federal net operating loss carryover expires in
2009 through 2011, and the state net operating loss carryover expires in three
to five years.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
Minimum rental commitments, net of sublease income, as of December 31,
1996 under the non-cancelable operating leases are as follows:
YEAR ENDING Net Operating
DECEMBER 31, Leases
----------
1997 ................................ $ 624,000
1998 ................................ 504,000
1999 ................................ 442,000
2000 ................................ 432,000
2001 ................................ 432,000
Thereafter .......................... 31,000
----------
Minimum lease payments .......... $2,465,000
==========
Approximately $431,000 is due the Company in years 1997 through 2001
under sublease agreements.
Rental expense amounted to $300,000, $800,000 and $1.4 million for the
years ended December 31, 1996, 1995 and 1994, respectively. Rental expense will
increase by $252,000 per year as a result of the lease executed pursuant to the
sale of the 530 Wilshire property in March 1997. See Note 18.
Employment Agreements
The Company has entered into employment agreements with its principal
officers which provide for annual base compensation in the aggregate amount of
$925,000 and expire at various dates through December 1998. The employment
agreements provide for the payment of an annual bonus based upon the achievement
of certain agreed-upon earnings objectives.
The Company also has employment agreements with various other
non-officer employees which provide for minimum annual compensation of $614,000
in total, and expiring at various dates through December 1998.
27
28
Litigation
The Company is currently a defendant in certain routine litigation
arising in the ordinary course of business. It is management's opinion that the
outcome of these actions will not have a material effect on the financial
position or results of operations of the Company.
Note 15 - Stock Option Plans and Warrants
The Company currently has three option plans: the 1992 Incentive Stock
Plans ("Plan A"), the 1992 Nonstatutory Stock Plan ("Plan B"), and the 1992
Non-Employee Director Stock Option Plan ("Plan C"). In May 1992, the
Company authorized 140,000 shares of stock under these plans. Plan A permits
the granting of options to employees and directors, Plan B permits the granting
of options to employees, directors and consultants, and Plan C permits the
granting of options to non-employee directors. Plan B is inactive and has no
options granted. Under Plan A, options are granted for common stock at the
fair market value at the time the options were granted. Under Plan C, each
director, upon being elected to the Board of Directors, shall automatically be
granted the option to purchase 2,500 shares at the fair market value at the
date of grant. In addition, the director shall be granted the option to
purchase an additional 100 shares at the fair market value, upon being
re-elected. Vesting for Plan A is determined by a Committee of the Board of
Directors of the Company (the " Committee") appointed by the Board of
Directors. Options under Plan C become exercisable on the first anniversary
of the date of the initial grant, but only if the recipient continues to serve
as a director for at least one year from the date of the initial grant. The
options under Plan A may be exercised for a period of up to five years from the
grant date. Under Plan C, each option expires on the earlier of the tenth
anniversary of the date of grant or ninety days after the date the individual
ceases to be a director of the Company, whichever comes firsts.
Details of activity under the plans for the years ended December 31,
1994, 1995 and 1996 are as follows:
Outstanding Exercise Price
Stock Options Options Per Share
------------- ----------- ----------------
Balance, January 1, 1994 96,040 $ 70.00 - $ 5.00
Granted 19,500 $ 35.00 - $16.25
Forfeited (18,880) $ 70.00 - $38.75
-------
Balance, December 31, 1994 96,660 $ 70.00 - $ 5.00
Granted 12,700 $ 8.13 - $ 5.00
Forfeited (79,030) $ 70.00 - $18.75
-------
Balance, December 31, 1995 30,330 $ 70.00 - $ 5.00
Granted 30,100 $ 8.38 - $ 5.13
Forfeited (5,340) $ 70.00
-------
Balance, December 31, 1996 55,090 $ 70.00 - $ 5.00
=======
28
29
Weighted Average Remaining Range of Exercise
-------------------------- -----------------
Contractual Life Price
---------------- -----
4 $ 5.00 - $ 5.75
5 $ 8.38 - $ 9.25
3 $16.25 - $70.00
The fair value of the stock options granted during 1996 was $74,348.
The fair value of each stock grant is estimated using the Black-Scholes option
pricing model with the following assumptions: using the yield on a 5 year
treasury note as the risk-free interest rate; no dividend yield; expected life
of five years; and using historical cost for the volatility. The total number
of stock option shares exercisable at December 31, 1996 was 12,239.
The Company accounts for the plans in accordance with Accounting
Principles Board Opinion Number 25, under which no compensation cost has been
recognized for the stock option awards. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant date, consistent with the method of Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock Based Compensation, the effect
on the Company's net income and earnings per share would have been immaterial.
Note 16 - Reverse Stock Split
In 1995, at a Special Meeting of the Stockholders, an amendment to
the Company's Certificate of Incorporation effecting a one-for-ten reverse
stock split (the "Reverse Split") was approved. Effective upon such amendment,
each outstanding share automatically became one-tenth of a share. In 1996 the
number of authorized shares was also reduced by a one-for-ten ratio through an
amendment to the Company's Certificate of Incorporation. All historical share
and per share amounts have been retroactively restated to reflect the Reverse
Split.
Note 17 - Employee Profit Sharing Plan
The Company maintains a profit sharing plan covering all full time
employees over the age of 21, who have completed three months of service prior
to January 1 and July 1 of each year. Contributions to the profit sharing plan
are made solely at the discretion of the Company's Board of Directors. No
contributions were made for the years ended December 31, 1996, 1995 and 1994.
In addition, the Company has a qualified profit sharing plan under
provisions of Section 401(k) of the Internal Revenue Code. Under this plan,
participants are able to make salary deferral contributions of up to 10% of
their total compensation, up to a specified maximum. The 401(k) plan also
includes provisions which authorize the Company to make discretionary
contributions. During 1996 and 1995 the Company made matching contributions
of $19,000 and $24,000, respectively to this plan. The Company made no
contributions in 1994.
Note 18 - Subsequent Events
In January 1997, the Company purchased a 20,000 square feet office
building in Santa Ana, California for $1.3 million. The purchase was financed
in part by a mortgage in the amount of $1.2 million.
In February 1997, the Company acquired approximately 89,000 shares of
its common stock from a former officer and director in a private transaction
for approximately $940,000. 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 $370,000 due on April 30, 1997 and July 30, 1997. If
payments are not made on the designated dates, interest shall accrue 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.
29
30
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.
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, which obligates
it for rental payment of approximately $21,000 per month through the year 2001.
The Company expects to recognize a gain on this transaction.
30
31
EXHIBIT 22.1
KENNEDY-WILSON, INC.
LIST OF SUBSIDIARIES
STATE OR OTHER
--------------
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the Directors and Executive Officers of the
Company will be set forth in the Company's definitive proxy statement
which is to be filed pursuant to Regulation 14A within 120 days after
the Company's fiscal year ended December 31, 1996, and such
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to Executive Compensation will be set forth in
the Company's definitive proxy statement which is to be filed pursuant
to Regulation 14A within 120 days after the end of the Company's
fiscal year ended December 31, 1996, and such information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to Security Ownership of Certain Beneficial
Owners and Management will be set forth in the Company's definitive
proxy statement which is to be filed pursuant to Regulation 14A within
120 days after the end of the Company's fiscal year ended December 31,
1996, and such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to Certain Relationships and Related Transactions
will be set forth in the Company's definitive proxy statement which is
to be filed pursuant to Regulation 14A within 120 days after the end
of the Company's fiscal year ended December 31, 1996, and such
information is incorporated herein by reference.
31
32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits
(1) Financial Statements. Reference is made to the Index to Financial
Statements and Schedules in Item 8 hereof.
(2) Financial Statement Schedules.
SCHEDULE III - REAL ESTATE OWNED S-1
Supplemental financial statement schedules not listed above
are omitted because either they are not applicable, not
required or because the information required is included in
the consolidated financial statements, including the notes
thereto.
(3) Exhibits:
Exhibit
Number Description
------- -----------
3.1 Certificate of Incorporation of registrant, as amended to
date.
3.2 Bylaws of the Registrant (filed as Exhibit 3.2 to the
Company's Registration Statement on Form S-1 (Registration
No. 33-46978) and incorporated herein by this reference.)
4.1 Form of Common Stock Certificate (filed as Exhibit 4.1 to
the Company's Registration Statement on Form S-1
(Registration No. 33-46978) and incorporated herein by this
reference.)
10.1 1992 Incentive and Nonstatutory Stock Option Plan (filed as
Exhibit 4 to the Company's Registration Statement on Form
S-8 (Registration No. 33-73324) and incorporated herein by
this reference.)
10.2 Employment Agreement by and between the Registrant and
William J. McMorrow (filed as Exhibit 10.2 to the Company's
Registration Statement on Form S-1 (Registration No.
33-46978) and incorporated herein by this reference.)
Third Amendment to Employment Agreement dated March 31,
1995 by and between the Registrant and William J. McMorrow.
(filed as Exhibit 10.38 of the Company's 1994 Annual Report
on Form 10-K and incorporated herein by this reference).
Fourth Amendment to Employment Agreement dated as of
January 1, 1996 by and between the Registrant and William
J. McMorrow.
10.3 The Registrant's Employees' Profit Sharing Plan and Trust,
as amended (filed as Exhibit 10.11 to the Company's
Registration Statement on Form S-1 (Registration No.
33-46978) and incorporated herein by this reference.)
10.4 1992 Non-employee Director Stock Option Plan (filed as
Exhibit 10.26 to the Company's Registration Statement on
Form S-1 (Registration No. 33-46978) and incorporated
herein by this reference.)
10.5 Office Lease dated September 9, 1991 by and between the
Registrant and Barclay Cerci Investment Company (filed as
Exhibit 10.16 to the Company's Registration Statement on
Form S-1 (Registration No. 33-46978) and incorporated
herein by this reference.)
10.6 Indemnification Agreement dated August 13, 1992 by and
among the Registrant, Kennedy-Wilson, Inc., a California
corporation, William J. McMorrow, William R. Stevenson,
Lewis A. Halpert and Kenneth V. Stevens (filed as Exhibit
10.27 to the Company's Registration Statement on Form S-1
(Registration No. 33-46978) and incorporated herein by this
reference.)
32
33
Exhibit
Number Description
------- -----------
10.7 Form of Stock Option Agreement under the Registrant's 1992 Incentive
and Nonstatutory Stock Option Plan. (filed as Exhibit 10.23 of the
Company's 1992 Annual Report on Form 10-K and incorporated herein by
this reference).
10.8 Form of Stock Option Agreement under the Registrant's 1992
Non-employee Director Stock Option Plan. (filed as Exhibit 10.24 of the
Company's 1992 Annual Report on Form 10-K and incorporated herein by
this reference).
10.9 Employment Agreement dated as of January 1, 1997 by and between the
Registrant and Richard Mandel.
10.10 Loan Agreement dated March 12, 1996 by and between the Registrant and
East-West Bank.
10.11 Assignment and Assumption Agreement, dated as of December 8, 1995, by
and among Kennedy-Wilson RHA Holding Company, Inc. and Farallon U.S.
Realty L.L.C. (filed as Exhibit 4.01 of the Company's Current Report on
Form 8-K dated December 15, 1995 and incorporated herein by this
reference).
22.1 List of Subsidiaries of the Registrant.
27 Financial Data Schedule
(b) Current Reports on Form 8-K.
None.
33
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
KENNEDY-WILSON, INC.
Date: March 28, 1997
By: /s/WILLIAM J. McMORROW
------------------------------------
William J. McMorrow
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Name Title Date
---- ----- -----
/s/WILLIAM J. McMORROW Chairman of the Board and Chief Executive Officer (Principal March 28, 1997
-------------------------------- Executive Officer)
William J. McMorrow
/s/FREEMAN A. LYLE Executive Vice President, Chief Financial Officer and Secretary March 28, 1997
-------------------------------- (Principal Financial and Accounting Officer)
Freeman A. Lyle
/s/LEWIS A. HALPERT Executive Managing Director and Director March 28, 1997
--------------------------------
Lewis A. Halpert
/s/GOODWIN GAW Managing Director and Director March 28, 1997
--------------------------------
Goodwin Gaw
/s/RICHARD A. MANDEL Managing Director and Director March 28, 1997
--------------------------------
Richard A. Mandel
/s/DONALD F. KENNEDY Co-Founder and Director March 28, 1997
--------------------------------
Donald F. Kennedy
/s/DONALD B. PRELL Director March 28, 1967
--------------------------------
Donald B. Prell
/s/WILLIAM H. ELLIOTT Director March 28, 1997
- ----------------------------------
William H. Elliott
/s/KENT MOUTON Director March 28, 1997
- ----------------------------------
Kent Mouton
34
35
KENNEDY-WILSON, INC.
SCHEDULE OF REAL ESTATE OWNED
For Year Ending December 31, 1996
Costs Capitalized
Subsequent to
Initial Cost Acquisition
------------------------- -----------------------
Building and Carrying
Encumbrance Land Improvements Improvements Costs
----------- ----------- ------------ ------------ --------
Commercial properties:
530 Wilshire Blvd., Santa Monica, California -
47,000 square foot office building....................... $ 5,924,000 $ 1,939,000 $ 5,775,000 $ 602,000 --
10301 Pico, Los Angeles, California -
50,000 square foot office building....................... 2,798,000 1,060,000 2,783,000 339,000 139,000
1131 Wilshire Blvd., Santa Monica, California -
20,000 square foot office building....................... 2,009,000 906,000 1,939,000 52,000 --
1304 15th St. Santa Monica, California -
37,000 square foot office building....................... 3,133,000 2,374,000 2,039,000 39,000 --
150 E. Colorado, Pasadena, California -
61,000 square foot office building....................... 4,975,000 1,515,000 4,095,000 198,000 --
----------- ----------- ------------ ----------- --------
Sub-total ............................ 18,839,000 7,794,000 16,631,000 1,230,000 139,000
Residential properties:
Vista Waikoloa, Waikoloa, HI - ........................... -- -- 1,297,000 197,000 --
7 remaining units of the original 40.....................
Villa Del Este, Corona Del Mar, California - ............. 1,677,000 -- 2,169,000 53,000 --
14 condominium units.....................................
----------- ----------- ----------- ----------- --------
Sub-total ............................ 1,677,000 -- 3,466,000 250,000 --
Total ................................ $20,516,000 $ 7,794,000 $20,097,000 $ 1,480,000 $139,000
=========== =========== =========== =========== ========
Balance at beginning of period .......................... $32,331,000
Additions during period:
Acquisitions ..................................... 20,615,000
Improvements ..................................... 726,000
Other: ........................................... -- 21,341,000
----------
Deductions during period:
Disposition of real estate sold .................. 24,162,000
Other: ........................................... -- 24,162,000
---------- -----------
Balance at close of period .............................. $29,510,000
KENNEDY-WILSON, INC.
SCHEDULE OF REAL ESTATE OWNED
For Year Ending December 31, 1996
Gross Amounts At Which Carried
Close of Period
-------------------------------------
Buildings and Accumulated Date of Date of
Land Improvements Total Depreciation Construction Acquisition
---------- ------------- ----------- ------------ ------------ -----------
Commercial properties:
530 Wilshire Blvd.,
Santa Monica, California -
47,000 square foot office building...... $1,939,000 $ 6,377,000 $ 8,316,000 $(463,000) 1991 4/24/95
10301 Pico, Los Angeles, California -
50,000 square foot office building..... 1,060,000 3,261,000 4,321,000 (209,000) 1980 8/27/94
1131 Wilshire Blvd., Santa Monica,
California - 20,000 square foot
office building........................ 906,000 1,991,000 2,897,000 (24,000) 1981 8/6/96
1304 15th St. Santa Monica, California -
37,000 square foot office building..... 2,374,000 2,078,000 4,452,000 (14,000) 1972 10/2/96
150 E. Colorado, Pasadena, California -
61,000 square foot office building..... 1,515,000 4,293,000 5,808,000 -- 1980 11/5/96
---------- ----------- ----------- ---------
Sub-total .......... 7,794,000 18,000,000 25,794,000 (710,000)
Residential properties:
Vista Waikoloa, Waikoloa, HI - seven
remaining units of the original
40 units............................... -- 1,494,000 1,494,000 n/a 1990-1991 12/22/95
Villa Del Este, Corona Del Mar,
California - 14 condominium units...... -- 2,222,000 2,222,000 n/a 1991
---------- ----------- ----------- ---------
Sub-total .......... -- 3,716,000 3,716,000 --
Total .............. $7,794,000 $21,716,000 $29,510,000 $(710,000
========== =========== =========== =========
35
36
EXHIBIT INDEX
Exhibit
Number Description Page
------ ----------- ----
3.1 Certificate of Incorporation of registrant, as amended to
date.
3.2 Bylaws of the Registrant (filed as Exhibit 3.2 to the
Company's Registration Statement on Form S-1 (Registration
No. 33-46978) and incorporated herein by this reference.)
4.1 Form of Common Stock Certificate (filed as Exhibit 4.1 to
the Company's Registration Statement on Form S-1
(Registration No. 33-46978) and incorporated herein by this
reference.)
10.1 1992 Incentive and Nonstatutory Stock Option Plan (filed as
Exhibit 4 to the Company's Registration Statement on Form
S-8 (Registration No. 33-73324) and incorporated herein by
this reference.)
10.2 Employment Agreement by and between the Registrant and
William J. McMorrow (filed as Exhibit 10.2 to the Company's
Registration Statement on Form S-1 (Registration No.
33-46978) and incorporated herein by this reference.)
Third Amendment to Employment Agreement dated March 31,
1995 by and between the Registrant and William J. McMorrow.
(filed as Exhibit 10.38 of the Company's 1994 Annual Report
on Form 10-K and incorporated herein by this reference).
Fourth Amendment to Employment Agreement dated as of
January 1, 1996 by and between the Registrant and William
J. McMorrow.
10.3 The Registrant's Employees' Profit Sharing Plan and Trust,
as amended (filed as Exhibit 10.11 to the Company's
Registration Statement on Form S-1 (Registration No.
33-46978) and incorporated herein by this reference.)
10.4 1992 Non-employee Director Stock Option Plan (filed as
Exhibit 10.26 to the Company's Registration Statement on
Form S-1 (Registration No. 33-46978) and incorporated
herein by this reference.)
10.5 Office Lease dated September 9, 1991 by and between the
Registrant and Barclay Cerci Investment Company (filed as
Exhibit 10.16 to the Company's Registration Statement on
Form S-1 (Registration No. 33-46978) and incorporated
herein by this reference.)
10.6 Indemnification Agreement dated August 13, 1992 by and
among the Registrant, Kennedy-Wilson, Inc., a California
corporation, William J. McMorrow, William R. Stevenson,
Lewis A. Halpert and Kenneth V. Stevens (filed as Exhibit
10.27 to the Company's Registration Statement on Form S-1
(Registration No. 33-46978) and incorporated herein by this
reference.)
10.7 Form of Stock Option Agreement under the Registrant's 1992
Incentive and Nonstatutory Stock Option Plan. (filed as Exhibit
10.23 of the Company's 1992 Annual Report on Form 10-K and
incorporated herein by this reference).
10.8 Form of Stock Option Agreement under the Registrant's 1992
Non-employee Director Stock Option Plan. (filed as Exhibit
10.24 of the Company's 1992 Annual Report on Form 10-K and
incorporated herein by this reference).
10.9 Employment Agreement dated as of January 1, 1997 by and
between the Registrant and Richard Mandel.
10.10 Loan Agreement dated March 12, 1996 by and between the
Registrant and East-West Bank.
10.11 Assignment and Assumption Agreement, dated as of
December 8, 1995, by and among Kennedy-Wilson RHA
Holding Company, Inc. and Farallon U.S. Realty L.L.C.
(filed as Exhibit 4.01 of the Company's Current Report
on Form 8-K dated December 15, 1995 and incorporated
herein by this reference).
22.1 List of Subsidiaries of the Registrant.
24.1 Consent of Independent Accountant
27 Financial Data Schedule
36